M&A in the VMware channel is brewing as the Broadcom-owned vendor sets its sights on large, focused resellers and service providers.
Last week, 11:11 Systems completed its acquisition of managed infrastructure provider Ntirety, expanding its data management expertise and growing its VMware Cloud Foundation customer base. The deal was 11:11’s sixth VMware partner purchase in three years.
For Ntirety, the deal underscored the challenges facing channel partners that have been excluded from VMware’s future plans under Broadcom, which has focused on narrowing down the ecosystem to a select group of VCF specialists.
“They're really trying to consolidate the space so they can go deep and wide with a handful of people that are hyper-focused on delivering value to the customer,” 11:11 Chief Revenue Officer Dante Orsini told Channel Dive.
Under Broadcom, VMware has culled the VMware Cloud Service Provider channel from more than 4,500 two years ago to approximately 500 in 2024. 11:11 and Ntirety both made the initial cuts, but Broadcom introduced an invite-only program that reduced the ranks to less than 20 last year.
“A lot of these partners thought based on the first cut that they had a long-term relationship with VMware only to find out that they didn't,” said Orsini, who added that now only approximately 14 North American VCSP partners exist. The remainder will need to partner with one of the survivors, undergo M&A or attempt to re-platform.
“I feel bad for those companies, because they built an entire business model on having VMware as their stack,” said Seth Marsh, VP of sales and marketing at 11:11 partner TMG. “They invested millions of dollars in people, in hardware, in facilities, only to have the rug pulled out from underneath them. They're all scrambling right now.”
“Our strategy in optimizing the VCSP program is to focus our investments on a group of core partners with tremendous competencies like 11:11 Systems,” Ricky Cooper, Broadcom’s GM of global cloud service providers and OEMs, said in 11:11’s Jan. 8 announcement. “Their global footprint, VMware expertise, more than 6,000 customers and proven cloud, connectivity and security solutions position them to fully embrace our roadmap and innovation agenda and provide our joint customers with world-class service and support.”
Broadcom did not respond to requests for further comment prior to publication.
Surviving VCSP partners are eyeing a landgrab. Mark Iles, Omdia’s chief analyst for APAC channels, said the five winners in the mature Australia-New Zealand market are Macquarie, Interactive, Zetta, Spark and Datacom.
“We have been asked by a few partners to help with acquisition strategies to either buy other partners or try and take their customers before they have a chance to migrate them,” Iles told Channel Dive.
VMware has not publicly indicated if it intends for a third round of VCSP cuts, but background conversations with partners suggest that such a move could be on the table.
“Ultimately, the bottom line for them is, what is the number of VMware cores under management. If you're looking at it through the Broadcom lens, there's other factors that weigh into that also. But I think that's the North Star, so to speak. And there's very few of us that are doing this on a global scale,” Orsini said.
Migration pains
While some partners frozen out by Broadcom are moving to get off VMware entirely, Orsini said migration is easier said than done.
“It's very difficult to take something that's been around the last 15 to 20 years being VMware, and shift it on a dime to a different platform in a short period of time without disrupting your customer base,” he said.
In the year following Broadcom’s $61 billion acquisition of the virtualization software provider, some customers were driven to explore alternatives when they saw their annual VMware costs spike from $50,000 to $150,000 or $200,000, according to Telarus VP of cloud Chad Muckenfuss. However, sticker shock wore off for many as they grappled with the costs of ditching the embedded technology.
In many cases, a previous IT person had purchased and installed the system decades prior. Even if they wanted to move to Nutanix, they accepted raised prices from VMware to buy themselves time to make a plan.
Decision time
The clock is ticking for VMware customers as a shift to VCF 9.0 approaches.
Support for the private cloud bundle’s predecessor, VCF 8.0, ends in October 2027, at which point customers still considering VMware alternatives will be at a crossroads.
“Are they going to stay and move to a service provider like an 11:11, an Expedient, a Flexential, that's a VMware-supported solution, or are they going to pull the trigger and go to a Nutanix, a Microsoft Hyper-V or one of the alternatives at that point?” Muckenfuss said.
Partners will need to sort out the options available. Orsini said the consulting opportunity is ripe.
“The biggest success story we've seen in the channel is when agents are working with their customers and they're in tune with what those challenges have presented, or what those opportunities look like, based on where they are today in their technical journey and where they want to be,” Orsini said.
IT buyers are increasingly looking to move from capex spending to bundled, as-a-service offerings, which providers like 11:11 are apt to deliver, according to Orsini.
“We're seeing just a huge increase in demand, and I think Broadcom has really been a spark that's really driven a lot of that behavior,” he said.
