 Live from San Francisco, it's theCUBE. Covering IBM Think 2019, brought to you by IBM. Welcome to theCUBE, I'm Lisa Martin. We are at day one of IBM Think 2019. I'm with Dave Vellante, hey Dave. Hey, Lisa, good to see you. The new improved Moscone. Exactly, Stu Miniman, yeah. Shiny. It is shiny, the carpet smells new. This is the second annual IBM Think gentlemen where there's this conglomeration of five to six previous events. Doesn't really kick off yet today. I think partner world starts today, but here we are in a San Francisco, Moscone North, I think South and West they have here, expecting about 25,000 people. No news yet today, Dave. So let's kind of talk about where IBM is right now with the early part of Q1 of 2019. Red Hat acquisition just approved by shareholders last month. What are your thoughts on the status of Big Blue? Well, I think you're right, Lisa. The Red Hat news is the big news for IBM. We're now entering the next chapter, but if you look back for the last five years, IBM had to go out and pay $2 billion for a soft layer to get into the cloud business. That was precipitated by the big high profile loss of the CIA deal against Amazon. So that was a wake up call for IBM. So they got into the public cloud game. So that's the good news. The bad news is the public cloud's not easy when you're going up against the likes of Google and Microsoft and, of course, Amazon. But the linchpin of IBM's cloud strategy is its SaaS portfolio. Over the last 20 years, Steve Mills and his organization built a very large software business which they now have migrated into their cloud and so they've got that advantage. Much like Oracle, they're not a big dominant cloud infrastructure as a service player, but they have a platform where they can put things like cognitive solutions and Watson and offer those SaaS services to clients. So you'll check on that, but when you appeal through the numbers, IBM beat its numbers last quarter. Stock was up, when it announced the Red Hat acquisition, the stock actually got crushed because when you spend $34 billion on a company, shareholders don't necessarily love that, but when we'll talk about the merits of that move, but they beat in the fourth quarter, they beat on the strength of services. So IBM remains largely a services company. About 60% plus of its revenues comes from services. It's a somewhat lower margin business, even though IBM margins have been ticking up. As I say, you go back the last five, six years, IBM jettisoned its microelectronics business, which was a lost business. It got rid of its x86 server business, which is a low margin business. So again, like Oracle, it's focusing on high margin software and services and now we entered the era, stew of hybrid cloud with the Red Hat acquisition, a lot of money to pay, but it gets IBM into the next generation of multi-cloud. Yeah, Dave, the knock I've had against IBM is in many ways, they always try to be all things to all people. And of course we know you can be good at some things, but it's really tough to be great at everything. And you talked about cloud, Dave, the software acquisition to kind of get into public cloud, but IBM is not one of the big players in public cloud. It's easy, it's Amazon, and then followed by Azure, Google, and let's talk Alibaba if we're talking globally. In a multi-cloud world, IBM has a strong play. As you said, they've got a lot of application assets, they have public cloud, they partner with a lot of the different cloud players out there, and with Red Hat, they get a key asset to be able to play across all of these multi-cloud environments, whether we're talking public cloud, private cloud across all these environments. IBM's been pushing hard into the Kubernetes space, doing a lot with Istio and where they play there, and Red Hat is a key piece of this puzzle. Red Hat running at about $3 billion of revenue and paying $34 billion, but this is a linchpin as to say, how does IBM stay relevant in this cloud world going forward? It's really a key moment for IBM as to what this means. A lot of discussion as to it's not just the revenue piece, but what will Red Hat do to the culture of IBM? IBM has a strong history and open source, but you have a large bench of Red Hat, strong executive team. We're going to see some of them here at the show. We're going to have one Red Hat executive on our program here, and so what will happen once this deal finally closes, which is expected later this year, probably October if you read everything right, but what will it look like as to how will a relatively small Red Hat impact the larger IBM going forward? Well, I think it's a big lever, right? I mean, Lisa, we were at Cisco Live in Barcelona last week, kind of laying out the horses on the track for this multi-cloud. Cisco doesn't own its own public cloud. VMware and Dell don't own its own public cloud. They both tried to get into the public cloud in the early days, and IBM does own its own public cloud as does Oracle, but they're also going hard after this notion of multi-cloud. As is Cisco, as is VMware. So it sort of sets up the sort of Cisco, IBM Red Hat, VMware, Dell sort of competing to get after that multi-cloud revenue, and then HPE fits in there somewhere. We can talk about that. So I saw a stat the other day that said in 2018, 80% of companies moved data or apps from public cloud. Reasons being security, control, cost, performance. So to some of the things I've read, Dave, that you've covered recently, if IBM isn't able to really go head to head against the Azures and the AWS, what is their differentiator in this new hybrid multi-cloud world? Is it being able to bring AI, Watson, cognitive solutions better than their competitors in that space that you just mentioned? IBM does complicated and cloud and hybrid cloud is complicated. And so that's IBM's wheelhouse. And so it tends not to do commodity. So if it's complicated and sophisticated and requires a lot of services and a lot of business process mapping and things like that, IBM tends to excel. So if you do the SWAT analysis, its big opportunity is to be that multi-cloud provider for its largest customers. And the larger customers are running transaction systems on mainframe. They're running cognitive systems on things like power. They've got a giant portfolio at IBM, that is. And they can cobble things together with their services and solve problems. And that's kind of how IBM approaches the marketplace. Much different than, say, Stu, a Cisco or a VMware. Yeah, Dave, you're absolutely right. One of the things I look at is in this multi-cloud space we've seen the SIs are very important there. Companies like Accenture and KPMG and the like. IBM partners with them, but IBM also has a large services business. So who's going to be able to help customers get in there and figure out this rather complicated environment? So definitely one of the things I want to dig into this week is understand where IBM is at the Cisco show, Dave, talked about, their messaging was the bridge to what's possible. Meet the customers where they are, show them how to reach into the future. And from Cisco's standpoint, it's strong partnerships with AWS and Google at the forefront. So IBM has just one of the broadest portfolios in the industry. They absolutely play in every single piece. But customers need good consulting as to, okay, what's going to be the fit for my business? How do I modernize? How do I go forward? And IBM's been down this journey for a number of years. In the legacy of Ginny Rometti, in my opinion is going to be determined by the pace at which it can integrate Red Hat and use Red Hat as a lever. Ginny Rometti when she was doing the road show with Jim Whitehurst kept saying, it's not a back end loaded deal. And the reason it's not a back end loaded deal is because IBM is a 20 plus billion dollar outsourcing business and they're going to plug Red Hat right into that business to modernize applications. So there's an in, there's a captive revenue source for IBM. In my view, they have to really move fast, faster than typically IBM moves. We've been hearing about strategic initiatives and cloud and Watson and it's been moving too slow in my opinion. The Red Hat acquisition has to move very, very quickly. It's got to move at the speed of cloud and that's going to determine in my view, Ginny. And Dave, actually. So a couple of weeks after the acquisition, Red Hat had brought in analysts to hear what was going on. And while the discussion is Red Hat will stay a distinct brand. There's going to be no layoffs. We're going to keep them separate. What they will get is IBM can really help them scale. So as Red Hat has been getting into some new environments, that whole services organization, Red Hat doesn't have that. So IBM absolutely can plug in there and we think really accelerate the old goal for Red Hat was okay, how do we get from that $3 billion to $5 billion in the next couple of years? IBM thinks that they can accelerate that even faster. And Lisa, I think the good news is IBM has always had an affinity toward open source. IBM was really the first really to make a big investment. They poured a billion dollars into Linux as a means of competing really with Microsoft back in the day. And so they've got open source chops. So for those large IBM customers that might not want to go it alone on open source and Red Hat's kind of the cool kid in the block. But at the same time, there's some risks there. Now IBM can take that big blue blanket, wrap it around its largest customers and say, okay, we've got you covered in open source. We've got the Red Hat asset and we've got the services organization to help you modernize your application portfolio. One of the things to this to you've run up a couple of minutes ago is culture. And so looking at what Red Hat estimates that it's got about eight million developers worldwide using their technologies. This is an area that IBM has historically not been really focused on. What are some of the things that you were expecting to hear this week or see this week with respect to the developer community being embracing IBM? Yeah, and Lisa, it's not like IBM hasn't been trying to get into the developer community. I remember back at some of the previous shows Edge and Pulse and the like, they would have dev at and try to do a nice little piece of it. But it really didn't gain as much traction as you might like comparing contrast that with Cisco. We've been watching over the last five years the DevNet community. They've got over half a million developers on that platform. So developer engagement usually requires that ground level activity where I've seen good work from IBM has been getting into that cloud native space. So absolutely seeing them at the Kubernetes shows, working in the container space very heavily. And of course, that's an area that Red Hat exceeds. So the Linux developers are absolutely there. You mentioned how many developers Red Hat has and in that multi-cloud cloud native space, Red Hat is one of the leaders, if not kind of the leader in that space. And therefore it should help supercharge what IBM is doing, give them some credibility. I'd love to see how many developers we see at this show, you've been to this show, Dave and you have been to this show before. It looked more enterprise-y to me from the outside. Well, I'm glad you brought up developers because that is the linchpin of the Red Hat acquisition. If you look at the companies that actually have in the cloud that have a strong developer affinity, obviously Microsoft does and always had, AWS clearly does, Google has its developer community. Stu, you mentioned Cisco. Cisco came at it from a networking standpoint and opened up its network for infrastructure's code and one of the few legacy hardware companies that's done a good job there. VMware, not so much, right? Not really a big developer world. And IBM has tried, as you pointed out, when they announced BlueMix, but that really didn't take off in the developer world. Now with Red Hat, IBM, to your point, eight million developers, that is a huge asset for IBM and one that, as I said before, it absolutely has to leverage and leverage fast. And what are your expectations in terms of any sort of industry deeper penetration? There's been some big cloud deals, cloud wins that IBM has made in a lot in recent history. One of them being really big in the energy sector. Are you guys kind of expecting to see any sort of industry deeper penetration as a result of what the Red Hat acquisition will bring? Well, that's IBM's strength. I mean, Stu, you pointed out before, it's Accenture, Ernie Young, to a lesser extent, maybe KPMG, but those big SIs and now IBM. When IBM bought PWC, Gershner transformed the company and it became a global leader with deep, deep industry expertise, that is IBM's savior, frankly, over these past many, many years. So it can compete with virtually anybody on that front. And so yes, absolutely. Every industry is being transformed because of digital transformation. IBM understands this as well as anybody. It's a boon for services, it's a good margin business and so that's their competitive advantage. Yeah, I mean, it ties back in their services. I think back when I lived on the vendor side, I learned a lot of the industry off of watching IBM. I see how many companies are talking about smarter cities. IBM had a long history of working in those environments, energy, industrial, IBM is very good at digging into the needed requirements of specific industries and driving that forward. So we're going to be here for four days, as we mentioned, today is day one. We're going to be talking a lot about this hybrid multi-cloud world, but some of the double clicks we're going to do is talking about data protection, modern data protection, a lot of the statistics say that there's 80% of the world's data isn't searchable yet. We all hear at every event we do, guys, data is the new oil. If companies can actually harness that, extract insights faster than their competition, create new business models, new services, new products, what are your expectations about how, I hear a lot, get your data AI ready. At the market, I go, what does that mean? What are your thoughts due on, and we're seeing a lot of signage here, how is IBM going to help companies get AI data, rather AI ready, and what does that actually mean? So IBM really educated a lot of the world and the broader world as to what some of this AI is. I mean, I know we all watched many years ago when Watson was on Jeopardy, and we kind of hit through past the peak and have been trying to sort out, okay, well, how can IBM monetize this? They're taking Watson and getting it into healthcare, they're getting into all these other environments, so IBM is well-known in the AI space, really well-known in the data space, but there's a lot of competition, and we're still relatively early in sorting out how this new machine learning and AI are going to fit in there. We spent a lot of time looking at things like RPA. Kind of the gateway drug of AI, if you will, robotic process automation, and I'm not sure where IBM fits into that environment, so once again, IBM has always had a broad portfolio, they do a lot of acquisitions in the space, so how can they take all of those pieces, pull them together, get after the multicloud world, enable developers to be able to really leverage data even more that's possible, and as you said, more than 80% of data today isn't used from an infrastructure standpoint, I'm looking at how do things like edge computing all get pulled into this environment, and a lot of questions still. IBM's going after hard problems, like I said before, you don't expect IBM to be doing things like ad serving with Alexa, that's not IBM's game, they're not going to appropriate your data to sell ads, they're going to take really hard, complex problems, and charge a lot of money for big services engagements to transform companies, that's their game, and that's a data game for sure. It's a data game and one of the pieces too that I'm excited to learn about this week is what they're doing about security, we all know you can throw a ton of technology at security and infrastructure, but there's the people piece, so we're going to be having a lot of conversations about that as well. All right guys, looking forward to a full week with you and with John joining us at IBM Think, I'm Lisa Martin for Dave Vellante and Stu Miniman, you're watching theCUBE live, day one, IBM Think 2019, stick around, we'll be right back with our next guest.