15 ms·

This massively increases risk too, right? Pinning all your revenue on a much smaller customer base means losing one or two of them has a huge impact!

by pmx 2y ago

dbspin 2y ago
Also pretty much guarantees flight of your former customer base to close compliments - who then have improved revenue to bring their products closer in alignment to yours. You'd better have a hell of a moat to follow this strategy.
- smallnamespace 2y ago
  Tiny nitpick: complement means a good in an adjacent part of the supply chain (e.g. batteries and EVs are complements), you might have meant 'competitors'.
  - deleted 2y ago
    [deleted]
  - dbspin 2y ago
    From the point of view of a customer, a complementary service would be a product that fits the same niche and is reasonably substitutable.
    - Youden 2y ago
      English is a living language so it's impossible to say definitively that you're "wrong" but I don't think anyone else is able to understand what you're trying to communicate through your use of this word. According to the Cambridge dictionary, there are a couple of variants depending on your dialect: - "to make something else seem better or more attractive when combining with it" - e.g. "Strawberries and cream complement each other perfectly." - "to help make something or someone more complete or effective" - e.g. "She used photographs to complement the text of the news story. " The only way I can make any sense of your words is to assume you're trying to argue that two competing but interchangeable services "complement" each other when used simultaneously because that might allow a customer to mitigate risk in a similar fashion to a multi-cloud setup. That's a pretty big jump to make from what you've actually said though and would really need further explanation for anyone to understand.
    - smallnamespace 2y ago
      FYI in modern microeconomics, 'substitute' and 'complement' are precisely defined terms that have opposite meanings.
      - mhuffman 2y ago
        This is interesting. In university, I was taught that a substitute product would be an alternative choice (eg. Nathan's hotdogs vs Ball park franks) and complimentary products were ones that typically "moved" together (eg. Nathan's hotdogs and ketchup). So not really opposite unless you are talking about price vs demand.
        smallnamespace 2y ago
        No, they are in fact opposed definitions if you dig in a bit. Substitute goods have negatively correlated demand, while complementary ones have demand that positively correlate. A simple criterion, at least in theory. You will buy more ketchup when you buy more franks, but you will buy fewer hot dogs. And it's also close enough to the MBA definition of complement (of "commoditize your complement" fame).
- mschuster91 2y ago
  > Also pretty much guarantees flight of your former customer base to close compliments - who then have improved revenue to bring their products closer in alignment to yours. Classic VM hosting is a dead end anyway. Customers are shifting to the hyperscalers wherever they can, if only to reduce the headcount of their IT departments due to acounting wizardry making it worth it for the stonk markets even if the cloud costs more in the end. And then, there aren't that many alternatives to VMware, and none of them (bar OpenStack) as comprehensive. As long as Broadcom manages to squeeze enough out of the large customers who are vendor-locked too hard over the next 3-5 years, it'll be worth the money for them, and chances are the gamble pays off, with a small trail of extremely large customers paying for a decade until they can get their internal chaos sorted out to migrate off.
helsinkiandrew 2y ago
Yes, but I guess you get to know the customers better and make sure the product fits them very well, or atleast better than the competitors. Another more cynical thought is that this is a way of increasing revenue and profit quickly so the share price rises quickly. You get your options and bonus and leave before the rest of the customers leave.
- rexreed 2y ago
  Your second cynical answer is the correct one. It's always about the shareholder and never about the customer at Broadcom. Remember Computer Associates (CA)? Yeah, they're now Broadcom. That pattern of acquire - consolidate - turn the screws on the customer DNA / culture is very strong in Broadcom.
cjk2 2y ago
I remember my father doing this one. He was an SME support company. With two clients. He cranked the price up 4x and said ”we’ve got them by the balls”. They both opened a tender process and shot him and he was bankrupt 6 months later.
- generic92034 2y ago
  > They both opened a tender process and shot him What does that mean?
  - cjk2 2y ago
    They approached multiple vendors for quotations who undercut him vastly. So he didn’t get the business.
  - misnome 2y ago
    I read as https://dictionary.cambridge.org/dictionary/english/get-be-shot-of https://dictionary.cambridge.org/dictionary/english/get-be-s...
  - re-thc 2y ago
    [flagged]
  - mattlondon 2y ago
    I interpreted it as "fired him"
  - quickthrowman 2y ago
    They went shopping for a new vendor by sending out a request for proposal to multiple companies.
- rapsey 2y ago
  I'm guessing those examples are legion. Always treat your costumers and partners with respect. Another famous example is BeOS thinking they have Apple by the balls to be the basis for OSX. Demanded an outrageous price, Apple just used a BSD.
alephnerd 2y ago
Broadcom makes $35B a year in revenue. VMWare made at most $13.4B. Even with severe churn, VMWare would make around $12.8-13B. VMWare is just a BU now, not a company, and the economics of managing "just another product line" is different from a company with a flagship product As I've mentioned before on HN, the math is different and it makes sense to up prices and only concentrate on F1000s at that size. > Pinning all your revenue on a much smaller customer base means losing one or two of them has a huge impact Large customers are sticky. You can't migrate your hypervisor or cloud provider overnight. These are multi-year projects. Also, it's better to target a smaller base of high paying customers instead of a large base of low paying customers because every sales motion and support ticket is an opportunity cost and a financial cost.
- yokaze 2y ago
  > Large customers are sticky. You can't migrate your hypervisor or cloud provider overnight. These are multi-year projects. Yes, but that scale, everything is an multi-year effort. The contracts likely as well. That doesn't mean, it's not going to happen. And it's not like all has to happen in one go. So before you were all in VMware, and that vendor is practically promising to hike up the prices to make you bleed. What are you gonna do? I'd rather start early to have a migration path, even if it is just for negotiation purposes. And if it's someone who has the resources to that, it's large customers.
  - alephnerd 2y ago
    When you have a sticky existing customer who's about to churn, you end up discounting below the price of the migration, then slowly rise the cost again, then do the same thing again (this is easy because margins are 80% in our industry). All vendors do this - you can't escape it. This is why companies began leaving for the Cloud - sure it's upfront more expensive, but the negotiations are not as protracted.
    - benterix 2y ago
      > All vendors do this - you can't escape it. This is why companies began leaving for the Cloud - sure it's upfront more expensive, but the negotiations are not as protracted. I don't get your point here: if you mean the public cloud, it's the synonym of vendor lock-in now.
op00to 2y ago
I used to work for an enterprise software vendor that had LOTS of customers, and losing a single customer was painful but didn’t really affect that much. I’m now at a much smaller company, and I feel like it’s noticeable in the stock price when we gain or lose a customer. Kinda scary, but exciting at the same time. No idea if it’s just my brain inventing patterns.
Devasta 2y ago
In this case, if you increase your price 10X and they don't leave you, there must be some deep technical reason why they cannot move even if they want to. You no longer have customers, you have hostages.
mglz 2y ago
Modern business seems to not care about resilience or having a plan B at all.

This massively increases risk too, right? Pinning all your revenue on a much smaller customer base means losing one or two of them has a huge impact!

by pmx 2y ago

This massively increases risk too, right? Pinning all your revenue on a much smaller customer base means losing one or two of them has a huge impact!

dbspin 2y ago

Also pretty much guarantees flight of your former customer base to close compliments - who then have improved revenue to bring their products closer in alignment to yours. You'd better have a hell of a moat to follow this strategy.

smallnamespace 2y ago
Tiny nitpick: complement means a good in an adjacent part of the supply chain (e.g. batteries and EVs are complements), you might have meant 'competitors'.
- deleted 2y ago
  [deleted]
- dbspin 2y ago
  From the point of view of a customer, a complementary service would be a product that fits the same niche and is reasonably substitutable.
  - Youden 2y ago
    English is a living language so it's impossible to say definitively that you're "wrong" but I don't think anyone else is able to understand what you're trying to communicate through your use of this word. According to the Cambridge dictionary, there are a couple of variants depending on your dialect: - "to make something else seem better or more attractive when combining with it" - e.g. "Strawberries and cream complement each other perfectly." - "to help make something or someone more complete or effective" - e.g. "She used photographs to complement the text of the news story. " The only way I can make any sense of your words is to assume you're trying to argue that two competing but interchangeable services "complement" each other when used simultaneously because that might allow a customer to mitigate risk in a similar fashion to a multi-cloud setup. That's a pretty big jump to make from what you've actually said though and would really need further explanation for anyone to understand.
  - smallnamespace 2y ago
    FYI in modern microeconomics, 'substitute' and 'complement' are precisely defined terms that have opposite meanings.
    - mhuffman 2y ago
      This is interesting. In university, I was taught that a substitute product would be an alternative choice (eg. Nathan's hotdogs vs Ball park franks) and complimentary products were ones that typically "moved" together (eg. Nathan's hotdogs and ketchup). So not really opposite unless you are talking about price vs demand.
      - smallnamespace 2y ago
        No, they are in fact opposed definitions if you dig in a bit. Substitute goods have negatively correlated demand, while complementary ones have demand that positively correlate. A simple criterion, at least in theory. You will buy more ketchup when you buy more franks, but you will buy fewer hot dogs. And it's also close enough to the MBA definition of complement (of "commoditize your complement" fame).
mschuster91 2y ago
> Also pretty much guarantees flight of your former customer base to close compliments - who then have improved revenue to bring their products closer in alignment to yours. Classic VM hosting is a dead end anyway. Customers are shifting to the hyperscalers wherever they can, if only to reduce the headcount of their IT departments due to acounting wizardry making it worth it for the stonk markets even if the cloud costs more in the end. And then, there aren't that many alternatives to VMware, and none of them (bar OpenStack) as comprehensive. As long as Broadcom manages to squeeze enough out of the large customers who are vendor-locked too hard over the next 3-5 years, it'll be worth the money for them, and chances are the gamble pays off, with a small trail of extremely large customers paying for a decade until they can get their internal chaos sorted out to migrate off.

helsinkiandrew 2y ago

Yes, but I guess you get to know the customers better and make sure the product fits them very well, or atleast better than the competitors. Another more cynical thought is that this is a way of increasing revenue and profit quickly so the share price rises quickly. You get your options and bonus and leave before the rest of the customers leave.

rexreed 2y ago
Your second cynical answer is the correct one. It's always about the shareholder and never about the customer at Broadcom. Remember Computer Associates (CA)? Yeah, they're now Broadcom. That pattern of acquire - consolidate - turn the screws on the customer DNA / culture is very strong in Broadcom.

cjk2 2y ago

I remember my father doing this one. He was an SME support company. With two clients. He cranked the price up 4x and said ”we’ve got them by the balls”. They both opened a tender process and shot him and he was bankrupt 6 months later.

generic92034 2y ago
> They both opened a tender process and shot him What does that mean?
- cjk2 2y ago
  They approached multiple vendors for quotations who undercut him vastly. So he didn’t get the business.
- misnome 2y ago
  I read as https://dictionary.cambridge.org/dictionary/english/get-be-shot-of https://dictionary.cambridge.org/dictionary/english/get-be-s...
- re-thc 2y ago
  [flagged]
- mattlondon 2y ago
  I interpreted it as "fired him"
- quickthrowman 2y ago
  They went shopping for a new vendor by sending out a request for proposal to multiple companies.
rapsey 2y ago
I'm guessing those examples are legion. Always treat your costumers and partners with respect. Another famous example is BeOS thinking they have Apple by the balls to be the basis for OSX. Demanded an outrageous price, Apple just used a BSD.

alephnerd 2y ago

Broadcom makes $35B a year in revenue. VMWare made at most $13.4B. Even with severe churn, VMWare would make around $12.8-13B. VMWare is just a BU now, not a company, and the economics of managing "just another product line" is different from a company with a flagship product As I've mentioned before on HN, the math is different and it makes sense to up prices and only concentrate on F1000s at that size. > Pinning all your revenue on a much smaller customer base means losing one or two of them has a huge impact Large customers are sticky. You can't migrate your hypervisor or cloud provider overnight. These are multi-year projects. Also, it's better to target a smaller base of high paying customers instead of a large base of low paying customers because every sales motion and support ticket is an opportunity cost and a financial cost.

yokaze 2y ago
> Large customers are sticky. You can't migrate your hypervisor or cloud provider overnight. These are multi-year projects. Yes, but that scale, everything is an multi-year effort. The contracts likely as well. That doesn't mean, it's not going to happen. And it's not like all has to happen in one go. So before you were all in VMware, and that vendor is practically promising to hike up the prices to make you bleed. What are you gonna do? I'd rather start early to have a migration path, even if it is just for negotiation purposes. And if it's someone who has the resources to that, it's large customers.
- alephnerd 2y ago
  When you have a sticky existing customer who's about to churn, you end up discounting below the price of the migration, then slowly rise the cost again, then do the same thing again (this is easy because margins are 80% in our industry). All vendors do this - you can't escape it. This is why companies began leaving for the Cloud - sure it's upfront more expensive, but the negotiations are not as protracted.
  - benterix 2y ago
    > All vendors do this - you can't escape it. This is why companies began leaving for the Cloud - sure it's upfront more expensive, but the negotiations are not as protracted. I don't get your point here: if you mean the public cloud, it's the synonym of vendor lock-in now.

op00to 2y ago

I used to work for an enterprise software vendor that had LOTS of customers, and losing a single customer was painful but didn’t really affect that much. I’m now at a much smaller company, and I feel like it’s noticeable in the stock price when we gain or lose a customer. Kinda scary, but exciting at the same time. No idea if it’s just my brain inventing patterns.

Devasta 2y ago

In this case, if you increase your price 10X and they don't leave you, there must be some deep technical reason why they cannot move even if they want to. You no longer have customers, you have hostages.

mglz 2y ago

Modern business seems to not care about resilience or having a plan B at all.