VMware customers are seeing massive late fees since Broadcom acquired the company

Broadcom CEO Hock Tan 

VMware customers have been experiencing sticker shock since Broadcom acquired the software company nearly a year ago.

Besides massive price increases, some customers are being hit with a late fee of around 20%, according to two partners. They said customers have been caught off guard because these are net new subscriptions. The exact late fee charge depends on factors like their specific deal with Broadcom and which products they use.

Under Broadcom, VMware now focuses on its largest or most “strategic” customers, and its customers must also convert from a perpetual licensing model to a subscription model— moves that Wall Street analysts are optimistic about.

It’s unclear when these late fees started. The partners who spoke with B-17 said that it’s impacting some customers transitioning to a subscription when they miss renewals and even customers who still have existing support and subscriptions (SnS) that haven’t expired but haven’t yet signed up for new subscriptions.

Additionally, some customers are charged this fee if they initially dropped support but then resumed it when they upgraded to a new version.

“Two customers I was talking to last week said, ‘Out of nowhere, it seems, a VMware sales rep sent me a note and said, hey, if they don’t renew before SnS expires, there will be a 20% late renewal fee,” said Dean Colpitts, CTO at Members IT Group. “My response was, how can there be a late renewal fee?”

Likewise, Ignacio Llorente, CEO of OpenNebula Systems, said in an email that his company has received “numerous emails from companies expressing concerns over VMware’s recent changes in contractual terms, licensing models, and pricing policies.”

“Many customers who transitioned from perpetual licenses to VMware’s subscription-based services are finding the new model challenging, as they are unaccustomed to the ongoing renewal process,” Llorente said.” This has led to some being caught off guard by unexpected additional costs, especially when renewals are missed.”

Colpitts said that the text about the late fee in the email was bolded, making it seem like a “scare tactic.” He added that customers did not get any previous warnings or communication about this late fee.

“They’re not giving customers any discount or consideration for what they currently have,” Colpitts said.

Rick Vanover, vice president of product strategy at Veeam, said it’s common for companies to charge a fee if customers don’t renew on time. Although this is not always enforced, it can be used to negotiate a deal with customers to get them to renew before the price increases, he added.

Broadcom did not respond to requests for comment from B-17.

Changes to VMware under Broadcom

Several VMware partners and customers previously told B-17 that they are seeing price increases up to 10 times as high as their previous contracts when they renew, largely due to product bundling.

“This shift has proven particularly difficult for organizations that have long relied on VMware, especially cloud service providers,” Llorente said.

VMware partners have also faced several changes in how they sell their software. Colpitts said there’s been less tech support, and partners no longer get early access to VMware’s software as they previously did. This means they’ll have to buy their own copies to test it before rolling it out to customers.

“I think Broadcom went about it completely the wrong way and left a bad taste in people’s mouth,” Colpitts said.

Switching to VMware alternatives

Some VMware competitors have seen the acquisition by Broadcom as an opportunity to win over VMware customers.

“This frustration with VMware business practices is causing massive demand for alternative virtualization solutions,” Bruce Kornfeld, chief product officer at StorMagic, said in an email.

A recent Forrester report said that VMware revenue would continue to drop. While customers will invest further in the private cloud or hybrid cloud for regulatory compliance, they likely won’t increase business with VMware, the dominant private cloud player, because of bundling and price increases. Still, “many VMware shops will renew at a limited scale,” the report said.

The report said alternatives like Nutanix or open-source software like OpenStack will see increased interest, although OpenStack will require improved tech sales processes.

Llorente said VMware’s changes have made customers concerned about being locked into one vendor and driven increased interest in similar offerings that are available as open source.

Still, other partners say there’s no other viable alternative. Plus, it’s a difficult, costly process for customers to switch to a different provider, Colpitts said.

“What other really good options are there?” Colpitts said.