Reserved vs On-Demand VMware Cloud Capacity: Cost Strategy Under Broadcom

Reserved vs On-Demand VMware Cloud Capacity

Introduction: The Reserved vs On-Demand Choice

Choosing between reserved vs on-demand VMware Cloud capacity has become a critical cost decision for enterprises – especially now that VMware is under Broadcom’s umbrella. IT procurement leaders and cloud architects are tasked with balancing cost control vs flexibility when sourcing VMware Cloud resources.

Broadcom’s evolving licensing approach means that old assumptions may no longer hold: defaulting to one model without scrutiny can lead to unnecessary spending or inflexibility. Read our complete guide to Broadcom Cloud & Hybrid Licensing Strategies: Optimizing On-Prem and Cloud Investments.

In this advisory, we outline how to optimize costs and flexibility by strategically combining reserved and on-demand VMware Cloud capacity under Broadcom contracts.

Short, actionable guidance and sample contract clauses will help you negotiate the best deal while avoiding common pitfalls.

Reserved Capacity Explained

Reserved VMware Cloud capacity involves committing to a specific amount of cloud resources (such as several hosts or clusters) upfront for a fixed term (typically 1 or 3 years).

In exchange for this commitment, Broadcom/VMware offers a significantly lower unit cost compared to pay-as-you-go rates.

Essentially, reserved capacity is similar to buying in bulk: you agree to pay for a set amount of capacity, whether you use it fully or not, and in return, you receive a discounted monthly or annual rate.

• Fixed Monthly/Annual Fee: With a reserved commitment, you pay a pre-agreed fee (e.g., $X per host per month) for the duration of the term. This fee is generally much lower than running the same host on on-demand pricing for the full period.
• Obligation Regardless of Use: The cost is incurred regardless of actual usage. If your needs decrease and you don’t use some of the reserved hosts, you will still be charged for them. This makes forecasting and right-sizing your commitment crucial.
• Lower Cost per Unit: Reserved VMware Cloud hosts can be 20–40% cheaper on a normalized annual basis than on-demand. For example, if an on-demand host costs $0.10 per minute, a 1-year reserved host might be effectively $0.07–$0.08 per minute – substantial savings when running continuously.
• Broadcom’s Reserved Licensing: Under Broadcom’s reserved cloud licensing programs, these commitments might be handled through an Enterprise License Agreement (ELA) or cloud subscription contract. The terms will spell out the capacity (e.g., number of hosts or amount of spend), the duration (12, 24, 36+ months), and the discounted rate.

In short, reserved capacity in VMware Cloud is about trading flexibility for cost predictability.

You lock in usage and price up front, which provides cost certainty and discounts, but you give up some ability to scale down that portion of capacity.

On-Demand Capacity Explained

On-demand VMware Cloud capacity is the pay-as-you-go model: you use what you need when you need it, and you’re billed for the actual usage (often hourly).

This is the cloud’s classic promise of agility, but it comes at a premium cost for sustained use.

• Hourly (or Minute) Pricing: On-demand resources have a per-hour rate (or per-minute in some cases). For VMware Cloud on AWS (as an example), a host might be charged at $Y per hour when running on demand. You start a host, incur charges while it’s running, and stop paying when you delete or shut it down.
• No Long-Term Commitment: There’s no upfront commitment with on-demand. You can spin the capacity up and down freely. This is ideal for unpredictable or transient workloads. If you only need extra capacity for a 1-week test or a seasonal spike, on-demand allows you to pay just for that period without any long-term contract.
• Higher Cost for Continuous Use: The flexibility comes with a markup. If you keep an on-demand host running 24/7 for a long period, it will cost significantly more than if you had reserved it. On-demand rates, annualized, are often 20–40% higher (or more) than reserved rates for the same resource.
• Billing and Budgeting: On-demand billing is typically billed on a month-to-month basis, based on usage. This can make budgeting challenging, as costs fluctuate with usage patterns. Under Broadcom contracts, pure on-demand usage may lack the spending predictability that finance departments prefer, unless it is capped or closely monitored.

In summary, on-demand capacity offers maximum flexibility and minimal upfront planning, but it comes at the cost of paying retail prices.

It shines when you truly need short-term burst capacity or are unsure about future needs, but it’s the costliest option for steady 24/7 workloads.

How to manage licenses during cloud migrations, Managing Broadcom Licensing During Cloud Migrations – Avoiding Double Payment.

Cost Comparison Example

To illustrate the cost difference, let’s compare a reserved host vs an on-demand host for a constant workload.

Assume one VMware Cloud host is needed for an application that runs 24/7 all year:

• Reserved Host (1-Year Commitment): Suppose a 1-year reserved host is priced at $5,000 per month (per host). Over 12 months, you pay a fixed $60,000 for that host. This is your committed cost for the year.
• On-Demand Host: Now, assume the on-demand rate for the same host is $8 per hour. If you run it continuously, the math is: $8 × 24 hours × 365 days ≈ $70,080 per year for that one host.

Annual Cost 24/7: Reserved vs On-Demand

In this simplified example, running a host continuously on an on-demand basis would cost about $10,000 more per year (roughly 17% more) compared to reserving it upfront. The difference can be even larger with longer terms or different pricing (on-demand could easily be 30%+ more expensive in many cases).

However, consider if your workload isn’t 24/7:

• If you only need that host for 50% of the time (for example, during business hours only), on-demand would cost around $35,000 for the year (half of $70k), whereas a reserved host would still cost $60,000. In that scenario, on-demand is cheaper because you didn’t utilize the host continuously.
• The breakeven point is critical: roughly speaking, if you expect to use a VMware Cloud host more than ~60–70% of the time, reserving starts to make financial sense. If usage is lower or uncertain, on-demand might save money.

Key takeaway: For steady 24/7 workloads, reserved capacity provides big savings.

However, for sporadic or unpredictable usage, on-demand can be more cost-effective, as you pay only for what you actually use. The goal is to find the right balance for each scenario.

How to license Broadcom in multi-cloud, Licensing for Multi-Cloud and Cross-Cloud Scenarios with Broadcom & VMware.

Best Practice: Mix of Reserved + On-Demand

For most organizations, an optimal strategy is a mix of both reserved and on-demand VMware Cloud capacity.

This hybrid approach maximizes savings on predictable needs while retaining flexibility for the unexpected.

Here’s how to implement a mixed strategy:

• Reserve Your Baseline: Determine the “steady-state” capacity that your operations consistently require. This could be the core infrastructure that runs 24/7 (production workloads, databases, etc.). Reserve that baseline. By committing to, say, 10 hosts that you know will be utilized continuously, you lock in lower rates for those resources. This provides cost predictability for the bulk of your usage.
• Use On-Demand for Spikes and Uncertainty: Identify areas where demand fluctuates – e.g., development/test environments that run only during the day, seasonal traffic surges, batch jobs, or new projects whose resource needs are not yet clear. Plan to handle these with on-demand capacity. You can add VMware Cloud hosts on the fly when usage peaks and then scale back down, paying only for the hours or days those extra hosts were running.
• Adjust and Rebalance Over Time: A hybrid strategy isn’t “set and forget.” Continuously monitor usage patterns. If you see a formerly unpredictable workload becoming steady, consider converting part of it to reserved in the next cycle or contract negotiation. Conversely, if some reserved capacity is consistently underutilized, you might plan to drop those commitments later or shift them to other uses (if allowed).
• Automation and Tools: VMware Cloud (especially on AWS or other hyperscalers) often provides tools to make this easier. For example, you can use auto-scaling or Elastic DRS to automatically add on-demand hosts when needed and remove them when idle. Ensure your team utilizes these features effectively, so you only use on-demand capacity when necessary, thereby avoiding waste.

By reserving the baseline and bursting with on-demand, enterprises achieve both cost efficiency and agility.

The reserved portion keeps unit costs low for known needs, while on-demand ensures you can handle surprises or growth without overcommitting.

This strategy also makes internal budgeting easier: you have a fixed cost portion (reserved) and a controllable variable cost portion (on-demand) that can be optimized.

Broadcom Contract Considerations

When dealing with Broadcom (VMware) contracts for cloud capacity, the terms of reserved commitments and on-demand usage need careful attention.

Broadcom’s contract approach, especially after acquisition, tends to be more rigid, so negotiating the right protections and incentives is crucial.

Here are critical considerations:

• Clearly Defined Reserved Commitments: Ensure the contract explicitly documents any reserved capacity you’re committing to. This means the quantity of resources, the duration, and the price. For example, “Customer commits to 20 VMware Cloud on AWS hosts in Region X for a 36-month term at $___ per host per month.” Vague language is your enemy – nail down the specifics so Broadcom is obligated to provide that capacity at that rate, and you know your costs.
• Service Level Agreements (SLAs) for Reserved Resources: If you’re committing to reserved capacity, ensure you negotiate SLA guarantees on availability. The contract should guarantee that the reserved hosts or capacity will be available and not reclaimed, and outline remedies if Broadcom fails to deliver (e.g., credits or extensions). You don’t want to pay for reserved hosts only to find they aren’t accessible when you need them.
• Carry-Over or Rollover Rights: One big risk of reservations is unused capacity – maybe you overestimated needs or there’s a project delay. Try to negotiate terms that allow some flexibility with unused reserved capacity. For instance, a clause might allow you to roll over unused capacity credits into the next period or apply them to another service. Example plain-language clause: “Unused reserved capacity may be rolled over for up to 12 months or applied as credit toward other VMware Cloud services at Broadcom’s discretion.” Such terms are not standard, but if your spend is significant, ask for it. Even a partial carry-over or the ability to repurpose capacity to a different project can reduce waste.
• Commit-to-Spend Discounts: Broadcom may offer volume discounts if you commit to a certain level of spend. For example, committing to spend $1 million/year on VMware Cloud might earn you an additional discount on all usage. Verify if your enterprise agreements include a commit-to-spend clause. If not, consider negotiating one: “If Customer’s VMware Cloud spend reaches $1M in a year, an additional 10% discount will be retroactively applied.” Ensure any such discounts and thresholds are clearly documented. This incentivizes Broadcom to partner in your cloud growth while giving you cost relief for meeting targets.
• Contract Flexibility for Shifts: Try to build in some flexibility to adjust your reserved commitments if business needs change. For instance, the contract might allow for a one-time reduction or reallocation of reserved capacity (such as moving it to a different region or project) without severe penalties. Broadcom might not readily agree, but even something like a “right-size adjustment” mid-term in exchange for extending the term could be valuable.

Broadcom’s standard contracts will likely default to rigid terms (you commit, you pay, period). It’s on you to introduce these considerations.

Every item you negotiate – from rollovers to discounts – can translate directly into cost savings or risk mitigation if things don’t go as planned. Don’t assume any flexibility; ensure it’s written into the agreement.

Marketplace vs Broadcom Contract

An important decision is whether to purchase VMware Cloud capacity through Broadcom’s contract (direct or via a reseller under your ELA) or via a cloud marketplace such as AWS.

Each route has pros and cons:

• Buying via Broadcom (ELA/Contract): This means you’re getting VMware Cloud capacity directly as part of your enterprise agreement with Broadcom. The advantage is that you can bundle it with your overall VMware/ Broadcom deal. It may give you leverage to get better pricing if it’s part of a larger negotiation (e.g., tying it into a multi-year ELA might unlock a bigger discount tier). Broadcom might also offer custom incentives, such as including VMware Cloud credits as part of a larger software package. On the other hand, Broadcom’s approach has been to favor longer commitments – you may be pushed into 1-year or 3-year terms, which can limit your flexibility. Also, Broadcom’s pricing might be less competitive if they know you’re not considering alternatives.
• Buying via AWS Marketplace (or Other Cloud Marketplace): In some cases, VMware Cloud on AWS could be procured directly through AWS’s marketplace or your AWS account. This route often allowed for true on-demand usage and short-term commitments (even month-to-month), as you’re effectively buying from AWS with VMware’s service layered on top. The benefit here is maximum flexibility – you could spin up and down without dealing with Broadcom sales each time. You may also take advantage of any AWS promotions or credits your organization has available. Additionally, spending on VMware Cloud through AWS may count toward your overall AWS spend commitments (if you have an enterprise agreement with AWS), potentially providing you with another type of discount. However, recently, Broadcom signaled limits on this channel (at one point disallowing new VMware Cloud on AWS on-demand purchases via AWS). They prefer customers to go through them directly. If marketplace purchasing is an option, it could offer agility and maybe even automated discount programs (like AWS savings plans) – but you may lose out on the custom negotiation you’d get with Broadcom directly.
• Hybrid Procurement Approach: Some organizations consider a hybrid approach, for example, using a Broadcom contract for baseline reserved capacity (to secure enterprise pricing) and then utilizing AWS directly for any additional on-demand burst capacity as needed. If you attempt this, ensure that there are no contractual restrictions from Broadcom that would prevent it. And be mindful of support coordination – ideally, VMware (Broadcom) should still support you regardless of how you bought the service, but confirm that in writing.

Key advice: Evaluate both routes. Compare pricing and terms for reserved capacity between Broadcom and AWS. If AWS (or other cloud provider marketplaces for VMware Cloud offerings) has better terms, use that as a negotiation lever with Broadcom.

For example, if AWS offers a cancelable monthly plan while Broadcom demands a year commitment, push Broadcom to provide more flexibility or a deeper discount to justify the lock-in. The goal is not to put all your eggs in one basket blindly – weigh flexibility and cost.

In many cases, the enterprise contract route will make sense for core capacity, and marketplace/on-demand can supplement it, but let the numbers and your risk tolerance drive the decision.

Negotiation Tips

When negotiating VMware Cloud capacity under Broadcom, come prepared with a strategy.

Here are some battle-tested negotiation tips to optimize cost and maintain flexibility:

• Leverage Volume for Discounts: If you’re making a large commitment (either in dollars or number of hosts), use that as leverage. Ask for discount tiers – for example, “If we commit to 50 hosts instead of 30, we expect an extra percentage point discount.” Broadcom sales reps have targets; showing willingness to commit more can result in better pricing, but it’s essential to clearly define those tiers.
• Include a Usage Flexibility Clause: Negotiate the ability to adjust your reserved capacity by a certain amount after a specific time. For instance, a clause might allow you to decrease or increase the reserved count by 10–20% after the first year without penalty, to account for changes in demand. This kind of flexibility can prevent overcommitting. Even if Broadcom resists, signaling that flexibility is important could get them to propose alternatives (like a shorter term or a different commitment structure).
• Unused Capacity Credits: As mentioned earlier, push for terms that credit you for unused capacity. If outright rollovers aren’t possible, perhaps negotiate that any entirely unused reserved hosts can be credited towards professional services, training, or other VMware products. The goal is to reduce waste – if you paid for capacity you didn’t use, try to salvage some value.
• Tie into Larger ELA Negotiations: If you’re also renewing or negotiating a broader VMware Enterprise License Agreement, bundle the cloud capacity discussion into it. Enterprise deals can sometimes unlock budget for strategic initiatives. For example, getting Broadcom to throw in some VMware Cloud capacity at a steep discount (or as a one-time credit) in exchange for signing a larger 3-year ELA could be possible. Use the big picture to your advantage.
• Insist on SLAs and Penalties: When you commit to spending or capacity, ensure the contract penalizes the vendor if they fail to deliver the service at the expected performance level or if there are delays in provisioning your reserved capacity. For example, if you order reserved hosts and they aren’t available by the agreed-upon date, you may be eligible for a fee waiver until they are. Having these terms not only protects you but also shows the vendor you expect accountability for your commitment.
• Ask About “Flexible Subscription” Options: Broadcom/VMware may have unpublicized programs, such as flexible subscriptions, where you commit to a certain spend but can utilize it across different regions or VMware Cloud offerings. In negotiations, ask if such options exist. For example, a flexible commitment could allow you to shift capacity between VMware Cloud on AWS and Azure VMware Solution, or others, under the same dollar commitment. This can be hugely valuable if your strategy evolves over the course of the contract term.
• Document Everything: If a sales rep makes a verbal promise (e.g., “We’ll allow on-demand for a few months during migration” or “We’ll add credits if you underutilize”), get it in writing in the contract. Don’t rely on verbal assurances. The contract should be explicit; otherwise, it will not be enforceable. Given the procurement tone here, be a little skeptical of sales promises and nail them down in the terms of a written addendum.

Negotiation is about finding a win-win where possible, but also about protecting your organization’s interests.

Don’t be afraid to walk away or explore alternatives (like public cloud native solutions) – sometimes the mere possibility of losing the deal will bring Broadcom to more favorable terms.

Checklist – Reserved vs On-Demand Negotiation Must-Dos

When planning your VMware Cloud capacity strategy under Broadcom, use this quick checklist to ensure you’ve covered all bases:

• ✅ Assess Baseline vs. Peak Needs: Calculate your steady-state baseline usage (the minimum you always need running) versus peak or occasional needs. This will inform how much to reserve and what portion to leave on-demand.
• ✅ Compare Broadcom vs. Cloud Provider Pricing: Get quotes or pricing scenarios for buying capacity through Broadcom’s contract and via the cloud provider marketplace (if available). Include all factors (e.g., support, potential AWS credits, etc.) to make an apples-to-apples comparison.
• ✅ Define Reserved Commitments Clearly: In any agreement, explicitly list the number of hosts (or amount of capacity), term length, and cost for reserved capacity. Leave nothing implied.
• ✅ Negotiate Unused Capacity Protections: Don’t sign without addressing the “what if we don’t use it all?” scenario. Consider including rollover, credit, or flexibility clauses to mitigate the risk of overcommitting.
• ✅ Secure SLA and Support Terms: Ensure the contract covers support expectations and SLAs for your VMware Cloud environment, especially for reserved portions. Be aware of how quickly Broadcom responds to issues and that they guarantee availability for what you have reserved.
• ✅ Plan for Hybrid Usage: Set up the internal process for using on-demand when needed. This might include configuring automation or policies so teams know when to spin up on-demand hosts and when to terminate them.
• ✅ Align with ELA Opportunities: If a broader Broadcom/VMware enterprise agreement is in play, sync your cloud capacity discussions with it. Use the ELA renewal or negotiation to seek better terms (discounts, credits, bundle deals) for VMware Cloud usage.
• ✅ Document Everything in Plain Language: When finalizing the deal, ensure that even non-legal stakeholders (like your cloud architects or finance analysts) can understand the capacity commitments and cost structure. Clearly documented terms avoid confusion later.

This checklist ensures you have a holistic view of the reserved vs on-demand decision and that your contract and strategy are solidified before you move forward.

FAQs

Q1: Is reserved VMware Cloud capacity always cheaper than on-demand?
A: On a per-unit basis, reserved capacity is cheaper when you fully utilize it – you lock in a lower rate. For example, a reserved host might be 30% less expensive per hour than an on-demand host. However, if you don’t use the capacity continuously, on-demand could end up costing less. It comes down to utilization: if you’re running a workload steadily, reserved saves money. If your usage is low or sporadic, paying the higher on-demand rate only for actual usage can result in a lower total cost. Think of reserved like a bulk buy – it’s cheaper per unit, but only worth it if you need the bulk quantity.

Q2: What happens if I don’t use all my reserved VMware Cloud capacity – can it be rolled over or refunded?
A: By default, unused reserved capacity is a “use it or lose it” situation – you’ve committed to pay for it, whether you use it or not, and standard contracts won’t refund unused portions. That said, you should attempt to negotiate some relief. While a full refund is unlikely, you might get rollover rights (e.g., use the unused capacity next quarter or year) or the ability to apply unused credits to other services (maybe other VMware Cloud offerings or training/consulting). These provisions are not standard and must be explicitly included in the contract. If nothing else, closely monitor usage and adjust in future terms – and avoid overcommitting beyond what your data shows you truly need.

Q3: Should I purchase VMware Cloud reserved capacity via Broadcom directly or through AWS’s marketplace (or another cloud marketplace)?
A: It depends on your priorities. Buying via Broadcom (enterprise contract) can simplify vendor management and potentially integrate with your ELA negotiations (possibly yielding better overall discounts or support bundling). Broadcom might offer custom contract terms that AWS Marketplace cannot, especially if you’re a large customer. On the other hand, buying via AWS marketplace (if available) can offer more flexibility – including true on-demand usage, shorter commitments, and the ability to use AWS account credits or consolidated billing. If you already have an AWS spend commitment, placing VMware Cloud usage there might help fulfill it. One caution: Broadcom has at times restricted marketplace sales to drive customers to go direct. Ensure that you evaluate the current state of availability and support for whichever route you choose. Some organizations negotiate with Broadcom but retain an option to burst via AWS directly if needed. Ultimately, compare the cost and terms: if Broadcom can match the flexibility and price, going direct is fine; if not, the marketplace route can be a valuable alternative.

Q4: How do Broadcom’s discounts or pricing tiers work for VMware Cloud reserved commitments?
A: Broadcom’s pricing for VMware Cloud is typically less negotiable than legacy VMware pricing was, but there are still ways to get discounts. Commonly, longer terms (e.g., 3-year vs 1-year) come with bigger percentage discounts. Additionally, volume matters – larger commitments may result in a lower rate per unit. Broadcom may have formal or informal tiers (for example, committing to 100+ hosts might unlock a better rate card than committing to 10 hosts). If your spend is significant, you can also negotiate a ‘commit-to-spend’ discount: commit to a certain dollar amount over the contract and receive a rebate or upfront discount. Always ask for a breakdown of how they arrived at the price, as it could reveal room for improvement (e.g., if they assumed only a standard discount, you could push for a higher one due to your expected growth or strategic importance as a customer). Remember, Broadcom is driven by revenue, so they may not volunteer discounts – you need to make a strong business case and sometimes get competitive quotes from alternatives to use as leverage.

Q5: Can I easily mix reserved and on-demand usage within VMware Cloud, or must I choose one or the other?
A: You absolutely can mix them – and it’s encouraged. For example, you might have a VMware Cloud Software-Defined Data Center (SDDC) cluster with four hosts reserved for the year, and then you add two extra hosts on demand for a month during a peak. The systems will handle it seamlessly: the reserved hosts are just billing constructs (you’re charged zero on-demand hours for them since they’re prepaid, while the additional hosts incur hourly charges). Ensure you understand how VMware Cloud accounts for a “reserved” host. Typically, you would designate which hosts are counted as your reserved instances. Operationally, it’s the same resource; the difference is in billing. One thing to check is contract limits: if you agreed to a reserved-only deal, make sure it doesn’t prohibit adding on-demand hosts. Usually, you can still scale on-demand above your reserved baseline – you’d just get billed on-demand rates for the excess. In summary, mixing is both feasible and wise: use your reserved capacity as the always-on core, and layer on on-demand resources as needed without any technical difficulty.

(The above FAQs address common concerns in plain language, reflecting the current landscape under Broadcom’s VMware licensing. Always verify specifics with your vendor, as policies can evolve.)

5 Actionable Recommendations

To wrap up, here are five actionable recommendations for crafting a cost-effective reserved vs on-demand capacity strategy under Broadcom:

1. Calculate Your Baseline Usage: Before signing any agreements, analyze your usage data to determine the minimum VMware Cloud resources you consistently require. This is your candidate for reserved capacity. Having concrete numbers prevents over-buying or underestimating.
2. Adopt a Hybrid Strategy: Plan to mix reserved and on-demand capacity. Commit to reserved for the known steady workloads, and leave headroom for on-demand to handle growth or spikes. This hybrid approach will save money while preserving flexibility.
3. Negotiate Safety Nets for Reserved Commitments: Don’t accept a rigid commitment without protections. Push for rollovers, credits, or adjustable terms in case your needs change. Even if you only gain a small concession (such as the ability to defer unused capacity for a quarter), it can save your budget if things go awry.
4. Evaluate AWS Marketplace vs Broadcom Deals: Don’t assume the only way to get VMware Cloud is through Broadcom’s sales team. Check pricing on AWS or other marketplaces if available. Use that information to negotiate – if AWS offers something more attractive, ask Broadcom to match or find out if they will honor a similar arrangement. Encourage vendors to compete for your business.
5. Leverage Broadcom ELA Negotiations: If you’re in broader contract talks with Broadcom, bring VMware Cloud into the conversation. Use it as a bargaining chip – for example, agreeing to a larger suite of products or a longer enterprise agreement in exchange for better VMware Cloud pricing or terms. Bundling your commitments can improve your overall deal economics.

By following these recommendations, you’ll be positioned to optimize costs while retaining agility in your VMware Cloud usage.

The Broadcom era of VMware licensing demands a savvy approach – but with careful planning and tough negotiation, you can turn reserved vs on-demand choices into a strategic advantage for your organization.

Enjoy the savings and flexibility that come from a well-crafted hybrid strategy!

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