Before viable public cloud options were widely available, enabling enterprises to buy processing power and data storage ‘by the drink’, the best way to get past the physical constraints and limitations of the technology assets in your data center (to achieve greater value from higher utilization of those investments), was to virtualize them and serve them up to your applications as virtual machines rather than physical servers. VMware was the market leader in this space for 10+ years and was extremely successful in being able to consolidate technology spend in the enterprise. In fact, they consolidated more enterprise technology spend than anyone else except Microsoft from 2000-2020.
VMware has been making significant efforts to keep its stranglehold on its customers even as they are digitally transforming and migrating to the cloud. Although, as fierce competition has emerged, and as most modern enterprises are increasing their velocity towards open multi-cloud environments, VMware’s focus seems to be on its past concepts of customer lock-in to its proprietary products. This has opened the way for suppliers like Nutanix who can support mixed virtualization environments that run multiple hypervisors, versus only the ESX (developed and used by VMware), and oh by the way, can do so with richer feature sets and for significantly less money. Offering higher value at a cost significantly lower than industry standards is the hallmark of a potentially disruptive supplier.
While VMware Cloud on AWS has achieved some success for VMware, unless you are (i) a legacy user of ESXi servers, (ii) managed by a hosted version of vCenter, (iii) with NSX utilized to provide software-defined networking, and (iv) vSAN for the storage layer for your virtual machines, and (v) comfortable with this framework, there is no need to absorb the expense of a VMware suite of products on top of AWS ECS and related products. VWware was also arguably late to the game in support of Azure and faces headwinds here as more clients move workloads to the Azure Cloud.
To start, VMware sells at extremely high margins, and their customers typically pay 39-70% more for VMware solutions when compared to viable market alternatives. VMware pricing is predicated on the feature sets of its various Editions (which we won’t get into in this article as it’s an entirely different discussion), and is generally priced per CPU as follows:
The majority of enterprise clients end up on Enterprise Plus. This makes a 1000-CPU deployment of Enterprise Plus cost $3.6M at list with an $899k annual maintenance run rate as follows:
Production Support is factored at 25% of the license cost, Basic Support is available at 21% of the license cost. The difference is that Production Support is 24x7x365 while Basic is 12 Hours per day M-F. Most enterprise clients go with Production Support.
This makes the 5-year cost of a typical deployment cost somewhere around $8M (at list) as follows:
As if that were not enough, effective in Apr 2020, VMware changed its licensing rules to require customers to have an additional license on servers that have more than 32 cores, forcing some customers to double their costs for new VMware licenses.
How to Save
To combat the value-grab of conventional licensing metrics, most clients opt for an enterprise license agreement (ELA), which is a multi-year committed contract (typically 3 years), and includes everything you own plus committed minimum future purchases, and includes a schedule of set dates where you have obligations to deploy various amounts of licenses in a ‘use it or lost it’ fashion. Although the ELA requires you to maintain all assets (old and new) at the production support (not basic) level, clients often get 20%-35% Savings in their ELA, however, 94% of the VMware ELAs NET(net) evaluates are configured in such a way to make them highly sub-optimized, and while costs can vary greatly by clients, driven by scoping, discounts, terms and conditions, and features, our ELA optimization and negotiations often result in additional savings of 30-50%.
However, committing to an ELA also means committing to the Install Base Maintenance and Support fee structure, which is tied to all of your legacy licensing to date. This can be sizeable, acquisition and maintenance costs inside the legacy estate can vary greatly, and utilization can be mixed, but once you commit to an ELA, VMware makes it extremely challenging to optimize the licensing and/or leave the ELA with the threat that this legacy support cost that has been incorporated therein will revert to a list licensing cost basis should you not renew your ELA past the “out year”.
Terms and Conditions Alerts
- Many contractual terms and conditions also merit revision and need to be renegotiated to help clients avoid huge exposure to risk, and/or to mitigate significant unplanned future costs.
- Watch out for VMware Ordering Documents – seemingly innocuous ways to memorialize orders that simply highlight your most recent quantities and costs, often reviewed by finance, but rarely reviewed by legal. Clients should beware because in the standard VMware agreement, these ordering documents can alter contract terms, and various provisions are frequently slipped into these documents to effectively create new terms and conditions.
- Understand the implications of your ELA, which is considered by VMware to be a glorified Ordering Document, and as such, it’s part of your contractual agreement, and can only be altered by amendment once it has begun.
- The Enterprise User License Agreement (EULA) is generally a schedule inside the ELA, and includes by reference the current Product Guide (which is key).
- Carefully review any references to VMware’s Product Guide as the definitions in the product guide will often take the highest priority even over the contractual agreement itself. It is here where VMware can do things like unilaterally change the definition of what constitutes a CPU license. Most clients (wrongly) believe the ELA is the governing document, but it’s not. Your use will always be subject to the EULA (which contains the Product Guide), and it is often referenced in the agreement as an external link (again, unilaterally controlled by VMware).
- If you think you can play the same game of slipping new terms into your agreement, be careful, as the standard VMware agreement also specifically stipulates that the ELA supersedes any conflicting terms of any of your purchase orders or any other terms you may try to set as conditional for payment.
- Audit Clause. Do not forget that VMware is one of the most audit-crazy suppliers in existence. In our latest survey from 2019, VMware ranked 7th on our list. Audit clauses should be carefully constructed with specific professional guidance.
VMware faces stiff competition in the enterprise and in cloud, so there is no reason you should not get VMware’s absolute best deal if you are to stay a VMware customer.
If you want to see the opportunity you have to save, Price-Benchmark your deal with NET(net) here.
If you want to learn more about how you can further Extract Value From VMware, read our blog here.
NET(net) can help you maximize your savings on VMware, and with January’s Fiscal Year-End fast approaching, there is no better time, so Act Now. While this article highlights the basic concepts of VMware cost-optimization, there is a significant difference in outcomes based on the market intelligence, processes knowledge, optimization techniques, and the commercial and contractual negotiation skills of the parties involved, so to achieve the best results, contact us today to find out how we can help you save 39-70%.
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