European cloud providers: Broadcom’s pricing will push us out of business

Europe’s cloud operator association CISPE calls for an EU intervention on Broadcom’s “brutal” VMware licensing policy changes.

Cloud Infrastructure Services Providers in Europe (CISPE) is urging regulators, legislators, and courts across Europe to swiftly scrutinize Broadcom’s decision and warns that critical services such as healthcare may be affected.

After Broadcom acquired the virtualization company VMware and unilaterally canceled all licenses for its software, European cloud services vendors and customers “are left in limbo without clarity as to how, when, or if they’ll be able to license VMware software from 1st April 2024,” according to the CISPE’s press release.

Some cloud providers stated that over 75% of their revenues depend on VMware software virtualization technologies.

“Costs for licenses have increased by a factor of twelve (i.e., 1,200%) in some cases,” the press release reads. “Several CISPE members have stated that without the ability to license and use VMware products, they will quickly go bankrupt and out of business.”

“Cloud customers, including public sector bodies, large European businesses, SMEs and start-ups are all threatened by egregious and unwarranted new contract terms and price increases. CISPE is calling for, at minimum, an immediate pause to contract terminations and the ability of customers to exit the multi-year contract imposed by Broadcom as soon as viable alternatives become available.”

Europe‘s leading cloud providers say they received only a few weeks’ termination notice, and hundreds of products have been discontinued without any notice. The remaining products were re-bundled through new contract terms without any technical modifications or software developments “in ways that unfairly increase costs for customers.”

CISPE cited that the new terms include “minimum commitments amounting to tens of millions of euros over three-year periods.”

“Broadcom is holding the sector to ransom by leveraging VMware’s dominance of the virtualization sector to enforce unfair license terms and extract unfair rents from European cloud customers,” commented Francisco Mingorance, secretary general of CISPE. “These changes harm European customers and cloud service providers, increasing costs and reducing choice.”

European cloud providers suggest that Broadcom should be regarded as a Gatekeeper under the terms of the new Digital Markets Act, as VMware held almost 45% of the virtualization market in 2023.

“Cloud services essential to public and private sector organizations, including local government, hospitals and universities as well as commercial businesses could go offline in a two weeks’ time,” CISPE warned.

Broadcom is an American producer of semiconductors and infrastructure software products. After the acquisition of VMware, the company stopped selling licenses and moved into a subscription-based pricing model. In a blog post, Broadcom’s CEO Hock Tan admitted that the change “has understandably created some unease among our customers and partners.”

“But all of these moves have been with the goals of innovating faster, meeting our customers’ needs more effectively, and making it easier to do business with us. We also expect these changes to provide greater profitability and improved market opportunities for our partners,” Tan said.

Broadcom calculates that subscription prices have even been reduced. However, many users do not need all the products included with the license packages but still have to pay for them, heise.de writes.

The Competition and Markets Authority (CMA) in the UK already stated that the merger could restrict competition and reduce customer choice.

“We are concerned this deal could allow Broadcom to cut out competitors from the supply of hardware components to the server market and lead to less innovation at a time when most firms want fast, responsive, and affordable IT systems,” David Stewart, executive director at the CMA, said.