Broadcom Moves To Level The Playing Field For VMware’s OEMs

‘This is a very important point: it will be a level playing field where everybody has the ability to participate, and the best solution for the customers will win,’ Broadcom Vice President of OEM Ricky Cooper tells CRN

Broadcom is leveling the playing field for its OEM partners with a “reset” for Dell Technologies, Hewlett Packard Enterprise, Lenovo and others that will clear away 20 years of Byzantine agreements and thousands of SKUs in favor of simple, predictable pricing, said Broadcom Vice President of OEM Ricky Cooper.

“It’s not fair on any of them,” Cooper told CRN of the way VMware’s past OEM deals were structured. “Because of historical relationships we've had with the likes of Dell, etc., you've got a myriad of different pricing. Nobody, I can tell you, has been on the same pricing. Everybody's different. We just need to hit the reset button and say, ‘OK, I understand where we've been, but here's where we've got to be.’”

Cooper, who joined Broadcom via its $69 billion acquisition of VMware in November, said Broadcom is tossing thousands of SKUs, special pricing, deals, discounts and bargains that had collected for decades as VMware grew into one of the largest technology brands in the world.

Now with the deal done, Broadcom wants to give its OEMs predictability when it comes to their joint solutions, he said.

“I think it’s a great thing that’s happening,” said Cooper, who served as the head of the worldwide channel and commercial organization at VMware prior to the acquisition. “What had happened is we had built up an organization based on tribal knowledge where you have to understand the 6,000 SKUs we’ve got and deal [registration] and quoting and everything. Well, how easy would it be to just be dealing with a couple of SKUs? That’s going to be a real game changer. The ease of doing business. The cost associated with that will be very simple … The message really is we had to say, ‘This is crazy. Let’s pause here. Let’s get ready for your new year. As you hit quarter one, it will be a different motion, but it will be one that gives you a lot more predictability and efficiency.”

A senior channel executive for a major OEM, who did not want to be identified, said he was heartened to hear that VMware-Broadcom is leveling the playing field, eliminating the “unfair” pricing advantage Dell had in the market.

[RELATED: Broadcom Is Making Shareholders Rich, Rivals Happy And VMware Partners Bitter]

Dell’s advantageous pricing structure with VMware stemmed from its former position as VMware’s owner. Dell bought EMC along with VMware in 2016. It spun out VMware into a standalone publicly traded company in 2021, majority-owned by Dell Chairman and CEO Michael Dell and private equity firm Silver Lake.

Dell’s ability to “act as a distributor of VMware products and services” with terms that others could not match effectively reduced OEM and partner margins on VMware licensing, said the executive.

The executive said his company was having a “tough time competing” with Dell VXRail because of the advantage Dell had in the OEM market. “We weren’t making any margin on VMware,” he said.

All that said, the executive stressed that his company has been disappointed by Broadcom’s sudden termination of OEM agreements with no communication on new terms and conditions.

“Broadcom dropped a bomb on us with no information about what’s next,” said the executive. “We have had limited communication. Broadcom has to give us a strategy and tell us where they are going and what is the plan going forward. And they need to put margin back into this for the OEMs and partners. If they want to drive this business forward, they have to get us back to doing VMware business with partners.”

CRN has reached out to Lenovo and HPE for comment.

Dell told the SEC in a filing Tuesday that it would end a “framework for various commercial activities” with VMware that allowed it to act as a distributor of the product as well as a reseller of VMware products. Dell said it ended that framework on January 25.

In an internal email to its sales teams, Lenovo stated it would freeze SKUs that include VMware licensing, after Broadcom eliminated the OEM program on Jan. 8.

Cooper said the end was nigh for all the complexity that existed inside VMware prior to Broadcom’s ownership.

“We've had the history of years and years of doing different things in different ways,” Cooper said. “And quite often if you attempt to change it, everybody's upset. What you do find in the meantime is all the other OEM vendors are upset, complaining, ‘Well, I can't get access to that kind of pricing.’ So now it's going to be a very level playing field, and this is a very important point: it will be a level playing field where everybody has the ability to participate. And the best solution for the customers will win.”

Cooper said getting there may not be without its share of disruption.

“I feel very positive about this once we're through these early hiccups,” Cooper said. “We could have had a series of hiccups for the next two or three years, or we could say ‘Okay, let's try and do this a little bit differently. And let's try and get there as quickly as possible.’”

The priority going forward will be to maximize revenue for both Broadcom and its OEM partners, whether that’s in services or in engineered solutions, Cooper said, noting that too often, VMware found that it was pricing its solutions too cheaply considering their importance to the market.

“Quite often, I will get numbers from the OEMs and they say ‘Hey, what you do for us is you bring in five times the revenue with regards to hardware,’” Cooper said. “You make me relevant in the marketplace. You make me relevant in the data center. Your software is nowhere near the most expensive part of the big deals that are out there, but it is very much a needed part of the solution, and it’s got a five-times hardware drag.’ … Let’s take a step back. Why are we discounting so much when we are producing five times the hardware drag here?”

Cooper, who became VMware’s channel chief in 2022, said it was a snowball effect that must be arrested for VMware to be successful.

“We have to hit pause and say, ‘Guys, look. Work with us. We’re here to work with you.’”

In the interim, the Dell offerings are still available for sale, Cooper said.

“VxRail is fully available, reason being it’s a shining example of an engineered solution (that we discussed),” Cooper said Wednesday via direct messages. “The OEM provides hardware and support, and VMware provides the software in an integrated stack that solves our joint customers’ requirements for HCI.”

Dell told CRN on Wednesday that its Broadcom and VMware solutions remain a part of Dell’s portfolio, including embedded solutions such as VxRail and Carbon Black.

“Broadcom is an important and valued partner of Dell Technologies, and we will continue to deliver value to our customers and partners who select Broadcom and VMware solutions,” Dell said in a statement.