Why Broadcom Is Ending VMware's Perpetual Licenses
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Why Broadcom Is Ending VMware's Perpetual Licenses

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Imagine you bought a house outright. No mortgage, no monthly payments. You own it. Now imagine the company that sold it to you knocks on your door and says, “Actually, you need to start renting.” That’s roughly what happened to thousands of enterprises when Broadcom completed its $69 billion acquisition of VMware in late 2023 and promptly killed the perpetual licensing model that IT departments had relied on for decades. Perpetual licenses for VMware have not been sold since January 2024 [Techzine], and the ripple effects are still spreading across the global IT landscape. But this wasn’t an impulsive decision. It was a calculated strategy with clear financial logic behind it.


The Acquisition Playbook

Broadcom’s purchase of VMware wasn’t just about acquiring virtualization technology.

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It was about acquiring a massive customer base that could be converted into a recurring revenue machine. CEO Hock Tan has done this before. When Broadcom acquired CA Technologies in 2018 and Symantec’s enterprise division in 2019, both companies underwent similar transformations: streamlined product portfolios, reduced headcount, and a hard pivot toward subscription billing.

The VMware deal follows this same playbook, only at a much larger scale. By eliminating perpetual licenses (where customers pay once and own the software indefinitely), Broadcom ensures that every VMware user becomes a continuous source of income. It’s the difference between selling someone a car and leasing them one. The lease generates less revenue upfront but far more over time.


Why Wall Street Loves Subscriptions

The financial math behind this shift is straightforward. Software companies built on recurring subscription revenue typically command valuation multiples of 10-15x their annual revenue. Traditional perpetual license businesses? They trade at roughly 3-5x. That gap represents billions of dollars in market capitalization for a company the size of Broadcom.

Subscription models also eliminate what analysts call the “feast-or-famine” cycle. Under perpetual licensing, VMware’s revenue fluctuated based on when large enterprises decided to upgrade. Sometimes every three years, sometimes every seven. Subscriptions smooth that curve into predictable quarterly cash flow, which Wall Street rewards with higher stock prices and more favorable analyst ratings. For Broadcom’s shareholders, the logic is airtight.


Forced Upgrades and Bundled Revenue

Under the old model, many enterprises ran VMware versions that were five to seven years old, paying only modest annual support fees.

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They upgraded on their own schedule, when their business needs justified the disruption. That era is over.

With subscriptions, customers must stay current. The move to vSphere 9, for instance, is a substantial upgrade. And you can’t get it on a perpetual license because those haven’t existed since January 2024 [Techzine]. Broadcom has also bundled features that were once sold separately into larger subscription packages, meaning customers pay for the entire suite whether they need every component or not. The minimum per-server license fee jumped from 16 cores to 72 cores in 2025 [Techzine], a change that dramatically increases costs for smaller deployments.


Cloud Competition as a Catalyst

There’s another force at work here beyond pure financial engineering.

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AWS, Azure, and Google Cloud have been steadily eroding VMware’s traditional on-premises dominance with consumption-based pricing that appeals to modern CFOs. Cloud infrastructure spending grew 21% in 2023 while traditional data center investment declined.

Perpetual licenses looked increasingly archaic next to the pay-as-you-go flexibility cloud providers offered. By shifting to subscriptions, Broadcom positions VMware’s pricing to at least resemble the billing models enterprises encounter in the cloud, even if the underlying economics are quite different. It’s a defensive move as much as an offensive one.


The Tightening Grip on Customers

Subscription contracts also create something perpetual licenses never could: structural lock-in.

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Multi-year agreements with annual payment terms and early termination penalties make switching providers a financially painful proposition. Under the old model, an enterprise could sit on its existing VMware installation indefinitely while quietly testing alternatives like Nutanix, Proxmox, or native cloud services.

That breathing room has vanished. VMware underpins a huge amount of an organization’s IT operations [Techzine], and the rapid pace of change leaves little time for careful evaluation. Meanwhile, Broadcom has aggressively consolidated its partner channel. In the United States, only 19 VMware Cloud Service Providers reportedly remain out of what was once thousands [Computerweekly]. Hundreds of European providers face similar disruption [Computerweekly]. Fewer partners means fewer alternatives for customers seeking support outside Broadcom’s direct orbit.


What This Means for Enterprise IT

The real-world impact is stark. Many organizations report subscription costs 300-500% higher than what they previously paid under perpetual licensing, with small and mid-size deployments absorbing the most dramatic increases due to the new core-count minimums. IT teams that once controlled their upgrade timelines now operate on Broadcom’s schedule, introducing potential compatibility risks with existing applications and workflows.

This is a very rapid change, and it’s not just about upgrading vSphere [Techzine]. It touches storage, networking, security, and the entire virtualization stack that enterprises have built over years. For organizations locked into VMware, the path forward involves difficult budget conversations. For those with flexibility, it may be the push needed to seriously evaluate alternatives that were previously “nice to explore someday.”

Broadcom’s decision to end VMware perpetual licenses isn’t mysterious. It’s a textbook financial optimization strategy that prioritizes predictable subscription revenue and higher company valuations. Whether it proves sustainable depends on how much pain customers are willing to absorb before exploring alternatives. For IT leaders navigating this shift, the most valuable step right now may be understanding exactly what the new model costs compared to the old one and having honest conversations about whether VMware remains the right foundation for the next decade of infrastructure.


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