[alephnerd]

Absolutely.

When you reach VMWare size ($13.5 BILLION in revenue in FY 23), $8M is chump change.

The margins on support might not make sense.

With the level of revenue VMWare had, it's realistic to assume mean deal size is in the 8-9 digit range.

> what retention

TAMs, CSMs, constant PFRs, constant escalations, etc

[Ekaros]

13,5 billion is 1687 8 million customers... That is not actually that many...

[rootlocus]

That's what I don't get either. If they can shove off one of their top 1500 customers (probably much higher) and, as someone put it, "everyone is using them", that means unless you're one of the top few hundred customers, this can absolutely happen to you. Which is what people are upset about.

[alephnerd]

It's how companies work.

I can guarantee for a fact that a F1000 will be spending 8-9 figures for a VMWare type product (I've worked on similar products as a PM).

$8m is low.

> Which is what people are upset about

All that matters is purchasing committees are ok (not happy, not sad - just meh).

All I see here is just IC engineers pouting.

[ehvatum]

> All that matters is purchasing committees are ok

Large enterprise purchasing committees are foremost concerned with risk, you absolute dolt.

The risk that price will jump 12x, requiring all kinds of scrambling, is fucking awful.

I don’t know what planet you’re from, but you gotta stop acting like it’s this one.

[everforward]

And the risk they're most concerned with is the business ceasing to function.

I worked at a F500 that used VMWare; they'd probably pay a 12x subscription fee. Not because they want to, but because they started trying to get rid of their mainframe 30 years ago and 70 something percent of their business still relied on the mainframe last I was there a decade ago.

VMWare will likely go the same. It'll take them a year or two to PoC an alternative and get contracts signed, another 5 to move the low hanging fruit, and a decade to finish off the long tail of stuff that won't migrate easily.

We're talking migrating stuff running versions of Java that were EoLed a decade ago, using an app container (like Tomcat) that was also EoLed a decade ago, and trying to get that all working on a new infra stack.

And it's not just one of them, there are thousands of apps, many of which are outdated or have bizarre vendor requirements you'd likely never accept (like "we will not support you if you run this bog-standard Django app on a VM").

Stuff like this moves slooooowwww, especially at companies who only use tech to enhance their primary business (as opposed to tech being their primary business).

[sys_64738]

Enterprise is about focusing on the top earning accounts. This clearly isn't one of them.

[tgv]

And 100M is only 135 customers...

[biorach]

> The margins on support might not make sense.

Yeah, maybe. Without some real figures this is very speculative

> TAMs, CSMs, constant PFRs, constant escalations, etc

You seem to be assuming the customer takes up man-weeks or months of support and legal, not particularly typical for a repeat customer in that game - not sure how else you could account for the margin on $8m being completely eaten up

So... speculative and unconvincing

[alephnerd]

This is my bread and butter.

These kinds of numbers are closely guarded for competitive reasons.

Go chat with the sales or account teams at your employer - they can confirm in broad strokes what I've mentioned.

[biorach]

I think the strokes are a bit too broad for meaningful conversation

[alephnerd]

It's Sales and Pricing - there isn't a predefined curriculum around this.

Most of this is tribal knowledge you learn working a Field facing job.

Like I've said before, talk to SEs, AEs, and TAMs at your employer. They can confirm similar strategies and numbers.

[Rastonbury]

I work in enterprise saas as well and I can't imagine how bad this customer must be that they can break pricing unless VMware runs really low margins vs the industry. There must be other things as well

8m is 0.6% of their revenue, and they grew in revenue 4% from 2022 to 2023[1]. Losing 0.5% kinda hurts when they are growing that slowly. That 8m can't be that easily magicked out of existing customers or the freed up resources supporting that customer they fired. I know nothing about their business or financials however

[1]https://finance.yahoo.com/news/vmware-reports-fourth-quarter...

[alephnerd]

> There must be other things as well

My hunch is an Account Team gave a heavily discounted deal to land an upper market customer in order to meet quarterly commitments or get a nice commission.

The customer ended up accepting the $100M price-point as well (https://twitter.com/cioontherun/status/1761882689886433742), so they were clearly mis-tiered. If you can afford (what I assume is) a multi-year contract with a 9 figure TCV, you are generating 9 or 10 figures in revenue.

I've heard of similar shenanigans down the grapevine at w/ Cisco and Dell EMC and absolutely wouldn't be surprised if a similar thing happened at VMWare.

[Rastonbury]

If they accepted the 100m renewal then all is good for them, seems like a load of speculation about nothing - they were just simply overly discounted

[jraph]

I don't understand.

I can understand VMWare doesn't want to keep doing this, but with $8M, assuming a 100k annual salary, you can dedicate 80 full time employees to this customer yearly.

I understand 8M is nothing next to 13.5B, but that can't be unprofitable, can it? Or the contract is too low.

[baq]

taxes, margins, capex, etc. means you could do maybe 10. offshored to somewhere with competent people, 20-40 depending on location.

[alephnerd]

There are several flaws with your assumptions

1. "assuming a 100k annual salary" - the cost of salary is 1.75x stated wage, so in reality it's $175k

2. "you can dedicate 80 full time employees to this customer yearly" - you mean you need almost a hundred bodies per customers?!? In fact, this is a major reason to fire a customer. It means they are demanding and trying to outsource their entire org to you. Either pay up or piss off.

> that can't be unprofitable, can it

Nope.

> Or the contract is too low.

Exactly.

[jraph]

> 1. "assuming a 100k annual salary" - the cost of salary is 1.75x stated wage, so in reality it's $175k

I know, this was ballpark thinking, it's not a fundamental flaw in my thinking. 100k with taxes is still a 60k salary and that's about what I was thinking. Not great everywhere, but still good in many locations. I also don't know how much support people are usually paid, and 200k is still 40 people.

Now, indeed, I wasn't imagining hundreds of people per customer required. I'm willing to believe it's realistic for some kinds of businesses, for very big customers.

[everforward]

60k is likely very low for this kind of support. The people calling in are generally IT professionals that have issues a script won't solve.

When I worked with VMWare, it also wasn't uncommon for us to have support on site. If we were doing a big migration or had a significant issue, they'd send someone out for a week+.

They likely paid a premium to have support willing to travel for significant spans of time, plus now they're paying for hotels, daily stipends, etc.

Then you need labs for engineers to try to replicate problems, office space, general overhead like taxes and payroll providers, etc.

Then there's costs to the platform itself from some customers. E.g. small customers tend to be less homogenous. Every Fortune 500 has a SAN, many small companies don't. Now you need an "integrates with EMC" storage option for big companies, and an "integrates with everything else" option for small companies. Big companies want a service mesh, small companies want a billion different networking configurations, etc.

Basically big companies tend to resemble each other and view their differences as a competitive advantage they will pay their vendors to support so they can keep. Small customers diverge a lot, don't want to and/or can't afford to pay for the changes they need, and are generally more price-sensitive due to their ability and ability to switch vendors.

So simultaneously the small clients are profitable, but at a lower margin than bigger customers, and more willing to migrate away. Rather than taking a risk that they can do enough development to keep the small customers, they'd rather double down on the customers that can't switch, raise their margins, and cut their risk.

[alephnerd]

And $8m is LOW.

F1000s will spend the same amount on AV or endpoints alone.

For backbone infra, you can expect a price that is 4-6x higher, as network security, IT infra, etc is bundled.

[brazzy]

> With the level of revenue VMWare had, it's realistic to assume mean deal size is in the 8-9 digit range.

8 million is quite close to the low end of 8 digits. And at the high end of 8 digits, your assumption woud already mean they have only a few hundred customers in total, which is about as far from "realistic" as can be.

[alephnerd]

> only a few hundred customers in total, which is about as far from "realistic" as can be

That tends to be good enough for a PL within a larger organization, which VMWare is now.

Zscaler uses the same strategy and PANW is transitioning to as well.