Lessons learned from Siemens’ VMware licensing dispute

Siemens got into hot water after Broadcom acquired VMware and changed licensing terms. What can enterprises learn from the ongoing legal battle?

When Broadcom acquired virtualisation leader VMware in late 2023, some experts sounded the alarm that things were about to change. Not all tech leaders paid attention.

The changes came quickly. First, there were layoffs of VMware employees and terminations of agreements with VMware resellers and service providers. Then came licensing changes. Perpetual licenses were out. Subscription licenses were in. And VMware software would no longer be sold as individual products and instead would only be sold in bundles, customers learned.

Some of its largest enterprise customers, especially those already on subscription licenses, would benefit, Broadcom claimed. But everyone else? Not so much. Those who had perpetual licenses would soon lose access to support, upgrades, and security patches. Nonprofits and educational institutions were out of luck. Members of the association of Cloud Infrastructure Services Providers in Europe reported increases ranging from 800 per cent to 1,500 per cent to the European Commission.

And it wasn’t just the small and mid-sized companies that were affected by the changes. AT&T said its prices would go up by 1,050 per cent, for example.

The lawsuits started flying. In the Netherlands, the Dutch Ministry of Infrastructure and Water Management sued Broadcom to get support for its VMware products while it migrates to other solutions over the next two years. In June, the courts ruled against Broadcom, and if it fails to provide support, it could be subject to fines of up to US$29 million.

AT&T also filed a lawsuit last August, which was settled in November at undisclosed terms.

Broadcom-VMware-Siemens saga

And that brings us to the Siemens lawsuit. What’s different about the Siemens lawsuit, and what makes it so worrisome for other enterprises, is that Broadcom is the one that sued Siemens for using unlicensed VMware software. (See the recap of events in our timeline of the Broadcom-VMware-Siemens licensing dispute).

Well, it was a little more nuanced than that. Siemens threatened to sue VMware if it didn’t provide ongoing support for the software and handed over a list of the software it was using that it wanted support for. Except that the list included software that it didn’t have any licenses for, perpetual or otherwise. Broadcom-owned VMware sued, Siemens countersued, and now the companies are battling over jurisdiction. Siemens wants the case to be heard in Germany, and VMware prefers the United States.

Normally, if unlicensed copies of software are discovered during an audit, the customer pays the difference and maybe an additional penalty. After all, there are always minor mistakes. The vendors try to keep these costs at least somewhat reasonable, since at some point, customers will migrate from mission-critical software if the pain is high enough.

According to Gartner, non-VMware products accounted for just 30 per cent of the market for full-stack hyperconverged infrastructure software in 2024 – but this will double to 60 per cent in 2029.

Despite the threat that customers are exploring potential VMware alternatives, Broadcom’s strategy seems to be paying off, at least in the short term. In June, Broadcom reported a 25 per cent year-over-year increase in revenues for its infrastructure software business. Overall, the company said, total earnings reached a record-high US$15 billion for the second quarter of this year, up 20 per cent from last year, due to VMware and to its AI semiconductor solutions.

There are three main lessons that enterprises should draw from this whole situation: They need to carefully review their licenses for terms and jurisdictions, track their actual usage, and have contingency plans in place in case something goes wrong.

Enterprise licensing audits

According to a Flexera survey of more than 500 IT professionals, 45 per cent say they had more than US$1 million in audit fines in the last three years – and 23 per cent said the number was more than US$5 million.

VMware was the eighth-most aggressive vendor when it comes to audits, the survey shows, with 18 per cent of companies getting audited over the past three years. But VMware was in second place in terms of relevance to a company’s software asset management program, right after Microsoft, because of its strategic importance to the business, license complexity, and cost impact.

The first problem with software licenses is that companies might not always know about all the software they use. In large companies in particular, software purchases can be made by different departments or charged on individual credit cards. And then there’s shadow IT.

“Developers might just spin up virtual machines and companies might not even know what they are doing,” says JP Batra, president at Blue River International, an IT and management consulting firm.

It’s hard for a company to have a copy of the software contract on hand if it doesn’t even know that the software was purchased. But having a legal license is just the start of the battle.

As the Siemens lawsuit’s jurisdiction battle illustrates, the fine print in the contract can make a big difference down the line, especially if companies have offices or subsidiaries around the world. “There’s a honeymoon period when a company acquires a new product,” says Batra. “People sign agreements without paying attention to their global presence. But what happens when there’s a conflict with local laws? Which laws should prevail?”

Licensing gotchas: Understanding terms and limitations

Another item that can show up in the fine print of software contracts is that the license might not include the use of all the available features in the product. According to the Flexera survey, 32 per cent of respondents report that the complexity of software use rights was a significant challenge – tying for first place with the amount of time and money spent responding to audits.

This issue has come up in the Siemens lawsuit, says Dean Bolton, chief architect and co-founder at LicenseFortress, a software license asset management company. “Siemens basically said that if the features were available, then they assumed it was included with what they purchased with their license key,” he says.

It’s a gotcha that other software vendors try to slip by their customers as well, he says. The feature might be right there, readily available, not grayed out, but you’re not supposed to use it unless you’ve paid for a specific additional license for that feature. “If that decision were to go in Siemens’ favor, I think that could have some significant ramifications through the industry,” Bolton says. “But I don’t think it’s going to go in their favor.”

Even when the procurement department understands the terms and limitations of its licenses very well, that doesn’t mean that this information is adequately distributed throughout the company.

Employees often don’t have the time to focus on the literal minutia of how the licenses work and which features are allowed, and which aren’t, says Bolton. “It’s not an excuse that the customers don’t pay attention, but the vendors don’t make it easy. They could make it a lot easier. I think the problem is that the vendors are doing it so that they gain more revenue – they kind of set little traps for customers in there.”

So, it’s not enough for a company to have a good understanding of all the terms and conditions of the software products they use. They also must track, in detail, exactly how that software is being used throughout the company.

Nathan Biggs, CEO of consulting firm House of Brick, recommends that companies monitor the usage of that software and compare it to the license agreements to ensure that they stay in compliance.

“This is a challenge sometimes,” he says. “The procurement or contract management organisation might understand the terms and conditions, but it’s the infrastructure and operations team that’s deploying the software, and sometimes those two groups don’t talk to each other.”

Most customers don’t want to get out of compliance, Biggs says. “If they’re using something that should be paid for, they want to pay for it. They’re not trying to cheat Broadcom. They’re trying to do the right thing.”

That’s why so many are so frustrated with Broadcom right now. “They feel trapped or they feel like they’ve been tricked into a situation that they didn’t intend to get into, and it’s resulting in them having to pay a lot more money than they had planned,” Biggs says.

Tracking software usage

For companies just starting out with software asset management, tracking is typically done with audits, according to the Flexera survey. About 37 per cent of companies fall into this category. Another 33 per cent track software licenses beyond just audits, and track SaaS, cloud usage, and software license lifecycles. The most advanced 29 per cent also optimise their software license use, rationalize their application portfolio, and, while they’re at it, track software vulnerabilities.

Some software vendors will provide their own tools to track usage of their software, says Bill Sudbrook, senior director in the solutions advisory practice at Flexera, a software asset management company. Flexera is also a VMware customer.

“By default, VMware will use their portals to say how many licenses you have,” he says. “But their portals are extremely inaccurate. It’s horrible. You absolutely must have cross-checking in your environment because the portals can get out of sync.”

Good record-keeping can prepare enterprises for audits and protect them from unexpected fines and cost overruns. However, there’s not much that customers can do to protect themselves from price increases that result from drastic licensing changes, Sudbrook says.

“They can just say that your licenses are end of service life,” he says. “Your licenses are no longer supported. If you want support, you need to go purchase a new set of licenses.”

Some enterprises looked for other partners to provide support for their VMware installations, he says. “And Broadcom has since put a cease and desist on those companies, saying, ‘No, you have to buy directly from us at our new significantly higher prices,’” Sudbrook says.

Some Flexera customers are seeing VMware price increases of 100 per cent, he adds, and some are evaluating alternatives such as Nutanix or one of the open-source options. Of those who switch, the majority are migrating to Nutanix, he says.

Is Flexera planning to migrate off VMware?

“Just like our customers, Flexera is always looking for ways to optimise our tech stack and resulting costs,” says Flexera CIO Conal Gallagher. “We constantly evaluate our tools and platform to better align with our business needs.”

Keeping an eye on new license terms

Ken Ringdahl, CTO at expense management firm Emburse, has worked for VMware in the past and has also been at a company that was audited by VMware.

“It was a regular audit,” Ringdahl says. “It’s a bit of an open cavity search, and, by their licenses, it’s their right. It’s very common in large enterprise software because it’s very easy to lose track of your software licenses and the right hand doesn’t know what the left hand is doing.”

Emburse itself was almost caught by a major licensing change. In 2023, Oracle changed Java licensing from per-user or per-processor to per-employee. And by “employee” Oracle means not just full-time staff, but also part-timers, temporary workers, contractors, and consultants. “We’d have had to license 900 people for use of Java,” he says.

According to Redress Compliance, the new Oracle license terms increase costs for companies from two to ten times, or higher, with some firms reporting six-figure budget overruns as a result. So, it’s no surprise that Oracle’s share of the Java market fell from 75 per cent in 2020 to just 21 per cent in 2024, according to a report by observability platform vendor New Relic. Fortunately, Emburse had a bit of foresight, and a bit of luck.

“Some of it was foreshadowed quite a bit, since Oracle acquired other companies and they want to monetize the assets they have,” Ringdahl says. “And we were no longer using Oracle commercial licenses. We were using an open-source version.” Other companies were caught by surprise, he says.

For large companies, it can be hard to pivot quickly. Using open-source software can help reduce the risk of unexpected license changes, and, for many major tools there are third-party service providers that can offer ongoing support. Another option is SaaS software, Ringdahl says, because it does make license management a bit easier, since there’s usually transparency both for the customer and the vendor about how much usage the product is getting.

For VMware, Ringdahl suggests that current customers try to optimize their environments as much as they can. And, if they decide to leave, there are now alternatives.

Replatforming options, challenges

Nutanix aggressively courted VMware customers in the wake of VMware’s purchase by Broadcom.

“Nutanix has been the biggest benefactor,” Ringdahl says of the post-acquisition VMware licensing controversies. “Their business has grown quite substantially, and they’ve smartly gone after VMware customers.”

Another commercial alternative is Microsoft’s Hyper-V. Open-source options include Proxmox Virtual Environment, Red Hat OpenShift Virtualization, and Linux Kernel-level Virtual Machines. Public cloud is also an option, says Ringdahl. (Read more: 5 alternatives to VMware vSphere virtualisation platform)

However, the cost of a VMware migration could outweigh the benefits when software and hardware purchases, personnel costs, early termination fees, and other operational expenses are calculated, according to a recent Gartner report. Migrating away from VMware could take 18 to 48 months, Gartner warns, and migration services could range from US$300 to US$3,000 per virtual machine. And during the migration, companies would still have to pay Broadcom for their VMware subscriptions.

And, at the end of the day, the alternatives may not provide the same features that VMware does, or a company might not have the in-house expertise to handle them. Plus, the move itself can be costly, time-intensive, and disruptive. “Replatforming is hard to do,” says Ringdahl.