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Comment by ta1243 | Hacker News Reader

Sure, it's a gamble.

But if Broadcom increases price 10-fold and loses half the customers by revenue over the next couple of years, that reflects in their bonus and they can then move on.

The customers might have a plan to move off vmware by 2027, but continue to pay the money until then. Come the 2027 renewal the execs that made the massive bonuses for increasing revenue have left and then when the company says they aren't renewing it's the next generation dealing with the problems, and then they just reach for the three-envelopes.

This really is on the companies that choose a single supplier. If you had two providers, then shifting doesn't take a 3 year program, it's just a policy change to prefer Provider B rather than Provider A.

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It's worth bearing in mind that it's not just a financial gamble but a reputational one as well.

Chances are most of that 90% of your customer base who were previously fairly happy are now very unhappy with a forced move to another platform, so in 10 years time when they're in some other business and making purchasing decisions, someone will mention VMWare and the only thing they'll remember is that shit show where they spent 6 months migrating off it because of some ridiculous pricing change.

That’s the big problem I see for them: all of the VMware guys I know _hate_ this move and are talking about being betrayed. Even if they aren’t immediately migrating, I don’t think many people are going to be comfortable increasing their dependency on Broadcom, whereas before that was as close to a given as it gets in business.

Reputational loss won't be realised for a few years, the people making the decisions will have moved on by then.

The problem is that their documentation is now a shit show. Their 10% whales are going to get fed up with that eventually.

When I worked as a SE, we'd often categorized sales reps as 'hunters' vs 'farmers' when it comes to managing the accounts. The hunters would hit their numbers, collect their bonus, move on, and leave the account in shambles for us to try and assist the new rep in recovering. This is the first time I've noticed that attitude in the company leadership. My heart goes out to our (now) Broadcom rep, as I can tell they are putting the squeeze to all contracts, to their mid-term detriment.

There really needs to be a different mode of compensation that forces the C-suite to prioritize long-term company success.

Apple[1], for example, has performance based RSU’s for its executives. RSU’s vest over 3-4 years and the number granted is dependent on Apple’s performance relative to the S&P.

Stock prices theoretically have future cash flows built in but markets are inefficient. In this case, if Broadcom starts losing customers in 2027 and revenue declines 5%, it would get hammered in the market at that point in time, punished much more than the 5% drop.

[1] From Apple’s SEC filing:

The value received by our named executive officers in 2022 from long-term equity incentives reflects exceptional stock price performance over the applicable vesting periods. As a result, for the applicable performance periods, performance-based RSUs vested at 200% of target for our named executive officers based on Apple’s TSR relative to other companies in the S&P 500 (“Relative TSR”), which was at: • the 96th percentile for performance-based RSUs held by Ms. Adams, Mr. Maestri, and Mr. Williams, and • the 99th percentile for performance-based RSUs held by Ms. O’Brien.

Mr. Cook was granted an equity award with 75% performance-based vesting and 25% time-based vesting

Theoretically, stock compensation should do that. In practice, many/most investors have a pretty short time horizon in mind as well. I'm not sure how you provide an incentive for long-term company success absent very deferred compensation which I imagine most people reading this wouldn't favor either if it applied to them. Bird in hand worth two in the bush and all that.

For the vast majority of companies, supply chain diversification represents a cost with little immediate benefit. In the long term, it can be a rational hedge against hostile supplier lock-in, but the vast majority of companies aren’t good at making long-term bets.

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