Thought Leadership
Since the takeover by Broadcom, VMware customers have been faced with massive price increases. But not everyone is prepared to swallow the bitter pill.
The Austrian cloud provider Anexia, which recently migrated more than 12,000 virtual machines from VMware to the open source technology KVM (Kernel-based Virtual Machine), is one example of how to escape the cost trap.
“Broadcom’s license changes would have threatened our existence,” Anexia CEO Alexander Windbichler told The Register magazine. Anexia was founded in Austria in 2006 and has since established itself as a major provider of cloud services. With over 100 locations worldwide and well-known customers such as TeamViewer and Lufthansa, the company offers hosting and comprehensive IT services. Simply passing on the additional costs for the VMware licenses would not have been sustainable for Anexia. Instead, the company opted for a bold change in strategy and was met with great approval from its customer base.
VMware under Broadcom: a cost explosion with consequences
Anexia is not an isolated case. According to a survey by cloud provider Civo, 51.9 percent of VMware customers are considering leaving VMware, with 48.7 percent already actively looking for alternatives. The British cloud provider Beeks also recently migrated to an open source alternative. It operates more than 20,000 virtual machines in 30 data centers and did not want to bear the exploding costs.
Broadcom has dramatically changed its license terms following the acquisition of VMware. Many of the previously perpetual licenses have been removed. Those who want to continue to access their VMware products can now only do so via a subscription model. This change, which Broadcom euphemistically announced as a “dramatic simplification”, resulted in a doubling to tenfold increase in license fees for customers. At the same time, the new model forces customers to commit to long contracts and make advance payments for the entire year. For Broadcom, the calculation seems to be working out despite numerous customer losses: VMware recorded revenue growth of 196 percent in the fourth quarter of 2024 and achieved an operating margin of 70 percent, compared to less than 30 percent before the takeover.
Cloud subscription: the tempting trap
The VMware case shows how dangerous it is to become dependent on a single provider. After all, even a trusting business relationship that has existed for many years can suddenly go off the rails if organizational structures and strategy change. Luring or forcing customers into subscription models is a logical step from the provider’s point of view. Under the guise of greater flexibility and agility, they can tighten the thumbscrews further, adjust their conditions at any time and raise prices. After all, if customers no longer own software but rent it, they have little choice but to accept the changes. Those who don’t pay are locked out.
For good reason, all the major US software giants are now pursuing a cloud strategy and leveraging their power. Microsoft customers are also repeatedly feeling the painful consequences of an aggressive licensing policy. As recently as 2023, the Redmond giant raised prices for its cloud services by 11 percent. In November 2024, it announced further adjustments and plans to switch to a monthly payment model for M365, among other things, which effectively means a further five percent cost increase for customers.
Recognize risks and take countermeasures
IT decision-makers should be aware of the risks before they allow themselves to be seduced by providers’ advertising promises and blindly migrate to the cloud. This is because continuous price increases are certain. For example, spending on software licenses by the German government reached a record level of 1.2 billion euros in 2023, with M365 accounting for a large proportion of this. In 2022, it was still at 771 million euros, which corresponds to a whopping increase of around 57%.
The federal government’s decision to increasingly rely on cloud services such as M365 is therefore more than questionable, especially as Microsoft is repeatedly criticized for data protection concerns and a lack of security precautions. Only recently, the German Informatics Society (GI) warned of “unacceptable risks to Germany’s digital independence and the protection of citizens’ data”.
Many paths lead to digital sovereignty
There’s no question about it: breaking free from digital dependency requires courage and a willingness to think outside the box. The switch from VMware to open source technology was also a complex project for Anexia. But the effort was worth it, as the company is in a better financial position without the VMware bills and has more room for maneuver. “We have a free budget to work on the open source solution and make ourselves sovereign for ourselves and our customers,” says CEO Alexander Windbichler in an interview with The Register.
By opting for open source, Anexia is sending out a strong signal and showing that there is indeed a way out of the spiral of dependency. Another effective strategy is to rely on on-premises licenses for as long as possible. Although the major software providers like to give the impression that there is no alternative to the cloud, even Microsoft still offers on-premises products with perpetual licenses due to the high demand.
Office LTSC 2024, for example, is a current version of the Office software that works completely without a cloud connection. However, it is worth checking the range of software functions that users actually need in their day-to-day work. In many cases, an older version is completely sufficient to cover requirements. Such licenses are available at considerably lower prices on the second-hand market, allowing companies to save costs and additionally relieve the strain on their IT budget.
A well thought-out combination of the best of different worlds
Ultimately, it’s not about completely doing without cloud services, but about avoiding dangerous dependencies. A healthy, hybrid mix is the best strategy: on-premises licenses wherever possible – and cloud services where absolutely necessary. Companies should choose different providers in order to better spread risks. Both open source and (used) on-premises software are key building blocks for a future-proof mix that breaks up the power structures of the major providers. The importance of this is not only demonstrated by the examples of VMware and Microsoft. It is high time to learn from the mistakes of the past and change course in IT strategy.
