 The Cube at EMC World 2014 is brought to you by EMC. Redefine VCE, innovating the world's first converged infrastructure solution for private cloud computing. Brocade, say goodbye to the status quo and hello to brocade. Okay, welcome back everyone here live in Las Vegas for EMC World 2014. I was going to say VMworld because we're the CEO of VMworld here. I'm John Furrier, founder of SiliconANGLE, Dave Vellante, my co-host. Here with Pat Gelsinger, Cube alumni, friend of the Cube. It's our fifth season. We opened up at EMC World 2010 in Boston. Pat was on the Cube then and we had just had a great time ever since. Pat, welcome back to the Cube. Just got off the plane from Istanbul. How do you feel? I feel a little bit jet-like to tell you the truth. So it's been a long, long day. Okay, we'll get a lot of information out of you then. So first I want to ask you about the DSSD acquisition. Obviously you've known Andy for a while. What does that all mean for the industry software at the center of the value proposition? Is the hardware and compute going to be this abundant resource that no one ever sees? What's your take on all of this? Well, I think, you know, first, I think of Andy as like the rembrandt of hardware design, right? You know, he's just done all of the amazing system design work in the industry for many years. You know, he's been a friend for many years and just great, great respect for him individually. Obviously, DSSD is doing some great work because, you know, I think it's going to prove to be a critical technology in the entire converged infrastructure space. And clearly this high performance flash capacity is going to be a game changer for what you're able to do in the rack. And obviously with Bill's participation from SAP, they see it as a very, very critical capability for in-memory environments and some of the data analytics that they want to do. So I think this is a bold move by EMC. I was fully supportive of it and I think it's going to yield very, very powerful hardware for software to take advantage of. How much do they bring you in on a deal like that and consult with you? Is it intimate? Hey, Pat, we need your advice. Well, I sit in the board meetings. I sit in the M&A meetings and I've known Andy for 10 decades. Okay, great. So it wasn't just a cursory glance. You were a little bit more than that. It's been in the works for a while, so we've been fine. We'll get more information. We'll be digging for all of the sources. I want to talk about cloud. I'll see you in the last time we're at VMworld. We talked about the cloud. I said, hey, is hybrid cloud really going to be the destination? You're like, what are you talking about? It's going to be the destination. It is the hybrid cloud. It is the way. Here at EMC world, you hear Joe Tucci up there, even using the words AWS, disruption. Amazon is clearly on the radar. Public cloud is still out there as a viable alternative. And the words like reinvent, which is the conference name for Amazon, redefine is this conference. It's okay to have Amazon out there, but hybrid's cloud is still the deal with containers and whatnot. I mean, has the hybrid cloud narrative changed for you? Amplified, straight and narrow, full pedals of the metal? Yeah, no, we are absolutely convinced hybrid is the answer. And maybe start with a few facts. I mean, it's always good to ground ourselves in a little bit of data. And today, on-premise is 92% of IT spent. So 8% is in the cloud, as, say, as, pay us. So you sort of say, wow, right? And predictions would say by 2020, it's 75% on-premise, 25% in the public cloud. So you look at that and say, boy, you know, even just from a spend perspective, it's going to be hybrid. And then you look at facts like security, privacy, governance, SLAs, liability, cost, performance, all of those things will keep people on-premise. So it's clearly a hybrid world, right? Where it is the on and off-premise. And we've clearly seen that as we've laid out this positioning of hybrid, the industry is following us. We're seeing Amazon talk about it. We're seeing Microsoft talk about it. We're seeing Google talk about it. All the other big cloud players are saying, yeah, you know, VMware got it right. Hybrid is the answer. It seems like all the territory is being claimed now. It's like we're almost seeing a, almost a, not bubble burst. You're seeing Box pull their S1, obviously their economic of buying customers isn't working. So obviously they have to pull back from there. You're seeing some other companies get massive valuations that aren't publicly traded. Yeah, there's really kind of no really market there. And then other companies in the flash market, such as NIO, Violent Memory kind of sub valuations, well below, but the container technology. So I got to ask you about some of the new stuff that you're seeing. One, valuations and also the new containers. We heard Docker is really hot right now. What do you make sense of the containers in particular? Well, on the first of the valuations, I mean, clearly the PEs of these very high growth, you know, early stage, not money making companies were just out of control. And I had commented on that before at the Wall Street Journal CIO event that they were just way out of range. And it's good to see those coming into more reasonable ranges now. And I think that will wash through the entire industry because there was this mini bubble of just crazy PEs. You know, and with respect to Docker and some of the other container technologies, you know, the clearly is enthusiasm around some of the lightweight, stateless mechanisms. But what I'll point out is that there have been different container approaches over the last 30 years. And the only one that has had sustained architectural influence and investment has been the VM. And our effort is continuing to pound the overhead, continue to add value, security, networking, management, you know, all the things that we've been able to build around that's idea of the VM container. And of course, if people are really, you know, see lightweight containers as valuable, well, we'll stick a bunch of them in a VM. I mean, it's just another management model for a lightweight deployment of stateless apps. So, John and I have been thinking about, you know, Joe's waves, right? And we think, okay, this next wave that we're in, what's different about this wave? You've laid out a $50 billion TAM, you just talked about how much of that the public cloud's going to get. I wonder if we could make an observation to get your feedback on it. The economics of cloud, they start to look, so you've got software economics, 90% gross margins, hardware, you know, the economics at volume, the marginal economics we're talking about, you know, aren't as attractive, but they're still good, and then services is negative, you know, but diseconomies of scale, if you will. It seems like in the cloud that online cloud services are now taking shape the same way software is. So, at volume, you're getting software-like economics. So the question is, how does VMware and VMware, you know, a cloud, a VCloud hybrid service get to that scale and that volume so that you could participate in that? So first of all, is it a reasonable premise to note? And can you get to that scale and how do you get to that scale? Yeah, and you'll see it a little bit in my keynote tomorrow. I'll talk about this a little bit more. One is, you know, we're investing, we're growing very rapidly as we expand the number of presences in the U.S. You know, second, we're very aggressively partnering and we announced our first partnership with Savage, you'll see us announce other partnerships like that, that we're going to leverage their capital as well, right, and who invests the most in capital of any industry in the world? Service providers, right? They blow away everybody else, so partnering with them. The other view of that would be with VCHS is that we also have our VSPP program where, you know, I'll give some of the stats in the keynote tomorrow, but we have an overwhelming, right, breadth for those VSPP partners that already has us very much at scale as one of the largest clouds, not just what we do, but through this broad range of partnerships that we form. So overall, you know, we have a very powerful strategy when you add up all of those and given our business model of software and services, you know, it's very unique and combine that with the statistics I was giving you of on and off premise and the private cloud, you know, 40 million VMs, 500,000 customers, you know, we bring a lot to the table. I want to talk about AirWatch. So, big acquisition, the federation helped a little bit, a little financing, you know, should go into debt, right? So, talk about the importance of AirWatch, you know, where it fits into the end user computing strategy and what gives you excitement about AirWatch? Well, you know, I think one is in the whole end user computing space, two years ago, people viewed it like, VMware had a hobby, right? You know, hey, we're selling these for air and hey, you know, throw in some of this. Throw in some of this. Well, you know, hiring Sanjay, rebuilding the leadership team, investing in our end user computing sales force and now the AirWatch acquisition, everybody realizes this ain't a hobby anymore. We are taking this space very, very seriously and really redefining the industry quite rapidly with the breadth of what we've done with Horizon 6 plus the inorganic move with AirWatch. You know, we are here to win in this space and taking shares substantially from Citrix and others in the category. You know, secondly, and as part of the whole secular shift, not just the cloud, but it's the mobile cloud era. So it's to redefine and deliver that PC experience, but it's also uniquely, right, to enable the secure managed experience for all the mobile devices as well. And that's where AirWatch is clearly, you know, tearing up the track and you know, we believe it's separating from the rest of the industry players as that leader and really gives us the unrivaled portfolio of assets now. Pat, talk about the, obviously the compute trend is moving through the data center. You're seeing the commoditization now. The data centers want to do the same way. You've talked about that publicly. So with the software to find enterprises, Joe Tucci calls it, we've called it the software to find data center. How does that change from your standpoint, from a focus standpoint? Because you mentioned, you got AirWatch is no longer a hobby. You're building a, you know, a business got a tan expansion strategy, aggressively investing. You have an ecosystem that you kind of had from your hobby days. Now you're kind of nurturing it and expanding it. What is the focus? And from a software to find perspective, what is that focus specifically? And how do you keep your troops marching to the cadence of that focus? Yeah. Well, we laid out our three areas for VMware. Over a year ago, we said we're going to do three things, software to find data center, virtualize the whole data center, second to the hybrid cloud, this on and off premise, and then go from the data center to the device, PCs and mobile devices. You know, with what we've done, we have all the pieces in place now, the acquisitions are all in place, the execution and that consistency that we've laid out now for almost a year and a half, you know, has really resonated both internally to my teams, you know, to our sales teams, to our customers and our partners as well. And they get it. You know, that consistency has really gotten us more and more momentum. We're seeing all of those elements, you know, really firing at all cylinders at this point. So I saw the news that Gould is no longer involved, kind of, he was kind of, because he's now the CEO of EMC2, you're the free captain of VMware and the Federation of the ship. What is that like for you now? And what are you tapping into the Federation? What is pure VMware? Can you just kind of square that up in terms of obviously VMware? What do you tap to the Federation? What do you have available to you? Sure, sure. And, you know, with the Federation perspective, you know, we got a lot of benefit from, I'll just say, you know, the layer that EMC provides. You know, I call up Joe, we have a shareholders meeting. Right? You okay, Joe? Yeah, I'm okay. Good, done. Shareholders meeting finished. You know, some of those things are just elegant. I mean, quickly, right? You know, we can get things done. That's what you are like John and Dave. And, you know, at the same time, you know, we're accountable to the street for all the financial metrics, all the things that you want to be accountable to public shareholders for. You know, we also get the benefit, like you saw on AirWatch, you know, the cash position. We're better aligning ourselves in global accounts where both of us are present. So we get the leverage of both sales teams and the capacity that we have. You're seeing some of the solutions work that we're doing. Moving pivotal assets recently, right? Yeah, right, you know, moving things around. You know, best position things for the different players as customers are seeing that. You know, in aligning those assets between us. And also very, you know, very clearly saying, okay, you know, here are the areas and I'll hit on this in my keynote tomorrow, right? This is how the VMware assets work with the EMC assets and we're going to leverage each other as we go forward. But as we say, you know, the Federation motto is strategically aligned, right? You know, while we may, you know, loosely coupled. So continuing to be able to go partner, right? With others in the industry to facilitate that flexible ecosystem. I want to ask you about Silicon Valley, right? So, honestly, you have a great campus VMware. I mean, it's one of the most beautiful campuses in Silicon Valley. Well done. It fits into the hillside there. One of my favorite areas. But as you guys go global, Silicon Valley is also going global. And there's also kind of like a, I'm going to say bubble-ish environment out there right now. Valuation, we just talked about out of control. Silicon Valley's changing. What's your take of the current state of Silicon Valley in terms of the innovation? I know you're going to be talking with Stanford University and Mark Andresen coming up on a panel. Has it changed over the past few years and does it still have that innovation? And does it bring it back? And all the cycles change? What's your take on Silicon Valley? Well, we're going to have a nice campus opening, you know, beautiful VMware campus. We're going to have a little party. I don't know, is the Cube invited? Yeah, we are. Okay, I hope so, I hope so. We just get to be like, yeah, yeah. So we're going to have a ribbon-cutting ceremony and that's going to be great. And Mark is going to be there. John Hennessey, my thesis advisor, now the president of Stanford's going to be there. Joe, the board. So we're going to have a great event talking about that exact question, right? And really talking about the future of the Valley. Unquestionably today, it remains the hottest bed of innovation anywhere in the world. But I think you always look at that and say, you know, the recipe is still there as you look to the future. And, you know, competition for labor is intense. You know, tax rates, you know, people move out of the Valley because of those. The gentrification of San Francisco, big discussion. Yeah, right, you know, Toyota just moved to Texas. I mean, there's always this, you know, do you still have that recipe, right? Nowhere else is even close to the Valley in that today. And you see that in your travels? Oh, absolutely, absolutely. But every place in the world says, I want to be like the Valley, right? Every place in the world is saying, what do I need to do to create that same recipe? You know, whether that's Bangalore or whether that's Beijing or Shenzhen, right? Or whether that's Israel or, you know, many spots in the world. Well, Silicon Valley, export that knowledge and is that a good thing? You know, I don't think Silicon, you know, knowledge, ideas, right? You know, it's just bubbling cauldron. But there's something special about the Valley that it's been able to maintain now for, you know, three decades and it doesn't look like it's coming to an end in the future. Hey, Chuck Hollis is pretty excited about V-San. Are you as excited? Well, I'm very excited about V-San. Why? Why are you so excited? And what does it all mean to you? Well, you know, if you're a V-Admin, right? Which, you know, is the heart of our customer base, you say, check, find me local disk. Check, provision local disk. Well, I've just done storage, right? It's powerful, it is, you know, amazingly simple and gives great performance and it redefines the hot edge, right? For, you know, for virtual storage, a new tier of storage. So we're very excited about it. Certainly doesn't replace all of storage, but it gives a new tier, a new capacity that for a virtual Admin is just perfect. Is that new tier incremental? I mean, it must replace some storage, right? I mean, conceptually, it's... Right, you know, I mean, the good news is storage continues to grow, right? You know, it's one of the areas of IT that just continues to grow as capacity grows and application demands take. And of course, there's going to be some trade-offs at some places and we do see lower capacity, lower end of the market, test dev, you know, some VDI use cases, DR use cases, where hey, people might trade it off versus other alternatives. Good news for EMC, obviously. They're mostly upmarket, right? It's where their strength is. But we're very excited about VSAN and really see it as a critical new component of the VMware family. That extreme IO acquisition you made seems to be working out okay. You're happy about that, right? Yes, yeah, yeah. Not that you spent tons of time on extreme IO these days, but you made that acquisition. Yeah, no, a lot of the acquisitions I did at EMC, we're doing just fine. You know, and I cheer my team on back there when I meet them, it's like, oh, why did that one slip? So let's talk about the dream team. We were talking earlier, the dream team is now kind of spread thin, running their own little ships, if you will, in the Federation. But back when in 2010, we started doing theCUBE, we were all kind of under one roof, and we kind of said, hey, you got to get the meat on the bone. We talked about it on theCUBE, hey, the product portfolio is in transition. You talked about some of the acquisitions. Looking back, what are you most proud of for the team, not just yourself, but the group, what you guys meant? Some of those calls that might have been on the fence, what were some of the highlights you looked back and then where you are today? Well, you think about some of the key decisions that we made, and we did green pump. That's now in the center of Pivotal. Now, we did Isilon, that's performed extremely well. We have done the data domain, and clearly the whole backup space has performed very well. We've also laid some of the seeds for the future, right? Like ExtremeIO, like Viper, were done when I was there. So all of these things, it's done well. EMC has gained significant share since I joined, and they have the tools to really be positioned to help go through this next phase of the transition. And obviously, under David and his team's leadership, the industry remains in transition, and that's still affecting EMC, and they're having to carefully navigate that next phase. And I think you've heard a lot from him today. We love pulling the sound bites out. I have a quote here from 132 days ago from you, but I don't want to talk about that now, but the quote that we had on theCUBE, you said is that if you don't get out in front of that next wave, you'll be driftwood. Joe Tucci said today, if you don't take an offensive approach with this platform, you're going to wither away. So let's talk about that, getting out in front of that next wave. In your mind, share with the folks out there in your own words. Why is this point in time so important from an industry perspective? You've seen in movies before. You've seen the massive inflection points. You've seen Moore's Law at full tilt. Try to compare where we are today from a relevance and making sense of the excitement and controversy opportunity. Well, we are, as we would say, as we're going from client server to mobile cloud, this will be tectonic shifts and the amount that's going to shift to cloud, the amount that's going to shift away from PCs to mobile devices in the industry and all the vendors that have their value propositions tied to a hardware defined approach, guess what? That's going to be a secular decline where people are going to be competing for premise-based revenue that way and in the environment that's going to be flat to down and there's going to be no possibility of growth and you look at what's happened, consecutive quarters at IBM, for instance, boy, they're feeling the pain of this transition and the cloud transition, it's barely underway. And mobile is just scratching the surface. Yeah, so these trends are just about to get started. The analogy I'll give in my keynote tomorrow is 1989 and we're Digital Equipment Corporation and over the next seven years, guess what? Right, the entire business is going to shift. Pat, guess, it's always great to have you on theCUBE. Just any final parting words about what you're going to work on through this week, some things you're highlighting, customer events, us, your keynote, what do you expect to see here at EMC World this week? Well, you know, EMC World's a great place and just feel incredibly embraced and you know, our partners at EMC and just happy that they give me the opportunity to address the audience here. That's always a great joy and it is this period of extraordinary transition and everybody here, right, as the conferences has to redefine themselves on the other side of these tectonic shifts that are underway and you know, EMC is, you know, doing that and they're, you know, to all of their partners and customers saying, here's what you need to do to go with us in that journey. August, right around the corner, Pat. Pat Gelsinger, Inside the Cube. You're 25,000 of my closest friends. I'm not gonna call you that. We love talking with you and we'll see you at your event. We're going to be actually attending the ribbon conference ceremony. I was talking to the folks about getting the cube there, going back and forth, but we'll get it done. Pat Gelsinger, Inside the Cube, the CEO of VMware, friend of the Cube, we'd love having you on. We'll be right back after this short break. Pat, good to see you. Good to see you.