Here's why Broadcom is ditching its AWS channel partnership

  • Broadcom is changing the way it sells its VMware Cloud on AWS product

  • Analysts told Fierce the move is likely about gaining direct control over customer relationships and revenue

  • Broadcom isn't expected to ditch its channel partnerships with other big names, though

It’s no secret at this point that Broadcom has spent the last few months overhauling VMware’s business, and in particular its go-to-market strategy. But CEO Hock Tan’s announcement this week that it has essentially ditched its channel partnership with Amazon Web Services (AWS) of all companies was…surprising to put it nicely.

To be clear, the VMware Cloud on AWS service isn’t going anywhere. It’s the way that product is sold that’s changing.

“VMware Cloud on AWS is no longer directly sold by AWS or its channel partners,” Tan wrote in a blog.

“What this means is that customers who previously purchased VMware Cloud on AWS from AWS will now work with Broadcom or an authorized Broadcom reseller to renew their subscriptions and expand their environments.”

That’s straightforward enough, but the question we were left with was why? Surely AWS is a strong sales channel given the hyperscaler’s size and prominence in the cloud market, right? Could Broadcom do the same with other hyperscale partnerships?

Broadcom declined to comment on the reasons for the move, pointing us back to Tan’s blog.

So, we took these questions to analysts. Their take? It’s about control and revenue.

A decade down the drain

First, a little background.

Gartner VP Analyst Michael Warrilow noted in an email to Fierce that VMware first launched its partner program for hosting and managed service providers over a decade ago. That cohort eventually grew to include more than 4,000 partners but Broadcom has “dramatically revised this program” since acquiring VMware late last year.

“The majority of partners did not make it into the new program – despite many having had a decade-long relationship with VMware,” he told Fierce. “The pricing model for the new hosting arrangement has also changed dramatically. Those that remain in the program appear to be forced to exclusively use Broadcom’s premium offering.”

But among channel partnerships, the one between VMware and AWS was unique, Warrilow added. Why? Because the pair “co-engineered the ‘VMware Cloud’ solution and ultimately it was sold through both channels. It’s worth noting that ‘VMware Cloud’ was technically a VMware offering that was managed by VMware. It just happened to be located in AWS cloud regions.”

All the moves Broadcom has made suggest it is “focused on capturing more direct revenue” from its products, he said.

AvidThink founder Roy Chua offered a slightly different take, arguing the moves are about Broadcom “wanting direct customer relationship and account control.”

“It comes down to Broadcom's positioning of VMware as THE hybrid cloud platform for their enterprise customer,” he explained. “Holding the direct customer support and billing relationship is consistent with that — VMware wants to position the public clouds as fungible compute and storage providers, mostly interchangeable, meanwhile the control, policy, orchestration and abstraction platform remains VMware.”

It’s worth noting that Broadcom’s move doesn’t appear to have gone over well with AWS. Chua pointed out the hyperscaler has begun encouraging VMware customers to migrate on-premises VMware workloads directly to Amazon’s own EC2 instances.

Both Warrilow and Chua said they don’t expect Broadcom to make the same move with its other hyperscale partners.

Chua noted that Google Cloud and VMware just announced an expanded partnership arrangement last month that includes collaborating on go-to-market initiatives. And for its part, Microsoft said in February its was “excited” to continue its partnership with Broadcom, adding its “commitment to delivering Azure VMware Solution to customers is as strong as ever.”

And Warrilow pointed out that unlike the AWS offering, the other cloud-based VMware solutions from Microsoft, Oracle and others were each “developed by the relevant cloud provider, which will continue to sell them direct through their channel rather than Broadcom’s.”

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