Report Calls for Regulation of “Legally and Ethically Flawed” VMware

VMware's business model under Broadcom has come under scrutiny, alleged to be "legally and ethically flawed" by a group of cloud service provider (CSP) customers and partners. This allegation comes from a report released by the European Cloud Competition Observatory (ECCO), an independent monitoring body composed of members from the Cloud Infrastructure Services Providers in Europe (CISPE) trade association.

The report highlights concerns over VMware's shift towards subscription-based models under Broadcom's leadership, causing "substantial financial burdens and operational disadvantages" for its customers. ECCO's goal is to spotlight unfair software licensing practices, previously reporting on companies like Microsoft.

CISPE members, according to ECCO, met Broadcom to discuss the new business model but didn't witness any substantial change. The report urges regulatory action against the current model, warning it poses a material risk to the company and its shareholders.

Furthermore, the report criticizes Broadcom's "litigious approach," including cease-and-desist letters sent to perpetual license holders and previously settled litigation with Siemens over software piracies. This approach has incited fear among VMware CSP partners of becoming legal targets.

German IT customer association VOICE has filed an accusation with the European Commission, claiming Broadcom and VMware are engaging in antitrust violations. They allege Broadcom's practice of forcing product bundlings leads to unfair price increases, making it hard for competitors to sell to existing customers, thus enabling Broadcom to meet its financial targets.

Cloud Partners Under Pressure

Since acquiring VMware, Broadcom's approach to working with resellers shifted. Many smaller partners weren't included in Broadcom's partner program, making it hard financially for small CSPs to continue their business. While new licensing agreements have been signed under significant pressure, they often lack alternatives, leading many to purchase services from larger resellers.

ECCO warns these agreements are punitive, threatening the viability of providers relying on VMware. Changes to the partner program's incentives and requirements are also a growing concern.

“Urgent Measures”

ECCO recommends Broadcom take immediate steps to address these issues, such as providing a six-month notice before any changes to contract terms. Despite VMware’s financial success post-Broadcom acquisition, regulator intervention seems necessary as no voluntary changes are expected from Broadcom, which might further restrict eligibility in partner programs.

Many customers have sought alternatives to VMware or are considering ways to decrease dependence. However, most remain stuck due to the lack of credible alternative virtualization solutions.

Broadcom responded to ECCO's allegations by emphasizing their commitment to innovation and providing choice in partnership with European CSPs, inviting constructive dialogue with CISPE.