Broadcom announced last week that it intends to spend $61 billion in cash and stock to acquire VMware. We still don’t know exactly what changes Broadcom plans to make to VMware’s products or business model after the deal closes. However, Broadcom Software Group President Tom Krause made it clear in Broadcom’s earnings report last week that the emphasis is on software subscriptions.
As reported by The Register, Broadcom is planning a “quick transition from perpetual licenses to subscriptions”for VMware products, replacing “buy once, use forever”discrete versions, although “fast”in this case will apparently still take several years. Broadcom CEO Hock Tan said the company wants to keep current VMware customers happy while also leveraging VMware’s existing sales force and relationships.
Subscription-based software has some advantages, including constant updates to address security flaws and ensure compatibility with new operating system updates – virtualization software that requires low-level access to hardware is more likely to fail due to new OS updates than most other applications. But the move to more subscription-based software licensing may still be unwelcome news for individuals and businesses who prefer to pay for individual upgrades on an as-needed or on-demand basis rather than all the time for as long as they need the software.
VMware will not be the first company to prioritize subscription-based software as a service and its more stable and reliable revenue stream over perpetual software. Adobe infamously transitioned its Creative Suite applications to a Creative Cloud subscription model nearly a decade ago, leaving customers who prefer perpetual licenses with no options. Microsoft still offers perpetual licenses for its Office apps for Mac and Windows (Office 2021 was released in September), but it doesn’t provide all the same features as the constantly updated version of Microsoft 365. Even services like PlayStation Plus or Xbox Game Pass replaces one-time game purchases with permanent subscriptions.
Broadcom currently plans to use the VMware moniker to replace the Broadcom Software Group brand after the deal closes. The Broadcom Software Group also includes the companies formerly known as CA Technologies and Symantec, which were also bought by Broadcom for a billion dollars.
VMware reportedly has 40 days to find a buyer willing to pay the more than $61 billion that Broadcom is offering.