Europe’s Cloud Crisis Deepens as Broadcom Squeezes VMware Users

According to TheRegister.com, the Cloud Infrastructure Services Providers in Europe (CISPE) has issued its third European Cloud Competition Observatory (ECCO) report, praising Microsoft’s licensing concessions while accusing Broadcom of worsening anti-competitive practices following its VMware acquisition. The report highlights that CISPE, which represents 38 European cloud vendors, filed a legal challenge on July 24 against the European Commission’s July 12, 2023 approval of Broadcom’s VMware takeover, citing “unilateral market distorting program changes” and “significant new forms of unfair licensing behavior.” While Microsoft received recognition for recent concessions, CISPE also warned SAP and Citrix about potential lock-in practices, noting that Citrix appears to be “following a similar route to Broadcom in unilateral and dramatic changes to licensing terms.” This escalating situation reveals deepening fractures in Europe’s cloud competition landscape.

The VMware Acquisition’s Domino Effect

Broadcom’s $61 billion acquisition of VMware in November 2023 represented one of the largest technology deals in history, but the integration strategy has proven controversial from the start. The company’s approach follows a familiar pattern seen in previous Broadcom acquisitions – rapid consolidation of product lines, aggressive price increases, and forced migration to more expensive licensing models. What makes the VMware situation particularly concerning for European cloud providers is VMware’s entrenched position in enterprise virtualization. Many European cloud computing providers built their infrastructure on VMware technology, creating a dependency that Broadcom now appears to be leveraging through what CISPE describes as “abrupt contract terminations” and “financial incentives such as rebates for longer-term commitments.”

Broader Industry Implications Beyond Europe

While CISPE’s focus is European, the implications of Broadcom’s licensing changes extend globally. The Broadcom strategy represents a test case for how dominant infrastructure software companies can extract maximum value from acquired assets, potentially setting a precedent for future mergers and acquisitions in the enterprise software space. What’s particularly troubling for cloud providers worldwide is the timing – this consolidation comes as businesses are accelerating their cloud migrations and digital transformations. The pressure on European providers mirrors challenges facing cloud infrastructure companies globally, where dependency on proprietary virtualization technologies creates significant business continuity risks when ownership changes hands.

The Shifting Regulatory Landscape

The European Commission’s initial approval of the VMware acquisition now faces serious scrutiny, with CISPE’s legal challenge representing a significant escalation. This reflects broader tensions in European competition policy, where regulators are increasingly concerned about the dominance of U.S. technology giants in critical infrastructure markets. Unlike U.S. antitrust law, which often focuses on consumer harm, European competition authorities have historically taken a broader view that includes protection of business customers and market structure. CISPE’s challenge tests whether the European Commission adequately considered the secondary effects on cloud competition when approving the VMware deal, potentially setting important precedents for future technology mergers.

Open Source Alternatives Gain Traction

The silver lining in this cloud licensing crisis may be the accelerated adoption of open source alternatives. As Thierry Carrez of the OpenStack Foundation noted, Broadcom’s handling of VMware illustrates the risks of vendor lock-in. We’re likely to see increased enterprise interest in platforms like OpenStack, Kubernetes-native solutions, and other open source infrastructure technologies that provide escape hatches from proprietary virtualization stacks. This could represent a significant market shift – for years, enterprises have tolerated high licensing costs for the perceived stability and support of commercial solutions, but Broadcom’s aggressive tactics may finally push many toward open source alternatives that offer greater control and predictability.

Microsoft’s Strategic Concessions Reveal Market Dynamics

Microsoft’s willingness to make licensing concessions to CISPE members reveals interesting market dynamics. While the company avoided a formal European Commission probe through its agreement with CISPE, the ongoing complaints about technical tie-ins between Entra ID and Microsoft 365 suggest the fundamental tensions remain unresolved. Microsoft’s approach appears more diplomatic than Broadcom’s, but both situations highlight the power imbalance between hyperscalers and smaller European cloud providers. The fact that Microsoft’s concessions don’t extend to other hyperscalers indicates the company is making calculated moves to defuse regulatory pressure while maintaining its competitive advantages.

Future Outlook and Potential Regulatory Response

The coming months will be critical for Europe’s cloud competitiveness. If regulatory authorities don’t respond decisively to CISPE’s concerns, we could see further consolidation in the European cloud provider market as smaller players struggle with unfavorable licensing terms. The ECCO process, while valuable for documentation and advocacy, lacks enforcement power – exactly why CISPE has escalated to legal challenges. We may see increased pressure for European digital sovereignty initiatives, including stronger support for homegrown cloud technologies and more aggressive antitrust enforcement. The broader question is whether European regulators will treat cloud infrastructure as critical digital infrastructure worthy of stronger protection, similar to how they’ve approached telecommunications and energy markets.