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> The strategy you described has no upside for the vendor (in this case Broadcom VMWare). The upside is you don't scare off other customers when they hear repo

> The strategy you described has no upside for the vendor (in this case Broadcom VMWare). The upside is you don't scare off other customers when they hear reports of a 12x price increase. Right now, in response to this post, VMWare's biggest customers will be drawing up plans for if they need to walk away at the next contract renewal. And they'll want those plans to be extremely credible - it's worth spending $5 million trialling and integrating a competing system, if it stops your $50m contract turning into a $150m contract.

alephnerd 3y ago
As I said in my comment - you can safely assume mean contract value is in the mid 8 or low 9 digits at a company the size of VMWare. If this scares away customers spending less than that, good for them. It doesn't make a dent when a F1000 is spending tens of millions a year on VMware and purchase by committee and will get sweetheart deals by being strategic accounts.
- itsdrewmiller 3y ago
  VMWare has 400k customers and 13.4b revenue according to google, which means their average customer is around 335k.
  - alephnerd 3y ago
    That's not how the average should be calculated. It should be: (Contract_1_yearly+...+Contract_n_yearly)/num_contracts Anyhow the customer signed the deal (https://twitter.com/cioontherun/status/1761882689886433742 https://twitter.com/cioontherun/status/1761882689886433742), implying they were underpaying and had the capacity to pay the true rate.
    - itsdrewmiller 3y ago
      That’s going to get you basically the same number unless you think most of those 400k customers do not have contracts for some reason? My revenue-based approach would undercount in-year bookings but your approach would undercount NRR which I suspect is nontrivial for VMWare (but I haven’t checked). Also just to be clear I agree with your initial comment - there are lots of reasons even big customers can be worth repricing based on their true costs and strategic relevance. And at less than 0.1% of revenue VMWare can certainly afford to risk it.
      - alephnerd 3y ago
        After having some caffeine percolate in my veins, I see your point and agree!
    - alephnerd 3y ago
      edit: I'm wrong on the calculation portion - don't do napkin math without coffee itsdrewmiller is right
    - Sebb767 3y ago
      > Anyhow the customer signed the deal (https://twitter.com/cioontherun/status/1761882689886433742 https://twitter.com/cioontherun/status/1761882689886433742), implying they were underpaying and had the capacity to pay the true rate. If they are sufficiently locked in, this might have been the best option to migrate away without major disruption.
mamonster 3y ago
I mean, VMWare customers were warned about this ever since the deal got announced. This is literally the Broadcom strategy for the last decade at least: Buy vendor with lockin, cut non-core features, raise prices and squeeze the customers who are in too deep. Broadcom goes into these deals knowing it will hemorrhage a lot of customers and they don't care, they know they can make it up on those who are forced to stay. They don't care about reputation at all.
- michaelt 3y ago
  Customers were all expecting to get milked, sure. But the milking process usually tries not to kill the cow. Usually that means prices increasing by ~10% every year, so that it's never quite worth it to switch to an alternative system.
  - mamonster 3y ago
    Sounds like customers were not familiar with how Mr Tan plays ball, he's been doing this forever. He isn't trying to kill the cow, he will famish the cow to the point where the cow will be alive enough for him to milk his required rate of return and not an ounce more. Its a risky strategy, but Tan is loved by Mr Market so he gets the benefit of the doubt.
- InsomniacL 3y ago
  "The Answer is simple: No" Broadcom CEO Hock Tan - Nov 2022 - addressing reports of vmware price rises "[Broadcom's methodology] was not based on taking existing products and raising their prices" Broadcom CEO Hock Tan Oct 26th 2022
red-iron-pine 3y ago
VMwares biggest customers will be getting deals apropriate to their offerings. It sounds like this was a (comparatively) PITA small-fry legal / law office.
- Sebb767 3y ago
  > VMwares biggest customers will be getting deals apropriate to their offerings. Maybe I'm completely out-of-touch, but an 8M$ contract should be sufficient to get "appropriate deals"?
  - alephnerd 3y ago
    Companies like Walmart, Centurylink, AWS (via Equinix), and the DoD (via General Dynamics) use VMWare and most likely have contracts in the 9 figure range for a backbone service like VMWare

alephnerd 3y ago

As I said in my comment - you can safely assume mean contract value is in the mid 8 or low 9 digits at a company the size of VMWare. If this scares away customers spending less than that, good for them. It doesn't make a dent when a F1000 is spending tens of millions a year on VMware and purchase by committee and will get sweetheart deals by being strategic accounts.

itsdrewmiller 3y ago
VMWare has 400k customers and 13.4b revenue according to google, which means their average customer is around 335k.
- alephnerd 3y ago
  That's not how the average should be calculated. It should be: (Contract_1_yearly+...+Contract_n_yearly)/num_contracts Anyhow the customer signed the deal (https://twitter.com/cioontherun/status/1761882689886433742 https://twitter.com/cioontherun/status/1761882689886433742), implying they were underpaying and had the capacity to pay the true rate.
  - itsdrewmiller 3y ago
    That’s going to get you basically the same number unless you think most of those 400k customers do not have contracts for some reason? My revenue-based approach would undercount in-year bookings but your approach would undercount NRR which I suspect is nontrivial for VMWare (but I haven’t checked). Also just to be clear I agree with your initial comment - there are lots of reasons even big customers can be worth repricing based on their true costs and strategic relevance. And at less than 0.1% of revenue VMWare can certainly afford to risk it.
    - alephnerd 3y ago
      After having some caffeine percolate in my veins, I see your point and agree!
  - alephnerd 3y ago
    edit: I'm wrong on the calculation portion - don't do napkin math without coffee itsdrewmiller is right
  - Sebb767 3y ago
    > Anyhow the customer signed the deal (https://twitter.com/cioontherun/status/1761882689886433742 https://twitter.com/cioontherun/status/1761882689886433742), implying they were underpaying and had the capacity to pay the true rate. If they are sufficiently locked in, this might have been the best option to migrate away without major disruption.

mamonster 3y ago

I mean, VMWare customers were warned about this ever since the deal got announced. This is literally the Broadcom strategy for the last decade at least: Buy vendor with lockin, cut non-core features, raise prices and squeeze the customers who are in too deep. Broadcom goes into these deals knowing it will hemorrhage a lot of customers and they don't care, they know they can make it up on those who are forced to stay. They don't care about reputation at all.

michaelt 3y ago
Customers were all expecting to get milked, sure. But the milking process usually tries not to kill the cow. Usually that means prices increasing by ~10% every year, so that it's never quite worth it to switch to an alternative system.
- mamonster 3y ago
  Sounds like customers were not familiar with how Mr Tan plays ball, he's been doing this forever. He isn't trying to kill the cow, he will famish the cow to the point where the cow will be alive enough for him to milk his required rate of return and not an ounce more. Its a risky strategy, but Tan is loved by Mr Market so he gets the benefit of the doubt.
InsomniacL 3y ago
"The Answer is simple: No" Broadcom CEO Hock Tan - Nov 2022 - addressing reports of vmware price rises "[Broadcom's methodology] was not based on taking existing products and raising their prices" Broadcom CEO Hock Tan Oct 26th 2022

red-iron-pine 3y ago

VMwares biggest customers will be getting deals apropriate to their offerings. It sounds like this was a (comparatively) PITA small-fry legal / law office.

Sebb767 3y ago
> VMwares biggest customers will be getting deals apropriate to their offerings. Maybe I'm completely out-of-touch, but an 8M$ contract should be sufficient to get "appropriate deals"?
- alephnerd 3y ago
  Companies like Walmart, Centurylink, AWS (via Equinix), and the DoD (via General Dynamics) use VMWare and most likely have contracts in the 9 figure range for a backbone service like VMWare