What are you looking for ?

Comment on Broadcom’s Acquisition of VMware

Counterproductive actions of acquirer can take to derail acquired firm's future.

WendtThis article, published on September 8, 2022, was written by Jerome M. Wendt, president and founder, DCIG, LLC.




Counterproductive Actions Broadcom Can Take
to Derail VMware’s Future

Perhaps nothing dominated the conversation at this year’s VMware Explore more than Broadcom’s pending acquisition of VMware. Whether I spoke with other analysts or end-users and vendors on the show floor, the topic inevitably came up. In almost every case, they expressed concerns about the counterproductive actions that Broadcom may take that would derail VMware’s future.

The concerns
In most cases, individuals expressed 2 concerns:
1 Many cited the exodus of leadership at VMware as a sign of VMware’s impending doom.
2 Others lamented Broadcom’s practice of deconstructing companies it acquires and assimilating them into the Broadcom Borg (exaggeration for effect.)

One cannot ignore either the exodus of leadership at VMware or Broadcom’s past acquisition practices as it pertains to VMware. However, one must acknowledge that VMware has experienced exits of top talent before and past actions does not always predict future behavior.

Despite these concerns, enterprises have little choice but to continue to use VMware in the near term, and perhaps indefinitely. Broadcom recognizes this and stands to benefit from its forthcoming acquisition of VMware mightily. Kudos to Broadcom.

However, the use of VMware’s offerings by enterprises long term is a different matter. Even as Broadcom finalizes its acquisition of VMware, enterprises have already begun to explore their options. Whether they pursue these alternatives will largely depend on the actions Broadcom takes once it completes its acquisition of VMware.

VMware different type of software acquisition
Anytime a company largely associated with delivering hardware acquires a software company, issues inevitably emerge. One only needs to look at Broadcom’s recent acquisitions of CA Technologies and Symantec’s enterprise security business.

Further, VMware plays a more visible role in many more enterprises than the other two companies Broadcom previously acquired. It possesses software positioned for significant future growth. In contrast, the future growth of the software owned by the other 2 companies acquired by Broadcom was less certain. This makes it imperative for Broadcom to delicately handle its acquisition of VMware to ensure VMware maintains its leadership position.

3 counterproductive actions Broadcom can take to derail VMware’s future
To determine how well Broadcom handles this acquisition, one should examine whether it takes one, or all, of the following actions. Any one of these actions could derail VMware’s future. Should Broadcom take all 3 of these counterproductive actions, VMware’s ability to remain a virtualization and multi-cloud technology leader long-term immediately comes into question.

Counterproductive action ≠1: micromanage VMware
If there was ever a company that knows something about being acquired and still running independently, VMware is it. This latter started out as an independent company in 1998. Then, in 2004, EMC acquired it. Dell Technologies then acquired EMC in 2016 with Dell getting VMware as part of the deal. Finally, 5 years later in 2021, Dell spun out VMware as a standalone entity.

During the entire time from 2004-2021, VMware largely ran and operated as an independent company. EMC and Dell largely left it alone to run as its own entity. This laissez-faire approach served all 3 entities (EMC, Dell, and VMware) very well during that time span.

This serves as the first sign that enterprises should look at when evaluating VMware post acquisition. If Broadcom abandons this laissez-faire model and micromanages VMware’s inner workings, this likely does not bode well for VMware long term.

Counterproductive action ≠2: curtail or stop development or support of Tanzu
VMware perhaps uniquely represents the one company that can manage applications running in multiple clouds through its Tanzu offering. Using Tanzu, organizations may develop applications that run on any cloud’s Kubernetes platform and then manage them. According to stats presented by VMware at VMware Explore, over 80% of enterprises already use two or more clouds.

This point serves as the second sign that enterprises should monitor. If Broadcom subtly or overtly curtails or stops VMware’s development on Tanzu in any way, this action would undermine one of VMware’s strategic advantages.

Counterproductive action ≠3: abandon mid-term and long-term software development
During one of the analyst sessions at VMware Explore, VMware’s chief research and innovation officer Chris Wolf, explained how VMware manages its internal software development. VMware internally prioritizes its development activities based upon its ability to bring new software features or products to market.

At a high level, VMware has 3 tiers of product development: short-term, mid-term, and long-term. When a new feature or product is requested, VMware’s developers make an estimate of how long it will take to complete. Development then primarily only occurs if a business unit sponsors the product development for the estimated time frame. This sponsorship process with long term commitments helps VMware bring software and products to market for which enterprises will pay.

This represents the third and final sign that enterprises should monitor in terms of VMware’s viability long term within Broadcom. If Broadcom only permits VMware to pursue projects with short term release dates, it will weaken VMware’s ability to compete long term.

Only competitors want Broadcom to derail VMware’s future
After Broadcom completes its acquisition of VMware very few enterprises will abandon their use of VMware’s technologies in the near-term. Enterprises simply cannot do so because VMware’s offerings are too ingrained and work well. On top of that, VMware has built an ecosystem with complementary technologies and partners that its competitors cannot currently match.

That said: should Broadcom take one or more of these three actions, it will not have positive results. Minimally, it will prompt enterprises to look at their alternatives and encourage the development of an alternative ecosystem around VMware’s competitors. In a worst-case scenario Broadcom could derail more than VMware’s viability. It could disrupt the multi-cloud strategy that many organizations have started to pursue.

Read also :