Broadcom–VMware Shake-up: Rising Costs, Subscription Shock, and Enterprise Response

VMware customers worldwide are facing unprecedented cost escalations, ranging from 200% to over 1,200%, as Broadcom transitions VMware to a subscription-only model. For many enterprises, this shift has upended long-standing budgeting structures and forced a rethink of their virtualization strategies. Small and medium businesses (SMBs), universities, and public-sector institutions, once reliant on perpetual licenses for predictable CAPEX, are now facing sharp price hikes, constrained license flexibility, and reduced channel accessibility. What began as a routine corporate acquisition has rapidly evolved into a global inflection point in the economics of enterprise virtualization.

VMware: The Backbone of Enterprise Virtualization

For over two decades, VMware has been synonymous with enterprise virtualization, supporting hybrid and private cloud infrastructures worldwide. Prior to its acquisition by Broadcom in 2023, VMware commanded an estimated 80% of virtualized workloads globally. Its innovations—vMotion, NSX, and Tanzu—cemented its leadership by enabling enterprises to consolidate infrastructure, improve agility, and run mission-critical workloads securely and cost-effectively.

vSphere served as the flagship virtualization platform; NSX enabled network virtualization and micro-segmentation; Tanzu facilitated container and Kubernetes management; and vSAN delivered hyperconverged storage capabilities. Enterprises benefited from VMware’s perpetual licensing model, paying upfront for indefinite software access, supplemented by optional support and subscription (SnS) contracts for updates, security patches, and technical support, while academic institutions leveraged the same model for teaching and research environments. This structure allowed predictable CAPEX planning and long-term cost control.

Broadcom Acquisition and Structural Realignment

Since Broadcom’s $69 billion acquisition of VMware in November 2023 (including $8 billion in assumed debt), the enterprise virtualization landscape has entered a new phase. Broadcom, known for transforming mature enterprise software portfolios such as CA Technologies (2018) and Symantec Enterprise Security (2019), applied its proven playbook centered on portfolio simplification, subscription-driven revenue, and profitability optimization.

In VMware’s case, this meant a fundamental realignment of licensing, pricing, and customer engagement models. Within weeks of the acquisition, Broadcom introduced several sweeping changes. Below is the timeline chart representation of key announcements since the acquisition:

While VMware had been encouraging subscription adoption before the acquisition, perpetual licenses were still widely used—approximately 60% of customers continued to purchase them. Broadcom’s mandate for subscription-only licensing, coupled with restructuring of partner programs, now directly impacts enterprise cost, flexibility, and vendor relationships.

Implications for Enterprises, Partners, and Academia

Broadcom’s licensing changes have triggered renewal anxiety, budget shocks, and operational complexity.

1. 1. Financial impact: Many organizations, particularly SMBs and universities, are facing annual cost increases of 200% to over 1,200% as perpetual licenses are forcibly converted to subscriptions. A UK university, for example, saw its annual VMware bill jump from £40,000 to nearly £500,000 after being mandated to adopt the full VMware Cloud Foundation (VCF) bundle. US public institutions have reported sixfold budget hikes, while small enterprises describe having to delay modernization plans just to fund renewals. Broadcom’s licensing model now restricts renewals to the final 90 days before contract expiration, minimizing customers’ time to explore alternatives or negotiate. Moreover, renewal terms are being extended to 3–5 years, effectively locking customers into long-term commitments and fostering a “hostage” mindset.
   2. Operational and technical complexity: The abrupt move from perpetual to subscription licensing spans all VMware products, including vSphere, NSX, and vSAN. The new core-based pricing structure introduces operational friction, as IT and procurement teams must continuously map workloads, track compliance, and forecast multiyear renewals. Renewal negotiations have become more constrained, requiring precise modeling of workload-to-core ratios to avoid overpayment.
   3. Erosion of innovation and support confidence: Broadcom’s internal restructuring has also seen reductions in VMware’s R&D and marketing budgets, echoing its earlier post-acquisition patterns with CA Technologies and Symantec. This shift raises concerns that VMware’s product competitiveness could erode over time, particularly as hyperscalers and open-source virtualization alternatives accelerate their innovation cycles.
   4. Partner and channel realignment: VMware’s channel and cloud service provider (CSP) programs have been overhauled, introducing invite-only partner tiers, bundled product mandates, and new incentive structures that restrict reseller participation. Many regional and academic partners have lost access to key licensing programs, limiting customers’ choice and local support options.

In sum, what began as a licensing change has evolved into a systemic disruption, creating financial uncertainty, operational rigidity, and long-term strategic risk. Organizations that once viewed VMware as a stable infrastructure foundation are now urgently reassessing their options, seeking agility and leverage in an increasingly vendor-driven market.

Enterprise Response: From Dependency to Diversification

As customers absorb these shifts, a key consideration arises: How can enterprises mitigate financial impact, maintain operational continuity, and explore modernization without compromising strategic objectives?

Progressive enterprises are taking a proactive approach to mitigating costs, modernizing infrastructure, and diversifying their IT footprint.

While Broadcom offers transitional incentives (such as credit for unused perpetual licenses and bundled migration pricing), many organizations are pursuing multipronged strategies.

Based on our interaction with enterprise customers, not every organization is abandoning VMware immediately, given the dependency of legacy and mission-critical workloads; however, there is clear momentum toward diversification, cost optimization, and future-ready platforms.

Enterprises are pursuing multiple pathways:

• • Public cloud migration: They are migrating workloads to hyperscalers, such as AWS, Azure, GCP, or OCI, leveraging native services for elasticity and cost efficiency.
  • Replatforming: Enterprises are replatforming onto containerized environments such as AWS EKS, Azure Arc, or OpenShift.
  • Alternative hypervisors: Organizations are looking to engage alternative hypervisors, including Hyper-V, KVM, and Nutanix.

Many enterprises are also taking a phased approach, running VMware on cloud-native platforms such as Azure VMware Solution (AVS) or Google Cloud VMware Engine (GCVE) as an interim step while planning longer-term exits. However, even in these models, Microsoft and Google transparently pass VMware license costs to customers, resulting in limited potential for cost optimization. The primary advantage of AVS and GCVE lies in their pay-as-you-go flexibility and operational agility, rather than in reducing overall VMware-related spend.

The overall momentum indicates a clear trend toward hypervisor-agnostic, hybrid cloud architectures that emphasize flexibility and cost control, thereby avoiding vendor lock-in.

Turning Procurement Challenges into Strategic Advantage with Avasant

As enterprises reassess their virtualization strategies following Broadcom’s licensing realignment, procurement teams face new layers of complexity. The shift from perpetual to subscription-based models has exposed structural gaps in how organizations evaluate, negotiate, and govern IT contracts.

Drawing from Avasant’s experience as a trusted consulting partner supporting enterprise sourcing transformations, several key procurement hurdles have emerged, along with actionable strategies to address them.

Procurement challenge	Avasant’s approach	Business impact
Limited market intelligence	Through its proprietary databases, benchmark models, and global sourcing intelligence, Avasant delivers actionable insights into Broadcom and VMware pricing trends, contract structures, and migration strategies, enabling clients to optimize value and mitigate risk in their virtualization and cloud portfolios.	It ensures a stronger negotiation leverage, realistic pricing expectations, and improved sourcing confidence.
IT and procurement misalignment	Avasant facilitates structured alignment sessions among IT, business, and procurement teams to establish shared priorities, particularly for subscription renewals, migration plans, and cloud alternatives in Broadcom–VMware environments. Its governance frameworks ensure that sourcing strategies balance transformation goals with cost control.	It enables improved collaboration, faster sourcing cycles, and balanced outcomes between agility and cost control.
Contractual and licensing complexity	Avasant’s multidisciplinary team of commercial, legal, and technical experts helps clients navigate Broadcom’s evolving licensing and renewal strategies, assess compliance and operational risks, and negotiate terms for multiyear subscriptions.	It helps attain reduced risk exposure, clearer accountability, and accelerated contract closure timelines.
Evolving technology and commercial models	Avasant’s category specialists provide real-time insights into VMware’s shift to subscription-only models and its hybrid cloud portfolio through RadarView reports and custom research. This helps redesign sourcing and pricing models to align with subscription- or consumption-based cost structures.	It offers adaptive sourcing strategies that stay relevant amid rapid technology change.
Inadequate spend visibility	Avasant enables centralized visibility across VMware Cloud Foundation (VCF) or VMware vSphere Foundation (VVF) subscriptions through governance dashboards and spend analytics. It identifies shelfware, consolidation opportunities, and cost-saving levers across virtual infrastructure estates.	It ensures enhanced transparency, optimized license utilization, and measurable cost efficiency.
Vendor lock-in and limited competition	Avasant helps enterprises assess exit scenarios, cloud migration paths, and open virtualization alternatives to reduce overdependence on Broadcom–VMware. It also supports competitive RFPs across hyperscalers, Tier I providers, and emerging virtualization vendors to maintain negotiating leverage.	It enables increased vendor diversification, reduced dependency, and stronger negotiation power.
Post-contract governance	Avasant establishes vendor management offices (VMOs) and post-contract governance structures to monitor performance and renewal terms under Broadcom’s new frameworks. It tracks SLA compliance, cost escalations, and feature utilization to ensure sustained value realization.	It ensures sustained cost efficiency, proactive risk management, and improved vendor performance.

 

By institutionalizing these procurement practices with Avasant’s guidance, enterprises can transform reactive cost management into proactive value realization. In the evolving Broadcom–VMware environment, this maturity will differentiate organizations that merely adapt from those that strategically reinvent their IT and sourcing models.

Case Study: Strategic Negotiation and Migration Optimization for Mainframe Services Renewal Client situation The client, a leading US-based transportation and freight company, was approaching the renewal of its on-premises mainframe services contract, a mission-critical engagement with significant financial and operational implications. The renewal was planned for a three-year term, covering both infrastructure services and associated software licenses. Notably, Broadcom mainframe licenses accounted for nearly 25% of the overall contract value, making license negotiations a key driver of total cost. Challenge Broadcom maintained a firm commercial stance, offering licenses only under a five-year term, which would have locked the client into extended financial commitments and reduced flexibility to align with its mainframe modernization road map. In parallel, the client sought to optimize its mainframe cost base while progressively migrating workloads off the mainframe platform. Our approach Avasant was engaged to lead commercial and contractual negotiations, drive cost optimization, and align the renewal with the client’s transformation strategy. Avasant adopted the following multipronged approach: Negotiation with Broadcom: Avasant leveraged deep market intelligence, deal benchmarks, and relationship insights to challenge Broadcom’s term rigidity. Through strategic negotiation and scenario modeling, Avasant successfully reduced the term from five years to four years, saving the client one full year of Broadcom license costs. Tiered pricing with managed service provider (MSP): Avasant negotiated a tiered pricing construct with the MSP that directly linked mainframe costs to the client’s million instructions per second (MIPS) consumption. This ensured that as workloads migrated off the mainframe, costs would decline proportionally, protecting the client from stranded cost risk. Migration acceleration strategy: Avasant developed a comprehensive migration road map to fast-track workload transitions, aligning technology, vendor, and business timelines. It also led the RFP process to identify and onboard the most suitable migration service provider, ensuring technical fit and cost efficiency. Outcomes and impact Significant cost avoidance: It helped achieve one year of Broadcom license savings through strategic term reduction. Ongoing cost efficiency: The tiered pricing model ensured sustainable savings as MIPS usage decreased. Transformation enablement: A clear migration strategy and selected provider helped the client drive accelerated workload transition. Future risk mitigation: The client remains on track to complete migration within the three-year horizon, eliminating exposure to another Broadcom negotiation at the end of the term. Value delivered Through an integrated strategy combining commercial acumen, negotiation expertise, and transformation alignment, Avasant enabled the client to realize substantial financial savings, improve contractual flexibility, and advance its mainframe modernization objectives.

While procurement maturity defines what to negotiate and how to govern it, execution excellence determines how quickly those strategies deliver value. This is where MSPs step in, translating sourcing intelligence and contractual rigor into operational outcomes.

Avasant has access to specialized MSPs who can operationalize these strategies. This helps build the right approach based on client requirements, assess service provider competency, and select the optimal partner for migration, cost optimization, or transformation initiatives. With this capability, organizations can translate sourcing intelligence and contractual rigor into tangible operational outcomes, ensuring alignment between business objectives and IT execution.

Final Perspective

The Broadcom–VMware era represents both disruption and renewal in enterprise IT. By shifting to subscription-only models, Broadcom has accelerated VMware’s alignment with cloud-era economics, while also challenging customers to rethink their cost structures, platform dependencies, and modernization strategies.

Broadcom’s VMware transformation is forcing enterprises to reassess cost structures, licensing strategies, and platform dependencies—the question, now, is not whether to act, but how quickly.

Avasant’s proven sourcing intelligence, benchmark models, and transformation frameworks are helping leading enterprises with the following:

1. 1. Negotiate better renewals: Avasant provides VMware cost benchmarking, market insights, and negotiation support to optimize license spend and terms.
   2. Design hybrid cloud strategies: It helps evaluate alternative hypervisors, containerized architectures, and hybrid cloud environments to ensure flexibility, modernization, and cost efficiency.
   3. Modernize virtualization environments with governance: It helps establish structured governance frameworks for procurement, license compliance, and vendor management to enable operational control and long-term value realization.

Connect with Avasant today to assess your VMware exposure and build a road map that turns disruption into opportunity.

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By Andre Sole, Partner, Krishnendu Moulick, Partner, and Gaurav Dewan, Research Director