 Hi, I'm Peter Burris. Welcome to Wikibon's Action Item. On Action Item, every week I assemble the core of the Wikibon research team here in our theCUBE Palo Alto studios and as well as remotely to discuss a seminal topic that's facing the technology industry and business overall as we navigate this complex transition to digital business. Here in the studio with me this week I have David Foyer, David, welcome. Thank you. And then remotely we have George Gilbert, Neil Raden, Jim Kabilis, and Ralph Finos. Guys, thank you very much for joining today. Hi, how you doing? Great to be here. This week we're going to discuss something that's a challenge to talk about in a small format but we're going to do our best and that is given that the industry is maneuvering through this significant transformation from a product orientation to a services orientation, what's that going to mean for business models? Now this is not a small question because there are some very, very big players that the technology industry has been extremely dependent upon to drive forward invention and innovation and new ideas and customers that are entirely dependent upon this ongoing stream of product revenue. On the other hand, we've got companies like AWS and others that are much more dependent upon the notion of services revenue where the delivery of the value is in a continuous service orientation and we can include most of the SaaS players in that as well like Salesforce, et cetera. So how are those crucial companies that have been so central to the development of the technology industry and still are essential to the future of the technology industry going to navigate this transition? Similarly, how are the services companies for those circumstances in which the customer does want a private asset that they can utilize as a basis for performing their core business? How are they going to introduce a product orientation? What's that mix? What's that match going to be? And that's what we're going to talk about today. So David, I've kind of laid it out, but really where are we in this notion of product to service and some of these business model changes? Well, it's an early stage, but there are very profound changes going on and we can see it from the amount of business the cloud business suppliers are providing. You can see that Amazon, Google, IBM, and Microsoft Azure, all of those are putting very large resources into creating services to be provided to the business itself. But equally, we are aware that services themselves need to be on-premise as well. So we're seeing the movement of true private cloud, for example, which is going to be provided as a service as well. So if we take some examples like, for example, Oracle, they're a cloud customer, they're providing exactly the same service on-premise as they provide in the cloud. By service, you mean in how the customer utilizes the technologies. Correct. So the asset arrangement may be very different, but the proposition of what the customer gets out of the assets are essentially the same. Yes, the previous model was we provide you with a product, you buy a number of those products, you put them together, you service it, you look after it. The new model here coming in with TPC, with a single throat to choke, is that the vendor will look after the maintenance of everything, putting in new releases, bringing things up to date, and they will have a smaller set of things that they will support. And as a result, it's win-win. It's win for the customer because his costs are lower and he can concentrate on differentiated services to their clients. And secure and privatize his assets. Right, and the vendor wins because they have economies of scale, they can provide it at a much lower cost as well. And even more important to both sides is that the time to value of new releases is much, much quicker and time to security exposures, they had time to a whole number of other things improve with this new model. So Jim, when we think about this notion of a services orientation, ultimately it starts to change the relationships between the customer and the vendor. And the consequence of that is not surprisingly, that a number of different considerations, whether they be metrics or other elements, become more important. Specifically we start thinking about the experience that the customer has of using something. Walk us through this kind of transition to an experience-oriented approach to conceiving of whether or not the business model is being successful. Right, your customer will now perceive the experience in the context of an entire engagement that is multi-channel, multi-touch point, multi-device, multi-applications, so forth. And where they're expecting the same experience, the same value, the same repeatable package of goodies, whatever it is they get from you, regardless of the channel through which you're touching them or they're touching you, that channel may be provided through a private, on-premises implementation of your stack or through a public cloud implementation of your capability or most likely through all of the above combined into a hybrid, true private cloud. But regardless of the packaging and the delivery of that value in the context of engagement, the customer expects it to be self-service increasingly, predictable, managed by the solution provider, guaranteed with a fast, continuous release and update cycle. So really fundamentally it's an experience economy is the customer has many other options to go to of providers that can provide them with as good or better experience in terms of the life cycle of things that you're doing for them. So bottom line, the whole notion of a TPC really gets to that notion that the experience is the most important thing, the cloud experience that can be delivered on-prem or can be delivered in the public environment. And that's really the new world. Where the multi-cloud is that master sort of a matrix of this seamless cross-channel experience. We like to think of the notion of a business model as worrying about three fundamental questions. How are you going to create value? How are you going to deliver value? And how are you going to capture value? Where the creation is how shared is going to be is going to be a network of providers. You're going to have to work with OEMs. The delivery is going to be online. Is it going to be on-prem? Those types of questions. But this notion of value capture is a key feature, David, of how this is changing. In George, I want to ask you a question. The historical norm is that value capture took place in the form of I give you a product, you give me cash. But when we start moving to a services orientation where the services is perhaps being operated and delivered by the supplier, it introduces softer types of exchange mechanisms like how are you going to use my data? Are you going to improve the fidelity of the system by pooling me with a lot of other customers? Am I losing my differentiation, my understanding of customers? Is that being appropriated and munged with others to create models? Take us through this soft value capture challenge that a service provider has and what specifically, I guess actually the real challenge the customer has as they try to privatize their assets, George. So it's a big question that you're asking in, let me use an example to help sort of make concrete the elaboration or an explanation. So now we're not just selling software but we might be selling sort of analytic data services. So let's say a vendor like IBM works with Airbus to build data services where the aircraft that Airbus sells to its airline customers, that provides feedback data that both IBM has access to to improve its models about how the aircraft work, as well as that data also would go back to Airbus. Now Airbus then can use that data service to help its customers with prescriptions about how to operate better on certain routes, how to do maintenance better, not just predictive maintenance, but how to do it like more just in time with less huge manuals. The key here is that since it's a data service that's being embedded with the product, multiple vendors can benefit from that data service. And the customer of the traditional software company, so in this case, Airbus being the customer of IBM has to negotiate to make sure its IP is protected to some extent. But at the same time, they want IBM to continue working with that data feedback because it makes their models richer, the models that Airbus gets access to richer over time. But presumably that has to be factored in the contractual obligations that both parties enter into to make sure that those soft dollars are properly commensurated in the agreements. That's not something that we're seeing a lot in the industry, but the model of how we work closely with our clients and our customers is an important one. And it's likely to change the way that IT thinks about itself as a provider of services. Neil, what kinds of behaviors are IT likely to start exhibiting as it finds itself if not competing, at least trying to mimic the classes of behaviors that we're seeing from service providers inside their own businesses? Yeah, well, look, IT organizations grew over the last, I don't know, 50 years or so organically. And it was actually amazing how similar their habits and processes and ways of doing things were the same across industries and locations and so forth. But the problem was that everything they had to deal with, whether they were the computers or the storage or the networks and so forth were all really expensive. So they were always in a process of managing from scarcity. The business wanted more and more from them and they had lower and lower budgets because they had to maintain what they had. So it created a lot of tension between IT and organizations. And because of that, whenever a conversation happened between other groups within the business and IT, IT always seemed to have the last word, no, or okay. Whatever the decision was, it was really ITs. And what I see happening here is when the IT business becomes less insular, I think a lot of this tension between IT and the rest of the organization will start to dissipate. And that's what I'm hoping will happen because they started this concept of IT versus the business. If you went out in an organization and asked a hundred people what they did, not one of them would say, I'm the business, right? They have a function, but IT created this us versus them thing to protect themselves. And I think that once they're able to utilize external services for hardware, for software, for whatever else they have to do, they become more like a commercial operation like supply side or procurement or something and managing those relationships and getting the services that they're paying for. And I think ultimately that could really help organizations by breaking down that with those walls between IT. So it used to be that an IT decision to make an investment would have uncertain returns, but certain costs. And there are multiple reasons why those returns would be uncertain or those benefits would be uncertain. Usually it was because some other function would see that benefits under their umbrella, marketing might see increased productivity or finance would see increased productivity as a consequence of those investments, but the costs always ended up in IT. And that's one of the reasons why we find ourselves in this nasty cycle of constantly trying to push costs down because the benefits always showed up somewhere else, the costs always showed up inside of IT. But it does raise this question ultimately does this notion of an ongoing services orientation is that just another way of saying we're letting a lock in back in the door in a big way because we're now moving from a relationship, a sourcing relationship that's procurement oriented buy it, spend as little money as possible, get value out of it, as opposed to a services orientation which is effectively move responsibility for this part of the function off into some other service provider perpetually. And that's going to have a significant implication ultimately on the question of whether or not we buy services, default to services. Ralph, what do you think? Where are businesses going to end up on this? Are we just going to see everything end up being a set of services? Or is there going to be some model that we might use and I'll just team this, some model that we might use to conceive when it should be a purchase and what is it should be a service? What do you think, Ralph? Yeah, I think the industry is gravitating towards a service model and I think it's a function of differentiation. If you're an enterprise and you're running a hundred different workloads and 50 of them are things that really don't differentiate for you from your competition or create value that's differentiable in some kind of way. It doesn't make any sense to own that kind of functionality. And I think in the long run, more and more aspects or a higher percentage of workload is going to be in that category. There'll always be differentiation workloads, there'll always be workloads requiring unique kinds of security, especially around transactions. But in the net, the slow march of service makes a lot of sense to me. What do you think, guys? Are we going to see, do we agree with Ralph? Number one and number two, what about those exceptions? Is there a framework that we can start to utilize to start helping folks imagine what are the exceptions to that rule? What do you think, David? Sure, I think that there are circumstances when a- Well first, do we generally agree with the march? Absolutely, absolutely. I think we do too. Yes, fully agree that more and more services are going to be purchased and a smaller percentage of the IT budget from an enterprise will go into specific purchases of assets. But there are some circumstances where you will want to make sure that you have those assets on-premise, that there is no other call on those assets, either from the court or from difference of priority between what you need and what a service provider needs. So in both those circumstances, they may well choose to purchase it or to have the asset on the premise so that it's clearly theirs and clearly their priority of when to use it and how to use it. So yes, clearly an example might be, for example, if you are a bank and you need to guarantee that all of those, that information is yours because you need to know what assets are owned by who and if you give it to a service provider, there are circumstances where there could be a legal claim on that service provider which would mean that you'll go out, essentially go out of business. So there are very clear examples where that could happen, but in general, I agree. But there's one other thing I'd like to add to this conversation. The interesting thing from an IT point of view, or enterprise IT, is that you'll have fewer people to do business with. You'll be buying a package of services. So that means many of the traditional people that you did business with, both software and hardware, will not be your customers anymore and they will have to change their business models to deal with this. So for example, Permabit has become an OEM supplier of capabilities of data management inside. And Kaminario has just announced that it's becoming a software vendor. Nutanix. Nutanix is becoming a software vendor and is either allowing other people to take the single-throat to choke or putting together particular packages where it will be the single-throat to choke. Even NetApp, which is a pretty consequential business, has been around for a long time is moving in this direction. Yes, there's a small movement in that direction. But I think a key question for many of these vendors are, do I become an OEM supplier to the vendor? The customer owner. Or what's my business model going to be? Should I become that OEM supplier or should I try and market something directly in some sort of way to the vendor? This is a very important point, David, because one of the reasons for a long time why the OEM model ran into some challenges is precisely over customer ownership. But when data from operations of the product or of the service is capable of flowing not only to the customer engagement originator, but also to the OEM supplier, the supplier has pretty significant, the OEM company has pretty significant visibility, ultimately, into what is going on with their product. And they can use that to continuously improve their product. But while at the same time reducing some of the costs associated with engagement. So the flowing of data, the whole notion of digital business, allows a single data about operation to go to multiple parties. And as a consequence, all those parties now have viable business models if they do it right. Yeah, absolutely. And Caminario will be a case in point. They need metadata about the whole system as a whole to help them know how to apply the best patches to their pieces of software. And the same is true for other suppliers of software, the Permabit or whoever those are. And it's the responsibility of that owner or the customer to make sure that all of those people can work in that OEM environment effectively and improve their product as well. Yeah, so great conversation, guys. This is a very, very rich and fertile domain. And I think it's one that we're going to come back to, if not directly, at least in talking about how different vendors are doing things or how customers have to, or IT organizations have to adjust their behaviors to move from a procurement to a strategic sourcing set of relationships, et cetera. But what I'd like to do now is as we try to do every week is get into the action item round. And I'm going to ask each of you guys to give me, give our audience, give our users the action item. What do they do differently on next Monday as a consequence of this conversation? And George Gilbert, I'm going to start with you. George, action item. Okay, so mine is really an extension of what we were talking about when I was raising my example, which is your OEM supplier, let's say IBM or a company we just talked to recently, C3 IoT is building essentially what are application data services that would accompany your products that you, who used to be a customer, are selling as supply chain masters say. So really, really trying to boil it down is there is a model of your product or service, could be the digital twin. And as your vendor keeps improving it and you offer it to your customers, you need to make sure that as the vendor improves it, that there's a version that is backward compatible with what you are using. So there's the IP protection part, but then there's also the compatibility protection part. So George, your action item would be don't focus narrowly on the dollars being spent, factor those soft dollars as well, both from a value perspective, as well as an ongoing operational compatibility perspective. All right, Jacob Bielus, action item. Action items for IT professionals to take a quick inventory of what of your assets in computing you should be outsourcing to the cloud as services. It's almost everything. And also to inventory what of your assets must remain in the form of hard discreet, tangible goods or products. And my contention is that I'd like to argue that the Edge, the OT, the operational technology, the IoT sensors and actuators that are embedded in your machine tools and everything else that you're running the business on are the last bastion of products in this new marketplace where everything else becomes a service because the actual physical devices upon which you've built your OT are essentially going to remain hard tangible products forevermore of necessity. And you'll probably want to own those because those are the very physical fabric of your operation. So Jim, your action item is start factoring the Edge into your consideration of the arrangements of your assets as you think about products versus services. Yes. Neil Raden, action item. Well, I want to draw a distinction between actually, sorry, between actually, damn. I like your family. There you go. Neil Raden, action item. Get your mother right. You know, I want to draw a distinction between actually moving to a service as opposed to just doing something that's a funding operation. Suppose we have, you know, 500 Oracle applications in our company running on 35 or 40 Oracle instances. And we have this whole army of Oracle DBAs and programmers and instance tuners. And we say, well, we're going to give all the servers to the Salvation Army and we're going to move everything to the Oracle Cloud. We haven't really changed anything in the way the IT organization works. So if we're really looking for change in culture and operation and everything else, we have to make sure we're thinking about how we're changing really the way things get done and managed in the organization. And I think just moving to the cloud is very often just, you know, a budgetary thing. So your action item would be, as you go through this process, you're going to re-institutionalize the way you work, get ready to do it. Ralph Finos, action item. Yeah, I think if you're a vendor, if you're an IT industry vendor, you kind of want to begin to look a lot like, say, a Honda or Toyota in terms of selling the hardware to get the service and the long-term relationship and the lock-in. I think that's really where the hardware vendors, as one group of providers is going to want to go. And I think you want, as a user and an enterprise, I think you're going to want to drive your vendors in that direction. So move from, your action item would be for a user anyway, move from a procurement orientation, that's focused on cost to a vendor management orientation that's focused on co-development, co-evolution of the value that's being delivered by the service. David Foyer, action item. So my action item is for vendors, a whole number of smaller vendors. They have to decide whether they're going to invest in the single most expensive thing that they can do, which is an enterprise sales force for direct selling of their products to enterprise IT. And or whether they're going to take an OEM type model and provide services to a subset, for example, to focus on the cloud service providers, which Caminario are doing, or focus on selling indirectly to all of the vendors who are owning the relationship with the enterprise. So that's to me is a key decision, very important decision as the number of vendors will decline over the next five years. Certainly what we have visibility and what we have right now. So your action item is just a small vendor, choose who sales force you're going to use, yours or somebody else's. Correct. All right, so great conversation guys. Let me kind of summarize this a bit. This week we talked about the evolving business models in the industry and the basic notion or the reason why this has become such an important consideration is because we're moving from an era where the types of applications that we were building were entirely being used internally and were therefore effectively entirely private versus increasingly trying to extend even those high volume transaction processing applications into other types of applications that delivered things out to customers. So the consequence of the move to greater integration, greater external delivery of things within the business has catalyzed this movement to the cloud. And as a consequence, this significant reformation from a product to a services orientation is gripping the industry and that's going to have significant implications on how both buyers and users of technology and sellers and providers of technology are going to behave. We believe that the fundamental question is going to come down to what's your, what process are you going to use to recreate value with partnerships, go it alone, how are you going to deliver that value through an OEM sales force, through a network of providers and how are you going to capture value out of that process through money, through capturing of data and more of an advertising model. These are not just questions that feature in the consumer world, they're questions that feature significantly in the B2B world as well. Our expectations over the next few years, we expect to see a number of changes start to manifest themselves. We expect to see, for example, a greater drive towards experience of the customer as a dominant consideration. And today it's the cloud experience that's driving many of these changes. Can we get the cloud experience both from public cloud and on-premise, for example. Secondly, our expectations that we're going to see a lot of emphasis on how soft exchanges of value take place and how we privatize those exchanges. Hard dollars are always going to flow back and forth even if they take on a subscription as opposed to a purchase orientation. But what about that data that comes out of the operations? Who owns that and who gets to lay claim to future revenue streams as a consequence of having that data? Similarly, we expect to see that we will have a new model that IT can use to start focusing its efforts on more business orientation. Not, and therefore, not treating IT as the managers of hardware assets, but rather managers of business services that have to remain private to the business. And then finally, our expectation is that this march is going to continue. There will be significant and ongoing drive to increase the role that a services business model plays in how value is delivered and how value is captured. Partly because of the increasingly dominant role that data is playing as an asset in digital business. But we do believe that there are some concrete formulas and frameworks that can be applied to best understand how to arrange those assets, how to institutionalize work around those assets, and that's a key feature of how we're working with our customers today. All right, once again, team, thank you very much for this week's action item from theCUBE Studios and beautiful Palo Alto. I want to thank David Floyer, George Gilbert, Jim Cabellas, Neil Raiden, and Ralph Finos. This has been Action Item.