VIRTUALIZATION

Never get involved in a land war in Asia. Also, don't pick a contract fight with a monster of the art

The legal battle between Broadcom and Tesco isn't so much a contract dispute as a serial TV drama. An aggressive organization takes over a renowned operation with blue chip clientele, and puts the squeeze on. Prices go up, customers are encouraged to move to new products if they know what's good for them, and the old ways are shredded. 

The new mob reckons it has customers locked in. Their tentacles reach deep into the heart of corporate IT infrastructure, and who wants the trauma of a heart transplant when you can still pay for the medicine, right? Lots of little people will move on, even some of the big fish, but who cares. Triple the cost and lose half the customers, and you're still up on the deal. Eat it up.

Only, some of the marks refuse to play the game. One is the UK supermarket giant Tesco plc. Citing contractual violations and unfair practices, including the revocation of support options and perpetual licenses, it tells Broadcom it'll see it in court. This is a threat to the authority of the new regime, and backing down is not an option. Broadcom has seen off corporate leviathans like AT&T. A British grocer will do the sums and see sense. 

The British grocer is not seeing sense. It's seeing red. In the latest episode, new court filings up the ante, with Tesco revealing numerous offers from Broadcom and why they are displeasing, a massive internal push to ditch Broadcom altogether, and the dangers and costs of a forced march to relieve the siege on company-critical systems. Broadcom's bluff is being called.

Tesco, it turns out, is not an enemy you take on lightly. It's been around for about 70 years longer than Broadcom, going from a market stall to the UK's biggest supermarket. It makes more money than Broadcom, with revenues of £73 billion ($96 billion) compared to $64 billion (£48 billion). There's selling chips, and then there's selling chips.*

These are just numbers. When it comes to contractual shenanigans with suppliers, Tesco has form. Ten years ago, a regulatory investigation found that it had itself been treating suppliers unfairly, delaying payments, making unilateral deductions, and engaging in other improper billing practices. Tesco apologized, paid £1 million ($1.4 million) costs, and restructured its supplier billing. Whether it's the zeal of the reformed or institutional memory of how to play, Tesco is remarkably disinclined to brush Broadcom under the carpet.

Sadly, the series finale will be as anti-climactic as Game of Thrones' terminal detumescence. Not for nothing has Tesco estimated the rushed migration will be finished at the end of 2027, which coincides in a non-coincidental way with the start of the actual court hearing. By then, of course, the full cost of the extraordinary measures will be known and Tesco's lawyers will present some truly cosmic estimates for damages. Broadcom will fold, either on the courtroom steps or – if it's sensible – long before. A secret deal will be done. 

There is always a power imbalance between supplier and client, and this drama shows what happens when one side misjudges the other. With corporate IT infrastructure, bad things happen if the supplier overestimates its importance or if a customer underestimates it. It's bad news indeed if you can't afford to break a supplier lock-in, or if your business can't afford to lose one particular client. IT has been a paragon of this equation, going through cycle after cycle in which power imbalances brought down the big and the small. IBM once owned corporate computing, NetWare owned the server space, Nokia reigned in mobility. 

The very best time to be aware of history is when a future technology beckons. Virtualization was once the future, decoupling software from the hardware it ran on, enabling efficiency, flexibility, and eventually the revolution of life in the cloud. VMware was a trusted partner in the virtualization revolution, respectful of its clients and respected by them. Technically and corporately trustworthy and responsible, right up to the point a venture capital outfit disguised as a chip company took over and busied itself with weaponizing assets. 

The joker in this particular game is that while virtualization is fundamental to modern corporate infrastructure, any particular virtualization solution is replaceable. The VMs do the work, and they don't care what's beneath them. It may be painful to realize that, but it can be done. Broadcom's bet is that this pain makes VMware a one-way street; Tesco's bet is that not only is that not true, but the pain can be reflected back to its source. 

What if a core technology really was a one-way street? What if it involved such a rewiring not just of an organization's underlying tech, but the very nature of the relationship between that org and the tech that powers it? What if it ripped out not just layers of the stack, but the stack itself and the expertise  behind it? What if it absorbed so much of every resource that powered the corporate IT market that it choked out the competition? What if all this were true, and then that tech failed? Worse, what if it succeeded? 

These aren't hypotheticals. This is the game, right now. What Broadcom versus Tesco shows shows us are the real rules, where it can go badly for either side of the supplier/client equation when reasonable assumptions are changed. Like all good dramas, it makes explicit conflicts we recognize but can't make explicit. 

Big decisions are coming. Enjoy the show. ®

*Chips, as in "fries."