[wjnc]

It is the most shitty (and stupid) way possible to act though. Old price x 12 is not in good faith. Contracts are based on good faith. Give them a rationale, give them a deadline 24 months hence and a fair price increase. Dare to say no to individual customers. Any customer should now start planning for the end of their Broadcom VMWare-contract. If they do not act in good faith to a random customer, why would they to you? Large company contract management is based on trust. This might cost Broadcom a lot more than a few individual customers that they were planning on 'letting go'.

I work at a company that got sold by another company with an indefinite LTA (long term agreement) in place. Former owner did not honor the LTA, but at least was transparant and timely about it. We got two years to sever several key processes. We will end up severing all ties, since the business risk of leaving open ends without the LTA is too big for my risk appetite. Fool me once. And that's our business consequence of not honoring an LTA even when the former owner severed the ties in good faith. If the buy-in is not there for both parties to the contract, then there is no ongoing relationship.

[lordnacho]

What's not good faith about this? "Your custom won't work for us unless we get 100M"

Chances are this is not actually surprising for this customer. There's probably been a lot of talk between the sides, a lot of expectations that weren't met both ways.

What you're describing at your own company seems to be that same thing, no? Relationship wasn't going well, and it's gotta end somehow.

Now that's not to say this should be normalized, it shouldn't. But there needs to be some way to say "hmm, it doesn't make sense for us, business wise"

[alephnerd]

^^^^^ exactly this!

[red-iron-pine]

> Give them a rationale, give them a deadline 24 months hence and a fair price increase

consider that, for shitty, demanding customers, the 'fair price' may be 12x more.

$8M probably doesn't justify the effort, and they may well use $10M+ in support, resources, or potential liability.

Good faith in the contract is expecting to give something in the contract and then meaning it. They will give good support -- for 100M.

[alephnerd]

This is how I know you haven't been on an enterprise account team.

The strategy you described has no upside for the vendor (in this case Broadcom VMWare).

[michaelt]

> The strategy you described has no upside for the vendor (in this case Broadcom VMWare).

The upside is you don't scare off other customers when they hear reports of a 12x price increase.

Right now, in response to this post, VMWare's biggest customers will be drawing up plans for if they need to walk away at the next contract renewal. And they'll want those plans to be extremely credible - it's worth spending $5 million trialling and integrating a competing system, if it stops your $50m contract turning into a $150m contract.

[mamonster]

I mean, VMWare customers were warned about this ever since the deal got announced. This is literally the Broadcom strategy for the last decade at least: Buy vendor with lockin, cut non-core features, raise prices and squeeze the customers who are in too deep.

Broadcom goes into these deals knowing it will hemorrhage a lot of customers and they don't care, they know they can make it up on those who are forced to stay. They don't care about reputation at all.

[michaelt]

Customers were all expecting to get milked, sure. But the milking process usually tries not to kill the cow.

Usually that means prices increasing by ~10% every year, so that it's never quite worth it to switch to an alternative system.

[mamonster]

Sounds like customers were not familiar with how Mr Tan plays ball, he's been doing this forever. He isn't trying to kill the cow, he will famish the cow to the point where the cow will be alive enough for him to milk his required rate of return and not an ounce more. Its a risky strategy, but Tan is loved by Mr Market so he gets the benefit of the doubt.

[InsomniacL]

"The Answer is simple: No" Broadcom CEO Hock Tan - Nov 2022 - addressing reports of vmware price rises

"[Broadcom's methodology] was not based on taking existing products and raising their prices" Broadcom CEO Hock Tan Oct 26th 2022

[red-iron-pine]

VMwares biggest customers will be getting deals apropriate to their offerings.

It sounds like this was a (comparatively) PITA small-fry legal / law office.

[Sebb767]

> VMwares biggest customers will be getting deals apropriate to their offerings.

Maybe I'm completely out-of-touch, but an 8M$ contract should be sufficient to get "appropriate deals"?

[alephnerd]

Companies like Walmart, Centurylink, AWS (via Equinix), and the DoD (via General Dynamics) use VMWare and most likely have contracts in the 9 figure range for a backbone service like VMWare

[alephnerd]

As I said in my comment - you can safely assume mean contract value is in the mid 8 or low 9 digits at a company the size of VMWare.

If this scares away customers spending less than that, good for them. It doesn't make a dent when a F1000 is spending tens of millions a year on VMware and purchase by committee and will get sweetheart deals by being strategic accounts.

[itsdrewmiller]

VMWare has 400k customers and 13.4b revenue according to google, which means their average customer is around 335k.

[alephnerd]

That's not how the average should be calculated.

It should be:

(Contract_1_yearly+...+Contract_n_yearly)/num_contracts

Anyhow the customer signed the deal (https://twitter.com/cioontherun/status/1761882689886433742), implying they were underpaying and had the capacity to pay the true rate.

[itsdrewmiller]

That’s going to get you basically the same number unless you think most of those 400k customers do not have contracts for some reason? My revenue-based approach would undercount in-year bookings but your approach would undercount NRR which I suspect is nontrivial for VMWare (but I haven’t checked).

Also just to be clear I agree with your initial comment - there are lots of reasons even big customers can be worth repricing based on their true costs and strategic relevance. And at less than 0.1% of revenue VMWare can certainly afford to risk it.

[Sebb767]

> Anyhow the customer signed the deal (https://twitter.com/cioontherun/status/1761882689886433742), implying they were underpaying and had the capacity to pay the true rate.

If they are sufficiently locked in, this might have been the best option to migrate away without major disruption.

[alephnerd]

edit: I'm wrong on the calculation portion - don't do napkin math without coffee

itsdrewmiller is right

[mschuster91]

> The strategy you described has no upside for the vendor (in this case Broadcom VMWare).

It has. Product/brand trust matters... the most obvious example being Google, who have had an extremely hard time getting their stuff to be actually used as they have shown time and time again that even if you're the biggest game publishers on this rock, you won't be able to rely on Google keeping up their end of any deal.

[alephnerd]

> Product/brand trust matters

At Enterprise SaaS level it does not.

You do not have an individual purchaser - the deal will be vetted by committee for 1-3 quarters.

> most obvious example being Google, who have had an extremely hard time getting their stuff to be actually used

Extremely hard disagree. GCP does well in enterprise/strategic accounts where a customer in some way competes with Amazon (which is around 20-30% of the F1000) and also doesn't have a significant Windows presence (minimizing the need for Azure+MS Support)

[lynx23]

Wait, IANAL, but... If contracts were based on good faith, why do you actually need contracts? I highly doubt what you wrote. To put too much trust/faith in a bussiness partner seems like a good way to kill your bussiness.

[ThunderSizzle]

Negotiations should be based on good faith from both parties. If a party attempts to negotiate in bad faith, it becomes very clear and ruins the relationship.

And people enter into unfair contracts regularly without realizing it or understanding it.

[alephnerd]

This seems to be a renegotiation occuring at renewal time.