Software Licenses: Microsoft's traffic light turns green, Broadcom remains red

Broadcom's licensing tyranny is forcing European cloud providers to their knees. This is the most urgent warning in the third report from the European Cloud Competition Observatory (ECCO), published on Tuesday. The industry association Cloud Infrastructure Service Providers in Europe (CISPE) is primarily responsible for this competition barometer on fair software licenses. It highlights: Since the release of the second ECCO report in May, the global situation for market participants has "only worsened" due to Broadcom's new, "unfair" licensing behavior towards European cloud providers and their customers.

In the current report, CISPE calls on Broadcom to restore "predictable and fair business relationships." The association primarily includes a minimum advance notice period of six months for changes to contracts, prices, or conditions before renewal.

Another appeal aims for better support for smaller Cloud Service Providers (CSPs), for example, through additional grace periods of more than six months for inclusion in the white-label customer program. Broadcom must stop the "significant overall price increase" through bundled products after the acquisition of the market-dominant virtualization software VMware. However, the company is strongly refusing to address the concerns raised. The consequence: Many European customers are faced with license costs that have increased "tenfold or more" upon contract renewal.

Impact on Customers and the Cloud Market

Cloud providers that rely on the virtualization tools from the Broadcom or VMware brands to provide their services face an "impossible choice," the analysis states: They must either accept the drastic cost increase and lengthy contract commitments or undertake a lengthy, expensive, and potentially ruinous transition to alternative providers. For some work steps, there are no alternatives due to certifications.

According to the report, Broadcom has further exacerbated the situation for providers and customers by eliminating the lowest partner tier, on which many small companies rely. The revised partner program prevents customers from porting existing licenses to other cloud providers. This effectively excludes most CSPs from the market. Furthermore, the company mandates fixed start and end dates for licenses that cannot be aligned with customer contracts. Service providers must therefore pay Broadcom additional fees without generating corresponding revenue. In large deals, the company unfairly collects "many thousands of euros" each time.

In light of this escalating situation, CISPE filed an action for annulment with the EU Court of Justice in July against the European Commission's decision to approve Broadcom's acquisition of VMware. Overall, CISPE continues to give the company the red card. Broadcom has already countered the criticism several times: The customer retention rate has remained constant, which speaks to the value offered by the programs.

Microsoft, SAP, and Citrix in the Crosshairs

Microsoft, on the other hand, receives a "Green" status. The rating has thus improved for the second time in a row. According to ECCO, the progress is due to an agreement reached in July, which has led to fairer licensing terms for European cloud providers. This is intended to enable competition with Microsoft's own Azure platform on equal footing. Last year, CISPE surprisingly withdrew its competition complaint against the US company with the European Commission.

At the same time, Microsoft joined the association as a non-voting member. The company pledged to correct its contract clauses for its own cloud services. In addition, around 20 million euros are said to have flowed to CISPE.

At the same time, the observatory is expressing initial concerns about two other major software groups that are potentially abusing their market dominance to retain customers and hinder the competition of European cloud providers. With SAP, the licensing terms give the impression of pushing customers into their own cloud and excluding solutions from rival European CSPs. Citrix is coming into focus because it could follow Broadcom's example and make unilateral, dramatic changes to its licensing terms.

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