In previous articles I’ve explained how I warmed up to the logic of Broadcom’s intended acquisition of VMware. I believe the scale and synergies of the deal make sense in today’s multi-cloud landscape, and I think customers could benefit for many reasons. I also believe Broadcom President and CEO Hock Tan when he says that the combined company won’t be raising prices. If he did raise prices, he’d only be shooting his company in the foot. He’s too smart for that.

Unfortunately, the initial skepticism about the deal shown by regulators in the EU and the U.K., as well as the slow dance this deal is getting in the U.S. and elsewhere show what a sad state of affairs we’re in when it comes to M&A oversight. These regulators—many of whom have zero business experience—seem to operate from the thesis that “big is bad” trumps any other variable. Worse, this is a thesis that effectively “protects” companies and customers from maybe-possibly-someday hypotheticals, rather than getting a firm grip on the current realities of the markets they regulate.

In this piece I’ll show how the Broadcom-VMware deal actually promotes competition in a market dominated by cloud providers that are even bigger than Broadcom – and at a time when the very same regulators are publicly stating their concern there is not enough competition in the cloud marketplace. Let’s hope the regulators wise up and see the opportunity before them to generate cloud market competition, rather than create yet another chilling effect for the entire VC sector.

Regulators are focused on the wrong problem

Earlier this year I laid out the reasons why it would be business suicide for Broadcom to do any of the things that European Commission (EC) and UK regulators are investigating. The EC regulators are specifically concerned that the company might restrict competition in the fiber channel host bus adapter (FC HBA) and storage adapter markets, especially by degrading interoperability or preventing competitor hardware from using VMware’s server virtualization software.

Long story short, I concluded that any degradation in interoperability and so on would be catastrophic for Broadcom’s revenues, quickly drive customers into the arms of VMware’s competitors and throttle the company’s growth potential. It’s just not that hard to move VM vendors.

In case it needs to be said, I do believe that consumers and businesses should be shielded from genuinely anticompetitive practices, and of course regulators play a key role in that. But this deal isn’t anticompetitive at all, and it defies all business logic to think that the combined Broadcom-VMware would do any of the maybe-possibly-someday things that the EC and UK are concerned might reduce quality, drive up prices or inhibit competition.

The combined Broadcom-VMware will make the public cloud market more competitive

Meanwhile, there’s a major benefit of this deal that regulators seem to be overlooking. A bigger, stronger VMware business within Broadcom will have a vested interest in helping customers navigate a more hybrid, more multi-cloud world. This implies making it easier, not harder, for enterprises to shift their resources to whatever mix of platforms makes sense for their needs, whether it be on-premises, or in public, private or hybrid cloud deployments. That in turn erodes the current over-centralization of the cloud market in the hands of the Big Three entrenched cloud providers—which just happen to be three of the biggest, richest tech companies in the world.

In other words, a stronger Broadcom-VMware actually serves as a counterweight for the potential of Amazon with AWS, Google with GCP and Microsoft with Azure to treat the cloud market as their focused playground. This counterweight became even more compelling when Hock Tan last week spelled out his intent to make a $2 billion annual incremental investment in extending VMware’s software reach across private and public clouds, and building VMware’s professional service capabilities If you’re a regulator who wants to promote customer choice in the cloud, doesn’t all that sound like a good idea?

That’s not the only reason to encourage a broadening of the cloud market, either. Recently Lina Khan, chair of the FTC, noted that “As the cloud market has basically focused around a handful of big players, that can lead to concerns around systemic resiliency, where a single outage can have cascading effects.” The risk of serious outages has prompted her agency to think hard about the cloud market and how it affects commerce in general—and about whether the FTC should implement new policies to keep it in check.

With the exception of anyone who has a specific reason to want Amazon, Google and Microsoft to continue to dominate this market, we should all be in favor of developments that tend to broaden and diversify it. That includes the continued challenges to the Big Three posed by Oracle, IBM and other cloud providers, and it includes Broadcom’s acquisition of and planned $2B a year investments in VMware.

Sometimes M&A promotes competition and innovation—and this is one of those times

Broadcom, along with other big acquiring companies like Adobe (which is trying to buy Figma) and Microsoft (trying to buy Activision), might do well to heed the advice of Blair Levin and Larry Downes in their recent Harvard Business Review article, “Microsoft, Google and a New Era of Antitrust.” The whole article is worth a read, but for now I want to focus on just one of Levin and Downes’s “five essential rules for those looking to get deals done”—namely that Broadcom and others should “Frame your deal as the solution to the problem antitrust officials fear.”

In Broadcom’s case, this means pointing out—to the EC, the FTC and the U.K.’s digital regulator, Ofcom—how the combined Broadcom-VMware will bring more innovation to the cloud market, promote its diversification, make it more competitive and address concerns about outages and cascading effects.

Even better, the company will do this by working closely with existing and potential customers, investing heavily in making what VMware already does and would like to do in multi-cloud, and growing its revenues by offering solutions that help its customers address more pieces of the multi-cloud puzzle. CEO Tan believes in his company’s ability to execute, and he’s made it very clear that Broadcom expects to expand business with customers by the old-fashioned means of making more of their technical headaches go away.

The need to improve multi-cloud operations cannot be overstated. I talk to an enterprise every other week that has to support multiple IaaS providers—an ugly undertaking. Each cloud you support must have its own DevSecOpsNetworkData team, and you can bet that neither AWS nor Azure nor Google will create any magic APIs to improve the situation of cross-cloud compatibility. I spent a few days with VMware last month at its multi-cloud industry analyst day and without, a doubt, the company has great technology and GTM capabilities to enable the hybrid, multi-cloud. A combined Broadcom-VMware would grow its business precisely by smoothing out those cross-cloud tangles and helping enterprises get more out of their on-prem and/or multi-cloud investments.

Broadcom is helped in this argument by having a long history of successful execution, not market manipulation. The company has completed countless acquisitions going back to the days of the dot-com boom, and it has made those acquisitions pay off by maximizing what they’re good at and delivering more value for customers.

What a radical concept, right?

What happens if regulators run amok?

I’d like to see the Broadcom-VMware deal go through because I think it makes sense—for the companies involved, for their investors, for their customers and from a market standpoint. The companies should be allowed to combine their businesses and then succeed or fail on their merits, rather than being stymied by some hypothetical harm dreamed up by a regulator.

That said, I’m much more concerned with the bigger picture, because we’re seeing lots of interventions across many sectors from regulators in the U.S., the U.K., the EU, China, South Korea, Japan . . . it’s a long list. If these actions were genuinely protecting IP and promoting competition, I would celebrate them. Instead, far too many of them are doing nothing to promote increased innovation, lower costs or sustained venture investments.

Too many of these regulatory excursions appear to reflect a lack of understanding by the powers-that-be of how these businesses, their industries and their customers operate. Meanwhile, as I look squarely at an industry I’ve been deeply involved with for decades, I have every reason to think that the Broadcom-VMware deal will increase innovation, facilitate more customer choice and limit cost increases.

Don’t forget the importance of venture capital

Regulators who can’t or won’t grasp these realities risk stifling not just a deal here or there, but the entire VC ecosystem. We’re living in an era when IPOs aren’t nearly as sexy as they used to be; realistically, many startups and their backers can only look to eventual acquisition as the payoff for years of investment in the business.

Why would VC firms invest in startups that they’re afraid can’t ever be acquired because of undue regulatory intervention? Sure, VMware specifically is much further along in its corporate maturity, but what about when the same short-sighted regulatory approach is applied to less-established VC-backed companies?

Regulators near and far need to reexamine the way they go about their work. Yes, provide protection from the real harms of IP theft, monopoly practices and so on. But don’t pursue a philosophy of regulation that impedes honest investment and competition. That would be bad for customers, startups, potential acquirers, VCs, innovation—and the economy as a whole.

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