As the year progresses, the line between winners and losers still is a little blurry in the aftermath of Broadcom‘s acquisition of VMware. The deal, which closed in November 2023, brought an almost immediate gutting of VMware’s channel program in favor of selling directly to the top customers.
The MSP community mostly responded with some version of shock or dismay. That was captured well in a Canalys survey from earlier this year that showed 70% of global VMware partners were looking to change vendors.
In the midst of this, some companies positioned themsleves to scoop up the lost business when the acquisition was first announced. One such company was Virtuozzo, which has reaped huge rewards from betting against VMware’s strategy.
Hock Tan
‘Long-term Damage’
The fallout left in the wake of the acquisition isn’t much of a surprise to experts in the industry. Jay McBain, Canalys chief analyst of channels, partnerships & ecosystems, was among those who predicted long-term damage to the VMware brand. He cautioned MSPs to proceed carefully in vendor relationships.
The outcomes for VMware/Broadcom have been mixed. The deal contributed to Broadcom’s 23% revenue increase in first-quarter 2024. This was despite it having trimmed at least 10,000 channel partners from VMware’s sales pipeline. However, the company reported a $600 million drop in VMware second-quarter revenue. Broadcom CEO Hock Tan expressed little concern or explanation in an earnings call, but some of those losses are no doubt due to MSPs taking their business elsewhere — by choice or by force.
And that left the door open for companies like Virtuozzo.
Winning Disgruntled Dollars
A visit to Virtuozzo’s website shows a banner headline about another company: “The VMware alternative for service providers and enterprises.”
The multifaceted cloud service provider made that update fairly recently, but CEO Alex Fine revealed that the positioning began in late 2022. In fact, Virtuozzo began building its first-ever channel program in direct response to VMware’s acquisition announcement.
Alex Fine
Virtuozzo’s offerings create a complete infrastructure enablement solution that has analogs of all the components VMware would have, Fine said. “In a way, we [were already competing] with VMware, but that wasn’t the main goal or mission statement,” Fine explained. “Sometimes it would be competition with VMware, but not always.”
However, that strategy changed faster than even Fine had anticipated as the deal triggered a massive influx of inquiries to Virtuozzo.
Proceeding with Caution
Many of the inquiries fielded by Virtuozzo were reluctant MSPs who still had an affinity for the VMware brand, but were unable to stomach rising prices and uncertainty, Fine admitted. Nevertheless, Fine said the majority of Virtuozzo’s business over the past two quarters has come from those very customers.
Most MSPs are moving with McBain’s suggested level of caution, both for emotional and practical reasons.
“In the real world, you cannot just switch from one [cloud vendor] to another. It’s not like changing cars. It is changing a relationship. It’s changing the infrastructure. It’s a massive project,” Fine explained. “All of them are insecure now. All of them are exploring, building alternative solutions side-by-side and testing before onboarding the actual production workloads.”
Some MSPs want a complete replacement within a few months, but many others are planning to shift in the next one to three years, Fine said. Especially for MSPs with thousands of machines under their purview, an immediate leap simply is not possible.
Committing to the Channel
Making the opposite move from VMware — from direct sales to a channel focus — is no easy endeavor, Fine said.
It required bringing in channel management talent, as well as a great deal of time educating MSPs so they can drive most of the sales independently. Plus, it included streamlining third-party interactions, building interfaces, and countless other must-haves.
It’s a long-term commitment. Now, more than 50% of Virtuozzo’s sales are through the channel, and Fine expects that number to rise to more than 70% by year’s end. In two years, at least half the company’s revenue will come through the channel.
For now, Virtuozzo is hand-picking MSPs that have the necessary technical background to ensure success. By next year, however, he expects to offer a streamlined package “easily self-deployable by pretty much anyone.”
Image: iStock
