Broadcom plans “rapid transition” to subscription revenue for VMware

Enlarge / A sign outside a Broadcom office on June 03, 2021 in San Jose, California.

Broadcom announced last week that it was looking to lose $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 once the acquisition is complete. Yet Broadcom Software Group President Tom Krause made it clear during Broadcom’s earnings call last week: the focus is on software subscriptions.

As reported by The Register, Broadcom plans a “rapid transition from perpetual licenses to subscriptions” for VMware’s products, replacing discrete versions to be purchased once forever, although “fast” in this case will still apparently take several years. Broadcom CEO Hock Tan said the company wants to satisfy current VMware customers and leverage VMware’s existing sales team and relationships.

Subscription software has certain advantages, including continuous updates to fix security vulnerabilities and ensure compatibility with new operating system updates. Virtualization software that requires low-level hardware access is more often interrupted by new operating system updates than most other applications. But a move towards more subscription-based software licensing could still be bad news for individuals and businesses who prefer to pay for individual upgrades as they want or need them, rather than on an ongoing basis for as long as they need the software.

VMware would be far from the first company to prioritize software as a subscription service and its more consistent and reliable revenue stream over perpetual licensed software. Adobe infamously moved its Creative Suite apps to a Creative Cloud subscription model nearly a decade ago, with no options left for customers who prefer perpetual licenses. 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 continuously updated Microsoft 365 version. Even services like PlayStation Plus or Xbox Game Pass replace one-time game purchases with ongoing subscriptions.

Broadcom currently plans to use the VMware moniker to replace the Broadcom Software Group brand once the acquisition is complete. The Broadcom Software Group also includes the companies formerly known as CA Technologies and Symantecwhich also represented billion-dollar purchases for Broadcom.

vmware would be 40 days find a buyer willing to pay more than the $61 billion offered by Broadcom.