Broadcom wants to exclusively focus on the 600 largest software customers. This proposed strategy may have a major impact on VMware’s customers and employees.
Earlier this week, Broadcom announced the acquisition of VMware for $61 billion. In the next months, antitrust authorities will determine whether the deal can proceed. Although only time can tell what exactly the acquisition will mean for VMware’s customers and employees, Broadcom Software’s strategy gives us an idea.
Broadcom Software is Broadcom’s software division. The division runs almost entirely on acquisitions, including CA Technologies and Symantec.
During an investor meeting in November 2021, Broadcom Software announced its plans for 2022. At the time, no one knew that the strategy would become relevant to VMware. Now that the acquisition is on the table, the proposed strategy creates uncertainty for VMware’s customers and employees.
What does the strategy entail?
Broadcom wants to focus exclusively on the 600 customers that generate the most annual recurring revenue (ARR). “These organizations share a lot of heterogeneity and complexity”, said Broadcom president Tom Krause at the investor meeting. Such organizations tend to operate with large IT budgets in heavily regulated sectors. The latter lowers the chances of a customer switching to a competitor. Broadcom can safely invest in integrations and services aimed at them.
Every customer outside the top 600 is not a priority. These may include hundreds of thousands of VMware accounts. Broadcom wants to cut development, sales and marketing targeted at them. The money saved is to be invested in researching ways to better serve the top 600.
What does this mean for VMware?
The strategy conflicts with VMware’s current model. In the most recent quarter, VMware spent more than a billion dollars on sales and marketing. If Broadcom implements its strategy, that budget will largely disappear, resulting in fewer sales and marketing positions.
In addition, customers outside the top 600 are less frequently targeted with new products. For example, VMware currently invests in promoting VMware Tanzu, a relatively new portfolio. Broadcom is expected to shift the marketing of new products to partners. The same applies to servicing existing customers. In this respect, little will change. Most VMware customers already deal primarily through partners.
The consequences seem to be greatest for sales and marketing staff. Shortly after the acquisition was announced, Broadcom Software wrote a letter to all VMware personell. Developers and marketers were praised, while the sales department had to do without a pat on the back. If the acquisition goes through, their future is uncertain.