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There is a famous story about business in the UK when some sales manager at Coca Cola raised the price by a small amount for JD Wetherspoons, one of the largest

There is a famous story about business in the UK when some sales manager at Coca Cola raised the price by a small amount for JD Wetherspoons, one of the largest chains of cheap pubs across the country. The manager must have felt very smug about the extra revenue they'd bring in, from a small change that the client could easily absorb and could hardly moan about. What else could they do, move to Pepsi? They did exactly that, and the sales manager was fired over losing one of the biggest clients and the loss of revenue that came with it. One needs to be very, very careful about both the pain threshold and the "** you, I'm moving my business elsewhere" threshold.

helsinkiandrew 2y ago
I would guess the plan for the larger companies is to sell a whole suite of products around the VMware: management, ops, auditing etc, plus take very good care of their niche requirements so moving becomes a much more expensive proposition
ta1243 2y ago
Sure, it's a gamble. But if Broadcom increases price 10-fold and loses half the customers by revenue over the next couple of years, that reflects in their bonus and they can then move on. The customers might have a plan to move off vmware by 2027, but continue to pay the money until then. Come the 2027 renewal the execs that made the massive bonuses for increasing revenue have left and then when the company says they aren't renewing it's the next generation dealing with the problems, and then they just reach for the three-envelopes. This really is on the companies that choose a single supplier. If you had two providers, then shifting doesn't take a 3 year program, it's just a policy change to prefer Provider B rather than Provider A.
- plagiarist 2y ago
  There really needs to be a different mode of compensation that forces the C-suite to prioritize long-term company success.
  - smugma 2y ago
    Apple[1], for example, has performance based RSU’s for its executives. RSU’s vest over 3-4 years and the number granted is dependent on Apple’s performance relative to the S&P. Stock prices theoretically have future cash flows built in but markets are inefficient. In this case, if Broadcom starts losing customers in 2027 and revenue declines 5%, it would get hammered in the market at that point in time, punished much more than the 5% drop. [1] From Apple’s SEC filing: The value received by our named executive officers in 2022 from long-term equity incentives reflects exceptional stock price performance over the applicable vesting periods. As a result, for the applicable performance periods, performance-based RSUs vested at 200% of target for our named executive officers based on Apple’s TSR relative to other companies in the S&P 500 (“Relative TSR”), which was at: • the 96th percentile for performance-based RSUs held by Ms. Adams, Mr. Maestri, and Mr. Williams, and • the 99th percentile for performance-based RSUs held by Ms. O’Brien. Mr. Cook was granted an equity award with 75% performance-based vesting and 25% time-based vesting
  - ghaff 2y ago
    Theoretically, stock compensation should do that. In practice, many/most investors have a pretty short time horizon in mind as well. I'm not sure how you provide an incentive for long-term company success absent very deferred compensation which I imagine most people reading this wouldn't favor either if it applied to them. Bird in hand worth two in the bush and all that.
- remus 2y ago
  It's worth bearing in mind that it's not just a financial gamble but a reputational one as well. Chances are most of that 90% of your customer base who were previously fairly happy are now very unhappy with a forced move to another platform, so in 10 years time when they're in some other business and making purchasing decisions, someone will mention VMWare and the only thing they'll remember is that shit show where they spent 6 months migrating off it because of some ridiculous pricing change.
  - acdha 2y ago
    That’s the big problem I see for them: all of the VMware guys I know _hate_ this move and are talking about being betrayed. Even if they aren’t immediately migrating, I don’t think many people are going to be comfortable increasing their dependency on Broadcom, whereas before that was as close to a given as it gets in business.
  - ta1243 2y ago
    Reputational loss won't be realised for a few years, the people making the decisions will have moved on by then.
  - kevin_thibedeau 2y ago
    The problem is that their documentation is now a shit show. Their 10% whales are going to get fed up with that eventually.
- jl6 2y ago
  For the vast majority of companies, supply chain diversification represents a cost with little immediate benefit. In the long term, it can be a rational hedge against hostile supplier lock-in, but the vast majority of companies aren’t good at making long-term bets.
- heelix 2y ago
  When I worked as a SE, we'd often categorized sales reps as 'hunters' vs 'farmers' when it comes to managing the accounts. The hunters would hit their numbers, collect their bonus, move on, and leave the account in shambles for us to try and assist the new rep in recovering. This is the first time I've noticed that attitude in the company leadership. My heart goes out to our (now) Broadcom rep, as I can tell they are putting the squeeze to all contracts, to their mid-term detriment.
guappa 2y ago
Oh interesting. In sweden it's really hard to find a pub that has coca cola, they almost exclusively have pepsi. Also in the supermarket pepsi is cheaper.
tonyedgecombe 2y ago
Wetherspoons might well be the sort of company Broadcom wouldn't want as a customer.
EraYaN 2y ago
And most importantly some clients will not communicate that they are unhappy and just move on quietly. Especially for something like virtualization which is essentially a commodity.

helsinkiandrew 2y ago

I would guess the plan for the larger companies is to sell a whole suite of products around the VMware: management, ops, auditing etc, plus take very good care of their niche requirements so moving becomes a much more expensive proposition

ta1243 2y ago

Sure, it's a gamble. But if Broadcom increases price 10-fold and loses half the customers by revenue over the next couple of years, that reflects in their bonus and they can then move on. The customers might have a plan to move off vmware by 2027, but continue to pay the money until then. Come the 2027 renewal the execs that made the massive bonuses for increasing revenue have left and then when the company says they aren't renewing it's the next generation dealing with the problems, and then they just reach for the three-envelopes. This really is on the companies that choose a single supplier. If you had two providers, then shifting doesn't take a 3 year program, it's just a policy change to prefer Provider B rather than Provider A.

plagiarist 2y ago
There really needs to be a different mode of compensation that forces the C-suite to prioritize long-term company success.
- smugma 2y ago
  Apple[1], for example, has performance based RSU’s for its executives. RSU’s vest over 3-4 years and the number granted is dependent on Apple’s performance relative to the S&P. Stock prices theoretically have future cash flows built in but markets are inefficient. In this case, if Broadcom starts losing customers in 2027 and revenue declines 5%, it would get hammered in the market at that point in time, punished much more than the 5% drop. [1] From Apple’s SEC filing: The value received by our named executive officers in 2022 from long-term equity incentives reflects exceptional stock price performance over the applicable vesting periods. As a result, for the applicable performance periods, performance-based RSUs vested at 200% of target for our named executive officers based on Apple’s TSR relative to other companies in the S&P 500 (“Relative TSR”), which was at: • the 96th percentile for performance-based RSUs held by Ms. Adams, Mr. Maestri, and Mr. Williams, and • the 99th percentile for performance-based RSUs held by Ms. O’Brien. Mr. Cook was granted an equity award with 75% performance-based vesting and 25% time-based vesting
- ghaff 2y ago
  Theoretically, stock compensation should do that. In practice, many/most investors have a pretty short time horizon in mind as well. I'm not sure how you provide an incentive for long-term company success absent very deferred compensation which I imagine most people reading this wouldn't favor either if it applied to them. Bird in hand worth two in the bush and all that.
remus 2y ago
It's worth bearing in mind that it's not just a financial gamble but a reputational one as well. Chances are most of that 90% of your customer base who were previously fairly happy are now very unhappy with a forced move to another platform, so in 10 years time when they're in some other business and making purchasing decisions, someone will mention VMWare and the only thing they'll remember is that shit show where they spent 6 months migrating off it because of some ridiculous pricing change.
- acdha 2y ago
  That’s the big problem I see for them: all of the VMware guys I know _hate_ this move and are talking about being betrayed. Even if they aren’t immediately migrating, I don’t think many people are going to be comfortable increasing their dependency on Broadcom, whereas before that was as close to a given as it gets in business.
- ta1243 2y ago
  Reputational loss won't be realised for a few years, the people making the decisions will have moved on by then.
- kevin_thibedeau 2y ago
  The problem is that their documentation is now a shit show. Their 10% whales are going to get fed up with that eventually.
jl6 2y ago
For the vast majority of companies, supply chain diversification represents a cost with little immediate benefit. In the long term, it can be a rational hedge against hostile supplier lock-in, but the vast majority of companies aren’t good at making long-term bets.
heelix 2y ago
When I worked as a SE, we'd often categorized sales reps as 'hunters' vs 'farmers' when it comes to managing the accounts. The hunters would hit their numbers, collect their bonus, move on, and leave the account in shambles for us to try and assist the new rep in recovering. This is the first time I've noticed that attitude in the company leadership. My heart goes out to our (now) Broadcom rep, as I can tell they are putting the squeeze to all contracts, to their mid-term detriment.

guappa 2y ago

Oh interesting. In sweden it's really hard to find a pub that has coca cola, they almost exclusively have pepsi. Also in the supermarket pepsi is cheaper.

tonyedgecombe 2y ago

Wetherspoons might well be the sort of company Broadcom wouldn't want as a customer.

EraYaN 2y ago

And most importantly some clients will not communicate that they are unhappy and just move on quietly. Especially for something like virtualization which is essentially a commodity.