 We're back here live at Dell World 2012, Austin, Texas, end of day two. It's coming to a close here at Dell World's second annual end user customer conference there, and moving from the PC to Enterprise World, this is SiliconANGLE's program theCUBE. We go out to the events and start to see them from the noise. My coach Dave Vellante is here with Wikibon.org, and we have a special guest here, CUBE alumni and always knowledgeable, great content machine himself, travels the world, Ray Wang, analyst and founder, CEO of Constellation Research. Ray, welcome back. Hey, thanks for having me. What a way to cap out the year. You guys have been on fire. I got to say, I'm kind of humbled here being with you two, because you guys both hit the Dell social media top influencers leaderboard, and I always know where to be found, so maybe I should just step out. It looks like they're finally getting the influence algorithm right. Yeah, so, yeah. I think I like that. I don't know what I got. I don't know what I got. If they only knew how influential we really were. Ray, you got a good year too as yourself. I mean, Constellation's growing, you're adding more people. You've worked really hard, and we've been following you because we've kind of been making our bones together in the business of the second generation, disruptive, direct, business model, social, analysts, media press, so congratulations. As it comes to a close for the year, what's your observations of what's going on in the industry, and how Dell is positioning right now? Yeah, we see this huge opportunity within Dell to actually go from selling technology, to services, software products, but to focus on outcomes. And it is very interesting walking into the hall to see this big sign that says business outcomes. And the reason that's happening is, customers are not paying for those technologies, they're not paying for the solutions, what they want is peace of mind, they want last mile solutions, and they want vertical, they want only want verticalized solutions. And you're seeing that shift. So hardware vendors who traditionally had really bad margins, if you think about system integrators who had traditionally bad margins, are saying, we need to be in the IP business. And you're seeing that right away. And so this shift that Dell's working on, not just in the cloud, not in the vertical solutions, that's really focused on business outcomes. And we're seeing that move very quickly. What about, I mean, it's unbelievable the commitment you see to PCs, right? I mean, see wavering in some companies like HP, there's no ambiguity with Michael Dell. We are in that business and they're using their scale to drive that into the enterprise. My question to you is, does Dell at some point, I mean, they announced today, they're backing off from smartphones, ultimately do they have to be in that business given its growth? The business is actually dependent on actually having the integration of the devices and the software and the services. They're going down the same model Oracle's going after, but in a very different way. Here's the solution, take the box, right? That's what you're going to get. So you're walking into that healthcare area or the public sector pavilion, what you're seeing is, yeah, they're still sewing the machine, but it's not the machine. The value add is the fact that I can do EMR, I can do digital records, I can actually connect and collaborate positions. They can actually bring all that together and they still need the box for the scale to actually do the delivery. I was impressed. We have our little tool, John's probably showed it to you, the V-Finder and I went into the DevOps vertical. Dell and Dell world was trending. We had Barton George on and Dave Cotay and it seems like Dell is really putting a big emphasis on that developer community. What's your angle on that? No, there's a big emphasis because what the developers are trying to do now is like, if you think about consumerization or IT, what's happening in the marketplace? Well, all this stuff is creating what we call best-of-breed help, right? And so DevOps is even more important because now the DevOps piece is used to integrate everything, bring it together. The DevOps piece is also used to differentiate in the marketplace and if you're a company and really trying to create strategic differentiation, you better have a dev team. You better figure out your DevOps and get that streamlined. Yeah, and Dave also, just a little anecdotal thing that we observe obviously with the data and also being in the business is that if you think about Dell, they actually have a big developer community because their bare-metal product, their rack-and-stack approach, these are data center geeks at Ray, right? I mean, a lot of the early stages start at the hacker news market. They buy Dell because you know why? It's easy to buy, right? So they know Dell, they're comfortable with Dell. So the DevOps obviously a natural fit for the platform as a service dude, the cloud. So actually you have an interesting, not even sure they even know it, but they actually have a nice alignment with the cloud. Well, and they also have this very interesting OEM business that you might not know about where they're going in and building extensions. So you think about airline kiosks. A lot of those have Dell inside them. Think about anything that actually has to be powered actually on a remote kind of area that's also Dell inside. And so people are actually keeping with these things like medical device equipment manufacturers. They're using this and taking the OEM business and extending it. Well, what about the OEM business? Seems like Dell is even competing there. Do you think long-term it can compete with the OEMs coming out of time? A lot of people think they, you know they come, they go, but it feels like the OEM space is real right now. What's your thoughts on that? Well, so long as you have the solutions and the value add, right? IBM showed us that, hey, if you've got global services, you've got a vertical down, you can sell a much higher value solution, there's a market for that. So you want to go high value, high margin, or do you go high volume, high value? I mean, all these axes around value, volume, and you know, that's really what's happening. So guys, I got to ask you guys as the analysts. I want to just go down the line here because I have some pointed questions because you guys are both deep. And this is, you know, this is, this is our independent format. Obviously we're not being paid by Dell to be here. So obviously we, and there's no Dell guests here. So we might as well talk about Dell. Marius, house was on, obviously great star. We had Michael Dell on, phenomenal group of people. Dell culture, I mean, I like these guys. So that being said, Dave, you first, storage. I mean, come on, Marius, like, we're, he's pumping up storage in pure messaging. I got to, I got to highlight that. I want to get your, I got a red flag on that. What's going on with Dell and storage? Obviously the compelling was a second place buy from 3Com and HP, we heard from HP's 3Com and David Scott, those guys last week. Well, there's definitely a flag in the field for the comments. I mean, we have to make that call, right? So what Dell essentially is doing is they're taking the shares of NetApp and EMC and saying that we grew faster than the market. The market actually in storage, according to, you know, my sources is growing, you know, slow, single digits. And so Dell is losing share right now. Dell made a move recently. Darren Thomas has left, you know, the company's head of storage. And yet Darren Thomas is a long time executive. He's got a lot of fans inside of Dell and outside of Dell, but here's the thing. Darren Thomas was the guy who engineered the EMC deal years and years ago. Now that was an OEM deal where they were splitting the margins and profits with the EMC, but they're entering a new era, it's software led era, and it's a lot of IP and, hey, I know Darren Thomas. He's a tough guy. He doesn't sugarcoat things. So you're saying it's not a box moving environment. It's not just a, you know, slam, bam, OEM deal. And you know what, the other thing about, Darren Thomas, he was a hard charging executive. He didn't sugarcoat it. And so I think it's like a coach, a manager, a new baseball team. Marius Haas is going to bring in his own people. You know, we've seen him make some moves and I think he wants to bring in, or maybe even promote with him his own, you know, storage person. That's a TVD right now in my opinion, but I think you're right on. There's no question there was some heavy messaging going on there. Now having said that, you know, a compelling, equilogic, Ocarina, Appashore, they got some great assets there and they just got to, you know, so you think they have some good assets there? You think they got a, just as a matter of just cobbling it together? What's missing? What's missing? Well, they lost out on the three-part deal. When they lost out on the three-part deal, they lost the ability to really go after hard EMC, right? Now so, I've seen this play before when EMC lost the HP OEM business, it had an HP attack program. EMC didn't lose a nickel of market share to HP. In fact, it grew its market share of HP. It's got a similar program now going on at Dell, and you know, EMC is good. Where is Dell? What do they need to work on in that? So they've got some pieces laying around, they have some assets, what do you think they're with? Here's the thing, so Dell basically does deep R&D with its checkbook, okay? I like that strategy, that's fine. And it does its tactical R&D by focusing on integration. Here's the problem, it takes a long time to integrate all these piece parts. So it's just going to take time. Dell has to keep doing what it's doing, stick to its knitting, make sure it gets the organizational pieces right, and I'm confident that Dell will actually start growing again in storage. Ray, I want to ask you, okay, you're following Dell. I want to ask you about big data and services. Obviously, we heard from some of the vendors, obviously, they just address a storage piece, converge infrastructure, big message for them. Okay, they're going to hang their hat on, obviously relevant. I think it's got hair on it. I think it's a played saying. I think modern is a better word, you know? It's like, it's kind of old, you think it's 2009-ish? It's so 2007, really, go back to 2005. It's been talked about for a while, but a lot's changed with Flash, and now the server market. So big data's been a big focus. How do you look at Dell? How would you talk about Dell and how they're handling their big data strategy? Well, we actually look at the big data market in three ways. The first one we actually look at, big data business models, and something we actually put on Harvard Business Review, I think, earlier this week. And the interesting thing about this is there are content delivery models that are happening. There are people that are the arms dealers. There are people that are using content differentiation, and we're doing content benchmarking. And when I talk about that, these information-based business models are just changing the way. So a place for Dell to actually play a role is to go deep in a vertical, be able to aggregate that information, and then turn around and actually support the organizations that are doing information-based streaming. And so this means, how do we get benchmark information out there? So take, for example, here's a way you do differentiation. If you look at a Google Map, today you get Google Map with traffic, which is pretty cool, that's nice. But imagine if you get Google Maps with traffic, tied back to your onboard computer and dash, that then ties back to all the fuel stations around you. So when you're down to an eighth of a tank, it knows, and it tells you, oh yeah, over there's an Exxon for, it's like $3.27 a gallon, over here is a Shell, that's like $2.99. You save $5 by getting gas now. Right, oh, and I'll make you an offer, right? So I think Dell has a role to play in that arms dealer part of that, this information-based delivery model. So you're talking about on the enablement side, enabling that with infrastructure and solutions. Okay, cool, so I want to ask you about, to take the big-dazed question a little bit further, in a world that we're close to our heart is social media, right? They're selling essentially social media services, again, it's very early, I don't want to get too nitpicking on what's available, but it's a strategy, they're selling social business applications. They're selling an outcome. That's big data. It's an outcome, yeah, that's an implication of big data. They're bringing together a number of software solutions into their model and they're saying, look, let me sell you a social media command center. So you're buying the outcome of having a command center and being able to monitor, there's probably three or four partnerships behind that, you can choose the tools that you want, but it's agnostic to that, plus they've done it on their own internally. So is Dell's competitor IBM guys or HP? I mean, you're talking about, I mean, the things you just talked through, smells like IBM, you know, go to verticals, have social software, have services, while storage is still struggling. I mean, IBM's working on that too, so in a way, is it HP, is it IBM, who's the competitor? But that's always been the battle. Everyone's going for the largest share of the tech wall. It's the tech budget, so it doesn't matter where it is. So you take a company like Microsoft, it's focused completely on the development side and the build side, and it's going after that market. If you took at an Oracle, they took everything from high value solutions to the database hardware to even BPO, so they're going after it in cheese, and they have IBM, they're hitting all the different areas across this tech budget. But what's interesting though, is all the combinations that are going to happen as the market considers consolidate. So when you look at what happens in cloud, all that bottom piece doesn't matter more. You don't care what database you're on, you don't care what machine you're on, you don't care exactly what middle where it is, you don't care who's hosting it, you just want an outcome. I got compute power and it's on. So that's completely fine. And by the way, I'm going to turn it off when it's done and I want to pay for it, it's off the cloud. Yes. And I move my workloads across the hypervisor. Yes, exactly. So that is what, so okay, so who are they competing with? So, is it just a global one big land grab? I mean, is it all like a race to the... Everybody's got a different game. Some people are going for high volume, some people are going for high value, some people are going for high margin. They've traditionally gone for high volume, right? They've gone for value in the sense of I'm consolidating infrastructure at a lower cost and that's been the game that they're playing. So they're taking that into the SMB side, they're taking that in heavily on the public sector side. Doesn't mean they're competing with them and there's still a lot of room for everybody. Yeah, so Dave, you were talking about scale, so let's come back down. So I think what Ray's saying is I kind of agree with him. Dell's kind of like, it's too early to say because it's so much growth opportunity and yet they're competing indirectly for the share of the wallet. But you said scale, what do you think about the software side of the software led infrastructure? What's your take on that? I think there's a ways to go there for Dell. You know, I mean, like I said before, it's been in this four year transition transformation to end to end and I think it's key that they've acquired a numerous software assets. I mean, this year alone I think it's six or seven acquisitions that they've made, many if not most or what I would consider software led. So it's just, I can say it's really hard to do that integration. So I would give them very high marks on strategy right now and as far as execution, I think actually the execution is good but we just haven't seen it manifest itself in terms of actual market share gain. So I think Dell's really still got some work to do there and as far as the competition, I mean, HP's the competition at scale. They're really the only ones with that, whatever, whether it's the supply chain, 60 billion, HP's got a 60 or 70 billion dollar supply chain. Dell's is probably a little bit smaller than that. So I look at those two and I was thinking, okay, who do they hate the worst? HP and EMC. It's interesting, you guys, it's interesting. Oh, what I'm worried more about, I mean, there's one concern is you got a hardware company trying to get a software culture and that's very hard to do, right? And to make a software bet, it's very different than what you do in a hardware bet or services bet and software requires a different culture and I think at times that's one of the things that they're struggling with is how do I retain the software guys? So do you think, so to consider the IBM's transformation from a mainframe really to services and software, is your premise that it had enough software juice that it was able to successfully make that transition in software or did they have to go through some kind of massive transformation like Dell is going to have to do? They went through massive iterations to determine what software they wanted to be and then they finally realized they wanted to be in high value, high margin, which means I don't go after everything, I go after some of the key components but I'm going after things that other people won't be able to solve. Yeah, because it was hanging onto OS2 for a while, it lost out and then of course the Lotus acquisition which is like, I mean, a lot of talent but not much to travel right now. It's really sort of a major milestone for that. Okay guys, so next question I want to ask you is I'm going forward in Dell world next year, what do you think they need to do to execute this next level? Obviously the messaging was good, they heard transformation, the word modern coming out of Michael's mouth, converged infrastructure, obviously all those things are lining up, Marius taking refs at the first team right away from HB and says there's clear what's going on there. What do they got to do to execute? Can they truly be that solutions company? Do you think they're budding off more than they can chew? Ray, Dave, what do you guys think about this? What I want to see next year is case studies, best practices, customers on stage saying the same thing that they're talking about right now. Right, and when you do see that, when the customer's up there saying this is happening, then you know that the strategy is starting to take. Well we heard from the one guy, it's like one thing that better happen next year is they better be number one in servers because they touted the 64,000 servers away from victory, let's see how they jury-rig the IDC study but Dave and I will be watching, I like watching those. Dave, what do you think about what they need to do for next year? I mean the hardest part is the PC business is in decline and they're losing share there and that's their bread and butter and their gross margins are 22%. They're a 60 billion dollar company with an 18 billion dollar market cap and they have 11 billion dollars of cash in their bank. So the core business is worth nine billion dollars. I mean, that's a problem. Dell has to address that from a financial standpoint. I love the fact that they throw off so much cash flow but there's going to be distractions. At some point somebody's going to come in and say, hey, we can make more money by breaking these guys apart and Michael Dell's obviously going to fight that. We know that he said on theCUBE, I will invest my own. So he's serious about that but that is a major problem. They've got to solve, they've got to get that value back up and listen, the street values growth, it doesn't value cash flow, private equity values cash flow. So they've really got to figure out that growth model again. Now, one way to do it would be to shrink so you can grow again but Dell doesn't want to do that because it wants to compete in the enterprise with scale and that's a real conundrum for these guys. I really want to see that stabilize the PC business and then start to shift the margin model toward the enterprise so we can get better than 22% gross margin. Awesome analysis, my commentary would be simply, first of all I love both those analysis, I agree with it, my analysis would be they got to make Windows 8 work. I mean they're betting the ranch on Windows 8, they have nothing on the mobile side, it's a major drop in their numbers. They're all in, there's no one else, there's no other girl at the prom at this point. So, you know, Android is not ready so Michael's, you know, chins up and they're holding firm on Windows 8. I'm just smiling thinking about Steve Ballmer as the girl on the other end. Touch, it's the wrong frauds as they say but, no, I mean, Windows 8, you know, we're not pissed in on Windows 8 although there's an argument with our group about it but it's a jump ball right now. Windows 8, they have a path and they have to execute. Microsoft has to come through for Dell, otherwise Dell is going to be sideways on the PC business. Dave, to your point. I just think it's hard for me to envision an operating system as a catalyst for growth these days. In this day and age, I mean, I think, you know, data and analytics are, I think data is better. Data insights are the catalyst for growth. I don't think it's microprocessors and operating systems. You know, the ARM stuff is kind of interesting but you know, I think, like I said, the last OS that really catalyzed growth, I think it was Windows 95. I mean, I think the market really has shifted. Okay, so final question. In summary, starting with Dave, impressions of Dell World all around and just kind of walk away bumper sticker for what's happening here. Well, we were just doing some critical analysis, which is always fun, right? But I have to say, I'm very impressed with this event. I'm also impressed with Michael Dell's focus on the customer. I mean, he starts there, right? He's always putting the customer first and I think that's part of Dell's ethos, his customer service. They're easy to do business with. And you know, I love the fact that they're paying for their own acquisitions. They're throwing off cash. They're doing these interesting tuck-ins. So I love the strategy. You know, a lot of people say, come back. I really think it's the force and will of a founder who's got the intelligence and the wherewithal and the resources to really affect the transformation. So I'm rooting for them and I hope we're back here next year, John. Ray, what's your thoughts? I thought it was great messaging. They're talking about the important things, which are business outcomes. I think that I actually didn't realize that the show was just the second year. I just figured they didn't invite me the other 10 years. You killed me. That's actually a compliment. That's a compliment. It's pretty well run. I like this wagon wheel layout. I think it's very conducive. I hope they keep that because what it's doing is allowing people to go back and check out all the edges of Dell and then back to what the core is, which is what's in the middle on those vertical areas. And what I really hope to see is they'll build new business models because you just talked about it. The PC business is dead, right? The software business is not really dead, but almost going to be marginalized. The hardware business is all completely dead in all regards. The services business has very little margin, so they've got to reinvent a new business. And whatever that is, I think everybody's looking at this at the same time. So my impression is obviously started out from the beginning. Austin's a great city to have an event. It's a much different vibe. It's not Vegas. It's a cool city. They kicked off an amazing music night. Great music, very tight, very enjoyable for a guy my age, given that they played all the songs that I knew. So that was great. Great vibe, great easy living here in Austin. Dell Whirling, in a sense, same thing. I like the messaging of transformation. I love the modern messaging. I think having Bill Clinton here was an absolute home run. It shows the purpose of Dell. To me, that motivates employees. That motivates the marketplace and makes customers feel, you know, man, this is a company that's different. I like this company. This company is about the future and about things that are not in the speeds and feeds. So that was, I think, a huge win. People might be critical of Clinton, but I think the impact of that was just made people realize it's a world bigger than Dell and that Dell's aligning with that. So again, home run on the product side, converge infrastructure, love the modern era, don't like that. But just overall, just they are putting their foot down and we will compete in the enterprise. And again, if they can take that customer focus to them, that's key. Now, let's see if they can walk and talk. I love the social mojo they do with the social media data center here, the big operating center. But overall, I thought, fantastic. So, okay. That's a wrap from this analysis, from the breaking analysis, the critical analysis, the show analysis here inside theCUBE, Ray Wang from Constellation Research and Dave Vellante from Wikibon.org. I'm John Furrier with Silicon Angle. This is our TV.tv theCUBE, our flagship program out the events to expect a signal from the noise. Thanks for watching. See you later.