Virtualization’s Three Waves: Where Do We Go from Here?

Enterprise virtualization was once a predictable cost center. How did it become a source of budget anxiety? Is there a way to regain that predictability and control?

Since Broadcom’s acquisition of VMware in November 2023, price increases and shifting licensing models have made headlines as organizations that once operated on predictable perpetual licenses are now facing renewal notices with price hikes ranging from two times to as much as 12 times their previous costs.

But not every organization is facing increases, making the conversation of “what to do next” far from universal.

Let’s cut through the hype, look at the reality of IT budgets, and explore one predictable, tried, and true way organizations can get a handle on costs, no matter what happens next.

This Isn’t VMware’s First Pressure Test

We’re currently riding the third wave of change for VMware—and there are things we can learn from the first two. 

The first wave came around 2011 when Microsoft made a concerted effort to challenge VMware’s dominance leading up to the Windows Server 2012 announcement. At the time, vSphere licensing was based on per-socket costs and a vRAM entitlement, which led to significant cost increases for customers. Coupled with a perceived lack of significant new features, this created an opening for Microsoft. 

Windows Server 2012 was practically a Hyper-V love letter, heavily focused on its capabilities and positioned as a direct competitor to vSphere. Many of my colleagues at VMware at the time considered it a foregone conclusion. Microsoft was dangling substantial incentives in front of sales reps, alongside some big technical enhancements to the platform, to drive Hyper-V adoption and displace vSphere environments.

But did these maximums actually make a practical difference? More importantly, did it allow Microsoft to chew into VMware’s market share? No. The predicted mass migration never materialized. There are countless theories about why Microsoft’s Hyper-V push didn’t dethrone VMware. Organizations could have made the leap to Microsoft. 

Lesson 1: While application development sprints forward, infrastructure change is a marathon of deliberate, cautious steps.

The second wave of competitive pressure arrived in the form of the public cloud, a force far more potent than Microsoft’s challenge. The concept of “utility computing” had been circulating, but AWS transformed it into the tangible reality of “public cloud computing,” presenting a compelling vision: a paradigm shift promising new capabilities and concepts. 

“Infrastructure is a headache,” they argued, “slow, costly, and inefficient. Let us handle it, with metered simplicity. And while we’re at it, we’ll revolutionize your applications.” While some of those promises, like the serverless hype, have cooled considerably, the cloud’s impact was undeniable.

VMware, along with the entire on-prem ecosystem, felt the shift. Market share eroded as customers migrated to AWS and other cloud providers. Yet, despite this, VMware still crossed the $10 billion revenue threshold in FY2020, putting VMware in rare company with the likes of Adobe, Microsoft, Oracle, SAP, and Salesforce.

Lesson 2: Even after significant cloud adoption, the best estimate that exists is that a majority of on-prem virtual machines ultimately remained on ESXi. For some, there’s still strategic value in maintaining on-prem control. Cost savings can be application dependent. And other times, you need performance or capabilities the cloud can’t deliver. (Some customers even repatriated workloads back on-prem, realizing significant total cost of ownership [TCO] savings.) 

VMware’s Third Competitive Pressure: Capitalism

So now, we’re on the third wave of pressure on VMware and its market share. Only, this time, it’s not a competitor or a revolutionary technology: its an acquisition. 

The Broadcom acquisition has dominated IT conversations for nearly two years. Storage vendors, server vendors, backup software providers, automation tool developers—everyone is reacting to this market disruption. 

It’s challenging to convey to those outside IT why a piece of software, representing less than 10% of total IT infrastructure costs, is causing such a stir. But, imagine this: Your home’s entire electrical and gas system is suddenly managed by a new company, one that could change the rules and prices on a whim. Naturally, you’d consider switching. While inconvenient and potentially costly, changing your utility provider wouldn’t require rewiring every household appliance or impact your heater’s performance. 

The Reality of the Cost Challenge Conversation

While prices have surged for a lot of customers, it’s worth noting that some have even seen cost reductions. The customer pain points can be broadly categorized into three distinct areas.

  • Existing VCF and high-level private cloud adoption customers on subscription licensing: These customers could be experiencing roughly the same costs, or even a decrease. Their sentiment is likely, “What’s all the fuss about? This is a solid deal.”
  • vSphere customers with other critical SDDC components like NSX, vSAN, or Aria Suite on perpetual licensing: These customers are facing increases ranging from 20%-50%. They’re probably thinking, “This is mildly concerning, and I need to explore alternatives.”
  • vSphere/vCenter-only customers on perpetual licensing: These customers are enduring cost increases ranging from 50%-350%. Their reaction? Let’s just say it’s probably got a series of creatively constructed expletives.

What This Means for Customers

Whether you’re a VMware customer or a partner trying to navigate this new landscape, here are some key takeaways:

  • Prepare for a negotiation:

    • Renewals may not be the friendly, collaborative engagements of the past. You might need to prepare for intense negotiations, know your limits, and be ready to walk away if necessary.
    • Some customers will have no choice but to migrate off the platform. Define your “deal breakers.” How will you prepare your stakeholders for these challenging renewals? These are critical questions to address.

  • Foster creativity and exploration:

    • Organizations must empower their IT teams to explore alternatives. Invest in lab environments, provide MBOs for testing and piloting solutions, and grant them the space to think strategically.
    • While some leaders may view this as a waste of resources, it’s an investment that pays dividends when your team has a realistic understanding of available options and a well-defined migration strategy.

  • Start planning early—really early:

    • If your renewal is weeks or months away, you’re likely already behind. Planning should begin 12 months, or even years, in advance.
    • The complexity of migration depends on your IT maturity. Businesses that used VMware only as a hypervisor might have it a little easier, but for most enterprises that used VMware as a cloud platform, their work is cut out for them. Security, backup, networking, and various business units will be impacted.
    • Consider the ripple effect: logging dashboards, application health monitoring, backup and recovery processes, network port discovery, and security integration like microsegmentation. The ripple effect is by far the most important part of this new world. I’m only mentioning a fraction of the things you need to consider.

What Choice Do Customers Have?

Moving from hindsight to foresight, customers do have options. Many of us had hoped for a simple succession—a single, unified platform to rally behind. Instead, we’re witnessing something far more complex. Rather than a simple flow from one river into another, the market is fracturing. The once-concentrated beam of virtualization has hit a prism, refracting into a wide spectrum of strategies. From our vantage point, we see this light scattering into four primary trajectories:

  • Stay on VMware: As discussed, some customers won’t need to change, particularly large enterprises already invested in VMware’s full software stack. For those facing price hikes, many will accept the increase as a calculated expense—a necessary trade-off to protect more critical business priorities from the disruption of a major migration.
  • Go to the cloud: For enterprises already well-invested in a cloud-first model, this event serves as the final push to eliminate their on-premises dependency. It validates their existing strategy and accelerates the timeline for full cloud adoption.
  • Switch hypervisors: Perhaps the most intriguing off-ramp is the direct switch to an alternative hypervisor. While established players like Microsoft and Nutanix are expected destinations, this disruption may also fuel an unprecedented rise in open source platforms, altering the market landscape.
  • Modernize with containers: Beyond simply moving VMs, the most forward-looking strategy is to re-architect for a cloud-native future. Projects like KubeVirt (running VMs in containers) and platforms like Portworx® (providing robust storage for Kubernetes) are making this a viable reality. This path moves beyond a mere infrastructure swap to unlock new capabilities, though it requires the most significant organizational commitment.

Control What You Can Control

The virtualization industry could continue to be unpredictable, but organizations can find predictability and efficiency by controlling how their virtualization infrastructures operate. 

Enterprise Strategy Group’s recent economic analysis reveals that organizations using Pure Storage for their virtualized environments can lower total cost of ownership by up to 42% compared with alternative external storage solutions, and by 45%-62% compared with commercial vSAN deployments. “The Evergreen model has allowed us to eliminate costly hardware replacements and upgrades, saving significant resources while improving our storage operations,” noted one customer in the Enterprise Strategy Group study.

It’s just one example of an organization taking back control of its virtualization costs—the foundation upon which all virtualization economics are built—with a unified storage platform.