[Virtualization ①] A Turning Point for the Virtualization Market

Since Broadcom's acquisition of VMware, the domestic enterprise IT infrastructure market has been affected for 3 years as a sweeping overhaul of its licensing policy was implemented. Now in the third year of Broadcom's VMware licensing changes, renewal timing has arrived as the 3-year subscription contracts signed immediately after the acquisition approach expiration.

In the first and second years after adoption, the market was characterized by inquiries and exploration driven by the price shock. In the third year, the market is now in a phase of reassessing virtualization infrastructure strategies across industries ahead of contract renewals. Existing VMware users are under pressure to ease cost burdens, and a move toward "hybrid multi-virtualization" is emerging, with core systems retained and noncore workloads distributed elsewhere.

The debate in the virtualization market is expanding beyond cost reduction into the issue of infrastructure sovereignty in the AI era. As a result, the domestic "K-virtualization" camp, including Red Hat, is also stepping up its win-back offensive.

Broadcom eliminated perpetual licenses entirely and switched to a subscription model based on Core, while bundling 30 to 40 separate solutions into packages, bringing a fundamental change to enterprise IT budget structures. In the early phase of Broadcom's licensing changes, the perceived cost rose by as much as more than 8 times, and the sharp rise in initial costs sparked a wave of "escape from VMware."

Nutanix and other HCI players, Red Hat OpenShift virtualization, and open-source KVM-based platforms then emerged as alternatives, and expectations for a market reshuffle grew alongside them. However, after the initial price shock eased, the domestic virtualization market has shown not a complete exodus but rather a pattern of "realistic retention and partial distribution by workload."

Especially in mission-critical workloads, where limits remain in stability validation, large enterprises are maximizing use of the integrated package, "VCF (VMware Cloud Foundation)." By contrast, SMBs are maintaining their existing perpetual licenses while also exploring alternatives.

The core changes under Broadcom's stewardship are major simplification of the product portfolio and a revision of pricing policy. VMware has stopped selling vSphere as a standalone item and has shifted its product structure toward integrating compute, storage (vSAN), network virtualization (NSX), and cloud management (Aria).

Accordingly, VMware put the bundled packages "VMware Cloud Foundation (VCF)" and "VMware vSphere Foundation (VVF)" at the forefront as integrated offerings. In this process, the move to subscriptions and per-core billing became cost drivers, and policy changes increased the burden on companies seeking only basic virtualization.

Existing renewal costs were at the level of several billion KRW over 3 to 5 years, but when renewal time came, costs surged, and there were many cases in which renewal fees jumped several-fold or more. This backlash spread across all industries, including the public sector, finance, and manufacturing.

As the market began to stabilize after the initial shock, dissatisfaction remained. Unit prices rose due to package integration, and the key issue has shifted to the extent to which various advanced features in the VCF adopted by clients can actually be recovered in real infrastructure environments. The discussion is now centered not on the higher price itself, but on how much the functions introduced through package integration can actually be used in practice and connected to cost savings.

The main message from VMware vendors' marketing is that this is not a server virtualization tool but a full-stack private cloud solution. They are using the promise of maximizing hardware resource efficiency and offsetting recently soaring server and storage acquisition costs as the basis of their marketing narrative. An industry source said it is true that prices rose sharply, but because infrastructure operations have become more integrated through unifying 30 to 40 fragmented solutions into VCF, the issue must go beyond simple unit-price comparisons. The source added that vendors are focusing on demonstrating deep use of the virtualization, automation, and security features in VCF within customer environments and are persuading customers by citing reduced fixed hardware costs.

Broadcom's sweeping overhaul of its global partner program has expanded the impact of the licensing changes across the entire distribution and technical support ecosystem, shifting the existing domestic network of hundreds of authorized partners toward a much smaller structure. As a result, the direct channel was reorganized around about 10 top-tier partner companies, and many partners dedicated to small and mid-sized customers were pushed into losing their official status or abandoning the business.

As a result of this partner program overhaul, market concentration intensified around enterprise customers, and changes in partners' sales structures also led to the winding down of low-margin, high-volume sales aimed at SMBs. The direction of partner transformation has also shifted toward advanced technical personnel capable of designing and optimizing complex multicloud architectures for large enterprise customers, and the core competitiveness of partners today is being centered on consulting organizations with top-tier certifications and capabilities rather than the general-purpose staff who used to make up the bulk of partner engineers and handled routine maintenance for multiple solutions.

As a side effect of this restructuring of the partner ecosystem, a temporary gap in technical support also emerged. In response, Broadcom sent engineering support staff directly from headquarters to key sites, a move aimed at preventing large customers from leaving.

Right after Broadcom announced its price increases, VMware customers began reviewing alternatives. Candidates included Nutanix, Red Hat, and open-source virtualization platforms.

At the same time, domestic virtualization companies, Nutanix, Red Hat, and Citrix presented strategies to attract VMware customers. Nutanix offered promotions to reduce the initial licensing burden for migrating customers and a flexible payment structure, while Red Hat targeted the market with "OpenShift virtualization," a platform that integrates container and virtual machine management.

However, even 3 years later, many companies that had considered a "complete transition" continued to remain dependent on VMware. Some global manufacturing conglomerates and financial firms pushed ahead with building their own KVM-based virtualization platforms while also conducting large-scale PoCs for introducing competing vendors' solutions.

Other global manufacturing conglomerates and financial firms also carried out large-scale PoCs for building their own KVM-based virtualization platforms, and large-scale PoCs for introducing competing vendors' solutions as well. However, these PoCs did not lead to a full replacement in production environments.

At the level of overall market trends, complete replacement has also been sluggish. However, at the individual vendor level, there have been cases of one-time transitions involving environments with hundreds of physical servers.

In large sites such as enterprises, financial institutions, and the public sector, putting business continuity and stability first is cited as the biggest factor delaying the transition of core systems. These large sites strongly avoid risk-taking system replacement, so the dominant migration approach is to avoid a "big bang" migration and instead validate first by prioritizing "development and test environments" or by prioritizing "noncore business systems". Ultimately, a "phased migration" that undergoes sufficient validation has spread, as it is a way to avoid the risks of a full transition.

Behind this judgment is the fact that enterprise infrastructure has been optimized around VMware for the past 10 to 20 years. With backup, disaster recovery (DR), storage integration, and security architecture all aligned to VMware, a full migration to another platform increases downtime risk and the burden of potential errors, and because it is difficult to bear that burden, a "phased approach" serves as a safety net. On top of that, as demand in the market has increased, successive price adjustments by vendors targeting VMware have also continued, leading analysts to say that the expected TCO reduction from migration is falling short of expectations.

Enterprise companies that operate large-scale workloads are choosing VMware VCF based on maintaining their core mission-critical systems. Depending on cost and operational capacity, these companies are mixing in Nutanix or container-based OpenShift for new development environments, edge deployments, and noncore workloads.

Amid these developments, the shift among enterprise companies operating large-scale workloads toward a "hybrid multi-virtualization" strategy is becoming increasingly clear. The trend is toward maintaining core systems on VMware VCF while using other platforms in parallel for the rest of the environment.

By contrast, the SMB market continues to face a dilemma unlike the large enterprise market. SMB customers cannot afford VCF subscription costs in the several-billion-KRW range typical of large enterprises, and they are also facing reduced partner support. As a result, they continue operating their existing purchased perpetual licenses while taking the risk of losing technical support during the course of running those licenses.

In this situation, competition to absorb SMBs that insist on perpetual licenses has intensified. Efforts to sustain existing infrastructure using third-party maintenance services and third-party optimization solutions are continuing, and demand is also gradually rising for infrastructure migration to domestic virtualization solutions and to managed service infrastructure (IaaS) from cloud service providers (CSPs).

With a turning point in the virtualization market arriving after Broadcom's price policy changes, an industry source said concerns over the end of security patches and gaps in technical support have grown, while renewal costs have risen several-fold or more. The source said that for small and mid-sized companies with limited budgets, there are few alternatives other than keeping perpetual licenses, and they are trying to buy time through third-party maintenance. The source also explained that migration decisions are being delayed because there is a shortage of in-house specialists dedicated to the transition.

In this situation, the market is splitting between Option 1, which is to advance and stabilize existing infrastructure with VCF, and Option 2, which is to adopt alternative platforms to reduce TCO and break free from dependence. Companies now face a more complex decision structure as they juggle the need to maintain continuity for mission-critical workloads with the need to ease surging licensing burdens and push infrastructure modernization, and accordingly the battle for market leadership has entered a new phase.

Source: IT DAILY · Kwon Young-seok
Original: https://www.itdaily.kr/news/articleView.html?idxno=241274

References

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