There has been a lot of discussion surrounding the news of Broadcom's $61 billion acquisition of VMware. Transacted in a 50-50 blend of cash and stock, Broadcom bought the veteran cloud and virtualization provider for a net price of $138 per share -- an impressive 44% premium.
With this merger representing one of the largest tech deals ever, we at Enterprise Strategy Group (ESG) are examining it from a few different angles, including Rob Strechay with its impact on VMware’s existing cloud-native developer community.
A developer community shakeup
When I think specifically about the developer viewpoint, VMware Tanzu comes to mind. In the throes of this merger between Broadcom and VMware, I find it a bit concerning that the financial momentum surrounding Tanzu has tapered off over the past year, given that it was once one of the highest-performing offerings in the VMware portfolio. According to the latest Enterprise Technology Research survey, Tanzu's share of VMware's business went from 49% in April 2021 to 32% in January 2022. By April 2022, that number fell to just 20%.
Now that VMware sits under the Broadcom banner, how will the future of cloud-native developers change? There has been markedly slow growth in the VMware developer community, which will be taken into consideration during the course of this acquisition. However, the declining interest in Tanzu over the past year suggests that VMware's cloud-native developer community will take another big hit under the new regime.
Truthfully, Tanzu offers the developer community a lot of advantages, such as its Kubernetes-based API integration and workload management packages. Even if developers are already experts in Kubernetes, the Tanzu Application Platform still helps reduce complexity, allowing for increased levels of development flexibility, management simplicity and focus on the customer experience. This also reduces the "bag of bits" problem that was first described to me at KubeCon EU.
Broadcom has traditionally staked its business model on the success in things such as silicon chip production and emerging infrastructure software. Where does that leave full-stack developers in terms of support and tooling options? After all, the growth in CI/CD pipeline implementation, cloud-native adoption and application modernization efforts have remained the key areas of focus for VMware.
A shift in cloud hosting models
ESG research suggests that while organizations are looking to reduce complexity, they are also willing to spend money on vendors that will help accelerate cloud-native development projects. To that end, Broadcom might be able to create some real synergy when it comes to combining VMware with its existing portfolio of products.
According to our research, 88% of production workloads run in a public cloud infrastructure. That same research also shows that 89% of respondents each work with two or more different cloud service providers. If VMware can act as the proverbial "Switzerland of clouds" by offering organizations one platform to run multiple cloud environments, it stands to provide a lot of value with its cloud-broker approach to governance. The increasing importance of data sovereignty only serves to heighten this chance.
Alternatively, Broadcom may simply see VMware as an operating system for private clouds. This would, arguably, provide the unified single-platform approach sought after by cloud-native developers -- a move that would allow Broadcom to move up in the market.
Which path to follow
Finally, there is a potential opportunity for Broadcom to expand and grow the VMware developer community to one that represents the entire software stack. The tools to make that happen are there in VMware's portfolio; it depends on Broadcom to see the potential.
VMware is clearly more than a mundane cash cow in Broadcom's eyes, but it remains to be seen where Broadcom plans to take VMware's future. Whether that means expanding into emerging markets or staying true to the core business, Broadcom has its work cut out for it to stay competitive on the heels of this merger.
ESG is a division of TechTarget.