VMware Partners: ‘AWS Scoops Up’ VMware Cloud On AWS Deals And ‘Pushes You Out’

‘AWS had literally zero involvement in educating or driving the opportunity, but they’re swooping in and leveraging their ELA negotiation capability and putting it in such a way that the customer can’t afford not to do it,’ says a top executive from one of VMware’s largest channel partners.

One of the largest solution providers in the world had been working for months on a massive multimillion-dollar deal aimed at getting a financial services company to make a massive shift from a traditional data center to VMware Cloud on AWS.

The global solution provider had the deal registered with VMware and was preparing to ink the deal with the customer when suddenly AWS’ direct sales team swooped in at the last minute on the eight-figure contract to win the deal by offering a large discount through its Amazon Enterprise Discount Program (EDP).

“You can’t blame the customer for going that route,” said one top executive from the global solution provider, who did not want to be identified. “It’s way cheaper for the customer in the end for them to do it through AWS. The issue is AWS had literally zero involvement in educating or driving the opportunity, but they’re swooping in and leveraging their ELA negotiation capability and putting it in such a way that the customer can’t afford not to do it. This is something VMware has to fix for the channel, but I don’t see it going away.”

[Related: VMware Acknowledges Partner ‘Challenges’ In VMware Cloud On AWS]

The VMware partner, which over the years has been protected via VMware deal registration from such last-minute entreaties, found itself out literally thousands of dollars in high-level architectural consulting costs with countless man-hours wasted on a deal that disappeared at the last minute into the hands of the $35 billion public cloud behemoth.

AWS’ success at snatching away large million-dollar-plus deals over the course of the past year has hit a fever pitch among some of the biggest VMware partners, who are now wondering if they should stop pursuing huge VMware Cloud on AWS deals because of the channel conflict. Partners are demanding that VMware and AWS clearly define rules of engagement and how they should compete when AWS allows customers to burn EDP credits when buying VMware Cloud on AWS, which can drastically lower the customer’s bill.

The problem is AWS is swooping in at the last minute on large enterprise deals, usually north of $1 million, driving up the cost of sales for partners who end up with nothing to show for their VMware cloud migration sales efforts.

“What was happening is, whether AWS is involved in the deal early or not, when the deal gets large enough—say north of $1 million— they are getting involved saying, ‘Whoa, whoa, whoa, customer. Why are you buying through the channel or even through VMware when you can buy it through me directly? And we’ll count it toward your AWS credits, which then reduces your overall AWS bill,’” said the executive from the global solution provider.

Another VMware channel partner who has won numerous VMware partner awards echoed similar instances regarding AWS direct sales teams swooping in on multimillion-dollar VMware Cloud on AWS deals that were discovered, led by and even registered with VMware.

“We had a big $3 million deal at a bank where we were even working with the VMware rep, then all of a sudden the customer said, ‘We’re going to buy this through AWS,’” said a top executive from the award-winning channel partner. “We were taken aback by it, but they had credits from AWS they could use and they wanted to use the credit. That’s what we’re living through right now. We don’t have much of a recourse.”

The top executive said his company is now questioning whether or not to even sell VMware Cloud on AWS, often referred to as VMC. “This kind of puts VMC into that same category as AWS,” said the executive. “The question is, can we make money selling VMC knowing that AWS can ultimately push us out of the deal?” he said.

In a statement to CRN, VMware said it recognizes there has been “some challenges for partners” around selling VMware Cloud on AWS.

“There are partners who are working very successfully with both VMware and AWS teams, and many of those partners are seeing their wins, opportunities and pipeline grow. At the same time, we do recognize there have been some challenges for partners, which we are working directly with AWS to address,” VMware said in the statement.

AWS did not respond for comment by press time.

Amazon’s Enterprise Discount Program Issue

The crux of channel issue is that AWS, considered as another “reseller” by VMware, is able to leverage its private pricing program as a financial weapon that the channel simply cannot match.

EDP provides a discount to customers in exchange for a prepaid, annual consumption commitment. AWS provides enterprises a discount off its services based on volume commitment.

The size of the discount scales with the customer’s AWS committed annual spend and contract length. Under an EDP agreement, a customer’s prepayment is run down as they consume AWS services, including VMware Cloud on AWS.

“So with EDP they’re saying, for example, if you spend $10 million on us, you’ll get 10 percent or 15 percent off if you sign a three-year contract. That’s the mechanism that causes the problem,” said the top executive from the award-winning channel partner. “The flaw in the [VMware partner] program is that you can create new incremental opportunities and drive the whole deal, you can even be registered and approved for it, but in comes AWS who you literally can’t sell without their awareness because it runs on their platform. AWS scoops up the deal and pushes you out.”

VMware partners said they’ve been flabbergasted by just how much customers can reduce their cloud bills by leveraging AWS EDP. By using EDP credits, customers can reduce their AWS bill by hundreds of thousands dollars annually or even in rare cases millions of dollars.

“The larger the AWS customer and the larger the VMC on AWS opportunity, the larger the potential savings to the customer. They’re negating the VMware channel that created the opportunity to start with as well as the compensation for the VMware sales team,” said the executive from the global solution provider. “So it’s only problematic in the largest of accounts that are also large spenders with AWS. Unfortunately, that is a lot for us.”

The channel conflict is being felt most by VMware’s largest and most respected enterprise solution providers.

Many smaller VMware channel partners CRN spoke with said they haven’t had issues with AWS direct swooping in on VMware Cloud on AWS deals. However, those partners told CRN they haven’t sold multimillion-dollar VMware Cloud on AWS deals.

VMware’s Pat Geisinger: ‘AWS As A Reseller’

VMware CEO Pat Gelsinger in an interview during Bank of America’s 2020 Global Technology Conference in June touted the “power of the AWS channel, AWS’ EDP solutions becoming part of” the VMware Cloud on AWS strategy going forward.

“So we have to turn on AWS as a reseller of the solution,” said Gelsinger. “And now AWS is building a dedicated sales team that all they do is partner with VMware and sell our solutions as well as they’re seeing a takeoff—so that’s powerful. I now have big banks that are doing this for references. Essentially the mortgage industry is all on this solution. The insurance industry is starting to take advantage of it. Supply chains are coming on it. So we‘re now seeing the global reference accounts show up.”

Gelsinger said he has big plans in store for VMware Cloud on AWS including “more use cases, more sales capacity through AWS and lowering that bar for a land and expand.”

“So we have to expand that land-expand motion and higher velocity of on-boarding. We have to scale the AWS resell. It has to become part of every geography, every sales team globally that they have because they‘re just in a lot more places than we are. They’ve been here a lot longer. So we have to make that work,” said Gelsinger.

Channel partners are worried because VMware Cloud on AWS is growing in popularity as VMware continues to double down on its nearly four-year-old AWS alliance.

VMware Cloud on AWS has recorded 250 percent year-over-year expansion in the total number of host deployment, and 350 percent in total virtual machines. There are more than 300 certified or validated third-party solutions available to VMC customers. Over 540 channel partners have achieved a VMC certification, including 43 with a Master Services Competency.

Rules Of Engagement

When top channel partners pressed VMware and AWS to create general rules of engagement, solution providers believe the two vendors sidestepped the issue with a joint deal registration program with no specific line in the sand on which accounts AWS can target with EDP. The new plan, which was presented a few months ago, calls for a focus on what VMware is calling “customer choice” with an eye toward ensuring a “smoother transition for all parties.”

VMware told partners that the end buying decision would be determined by the customer, not VMware, AWS or the partner. What’s more, VMware said, customers may have “financial or contractual benefits depending on existing relationships with AWS or VMware.”

Partners said they see the new rules of engagement as little more than window dressing that sets the stage for continued VMware Cloud on AWS channel conflict between VMware partners and AWS with EDP being leveraged to snatch away deals.

“They’re telling the channel partner, ‘We’ll register it at both VMware and AWS, and we’ll make sure they don’t swoop in.’ All I can hear is, ‘You need to tell the fox where the henhouse is, and we promise you, he won’t eat the chickens.’ I don’t believe it,” said the top executive of the global solution provider. “AWS in general, they just seem like they don’t really care about the resell side. They’re so big and growing so quickly, it’s amazing to watch.”

Another top executive for a VMware partner located in the Midwest who did not want to be identified complained that there is simply “no teeth” in the new rules of engagement. “I don’t think VMware can stop it,” he said. “How do you stop a customer from buying the solution from AWS? It’s the customer’s right to choose.”

Channel partners CRN spoke with said VMware Cloud on AWS is expensive but an extremely convenient solution for large projects. “There’s some unique reasons why I might want to run my VMware instances on AWS, but nobody is doing it because it’s a cheaper option. It’s about speed. It’s about convenience,” said the executive from the global solution provider. “But it is a market that’s definitely growing.”

VMware Doubling Down On AWS

Last month, VMware and AWS renewed their Master Collaboration Agreement and for the first time added a clause establishing a “preferred cloud partnership” to deliver VMware Cloud on AWS. This clause means VMware will promote AWS as the public cloud to consider first for vSphere deployments, while AWS will tell customers it favors VMware on AWS as a vSphere service hosted on its platform.

As VMware continues to invest heavily in AWS with no major channel changes in sight, partners said they might forgo marketing and sales campaigns around VMware Cloud on AWS.

One solution provider executive, who did not want to be identified, said his company recently lost a $1 million deal with a large health-care company to AWS that was considered a done deal.

“It was a $1 million deal, we owned the ELA. We were going to put the [VMware Cloud on AWS] licenses on the ELA, but Amazon let them use credits to let them buy it directly through Amazon instead,” said the executive. “I can’t really cry about it; we have to compete. It’s just that VMware has to address it. So do we want to position VMC knowing that AWS can ultimately crush us in the sales campaign? They have a lot more levers to pull because they’re the destination for the workload.”

Top VMware partners say VMware and even AWS need to properly address the issue before putting more resources into selling the solution.

“I want to just see VMware address it. I mean, the answer might be, ‘This is the way our program is going to work. And yes, it’s unfair’— which is OK, just address it. I’d like to just have clearer swim lanes for us,” said the executive. “When AWS shows up in deals, how or where can we, or should we, play? Let us know what the intentions are, where we can play and can’t play and what their program will ultimately protect us from. We can figure it out from there.”