 Live from Austin, Texas, it's theCUBE. Covering Dell EMC World 2016, brought to you by Dell EMC. Now, here are your hosts, Dave Vellante and Stu Miniman. Approximately a decade ago, Michael Dell took a scan of the market and noticed a couple things. One, PCs were not growing. The cloud was just getting into the data center and open source software was finally starting to take hold. Michael Dell decided at that point to affect a major transformation of his company. At the time, he was reselling EMC hardware to the tune of several billion dollars and it was a very successful, but it was not vertically integrated. So he began embarking on a strategy to acquire companies. Equalogic was an example, Perot systems to get it to services, as another example, Boomi to get into the cloud management, Force 10 to get into the networking, Sonicwall, et cetera. The problem was, as a public company, the transformation could not occur fast enough. The decline or flatness in the PC business was not offset by the growth in the new enterprise business. Now, Michael Dell waged an epic battle with the great Carl Icahn, who does not lose often, but he lost to Michael Dell. Michael Dell gained control of his company, took it private. And then, of course, last year in the largest acquisition in computer industry history, Dell announced that it was acquiring EMC for 67 billion dollars, including, of course, VMware. That acquisition was consummated approximately, just slightly less than one year later, just late this summer, after a fairly long, but well understood process of getting approvals from the various regulatory agencies, and including, of course, China. And we'll be talking about that. I'm going to bring in my co-host, Stuart Miniman. Stu, great to see you back here at Dell World. It's good to be in Austin. Yeah, it's great to be here, Dave. Austin, we've always said, when it was Dell World, and of course it's Dell EMC World this year, Dell World is the event that most reflects kind of the local culture. So, you know, Dell is a round rock-based company. We get a good flavor of what happens here. In Austin, specifically, tonight, they've got Alabama Shakes playing, and they're going to have a big ground of food trucks, I'm sure, like they have every year. So it's a phenomenal city, one of my favorite places to visit. And it's a different show than some of the big enterprise shows that people knew. And it's a little bit different feel this year. We've got a bigger set than usual here on the show floor. It's exciting to be here. A lot of people that don't know this show and the ecosystem shown up for the first time. Last year, the press all came on the news that they were buying EMC. Now there's a lot of what are called legacy EMC people. It's the term I've been hearing. And by the way, there's the legacy Dell people on site. So coming together, exciting show, looking forward to the next two days of our coverage. So much to talk about here, Stu. I mean, obviously the acquisition is fresh. I mean, it's only been probably less than 60 days now. So EMC and Dell are obviously working through their alignment, their portfolio, their so-called swim lanes. A lot of that, I think they understood going in, even though they couldn't technically be working on it. But the overlap, as we know, in these two companies' portfolios was not huge. They made a number of indications as to how they were going to organize. We'll be talking to a number of executives about that, including Michael Dell, of course, David Goulden, who's running the, what you're saying is the legacy EMC business, but also includes the server piece of it. And of course, last week, the big news between VMware and AWS, where VMware and AWS are partnering to become each other's preferred provider of hybrid cloud, something that Andy Jassy, a term that he never used to use. So I'm not even sure he's using it now. A lot of really interesting indications as to what that means, who are the winners, who are the losers. We're going to be unpacking a lot of that here. Although it's less directly related to this event, let's face it, Michael Dell owns a majority of VMware. So it's highly relevant. We've seen Stu, EMC for years, leverage its ownership of VMware, walking a fine line between maintaining openness within the ecosystem, but at the same time, optimizing its presence within that very same ecosystem. But Stu, I ask you, is VMware as relevant as it was? And will Dell EMC be able to do that to the degree it was able to historically? And what about AWS? Can it leverage AWS the same way it was able to leverage VMware? Yeah, so a lot of questions there, Dave, and I'm glad we've got almost two days to unpack a lot of this. Yeah, first of all, most of the discussion of that VMware AWS stuff is happening in Barcelona right now. So VMworld Europe's going on, a lot of activity, and absolutely everybody wants to know about this AWS partnership. So first of all, number one, at VMworld, I asked Michael Dell directly, there are people that think that you're going to spin off VMware or you're either going to get rid of them or you're going to completely control them, which is it? And he was like, well, if people think I'm going to get rid of it, they don't understand the math of how I'm financing this and they don't understand the value. I mean, when we used to talk about the EMC Federation, it was VMware is the jewel of this configuration. So VMware is still critically important. They are in just a vast majority of enterprise environments and that's not going to change overnight. At VMworld this year, we spent a lot of time talking about the future of public cloud and how that's really going to grow and it struck people's little odd talking a lot about the futures. Now VMware is saying, okay, we can put, you know, take bare middle cloud in an Amazon data center and run VMware there. And I've been chewing on this for the last couple of days, Dave, and one of the things I look at is, you know, you turn back the clock a decade and you said, what was VMware trying to do? At first it was like, okay, here's the class of servers that you can run on and these IBMs are certified, these HPs are certified. Now, if it's x86, I can run it. Well, where are workloads going and where are the computers today? Well, many of those living in the cloud. So VMware wants to be able to say, hey, if I want to live on servers in an Amazon world, now I have an option. It just really expands what could be a shrinking overall market of servers. If I include those hyperscale players like putting it in Amazon, it keeps that addressable market larger. I've got some concerns about the long-term viability of how that integration, I think the word I think you were using, Dave, is will there be seamless integration? Is this just, if I'm Amazon, I say, great, I'm going to have this stuff coming into my cloud and I'm going to have migration services and all these other things sitting right in the rack next door and wouldn't be easy to just move over here and maybe even want to stop paying some of those Amazon licenses. So something that's going to take us a little while to figure it all out. It's not shipping until like mid next year, which mid next year is when Microsoft's Azure Stack, you will also launch. So 2017 is going to be a big year for hybrid cloud. When they go to our wide shot here, they'll see there's a giant Microsoft logo over my shoulder and because Microsoft and Dell, huge partners, last year Satya Nadella was in the morning keynote. So in the cloud space, it's Dell plus Microsoft, big partnership, now VMware plus Amazon, partnership announced, it seems pretty important. How do those two go forward? What does that mean for this whole Dell technologies? And so there's my quick take so far, Dave, but lots of nuance there. Take up on some of the themes you talked about. I mean, I never felt like Michael Dell was going to sell off VMware. I think that would have been insane. And people said, oh, well he'll do that to pay down the debt. I never felt like that was necessary. I thought that would have been a strategic mistake. I mean, VMware is such a crown jewel and a pivot point within the enterprise still. You know, you can call it legacy, but VMware still has, what's the number on host customers? 500,000 customers and virtually every customer you talk to has some kind of VMware strategy. Having said that, the growth obviously is not going to be the same as it was the last 10 years, but I never felt as though it would make any sense for Michael Dell to sell VMware. What's interesting to me, Stu, in that deal is, and we were talking about this earlier at the analyst luncheon, is Dell's server strategy. So you mentioned Microsoft. Years ago, Michael Dell realized he could make money, packaging Microsoft software and Intel hardware and was very, very successful at doing that, even though it might have been throwing off, you know, 18, 20% gross margin. And he perfected that model with a massive supply chain. Now Dell is what, a $70, $80 billion company now. If not the largest, certainly one of the largest supply chains in the industry. That's the combined Dell plus EMC and the new Dell. The massive supply chain leverage that Dell EMC has. As a result, Michael Dell, I think, is looking at every option. I mean, he's always been about the customer, right? And Michael, go come on and it gets kind of boring because it's about the customer. What does the customer want? It's like, it sounds so basic, but it's true. And you hear Andy Jassy say the same thing. The difference with Dell historically has been, if the customer wants it, they'll figure out how to get it and they figure out how to make money because Dell is a low cost supplier. So Amazon, great, we can resell Amazon, make some money there. Nutanix, we can resell Nutanix, make some money there, no problem. Again, this is a company who's been living in the world of 18, 20% gross margin. Now you blend it with an EMC, 60% gross margin business. This is gross margin heaven for Michael Dell. So as a result, see a lot of ways that Dell can continue Dell EMC, can continue to make money, continue to throw off cash, pay down the debt, doesn't have to worry about stock buybacks and dividends anymore. I don't see that as a huge problem. We're going to ask Michael Dell about it. Yeah, so Dave did just a comment on those two examples we gave. Number one, it's not a resell of Amazon that Dell's doing. There's actually, that VMware's doing, it's actually going to be like a VMware zone inside an Amazon data center. And VMware will, they're going to configure it, they're going to support it, they're going to sell it. It's like I've bought, it's more of a VMware Colo than it is an AWS resell. And the other piece- So are they not getting points on the Amazon piece or are they just getting points on their own piece? So we don't know anything about pricing, but the expectation, if they do this right and I'm sure, you know, when you look at both of those sides, that they will be very diligent about what they do, they will price it to make sure that there's an incentive for Amazon to make sure that this works and that the Dell, I'm sorry, the VMware people and the VMware channel will embrace this and work there. But the other piece- There's got to be some way for a Dell to arbitrage that, for a VMware to arbitrage that. If they're going to be packaging and selling that solution, they're certainly going to make money off of their own software. And there's got to be some look off the cone for AWS or some way to arbitrage it because they'll be buying in volume, right? Absolutely, I mean the hope for both of them is that they get a bigger piece of the overall pie. Microsoft is the competitor that they're trying to beat in that space. The other one you mentioned was Nutanix, which is an OEM relationship where it is Dell's hardware. Dell feels that they have a differentiated solution compared to what I would buy separately from Nutanix or from the other OEM solution, which is Lenovo. And so, you know, Dell put some skin in the game, make sure that they're putting some of their own IP, not just kind of the might of their go-to-market and their whole supply chain. So Stu, we know that Amazon buys, just taking Amazon as an example, certainly we could use Microsoft and Google as an example, but we know Amazon specifically buys servers from ODMs. We know that. So, and we know Dell competes with the ODMs. So Dell, with a $70, $80 billion company with the biggest supply chain or one of the biggest supply chains in the business, why can't Dell compete for server market share within the big hyperscale audiences? Why not? So Dave, great question. I love it and something we want to dig into here. I'm not sure that Dell will make much comment, but. Matt Eastwood will. We got Matt Eastwood on the queue. We're going to talk about it. So two points on that. Number one, in the Amazon space, this is a new bare metal offering. And I'm sure Amazon is going to put out an RFP and I mean, I'm sure Dell is going after that. Heck, I'm sure Lenovo is going after that. The second piece there. You think there's a quid pro quo? What's going on with this deal? You know, if I'm Dell, and my question I was thinking about this, Michael, first of all, I mentioned, Michael's not selling off VMware. Michael is also letting VMware be independent to an extent. But what's in it for Michael? And if Michael can get server footprint into Amazon, that is huge. And they've already got footprint into Microsoft's. The other piece on that, you know, when they talk about the whole EMC, which by the way, the EMC people, they say it's a merger. Michael Dell and kind of the MSD Ventures bought it, but the companies were actually, it's a merger, not an acquisition, just as the terminology that they use. I know, well, we'll go call it an acquisition. But a conversation I've had with Matt Eastwood over the years in my history at EMC, EMC sells a ton of appliances and a ton of solutions that have x86 inside. A lot of that was ODM technologies. You started to see solutions like in the hyper-convert space with Quanta. You know that all of those are switching over to Dell hardware. So EMC as a customer and all of those products that they push actually give a nice uptick to the core Dell server business. At the end of the day, I always look, it's like Cisco cares about, you know, how many boxes that they can sell, kind of that core networking. And at the end of the day, Michael wants to sell more servers. So if you fall back to those basic principles, you would think that he's got some way that if more things are going to cloud, he's going to get a look off the cone when it's Microsoft or where it's Amazon. And what about Google? You know. The other thing we have to talk about, well, and we could come back and talk about Google because where was Diane Green in this whole deal? But anyway, well, the other thing we have to talk about is channel. So the channel right now has got to be wondering what's our future, right? So you've got a company EMC who's done a remarkable job with the channel, but you know, it was a direct sales force company and still has a direct sales force ethos. As does Dell. So the channel is going to be wondering, okay, what's going to happen to us? How is Dell EMC going to rationalize the channel? What's the messaging that's going out to the channel? What are you hearing? So last year, there were a couple of big, you know, EMC channel partners that came here to Dell World when it was Dell World last year and asking all those questions. And absolutely, the channel understandably so gets a little bit of trepidation when they look at these two pieces coming together because you've got Dell channel, which kind of happy. And now you've got all these big EMC partners and you have an EMC channel which, by the way, has a lot of partnerships with like Cisco and Cisco UCS. I mean, that's what Vblock has sold $3 billion worth of solutions last year. There's a lot of Cisco. So putting those together, yes, we're going to have choice and we're open. There's an ecosystem and of course, Dell is partnering with Cisco a lot, but there's some changes happening and you know, the corporate functions inside of Dell technologies live on the Dell side. So some of the compensation models are still being sorted out, how services fit between Dell EMC and the channel. I hear there's a little bit of friction there and concern. So, you know, a lot of these things, Dave, it's like, I'm sure they're all saying, hey, we're going to have a great plan in place for 2017. You know, we're not going to mess anything up in 2016, but it is something that, you know, I hear that there's some bumpiness and I'm definitely looking forward to digging into more this week. Well, why is this a new era? Let's talk about that a little bit. So with EMC and Cisco who have historically and still have a very strong relationship, Cisco didn't have storage for the most part and EMC didn't have any networking. So they had to rely, you know, almost exclusively on Cisco for networking. Of course, it did some other stuff with Brocade and others, but really Cisco was its primary networking partner. Dell has networking. Dell went out and bought, you know, networking companies and was in that business and granted, you can say it really wasn't at the core and okay, there wasn't maybe a huge overlap, but now you've got this sort of three way interesting mix. Yeah, so Dave, it was really interesting. So right, Dell bought Force 10. Tends to be more on the campus side, tends to be much more in the edge, not strong in the core, but when I hear the messaging, there was a really good interview with Michael Dell and CRN leading up to the show. And when they asked Michael about networking, his answer was NSX is growing great. And I'm like, wait, that's the networking on the virtual side that totally, we've sorted through how NSX and ACI and Cisco fit together, but you're right. They have some core networking pieces. They report to David Gould and absolutely something we're going to talk to David about shortly, but you know, I don't hear Dell trying to be a powerhouse and networking, the message you hear from Michael is that Cisco will be a long-term partner in many ways and Cisco gets the networking, if we can get the server is kind of, I think the deal they're trying to make. I mean, Cisco's really in the business of selling ports. Yeah. Right? And NSX is all about virtualizing those ports. Wait, Dave, isn't this all software world? Why are we talking about boxes and ports and all this stuff? Somebody's still got to make some money on hardware, right? Ever since I've been in this business too, they told me that hardware is dead, but still got to run on something. Oh, come on, you know, software comes and goes, hardware is forever. And the truth is forever as well. So we're here trying to unpack what's going on at these shows. It's actually quite a complicated mix for a lot of people. You're going to hear some, I think, attempts to simplify that messaging, really drive it to the customers. What do you want? You're going to hear a lot about openness, I'm sure, a lot about choice and a lot of fun because it's Austin. Absolutely. I mean, we're digging in some customers looking at things like IoT and security, two hot areas that we've been spending a lot more time recently focusing on because that's some of the disruptive areas and things that are changing. Real good lineup of all the executives. Dell is a great host here and it's exciting to be here. We're going to have a little smattering of some of what used to be called the Federation at EMC. Now it's sort of Dell Technologies. The Federation 2.0, if you will, have some folks on from Pivotal talking about their big data stack. We've got to be drilling down into servers, certainly storage is a big theme of this event, networking, so we'll be covering it wall to wall. You're watching theCUBE. We're live from Dell EMC World in Austin, Texas. We'll be right back after this short break.