 Live from the Mandalay Bay Convention Center in Las Vegas, it's theCUBE, covering VMworld 2016, brought to you by VMware and its ecosystem sponsors. Welcome back everyone. We're live here in Las Vegas for VMworld 2016, we're at the Mandalay Bay Convention Center in the hang space, winding down day three of three days of wall-to-wall coverage. Been a great VMworld. I got to say it's been one of the best ever. I've been through in the past seven years with theCUBE and a lot of great announcements. I'm John Furrier with my co-host, Stu Miniman this week and the two sets coming to an end. Our next and final guest is AJ Patel, the Senior Vice President of Product Development for VMware Cloud Services Business Unit. Welcome to theCUBE. Great to see you again. Thank you, great to be here. I'm glad you spent the time to come on board here and talk to us. I had a lot of things going on. It's been a cloudy picture these days in VMware, certainly with the cloud strategy, but also clearly in Pat's keynote on Monday opening day and certainly it's a little bit of an announcement to answer from Sanjay Poonan and others. You see the coalescing around what the cloud strategy is for VMware. It's not to have their own public cloud, but to really be that cross-cloud connector. Correct. Architecturally, like Lego blocks are all snapping together, NSX, VSTAN, all this stuff's working together. So take a minute to just talk about which products that you guys have whether in this new cloud business unit. So first of all, thank you for the opportunity. I run a business unit we formed last year called Cloud Provider Software Business Unit. The only reason for my existence now is to make software for service providers. VMware last year made the shift from being our cloud service provider ourselves, WeCloud Air, to being enabling other cloud providers to build VMware-based clouds. And the result of the world, the great work we've been doing is VMware Cloud Foundation. VMware Cloud Foundation is that packaging of compute network storage, virtualized to build any cloud. And IBM is an example of a WeCloud Air network partner who's building out a VMware-based cloud using VMware Cloud Foundation. So think about WeCloud Air network as our distribution channel for standing up and delivering VMware IP for building clouds through their cloud services. The two things, the roots of VMware as software-based and partnering. Absolutely. So you kind of say, hey, you know what? Do we go all in on cloud, get distracted? Or do we go back to our roots, data center? Correct. And let the cloud game play out because you have some time. Correct. A lot of your customers aren't fully going to the public cloud. They are in different forms. Absolutely. Absolutely. Like a cloud-native startup might. So I'll give an example, right? I have 4,200 service providers in my WeCloud Air network. 119 countries. 99.5% TAM covered with partners who have their capital deployed using VMware technology with their unique managed services. Show me one other cloud that's built on any other technology that has a scale, this reach, these kinds of services. That's really what WeCloud Air network is all about. It's a big chess move. I want you to just, I'm going to ask it again and get it on camera here. Describe what the WeCloud Air network is. Yes. So WeCloud Air network is 4,200 service providers in 119 countries delivering VMware compatible cloud. The epitome of that is someone who's delivering a complete cloud built on VMware cloud foundation. But many of my partners have vSphere based clouds, vSphere plus NSX. And when they take all the components of software defined data center and integrate them, that's VMware cloud foundation. And IBM is an example who said, we're all in. We're going to give you a full data center in minutes using VMware cloud foundation. Early in October, I announced a similar partnership with OVH. OVH can stand up a STDC on demand in 60 minutes. Think about it. Your data center in 60 minutes on a public cloud, fully compatible what you're running on print. This is you. So AJ, I'm wondering if you can for our audience kind of give us a little compare and contrast. So we know VMware is really dominant in the enterprise data center. And you're talking about a nice software stack that goes in the service providers. Would the Azure stack that Microsoft's talking about bringing out next year, there's some similarities between them? Absolutely competitive. But the beauty for me, 15 million VMs, about 15% of them are going to move to the cloud. What's the simplest way for a customer to take a VMware VM and move it to a public cloud? Our customers want to get out of the data center business. They don't want to get out of VMware. They want a private cloud experience in a public cloud setting and get it on demand. VMware offers that with the stack we offer with VMware Cloud Foundation. Great. One of the interesting dynamics to watch in this VMware ecosystem is kind of the changing role in the channel. The channel's been critically important since really the beginning days of VMware. Service providers is who you're working at. Can you talk about kind of that dynamic? There's some part of the channel that really understands cloud. Some are turning into service providers. Some work with service providers. What do you see happening and what's happening inside VMware? The marketplace of solution providers, the VARs, who used to sell software and set it up on on-prem. A service provider who's a cloud hoster and a cloud SISO who's trying to provide consulting or managed services on third-party cloud. That's all blurring, right? My focus as a BU is on those guys building clouds, but also reselling third-party services. So the market is moving between build a cloud, high margin, tap into third-party cloud services and deliver a complete cloud experience to our customers. CPSBU, my BU is really focused on those 4,200 service providers delivering that. On the go-to-market side, we're shifting the company from a perpetual company to a subscription SaaS company. So everything I do is subscription based. What we haven't told the market is VCloud and network is a couple hundred million dollar subscription business for us. We grew 25% year on year, 10% quarter on quarter. This is huge. There's a myth here that everything's going to public cloud. The reality is everything's going to a VMware managed cloud delivered through a VCloud and network. Well if those service providers can attract the onboarding of new customers. Absolutely. So the question that we just talked with Madhu earlier is that I look at like the iPhone. The iPhone came out. A whole new generation of apps came on the iPhone. That was a growth spurt. So if you look at all new companies starting, they'll probably start native on the cloud. Will they have a role for VMware? Absolutely. They probably want to interface via their cloud. So let's take a typical enterprise. How much percentage of the development is net new development? How much percent of the budget goes to net new app development? I don't know. Less than 10% in a typical organization. Unless you're Netflix or a Uber and that is your business, that is your budget. So anyway from five to 15% Traditional enterprise, about 10%. Traditional enterprise, correct, right? So 90% of the workload what customers are saying is I want to be out of the data center of business. I want to free up that cost so I can put more money for net new development. When they do that, they first want to move to a public cloud. Hopefully a VMware managed service private cloud. And then they're saying, let me add new application with containers, cloud service, et cetera. So I don't think it's VMware loses and the public clouds win. It's an extension. This is why we introduce cross-cloud services. We're expecting customers to use public mega clouds and these VMware clouds in a mix and match manner. So let me give you an example. So let's just say that Amazon doesn't want to play ball with you guys or Azure. And they kind of get a little bit gauging. They tune on that one, by the way. I know. So Pat's answer was just, you know, sling APIs around and we'll do it that way. So you can have a lightweight interface with API. They get that. So if they kind of don't play ball, if they do, I hope you're in mind that they might, that's going to be important to have that use case. My view is the cloud is a new hardware. We will make our software available on as many clouds as we make possible. And where we don't, our value will move beyond compute to add value in the area of security, management, right? Governance, visibility. We don't need them to open up the APIs. They already have APIs. That's a design center. We need to add value on top. VMware always has been a management company, a delivery company for optimizing workloads. The new hardware is the cloud. VMware will continue to add value on top. So AJ, one of the concerns I'd heard from really the VMware partners on vCloud Air was how do they differentiate? How do they make money? So tell us with vCloud Air network and cloud foundation, what is the answer? So what we're doing is we're leveling the playing field of VMware IP that we had in vCloud Air and our on-prem and making available to everyone. Every partner differentiates in itself in a different way. So when I go to a soft layer, they're differentiating on their bare metal service, their compliance, their GTS service. When you go to OVH, they're providing a soft service developer cloud as well as they're able to go after the mid-market where it costs effectively. When you go to a Skyworks, they're doing it on security and compliance. Every one of them has their unique IP and their managed services. There is no one-size-fits-all. They are differentiating and they're all growing. They're all growing north of 30%, which is a great, you know, the market is really evolving and people are finding their niche as they go after this business. What I love about VMworld this year is the competitive strategy, 3D chess game going on with the VMware executives, plus the clarity. Absolutely. Back to the roots. Back to the roots on software, back to the data center and looking at that future. And the cloud, I think you got some time. In my opinion, you have time to catch up to how that hardware game plays out, as you say. But the question on the software you mentioned, your job is to do software. The role of the developers will be the Caminarian, the coal mines. How do you guys look at the developer community? Because if they all flock to, as Pat calls Amazon, the developer cloud, how are you guys going to engage the developer community and how's that fit into your plans? So, a great, I just got my IBM friend sent me their Forrester report. For IBM was rated as the number one developer cloud for enterprise. Here's an example of BlueMix cognitive services all being pulled in running on a VMware cloud. Our strength is taking the best of breed ecosystem, making sure that the workload then lands on a VMware cloud. I don't think we're a developer company. I'm ex oracle. I know what it takes to build a Java community. We're not going to get there on our own. Working with Kubernetes for the container customer manager. That's the strategy. We support those. Working with Cloud Foundry. I'm the treasurer of Cloud Foundry. It's about enabling the ecosystem. We hired Dirk as an open source leader. It's about embracing the open source community, bringing the communities to VMware was just trying to create our own. So, that's hardcore for you. The community strategy is the game. It is a central of our strategy. We've been Switzerland. We won the game. We continue wanting to be Switzerland and attract the marketplace. That's awesome. And one final question. You're a big takeaway as you leave VMworld this year. All the conversations you've talked to customers. He's a very customer centric, very impressed with the customers doing a lot of talking here. And seeing like people got a relief, they can see the clarity and strategy and kind of how the products are fitting together. And certainly the integration was very strong this year. What's your takeaway for you to go back to the ranch and talk to your team and your colleagues? I think the excitement is really the customer momentum we have. The number of conversations we're having with customers, their plans to start adopting it. I had an IBM rep call me and say, who's the VMware rep I can call? Because all the stuff I saw, I want to bring VMware into my accounts. So, the channel is pulling for us. We're in a great position. I'm really excited for the next year. It brings back to either VMware that was that independent software. Work with everyone. The hardware vendors brought us, even though we kind of are optimizing the infrastructure. We believe similarly, the service providers, the system integrators, they need a VMware landing pad. Steve Herrod had a great line on theCUBE yesterday when I asked what his take on VMware is. And we were riffing. He was thinking out loud and he said something pretty profound. He said VMware is always, and their DNA has always been to solve complex problems, they can simplify and create an abstraction layer. This audience, this cloud network is interesting. You're creating a cloud abstraction layer in the power of numbers. Power of numbers. And that is a competitive move against the Amazon Web Services and Azure. Tell me 119 countries who has data centers there. I do. Without a single penny out of my pocket. Okay, cloud is the new hardware. According to AJ, AJ, thank you for spending the time. Great, great. I'm wrapping up VMworld for us this year. Thank you. Thanks for being here again. We'll talk more about cloud foundry because we love cloud foundry. So this is theCUBE. I'm John Furrier, Stu Miniman. Wrapping up VMworld day three. Thanks for watching. All the videos are up on youtube.com slash siliconangle. Of course, go to siliconangle.com, siliconangle.tv and wikibond.com for all the best research. Thanks for watching our coverage of VMworld 2016.