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Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

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Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#51

Post by mamonster »

michaelt wrote: post #30
alephnerd wrote: post #14

Earlier quoted context omitted.

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).

> 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 mill…

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.

Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#52

Post by bachmeier »

alephnerd wrote: post #44
bachmeier wrote: post #38

Earlier quoted context omitted.

Do you have information not in the link? I don't see anything related to your comment. > This is basically a polite way to fire a customer. I'll throw out that raising the price like this is also a strategy to increase profit. In the absence of a source for your claim, I'll go with that instead. > Is that $8m worth it if in aggregate you spending an equal amount of time on that account as you are on a $20-30m account…

> Do you have information not in the link I do this for a living, first as a PM and now as a VC. These multiples are fairly common knowledge for anyone in Enterprise SaaS, and have have worked with accounts teams that have done this and have recommended similar strategies (at a smaller scale) to portfolio companies. > the person making them needs to be fired, and fast. They should have considered that they could hand…

> I do this for a living, first as a PM and now as a VC. These multiples are fairly common knowledge for anyone in Enterprise SaaS, and have have worked with accounts teams that have done this and have recommended similar strategies (at a smaller scale) to portfolio companies.

So the answer is no, you don't have any information not found in the link, and everything you wrote was speculation.

> You want to increase your (Revenue-COGS).

Exactly, and without knowing anything about the financials of this deal, there's no way to know if your claims are correct. It might have been an attempt to take advantage of someone that built on their product, expecting that they'll pay more.

Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#53

Post by nisegami »

alephnerd wrote: post #7

This is basically a polite way to fire a customer. You don't want to sell to everyone - you need to make sure the cost of retention+support is significantly less than what they are paying. If a customer is too troublesome or spending too little (for a company like VMWare, a $8m contract is on the smaller end) this is the politest way to fire them. It sounds like this customer is a legal firm, which makes sense - they…

>Is that $8m worth it if in aggregate you spending an equal amount of time on that account as you are on a $20-30m account?

I think it depends? Let's assume that both accounts are profitable overall, but one is massively more profitable. The logic to cut off the $8m account makes sense if you can move those resources towards more $20m accounts. But that isn't something that is necessarily possible, is it? There's only so many of those $20m customers out there.

This obviously changes if the $8m customer is not profitable or is just _that_ unpleasant to work with.

Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#54

Post by alephnerd »

bachmeier wrote: post #52
alephnerd wrote: post #44

Earlier quoted context omitted.

> Do you have information not in the link I do this for a living, first as a PM and now as a VC. These multiples are fairly common knowledge for anyone in Enterprise SaaS, and have have worked with accounts teams that have done this and have recommended similar strategies (at a smaller scale) to portfolio companies. > the person making them needs to be fired, and fast. They should have considered that they could hand…

> I do this for a living, first as a PM and now as a VC. These multiples are fairly common knowledge for anyone in Enterprise SaaS, and have have worked with accounts teams that have done this and have recommended similar strategies (at a smaller scale) to portfolio companies. So the answer is no, you don't have any information not found in the link, and everything you wrote was speculation. > You want to increase yo…

I've worked on these kinds of accounts at a VMWare sized company before.

If you don't trust me, go chat with CROs, Product Leadership, or Execs are similarly sized companies.

I agree this is tribal knowledge, but that's how most pricing and renewal negotiatons occur, with maybe a bit of RevOps black magic to justify a decision one way or the other.

Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#55

Post by jraph »

alephnerd wrote: post #22
jraph wrote: post #17

Earlier quoted context omitted.

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.

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 u…

> 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.

Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#57

Post by michaelt »

mamonster wrote: post #51
michaelt wrote: post #30

Earlier quoted context omitted.

> 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 mill…

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.…

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.

Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#59

Post by alephnerd »

nisegami wrote: post #53
alephnerd wrote: post #7

This is basically a polite way to fire a customer. You don't want to sell to everyone - you need to make sure the cost of retention+support is significantly less than what they are paying. If a customer is too troublesome or spending too little (for a company like VMWare, a $8m contract is on the smaller end) this is the politest way to fire them. It sounds like this customer is a legal firm, which makes sense - they…

>Is that $8m worth it if in aggregate you spending an equal amount of time on that account as you are on a $20-30m account? I think it depends? Let's assume that both accounts are profitable overall, but one is massively more profitable. The logic to cut off the $8m account makes sense if you can move those resources towards more $20m accounts. But that isn't something that is necessarily possible, is it? There's onl…

> But that isn't something that is necessarily possible, is it

At VMware size it absolutely is.

I've worked on accounts at similarly sized vendors and even AV or Endpoint spend will be in the $1-5M range alone even if per unit price is in the $20-30 range.

With a backbone product like VMware, you can safely assume spend is 4-6x as you will be bundling network security along with IT infra.

Re: Can confirm a current Broadcom VMware customer went from $8M renewal to $100M

#60

Post by alephnerd »

jraph wrote: post #55
alephnerd wrote: post #22

Earlier quoted context omitted.

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 u…

> 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…

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.

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