Tesco VS Broadcom Special #2: Barry Pilling, Principal ITAM Consultant and VMware Specialist at bedigital

0:00We talk about in contract negotiation, we talk about the best alternative to a negotiated agreement. And you've got to have something that you can keep in your back pocket that is a viable threat. Because Broadcom want to keep you as a customer.

0:19Welcome to this special episode of the Tech Leaders podcast. A few months ago, we released an episode looking at the ongoing dispute between Tesco and Broadcom, following Broadcom's acquisition of VMware. It proved to be one of our more popular episodes, highlighting just how significant this case has become for enterprise leaders. Since then, the cases continue to evolve. Both parties have amended their claims and defenses. The court has now set a trial timetable. And there have been a number of important developments that could have much wider implications for enterprise software licensing, commercial governance, and vendor relationships.

0:57So we thought it was the right time to jump back in and revisit the case. So joining me once again is our very own in-house specialist, Mr. Barry Pilling. In this update, we'll discuss what's changed since our last conversation, where the case stands today, and what CIOs, boards, and enterprise technology leaders should be paying attention to as it continues to unfold. So back by popular demand, this is Mr. Barry Pilling.

1:32so barry it's it's good to see you obviously i see a lot of you but it's good to see you on the tech leaders podcast again it's been a it's been a couple of months since our last discussion a lot has happened since then so we thought it was a good time to bring you back on to bring the listeners up to date so you're our resident expert on this matter so at a high level what's happened since we last recorded and why why are we back talking about this again barry I mean, this law is the gift that keeps on giving for me. I've got to be honest with you. So when we last spoke, the last filings had been made in February, I think it was.

2:06And that was the point that we still had effectively entered the fray sort of earlier this year. So on the 21st of May, there was a case management hearing, which was run by a judge called Mr. Justice Trowell, I believe. He released an order following that hearing. And the order set a trial window. So there's now a trial window in place for next year, 1st of November, 2027 until mid-February, 2028. So they've got that three-month window to have the trial. And also in part of that order, the judge decreed that the Tesco claim and all of the Part 20 claims filed by Computer Center and Dell against various parties, they would all be managed jointly.

2:42So it's all being managed as one case and that trial window will manage all of those cases at one time. And the judge also granted permission for Tesco to re-amend its claim with certain information that they had shared and some updates. And for Borgon, Dell and Computer Centre to re-amend their defences and their Part 20 claims accordingly. So I think that process is now completed. There's quite a bit of additional detail, which led to reading quite a few more documents. I'm not going to lie, there's another nine or ten filings added on for this case. Oh dear. So you've been busy then? Very much so.

3:16So what do you think are the biggest developments then in relation to what you've just said? Tesco revealed in its re-amended claim that it's now begun a migration away from VMware. So it expects to complete that by the end of 2027, I think it is. And that's 40 ,000 virtual workloads then. That's a big project, isn't it? It's a huge estate. 40 ,000 VMs. It's certainly, I think, the biggest one I've ever seen. I mean, I'm sure there are bigger ones. But yeah, that is a big VMware estate. So much of their re-amended claim revolves around the operation of commercial risks of being forced to complete the exercise under pressure and at significant costs, simultaneously citing the fact that they've had to pay for third-party support.

4:00I mean, let's not forget that their contracted support from VMware actually expired at the end of January. So they've had to get third-party support to manage the VMware estate whilst they affect that migration. And they're also talking about they've had to re-architect business applications to make them compatible with the new platform. And also having to reevaluate other tools because there's certain tools they were using that are embedded into the organization that aren't compatible with their new platform, like Veeam, for example. Now, we should say they haven't actually named their chosen virtualization platform, the platform they're migrating to, probably for obvious reasons.

4:34Yeah, sure. But they haven't actually named it in their clone. And also, in addition to that, whilst all this has been going on, they've also had to replace their CA mainframe software that they'll be using in pretty short order because the subscriptions for the CA products expired in May. So, you know, at this stage, I would say Tesco is probably feeling pretty aggrieved, if I'm completely honest. You know, the message in their claim, or their re-amended claim, is they feel they've been forced into a course of action that they didn't particularly want to take. And they're currently under a great deal of pressure to get it done.

5:05And they're obviously really unhappy that it will come and put them in that position in the first place. Yeah, sure, sure. So obviously, it was a big development with the migration and the news breaking around that. What else does that fundamentally change about the nature of the case, do you think, then, Barry? Does it have a broader impact, do you think, in terms of the outcome of this whole thing? Yeah, potentially. I mean, obviously, I would have expected Tesco to potentially sit it out on the platform, just get third-party support, stay on the platform and see how the chips fell with the case.

5:42Because obviously we've seen in other instances, so for example, the Dutch Ministry of Infrastructure last year, the court in the Netherlands obliged Broadcom to continue providing them with support. So I would have expected Tesco to actually sit tight, but they've obviously decided that they want to take matters into their own hands. They're not prepared to wait and see what happens with the case because it presents them with potentially too much operational risk, as you think. you know the best part of two years to resolve the case and then another two-year migration to get a vmware completely that's probably more commercial risk than they're comfortable with yeah sure so brawn comm has filed its amended defense i believe is that is that right yeah i just wanted to know has anything materially changed in its position or both sides essentially reinforcing the arguments that they they'd made from the beginning do you know what i mean i'm just trying to get to the core of what has changed recently.

6:36Yeah, I mean, in the Broadcom, there haven't been any massive changes. You know, they're still citing end of availability as the reason they couldn't offer Tesco the support they required. And obviously, we covered the end of availability conversation quite extensively in one of our earlier podcasts on the subject. So Tesco, it's a Broadcom, we're saying, well, you couldn't have that support. That support, SKU, is end of availability. We couldn't offer it to you. tesco obviously still maintaining that that support was not end of availability and it was simply a change of commercial models from from broadcom during which process they decided to jack up the prices as well so that that element of the whole case is still there that hasn't changed at all and obviously broadcom is is so tesco is still citing abuse of a dominant market position under competition law broadcom are still saying they haven't abused their dominant market position What they are now using is evidence out there pointing to the fact that Tesco actually are able to migrate away.

7:32They're going to an alternative platform. So that choice is there. So therefore, Volcom can't be guilty of abusing the dominant market position. I mean, is that completely fair? I mean, they're not wrong. There are other options. But there's also several reasons why VMware's market share is so significant, because it is the best virtualization platform. form it has been for some time and it's probably i think we talked about this before it's probably used by sort of something it's only way between 40 and 60 percent of enterprise businesses so they do i i think they do have a dominant position in the market whether they've abused it or not i mean that's that's for the judge to decide with them yeah so teska were obviously placing even greater emphasis on its chapter two competition argument you're saying yeah has the case become more in your opinion do you think it's more about you know the market dominance thing than the contract interpretation now then is that what you're saying that they're pushing that angle more than the nuances in the contract yeah i mean it's an interesting question i think just from reading the new filings and particularly tesco's amended claim there is an overwhelming sense that tesco are really hammering home the point about market dominance you know the words and And I'll put this in quotes, the words unlawful behavior have appeared significantly more now than previously when they're describing Broadcom's behavior and actions in this regard.

8:58That said, the supermarket does still want injunctive relief. They feel they've been deeply wronged in the interpretation of the contracts. They thought it had in place to secure support pricing for the future. And as I say, they're actually now, they are claiming they've been forced into a migration that they didn't want to have to do. So I think they're still pushing the breach of contract and inducing, Borgcom inducing computer centers to breach contracts. But I do feel like they really are hammering the market dominance position now as well. Yeah, it definitely seems that way, doesn't it? So let's quickly talk about the timetable then, Barry.

9:35The trial is now scheduled to run from, I'll have to double check this, November 27 through to February 28. So that's it. It's not November 26, November 27 to February 28. I think that speaks volumes of how backed up the England and Wales court system is, to be honest with you. Yeah. I'm glad you included Wales in that, by the way. Well, it is our legal system. I mean, just as an example, I think I put a LinkedIn post out the other day that the Court of Appeals just this week handed down judgment on a Microsoft versus value licensing case that's been ongoing for five years now. So it gives you some kind of clue as to what's going on.

10:16But yeah, so I don't think there'll be too much happening now, potentially before the trial itself. I mean, obviously I'm not a legal expert in this regard, but I mean, there's a pre-trial review scheduled for, I think it's spring of next year. I guess the whole process now is going to be around discovery and evidence because we need to bear in mind that all we've seen so far are the particulars of the claims and the defenses in the legal file and so there's got to be evidence produced to back up those claims and discovery hasn't taken place yet so that'll be that'll be what's going going to happen next i mean i'll be honest i can't see either side backing down to be quite honest with you i think tesco feel that they are out of pocket because of bought contactions and they've been pushed into doing something they might not otherwise have done you know and i can tell you from my own experience of dealing with Broadcom on multiple VMRO audits, they do not like to admit when they're wrong about something.

11:13So I can see this going all the way to trial now, but whether anything will happen much between us, I think it would be mainly case management stuff and evidence and discovery and that sort of stuff. Yeah, that's a really good point. I mean, I know a lot of people have viewed this from Tesco, in terms of looking at what Tesco are doing here, because they've obviously initiated this lawsuit, that they were basically trying to almost humiliate Broadcom in public as almost like a PR stunt in order to get them to the table to negotiate. Do you think there's any momentum in that argument? Do you think that's what's going on here?

11:49Because 99 % of these things get settled around the table, don't they? They never get decided by a judge or very rarely anyway. Do you think that's what Tesco want? Is that what Tesco are really gearing up for here? I thought a while ago, and I know the general chatter in the industry as well has been that we thought it had finished in a settlement. You know, I mean, Tesco must have seen the AT &T versus Borgom case, which I think was the first major claim against Borgom in the post-VMRO acquisition. That was settled fairly quickly. You know, AT &T filed in July 2024. It was settled in September 2024.

12:30The settlement was confidential. so i i can't help but wonder if tesco had one on that thinking come on we're a big we're a really big customer there's we spend a lot of money i mean their previous ela over the five years from 2021 to 2026 was something like 24 million pounds so it was a big a big enterprise license agreement so they i i think they must have had one on that thinking we can get them to settle there we can get them to negotiate this but it was a really interesting opinion piece as well on the register not that long ago. And the author of that was saying, basically, they think that Volcom's bitten off more than it can chew with Tesco.

13:07And I don't know if anybody's so inclined, have a look at the, you know, there's websites like Caseboard where you can look at the case, you can see the cases that are going through the courts. Tesco are quite litigious. You know, this isn't the first time they've been to court or they've gotten to legal battles with organizations over various things. And there's a view that maybe Broadcom should have just settled and shouldn't let this go to court because maybe Tesco might actually have them over a barrel. I don't know. I don't know. It's an interesting one. It is. It is. Yeah. I think Broadcom have demonstrated that they're more than happy to air their dirty laundry in public, shall we say, and fight these things.

13:51But I mean, looking at it from their perspective, I think they've obviously purchased VMware with this strategy in mind. And now this is not playing out the way they maybe thought it would. It obviously affects the decision to make this investment, doesn't it? Yeah. And again, this is Broke on 101. This is what they do. I mean, they've always done it. They did it with C8 Software. They did it with Symantec. And now they're doing it with VMware. So they buy the company, they squeeze the asset for as much as they can get out of it, and then they don't really care after that. And Hocktan, the CEO, has said several times publicly that Broadcom only really care about the top 2 ,000 enterprise VMware customers now.

14:35And I think when you look at the way they acted in the AT &T case, that tells me that AT &T were one of those top 2 ,000 enterprise customers, and perhaps Tesco are. And that is the way I look at it, whereas Borgon have seemed really, really unwilling to actually negotiate over this. You know, I mean, even the offers that came at the last minute, they weren't particularly valuable offers to Tesco. So that, I think, says more about the way Borgon views the relative customers than anything. Yeah. This episode was brought to you by Be Digital. B-Digital support leadership teams to optimize cost and get more out of technology investments.

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16:07so what surprised you most then barry about this case in terms of the developments from our last conversation it was raised your eyebrow about what's happened in the last couple of months i think the the biggest thing for me and we sort of covered this a little bit is i was really surprised that tesco took the decision to migrate away yeah that was a big shock wasn't it i thought they would yeah i expected them to put the platform under third party support sit tight and see what happened. I think maybe they reached a time where they thought, well, Broadcom clearly aren't going to go to negotiate on this.

16:40So let's just migrate away from the platform and then we'll just keep pushing this through the courts and see if we can get them to cover our costs, I suspect, you know. But yeah, it did surprise me, you know, that they didn't decide to just sit tight on it and see what happened. Yeah. Do you think the impact of this case now or it's proliferated in terms of boards and executive teams now thinking more broadly about platform dependency and commercial resilience, do you know what I mean, and operational risk around their commercial agreements and things like that. Do you think, in terms of the recent developments, do you think the broader implications are probably going to be more prominent in boardrooms across the UK and beyond?

17:21You know? Do you think that's... Yeah, I think it would certainly have executives thinking more about vendor locking, you know, because obviously Broadcom's, all of their behavior in the last three years has been symptomatic of trying to lock in their customers you know keep them to three to five year agreements i mean it's like the one year agreement they offered to tesco at the last minute that is not typical boardcom baby they don't offer they very rarely offer single year agreements unless you really really push for them so try and lock customers to three to five year agreements you know promises of protected pricing and the interesting as well and again i think this is symptomatic one of the things we've seen this year is boardcom discounts for VMware going through the floor.

18:00So last year we were seeing discounts of 40 to 60 % off list for customers buying VMware Cloud Foundation. This year, that's come down to between 25 and 30%. So again, I think that is symptomatic of where they feel a bit more secure in the way they're going. But coming back to the point, I do think this will have executives thinking more about vendor locking and what they can do to combat it. I think with specific regards to VMware, I think more people will be thinking about migrating away. I think that's been a thing for a while in the SME sector because it's easier for smaller businesses to get away from VMware.

18:36It's not necessarily quite as embedded with a smaller footprint. Have you seen any high-profile rumors of high-profile customers migrating away recently as a result of this case? Or has that not really unfolded yet? No, I've not seen that yet. It doesn't mean it's not happening. Well, it's getting talked about, I'm sure, isn't it? Oh, absolutely, yeah. I mean, we only really know about the VMware one because it's in the legal filing. So, yeah, I'm sure it's being talked about. I'm sure a lot of enterprise customers will be watching this case closely, potentially with one eye on a renewal. I mean, just as an example, I mean, I've talked about the discounts coming down.

19:15If we've got customers that haven't yet renewed out of an old legacy LA, you know and there won't be as many of them now they're going to be looking at the tesco experience and thinking right what can we do you know can we migrate away can we actually shift this quickly what does our state currently look like i mean we've had customers with diversified virtualization estates ourselves you know we've seen customers using other virtualization platforms though the bulk of it would still be vmware but so other customers will be looking at i think and i mean with regards to the sort of the rest of enterprise it sort of like the non-vm i think diversification of suppliers has been much more of a thing in the cloud era.

19:54I think as public cloud has become much more popular, most organizations run in public cloud and now using multi-cloud models. And it's certainly going to stay that way. And I think enterprises are tending to apply that kind of thinking to other software vendors as well and other software suppliers. Yeah, for sure. Absolutely. So if this case had never happened, do you think executive teams would would still be asking the right questions about vendor dependency and commercial resilience eventually anyway or has it become the catalyst for a much wider conversation a lot sooner than it organically would have been do you see what i mean yeah yeah that's that's a really good question that's it i think there would still be that conversation around single vendor enterprise dependency because there's i mean there's been lots of chatter around broadcast and it's behaviours since the first stories were emerging two years ago on the eye water in price increases that were coming through on renewals.

20:53I think this case probably just hastens executive conversation and evaluation of the inherent risks around keeping with one vendor in a particularly important bit of your enterprise. You did bring it up yourself, but I wanted you to elaborate on what really stood out in terms of Broadcom's one-year offer made just 22 days before the end of service and according to tesco still around is it 200 higher than they believe they were contractually entitled to pay but how significant was that development what can you tell us about that offer so from what from what we can ascertain from from reading tesco's claim and brought comes defense the offer was made really at the last minute it was only something like three weeks before tesco's existing support was was due to expire for vmware so somewhere around of like the 9th or 10th of January, the offer was made.

21:44And it was a one-year subscription offer because Broadcom have actually said that we were already aware that Tesco were migrating away. So we didn't see the point. It was just that offer was designed to give them a bit of breathing space, I suppose, you might say. And it was the first time, as far as I can ascertain as well, that Broadcom had actually offered VMware products unbundled from CA. So if you remember from our previous conversations, the previous offers had been an agreement. There was a seven-year agreement of VMware and CA software all bundled together in one agreement, which was something like 237 % higher pricing than Tesco would have paid.

22:18At this time, it was just the first time they'd actually unbundled it. And Tesco's response was, look, it arrived too late for us to evaluate it properly. And also, we didn't really understand it. It wasn't sufficiently clear in what it actually represented to us in terms of value. And also Tesco said it was still 175 % higher than they would have paid had Broadcom simply renewed the support that Tesco thought that they were entitled to. Yeah, absolutely. We did talk about this in the last conversation, but I just wanted you to talk a little bit about Computer Center's involvement and this reseller role in all of this.

22:57so in terms of like how does computer centers involvement change the dynamics of this case is this no longer simply a dispute you know is it not really a dispute between tesco and broadcom is a dispute between tesco and computer center alongside broadcom do you know what i mean or is it something that yeah or computer center really on the periphery because they don't really how much do they matter in this whole thing oh it's huge it's huge so tesco originally cited computer Center as a co-defendant with Broadcom. Yeah, which I think you did say in the last conversation. Absolutely. So we need to bear in mind that the way the channel works and the way the contracts all daisy chain together between customer and vendor.

23:39So obviously, in between Tesco and Broadcom, there was Computer Center as the reseller, and there was Dell as the distributor, and then there was Broadcom. So there's this chain of four organizations with contracts all the way down of life now computer center and tesco had a contract which basically guaranteed the renewal provisions the renewal pricing for further four years and that's what tesco was citing what has become apparent is that contract didn't exist further down the chain between a computer center dell and dell and broadcom there was no no specific contract that specifically referred to it that said dell have in their part 20 claim against broadcom they have said well actually in the quotes that we had that you were happy to sign off and all of this pricing was stated for the additional four years and that's actually guaranteed or that's contractually part of the distributor agreement the adpro i think it's called that dell was a part of at the time with broadcon okay with vmware as they were at the time sorry and so so dell have said actually you were contractually obliged to carry this on and book on that note there was no contract that we signed that said we have to provide that so it is really important in that and that's a fundamental part of the case because tesco have sued computer center for breach contract for breach contract but also part of the claim is also they are claiming that rawcom induced computer center to breach his contract with tesco which is obviously also quite a quite an important legal principle as well so but yeah i mean it's the the the chain and the channel is is absolutely massive in this case yeah of course i think it was just important for the listeners to understand computer centers role in this because they don't seem to get mentioned as much as the you know what i mean absolutely yeah as the other two parties so barry is there anything else about the case that we haven't covered that you think is worth mentioning no that's it i think that covers most of it just in terms of closing takeaways can you just review the lead up to November 2027 in terms of any key milestones or anything that's going to get announced between now and the scheduled start date of the case in November 2027?

25:50Is there anything between now and then that we need to be aware of? I don't think so. I think there's, I'm going to say, there's a pre-trial review hearing scheduled for next year. And I think there's a lot of case management stuff that will happen around witness lists and disclosure, evidence, bringing in experts, I think each side of the party has been granted, each side of the case has been granted permission to bring in an expert on competition law to actually talk about their side of the case as well. So obviously that's going to be, they'll be exchanging of witness lists and all that sort of stuff as well.

26:25So it's mainly going to be, from what I can say, it's mainly going to be legal work that's taken on over the next year or so in the run-up to the case. So I don't think there'll be, I could be wrong, I don't think there'll be any more filings. I think the case is there. Tesco have made their case. Borkum have defended it. So yeah, it's now just providing all the evidence and witnesses to underpin it. Yeah, it's an evolving picture, isn't it? So who knows what's around the corner, I suppose. So let's finish up on this one then, Barry. Okay, if there's one thing CIOs and boards should take away from this case up to this point in terms of their own estate, vendor locking, general software asset management, what would it be?

27:06What would you say is the takeaways from the case so far in terms of advice for companies right now? And it's easy to say this, but the most important thing for me is start your planning early when you've got a big renewal like this. That said, I think Tesco first tried to invoke their renewal articles in October 2024, so 15 months before they were scheduled to renew. but yeah I mean start early know know what your estate looks like know what the negotiation is going to look like with Borgon and also have a have an alternative you know that we talk about in negotiate contract negotiation we talk about a back the the best alternative to a negotiated agreement and you've got to have something that you can keep in your back pocket that is is a viable threat you know because Borgon want to keep you as a customer but if you if you aren't willing to pay the prices that they're going to quote what are you going to do about it you know Are you just going to sit there and take it, or are you going to come up with another alternative plan?

28:05So that's really important. Absolutely. Great advice. Fantastic. And one other bit of advice as well for the listeners. If you have got any issues, like what Barry's pointed out, give BDigital a call, and you can talk to the man himself along with our brilliant, amazing team of SAM experts, and we can help you out with whatever challenge you've got. Thank you so much for coming on, Barry. It's been a brilliant update. Thanks for coming back on the Tech Leaders Podcast. Let's see how things unfold over the next 18 months, I suppose. Yeah, absolutely. Thanks for having me back, guys.

28:41Great to have Barry on once again. As he explained, this case continues to be one of the most significant developments in enterprise IT at the moment. And since the last conversation, clearly, as Barry talked about, Tesco has strengthened its claim. Broadcom has reinforced its defense too, and a trial timetable has been set. And perhaps most significantly, Tesco has committed to migrating around 40 ,000 virtual workloads away from VMware, which is incredible. But together, these developments have increasingly shifted the case from a contractual dispute to one with much broader implications for enterprise software, broadly speaking.