 Live from Las Vegas, Nevada, extracting the signal from the noise. It's theCUBE, covering IBM Edge 2015, brought to you by IBM. Okay, welcome back everyone. We are here live in Las Vegas for IBM Edge. This is theCUBE, our flagship program. We go out to the events and extract the signal noise. I'm John Furrier, my co-host, Dave Vellante, our next guest, Tom Cook, the CEO of Permabit. Welcome back to theCUBE. Thanks, John. Great to see you. We're just reading online, Tom Brady got suspended for four games, we were shocked, deflated with footballs. Dave, what do you think about this? It's breaking news. It's slightly excessive. For what? For... He had no idea. Although I like the nickname. It might impact our viewership today. They were breaking cutaways at Tom Brady news. What's the, how's it going? It's going great. So give us the update on what's going on Permabit. And the industry at large, I mean a lot of confluence between actually convergence, yeah, infrastructure, software. I mean it's a storage show. They talk about big data, smarter cities, a lot of messaging on Facebook, Twitter data, all this is kind of coming together. What does this mean for the industry? Well, certainly it's a confluence of a lot of forces right now. But when I look at this show and I look at IBM Edge, I see a company that's really walking their talk. These guys really believe in data efficiency and capacity optimization. They're talking it in every single storage presentation, in every single storage product line that they're working with. And they're really riding this wave of transformation that's going on in the industry and they've embraced it fully. So it's really, And they're delivering news and products. That's absolutely right. And they're really focused on it and they're making progress as a company. So, as they've said, whether you're going to consume us in a cloud, whether it's going to be software defined or whether it's going to be an appliance, we're right there with you. And frankly, that's why we love this partnership because we deliver our products in exactly the same way. How's that going with IBM? So we're just moving into our field engagement with them now, which is a really whole new set of challenges and excitement for us as a company, which is really fun. We're working with their distribution point Aero and with the Flash System Group to get out there in the marketplace and really bring value to their customers. And we're in the Aero booth here at Edge and we're really excited about that partnership. The way we look at it is outstanding distribution, world-class distribution, Flash System that some people say is the best product in the marketplace and the Flash Space. And we think with Sandblocks, it really rounds out the data optimization and capacity optimization capabilities of that product and we feel great to be working with IBM. So Aero, talk more about the Aero relationship, the other primary fulfillment mechanism for the SKU that is the 9000, which includes your product. Talk about that. That's right, just a fine point there. So Sandblocks, now we're paired up with both the 900 and the 9000. So with the 9000, it's a full product with management suite as well as RTC and RD duplication and it just rounds out the offering tremendously to cover more workloads. Jamie Thomas was on just before me and she talked about more workloads coming into the Flash environment and it's a combination of duplication and compression that really enabled that. So we feel really fortunate to be working with IBM on that. Okay, and what about the balance of your business? Maybe you could talk about that a little bit. I know we're on IBM's home court, but you got a lot of, oh, you're an arms dealer. I mean, let's face it. Well, we started working with a good number of the majors. We're working with Hitachi Data Systems. We work with NetApp. We're working with IBM and EMC. But I have to tell you, we see this company really embracing data efficiency and I think it's really going to move the needle for them. Well, I mean, the acquisition of the store was, you saw that, you followed that, must have got your attention because you're sort of in that same space and a lot of people said, oh, they got compression and they're not going to need de-dupe. But those, they're like peanut butter and jelly, aren't they? They're totally complimentary and truthfully, it's kind of like, do you want to be too thin or too rich? Can you ever be too efficient? Can you ever get your energy cost down too low? Can you ever become more dense in your solution? So the combination of the two is always better than one or the other. And in our case, because we de-dupe before compression ever goes on, that means we save a lot of compression routines and that's a lot of cycles on the CPU. Yeah, so how should we be thinking about flash economics? Flash has been a huge tailwind for Permabit. How should we be thinking about flash economics? It was, we had the cost per bit discussion where all the vendor community say, no, no, no, don't think about cost per bit, think about cost per IO, which is another way of saying, is give us a biased time until we get the price down and then now you don't hear that anymore because the price is coming down because of things like de-duplication and compression, but there are other factors too. How should we be looking at flash economics? Well, so I think if we lay the groundwork and look at the context, for about 25 or 30 years in storage, we were going through the capacity stage of storage or the capacity era with spinning disks, where spinning disk went up and up and up in terms of capacity, but the speed was really lagging behind the needs of the marketplace. So we invented all kinds of things like short stroking and doing all kinds of gymnastics to try to get performance out of systems. When in the world would you underutilize a system willingly? But that's what we had to do in order to get performance. Flash changes that whole dynamic. So in the past, the market was all about capacity and performance was the challenge. And in the end, storage is, the cost of storage is the higher of either the cost of your performance or the cost of your capacity. And in the old world, it was always about performance. Now there's plentiful performance, you know, in a flash system, a V9000, you get tremendous performance, extremely low latency and great scale. And I'll talk about that in just a second. But the performance side is so available today. Now the challenge is capacity and bringing down the cost of capacity. And that's what we do and that's what IBM's doing with RTC. So the combination of Sandbox and our deduplication technologies with RTC is best agreed. I remember I was at an event analyst thing years ago, decades ago, Ray Abuzayad, who was the head of IBM's then storage division, said, storage is really simple. Customers want storage to be rock solid, dirt cheap and super fast. And the spinning disc failed on the third piece of it. So it was like fast as we can possibly make it given all the constraints of the physical meter, that's now changed. And it appears to us anyway that Flash is poised to actually be less expensive than spinning disc. Do you buy that? It really is. It really is. Tomorrow I'm doing a little presentation and when you look at TCO today of, let's say a major manufacturer's hybrid solution compared to a Flash system at V9000 with deduplication and compression, the numbers, the TCO numbers are extremely compelling. I'll show an example tomorrow where for 171 terabytes of storage between the Flash system and a leading competitor, it'll save over $15 million in TCO over a five-year period. That's just a big number when you're looking at that kind of thing. Yeah, and so TCO is obviously one angle, but it appears even to CapEx. In other words, the amount of, if you point out the capacity, the amount of capacity that I need to serve an application is going to be substantially less. So you can utilize much higher. So your cost per bit may still be higher for a while, but when you factor in compression, deduplication, how much storage I actually need to deploy and the number of copies that I can share out of a single Flash device, it looks like within a year or two's timeframe that Flash is going to be cheaper than spinning disk. Now, John Toygo said today, look, I was never a tape was going away, I'm not a disk is going away guy, but it looks like Flash is going to be the predominant medium within the near to midterm. It certainly is. And so one of the examples that I'd like to point to that, so sandbox is a scale up device. You add sandboxes and you can address more capacity and achieve greater IOPS. And for example, four sandbox appliances with an IBM V9000, a Flash system V9000, you can scale to, you'll have 720,000 IOPS. This is with deduplication and compression. You'll have minimal latency. You'll address a petabyte of physical storage and about 10 petabytes of logical storage or effective storage. That's a tremendous amount of capacity and you'll do that sub $3 a gigabyte. So that's a tremendous savings and the performance is just out of this world. So you're an entrepreneur. You love valuations that are frothy. That's a good thing in a way. What do you think about the valuations that are going on in the Flash world? Are they justified? Are they too rich? They about right? What are your thoughts? So I think companies are pretty significantly overvalued at this point because I don't think the world's begging for another array. When you look at the history again, going back to that capacity versus performance history. So large companies spend a lot of money, 80% of their R&D for years and years and years on getting performance out of hard disk drives. They no longer need to do that. They're doing unnatural acts as you pointed out before. They can redeploy. That's right and you can do that a lot simpler with Flash storage. So I don't think that the innovation that's occurred so much in that marketplace is so significant that big companies can't catch up and I think IBM has shown us they bought TMS and they've developed the product into a real leading solution today with their management and now compression capabilities and now RD duplication. That's a full offering that's really compelling in the marketplace. Well, what about specifically? Take Pure as the poster child for high valuation. It appears that they got one exit alternative right now which is an IPO. What are your thoughts on that company specifically? I think it's extremely challenging to build a big storage business today because the biggest juggernauts in the industry are hyperscale companies that frankly are pretty impenetrable. You said a lot of it's going to cloud. It's going to the cloud and we're going to see an increasing portion of that whether it's 50% or whether it's 70% or whether it's 25% branded storage vendors are starting to divvy up a smaller piece of the pie and so I think we're seeing moves like IBM getting very efficient saying we're going to have a cloud initiative, we're going to have a software defined initiative and we're going to sell appliances as well so they're providing solutions in all flavors and it appears very hard for an early stage company to do all those things. Yeah and it appears cloud's profitable. We saw Amazon's earnings, they're breaking out AWS. It sounds like they're allocating expenses properly and they got 17% gross profit, same as EMC. Yeah well they grew by a billion seven over the last year which is more than the entire storage industry's grown in the last three years. You know, Google Drive for work is adding 1800 customers a week. Now those aren't necessarily IBM and EMC enterprise accounts but they're starting to be accounts that grow up into those key companies. Drop box and a bunch of other companies out there. Yeah so there's really kind of a deflationary pressure that's in the marketplace today and so I just think it's a contrarian trend to try to build a storage company into that. Start up storage company into that. So why are you confident about your future? Do you sell into the cloud? Maybe talk about that. Yeah so we're seeing actually more entrance by companies that are customers of ours so yes we're working with the big major, the legacy storage companies we're having good luck in that marketplace and building out that distribution but also we see tremendous appetite among the ODMs, the components companies that are growing up and doing more systems work today and finally in the hyperscale companies that really need to build out these capabilities so they can have margin because this is a very competitive business and they're adding all kinds of features and analytics and things like that that they can charge for so they're trying to drive down the absolute physical cost of their storage as low as possible, that's where we come in. Are we emming to those hyperscale companies? We're in works with them right now, yes. So their attitude generally is we can build it, we can put engineering resource on that. Do they not sort of likely to take that approach with something like data deduplication because it's sort of a niche or it's complicated or it's not their core competency? Well I think it's all a timing requirement and they've got to drive down costs sooner rather than later and the thing that we have is a very steely technology that's now out there in some 10,000 units in the field. It's proven it's very solid. There's a lot of edge cases in storage and if you haven't tested for them it's pretty challenging. So we don't rest on it, we're working real hard at it but I daresay I think we're investing more in this than anybody in the marketplace. Okay, well I got a break right there. Any final words for the folks watching here? IBM Edge, give your take on IBM's moves and compare that to the other big whales out there. Obviously a lot of big companies doing a lot of transformation and storage. What's your take? Well so I think making the choice to sell based upon performance rather than capacity is a real change in the storage marketplace. I'm not seeing every other company embrace it as fully as IBM. I think in the end when you have your sales team running to the same message that the corporation's running to, when you have your distribution running to that and when you have your development arms running to that I think you're going to be successful. So I think IBM's articulating a great strategy, devil's in the details and I think it's still early innings on this but they're doing a really good job and you look at the growth in Flash system and they're doing very, very well. Yeah and they're not on Island anymore. They're starting to get competitive advantage with the other groups at IBM. Yeah. All right Tom, with Permabit CEO, Permabit Tom Cook we'll be right back with more here, live in Las Vegas with you. I'm John Furrier with Dave Alonso. We'll be right back.