 Okay, welcome back to VMworld 2013. We're here live in San Francisco at Moscone South Lobby. This is theCUBE, our flagship program. We go out to the events, extract the signal from the noise. I'm John Furrier, the founder of SiliconANGLE. I'm joined by co-host Dave Vellante from wikibond.org. And Carl Eschenbach is here. He's the COO of VMware and off a big keynote this morning, Carl, awesome to see you again. Thanks for coming on. Yeah, great to be here. Thanks for having me, guys. So we were just talking, folks didn't see, we were talking with Steve Herrod, who came in, who's now a VC, just like Jerry Chen is now a VC at Greylock. You guys were talking, you replaced him on the keynote slot. That was the big news here. So how did you feel? Did you feel like, well, feel bad for Steve? Did you feel like what? Well, I don't know that I felt too bad for Steve Herrod, but over the last couple of weeks, as the decision was made internally at VMware that I was going to try to replace Steve as CTO, I don't know that I felt real bad for him. In fact, I probably use a couple of words, I won't share here with you today about Steve Herrod as we practice and rehearse this. I'm very pleased with the amount of support I got and the people that were able to pull it off this morning. I truly believe we change the trajectory of IT with actually bringing the software to find data center to the life today. And it was fun to talk to Steve Herrod and Steve say, hey, Carl, great job. And coming from Steve, that means a lot. That was genuine. He gave you the serious thumbs up. So as the CIO and president, you are really running the day to day. I listen to the conference calls. I don't wait to read the transcripts. I listen to the calls and you are on the front lines and the big theme that we hear today is you guys going from a position of strength from your v-sphere strength position, but moving beyond v-sphere, not only up the stack into automation and management, but also into cloud. I want you to talk about that a little bit in terms of the priorities of the company that you're driving on a day to day basis. Sure, so when we look at what we've historically done to the compute layer and brought this powerful platform to market server virtualization, it has fundamentally given us a really differentiated market opportunity than most people out there today. And we mapped out last year the software defined data center where our view and vision was to take virtualization and expand from compute and go horizontally across the rest of the components in the data center to networking storage and then wrap highly automated provisioning orchestration and remediation software around it. And at VMworld this year, we wanted to focus on not just telling another story, we actually wanted to basically say it's real, it's here and we're not just mapping out a vision for two and three years out, but this is technology you can get access to today. And that's what we did. And when we look at the future of VMware, we believe that we can leverage the foundation of success we've had in compute virtualization and expand that into networking and storage and automation. And I think it's, I don't think many people understand the success we already have today in cloud management and automation. IDC just rated us as the number one market share leader in cloud management and automation and people don't realize that. And we're going to build that into many, many more solutions and products that will just not highly automate the compute side, but we'll go to networking storage next. Yeah, John and I have been talking a lot about that. It was non-trivial what you did in compute and in a lot of ways it's more non-trivial in networking and storage. But I think people sometimes, John, take it for granted, you know, the VMware success. I mean one of the things that we've been hearing here is obviously the change theme, right? 10 years of VMworld and everyone's got the pictures here and they got the little hats. It's 10 years and the change is massive. We've got the Pivotal out there, it's a separate deal now. You've got Pat leading the change, you've got the change in the organization. The number one question people want to know is what is the strategy, what's going on? Give us the update internally that you're managing the ship, you know, we heard yesterday we saw the new CMO and promoted from within. Great sign of a good culture, in my opinion. Some people say, you know, might have different opinions but that's good, Robin's great. What's going on with the channels? What's going on with inside VMware? Give us a little bit of an update. So listen, VMware marks a 10 year anniversary or VMworld marks a 10 year anniversary of this event. It also marks the one year anniversary of Pat taking over the ownership and responsibility as CEO of our company. And if you look at what's happened in the last year, VMware has gone back to the core strength of the company and we focused on three things and three things only. The software defined data center, hybrid cloud and end user computing. And internally in the company we actually went through a pretty big realignment effort over the last six months where we said if our resources are not aligned against one of these three priorities we need to go out and fix it. And what do we do? We actually sold off a bunch of business that we had historically bought because they didn't fit into one of these three priorities and we took some of our key assets we had in our old layer two strategy and we put them into Pivotal to build this new company in conjunction with EMC. And after doing all that, when we step back and look one year later after Pat taking responsibility we are laser beam focused on only three things and we were executing perfectly against those three. That's a Pat Gessinger slip break. That's a laser focus. We hear Pat say that all the time. We can see it in the financial results, right? Yeah, and you know, it's interesting. You look at our financial results this year so far in both Q1 and Q2 when most technology companies and our peers have struggled we've delivered exactly what we told the street we would and we maintained our guidance for the full year and that's a testimony to all the employees at VMware our partner ecosystem and our customers who continue to leverage our platform both today and in the future. And you're getting a share against the IT industry in general. I mean, you're growing what three or four times faster than the IT industry in general. Is that about right? Yeah, I think we're growing in the mid teens and the IT industry is two to three percent, right? So we are growing faster. So you've got the symmetric simplified self-defined data center, hybrid cloud and user computing on the growth side. Now you got to operate the machinery, right? So the engine is, you know, and specs are built, industries grow and where's the growth on the operational side and where's the growth from the R&D side? How do you manage those two things? Because you got to operate in cash flow the initial performance is going well. R&D is still an issue because clouds evolve and you got open stack out there. What's that look like? So when I think about how we operate and run the company, right? We look at it through the eyes of how do we develop new innovative technologies internally? How do we look at acquisitions and then how we look at go to market? From an internally developed perspective, everything we brought to market here today was really driven by internal development. The real key one that wasn't was obviously NSX which we leveraged from the acquisition of NYSERA. But even that actually wasn't just all NYSERA what you saw today. You saw a lot of the historical VM where, you know, networking services and security services and there's something called VCNS actually brought together with NYSERA. So we have been innovating internally and we're spending a lot of money still on R&D. If you look at a company like BM where in the size and scope we are, we still are spending probably more than anyone else in the industry on R&D because we want to continue to innovate. At the same time, we need to look at acquisitions and we need to make sure that we're making acquisitions that align to one of these three priorities. Historically, we probably got a little bit too wide too fast and got into areas that didn't make sense for us. So now when we think about acquisitions we're only going to focus on one of those three priorities. And then on the go-to-market side we are making very large investments in bets on go-to-market to help drive the revenue growth. For example, we have built out a specialized sales organization for networking to support the NSX launch. We have built out a specialized sales organization for end user computing. We have built out a specialized sales force for management and automation. Actually, we're still in the process of doing so. And when you look at something like vCloud Hybrid Service we also have a specialized sales force. So we are investing heavily in innovation in the R&D organization. We're looking at acquisitions carefully and we are investing heavily on the go-to-market side around specialized sales forces to address these market opportunities. So what does that mean to specialized sales forces? Is that a so-called overlay or is that a dedicated sales force or you're going into accounts of multiple sales teams? So for example, in the end user computing space we literally have hired hundreds of people in the first half of the year and they are a dedicated sales force in the context that all they do is sell end user computing products. At the same time, our existing sales force also has the responsibility and carries a quota for end user computing products as well. So they are true specialists in every sense of the world. We're both technically speaking and they are also in verticals that they've been selling into for many years as well. And you manage that internally with splits and all kinds of quota. Yeah, we don't have any problem there. Yeah. We've figured out how to solve that. So really, so Dave and I were also talking about the 10 year, the first five years were much different than the last five years. And in 2010, really that gauntlet was laid down by Maritz when he laid out the ecosystem map and the stack and the up end end, some would call it the software mainframe, the cloud, the cloud computer, whatever there was a lot of rhetoric around. Cloud OS. But since then a lot's changed too, the network virtualization exploded, a lot of data fabric, new stuff happened between then and then Pat Gelsinger took over. So is it fair to say that past year was set the table, Pat's in charge, reset priorities, and this is the year you guys throttle? Is that kind of, is that what you're saying? Yeah, I guess the way I think about it, right? If you start with the software defined data center, I think not everyone understands that the software defined data center originally came to market back in, it was probably October 2010 at a VMworld event in Copenhagen when Raghu Raghuram got on stage and talked about this notion that the world will be driven by software in the data center, and at this time we called it the software driven data center. Last year we came to VMworld, right? And we really exposed it through the software defined data center that Pat laid out that strategy, vision, and direction. This year we made it come to life and it is now full speed, full throttle to use your term ahead to execute on that software defined data center strategy and not just do it in the context of a private cloud, but as you saw us announce today, we want to seamlessly extend that software defined data center into the public cloud, giving us a radically different approach to public cloud computing than our competition. Net of Pivotal, net of Pivotal you guys have said that's a 50 billion dollar TAM, right? Five-zero? Yeah, so we had our financial analyst day yesterday and we basically said our total addressable market opportunity around those three priorities is 50 billion dollars over the next few years. That's a pretty rich opportunity to have. It's good to have a TAM that's bigger than your market cap, I always say. Yeah. And now we got to get our market cap of 50 billion. I don't know what it's at today. Well you guys certainly have disrupted the market crawl. I will say one of the things we observed when we were at theCUBE when you had announced in the CIRA acquisition just prior to VMworld last year, was it last year? It was, it was like 10 years ago. It was almost a year ago that we announced it. I mean that was created massive disruption in the industry and then look at what's happened in just 12 months. Okay, software to find storage, software to find compute, software to find everything as everyone's talking about. So I mean that's a radical impact. Yes. To the data center and the vendors down here even companies like Oracle, IBM and others and other competitors, they're going that way. So I mean, no one ever heard of Nacir prior to 2011. I mean, they're like, it was a startup. Yes it was. So that is a radical shift in two years, less than 24 months that you guys are leading. How are you going to hold it together? I mean it's like, I mean the rocket ship has just taken off and it's like it's shaking. Will it? We're going to buckle our seatbelt tight, put our helmet on and we're going to go ahead. Does everyone have a seat on the rocket ship? Is everyone on board? Absolutely. There's no question to listen to, you know. I think that if you talk to most companies or customers at this event, they believe the world is going to go much more towards a software defined data center. If you talk to our ecosystems that are just below here in the solutions exchange they don't disagree either. And what everyone is working on is how do we integrate this powerful software platform with existing infrastructure that exists today. And VMware is making sure as we drive this radical transformation in IT again we're making sure that we have a rich set of APIs that allows our ecosystem to connect into. And that's really what our focus is, right? VMware in the last decade did not just drive a market transformation. An entire ecosystem did it with us. Absolutely. And going forward we expect that to be the same thing again. A great point there, again, rising tide and you guys are a big part of it. But they're with you, it's obvious validation. But I asked about the ecosystem because now in a modern era of that we're in with the cloud computing, the cloud style that's out there of IT there's different ecosystem shapes. And it's a challenge. You've got to balance your ecosystem and fuel your operational growth that you were referring to. How do you do that? And it's not as easy as saying, oh developers, because now core IT might have some developers, but so is the business units. So it's a bigger, it's a more looser market. And how do you handle the ecosystem challenge of maintaining stability and peace and growth? Yeah, well again, I guess I'd start by saying you have to look at companies and what side of technology they're on. And we know the technology is moving, if you will, to much more of a software-driven model. And even if you talk to some of the ecosystem partners we have, some of them are talking about software-driven servers, right? They're not talking about, I have a new server platform, I have a software-driven server. I have a software-driven storage strategy. I have a software-defined network strategy. So software is clearly where it's going. And it's not just VMware coming and disrupting the market. I believe we're the biggest disruptor at this time and we should be in the future because I think we're out of the gate faster than others. But at the same time, I think you're going to see everyone and probably everyone who gets up here talk about how they're getting into the software business as well. So again, we think the world's going there. We're going to lead it. But again, we're not going to leave people behind. And as I tried to really address today in my keynote, you know, the one thing I wanted to focus on is the fact that we are going to just, you know, not just extend and preserve the investment customers have today in their infrastructure. We're actually going to leverage it. Things like virtual sand uses local disk in flash that sit on servers today that are absolutely never even used in VMware virtualized environments. Virtual sand now takes advantage of them. The ecosystem is going to get rewarded through the innovations we bring to market. And here's a perfect example. I kid pat about this all the time. If you go back just a decade ago when VMware brought ESX to market at the time, everyone said, oh my Lord, we're not going to need any more servers. And oh my gosh, Intel's in trouble. AMD's in trouble. We don't need any, we don't need any chips. We need best chips. What did it do? It drove a massive next wave of innovation, right? In hardware, including what Pat did when he was literally at Intel, he opened his APIs. He opened the interface to allow VMware to get much deeper into, to do things like VMotion, to do multi-threading. So I actually think VMware's innovation will drive innovation across the rest of the ecosystem. So you cut the price and people buy more, right? I mean, if you've seen that historically. Or they buy bigger, or they buy in a case of Intel or the server manufacturers, they buy more robust chips with more cores, more memory in the servers to support virtualized to the same thing with Flash too, right? The price is going to come down. Oh, it's so expensive, so expensive. Can't afford Flash. It's just going to go through the roof. It already is. So on the wave of innovation, we love the Pat's conversations on this, but there's always a drill down in debate in the industry, not amongst us, but the innovation enabler. What do you think is the biggest innovation enabler right now for VMware and the ecosystem? Is there one, or a handful of things you say, hey, that's a disruptive enabler. It's going to create a lot of growth, wealth creation, happy customers. Obviously, virtualization was an enabler. Does that continue to be it? What do you see there? I actually think it's a couple things. And I do think actually it's virtualization. I think this network virtualization that we launched here at the show with the NSX platform is going to drive a very big wave of innovation and opportunity for everyone. I truly believe that. I also believe that the only way that we can reduce the friction between the consumers of IT and the producers of IT is through continuously innovating when it comes to how you automate IT. So I think the automation and the tooling that is required to actually support things like the software-defined data center quite honestly are going to represent a big opportunity, not just for VMware, but an entire ecosystem. So the other two I would say, off the top of my head, what's really going to drive the next phase of growth? It's still going to be virtualization, right? And it's also going to be the management automation tools. And you know, it's funny. A lot of times people say, you know, VMware, great run. You had a really good run in virtualization. It's over. You did a lot of good things in compute virtualization. And I often remind people about what is the underlying technology and architecture to the software-defined data center across network compute and storage? What does every person who gets up here on theCUBE say they're going to do? They're going to virtualize. Yeah, yeah. So virtualization in VMware is old school. I like being old school. So that's, I don't want to ask you about DeFi convention. I know, you know, that's probably not, you know, I'm not the marketing guy. Maybe we should talk to Robin about this. But is that the convention that you're defying? The way in which currently storage and networks are managed, deployed, provisioned? Absolutely. And it's not just DeFi convention. Now it's to do it again. Because you guys are convention in compute now. Yes. So now you want to defy convention and change the configuration, right? And the policy setting of how networking and hardworking is done today, conventionally, with this new abstraction layer called virtualization across both of those two assets in the data center that aren't virtualized. So go defy convention again today, just like you did over the last decade. Carl, let's talk about a force that's out driving the industry right now and that's open source. Dave and I said that when we came back from the OpenStack summit that open standards are being defined by open source communities, not standard bodies anymore. The old days, IEEE and those big bodies, the open source communities are driving innovation. You guys are playing with OpenStack, okay? How much are we? We're not playing with it. We're contributing. You're contributing. God forbid somebody chooses another orchestration layer, but it may happen, right? But that being said, this is a philosophy, right? So role of open source has been very vocal. Internally, how does that affect you and your teams organizing and executing? Because that's an external facing opportunity, so there's code contributions. How does the open source contribution and involvement affect your operational strategy? So VMware, even today, is one of the biggest contributors to OpenStack when it comes to networking. Let's face it, we are. And we will continue to be going forward and we support OpenStack. When I think about it on the go-to-market side, I think Pat will even say, we view it as a market expansion opportunity for us because OpenStack is a framework for building clouds. And from what I understand, a frame is something that needs to have things plugged into it to actually become usable, right? Think of the frame of a car. A frame of a car is only as good as the tires you put on it, the body and the engine you put around it. And that's what OpenStack is, it's a framework. And we're going to take the approach and Pat has showed this, I've talked about it, Raigou's talked about it. We're going to take the majority of the components we have today, and we're going to have an API interface into OpenStack so that if someone wants to build their own cloud, themselves, with a big developer community, they can do so and use our technology. Now, in the enterprise, the majority of the enterprise customers we're speaking to, they may kick the tires on OpenStack, but they still would rather go out and get a pure integrated stack from someone who's been in their data center already, in many cases, for sometimes a decade, and leverage that pre-integrated stack so they don't have to build a developer community around it. So, we're going to contribute to OpenStack, we're going to support it. If you think about things like VCloud Automation Center, we can actually provision OpenStack in the future. At the same time. OpenStack also accelerates your market opportunity. We have data on that at Wikibon. I mean, most customers would say they would trade the risk of lock-in to get function. So that's your play, it's function and simplicity, by the way. So that's your play is to plug function into that framework and bet that you can stay ahead of the open source community. Is that right? That's the corollary to what you just said. We fundamentally believe that a pre-integrated stack from someone like VMware, and something like we're doing with our VCloud suite that we bring to market, and we bring you from the compute virtualization layer through networking storage, all the way through the management and automation, pre-integrated, dropped it in the customer's environment and it works, that is a significant advantage for us over someone looking to build a pure open-stack framework because it's going to take sometimes six to 12 months to do so. Carl, I want to ask you a personal question now, since we're getting down on time, we'll get to more of the personal tech athlete questions, because you're a tech athlete. I mean, your role has changed and elevated significantly over the past few years that we've interviewed you in theCUBE, you've talked to partners, you've been involved in all facets of the business now, you're the president, you and Pat are running VMware. What's it like for folks out there? Is you've got had to execute some changes and put some plans in place. The theme that we've been bringing up is what's it take to be a winner in today's marketplace? So if you're a customer, ecosystem partner, want to deploy clouds, what are the key things in today's management style that people should be thinking about in their career and or their business to be a winner? You know, clouds fast, different budgeting cycles, is this management tactics that we're seeing that some winners have. So I want to ask you, you've been winning that phrase. What are some of those things that a persona should represent in the marketplace? Yeah, so first of all, right, I think a winner or winning starts with the individual and whether or not they're personally driven, right? Some people can be driven by others, but the most successful people in life are the ones who have the fire in their belly that drive themselves to be successful. And in most cases, for me and for others that I deal with who are very successful, they're driven not necessarily by their occupation or their title or the company or the job, they're driven by other forces like families. And if you can think about everything you're doing is in the context to support a greater good or your family, everyone else is the recipient of your success. So it's really about the inner drive, I personally believe. And when you look at VMware and you know, being here for the last decade, being through now three CEOs and having the opportunity to work with Pat, you get to learn every single time. And I think winners are people who recognize they always have the ability to continue to learn, they don't know everything because I believe if you're not learning, you're dying, right? So if you're willing to learn and you're willing to take a group of athletes like we're assembling here at VMware and learn from one another and we drive one another to be more successful, the ultimate result is the company is successful because I don't fundamentally believe that companies make people successful. I believe people make companies successful. What have you learned over the past, do you work with Pat? What was the big thing you were doing? So execution, execution, execution. That is an execution machine. And what I really enjoy working with Pat, you know where you stand, you know where he stands. And I think a company like VMware really does excel when there is a technical leader at the helm. But Pat is not just a technical leader, Pat also has run large scale operations, 30,000 people at Intel Strong. So when you can combine his technical skills and knowledge along with his operational scale, I think it's a pretty cool combination that I get to work with and be part of the leadership team. I always joke with Dave, you can always tell when you stand with Pat Gelsinger and how hard he shakes your hand. Yeah. Comes out of the ship. That's great, I mean we're big fans of Pat and I think that having technical leadership at the top is really important. Yeah. It's very important, especially for a company like VMware, right? You come to VMworld, it's all about innovation, right? Which is why I was actually kind of excited to be doing a two keynote where Steve Herrod usually does to show, right, that even business leaders within VMware need to remain technical to be successful. Last question going forward, your metrics for next year, you see your objectives in metrics for next year, next year at VMworld when we're here, we'll look back and say, did you accomplish that, what's your goal for next year? Where are you going to put all the people? What are you going to do? You know, you don't even give me a chance to get through today and you're talking about 2014. It's all up in the queue for next year. You're not getting into queue. Okay. So, you know, in all transparency, I haven't even thought about VMworld 2014, but I think, you know, they're just thinking out loud, right? I think we'll focus more on, you know, things like the developer community and DevOps is becoming more and more of an area that people want to know about and how VMworld will service that. I think next year you'll see us, you know, major advancements in what we've done with NSX. And I think we'll continue to lay out our vision strategy and direction around the software-defined storage area. Vee's Virtual Sand this year, we'll have V-Bombs, V-Balls next year, and V-Flash and other things. So, I think you'll continue to see us evolve there. V-Balls is going to be really cool. And, you know, and I think we'll be at that time much further along with our V-Cloud Hybrid Service and we hopefully can announce a significant portion of our customers leveraging that service in the future. Carl, I know you're super busy. Thank you for your time. Really appreciate you coming on theCUBE. Carl, what's about the president and COO of VMware inside theCUBE. This is theCUBE, our flagship program. We've got the events. This is VMworld 2013. We're live in San Francisco of three days of wall-to-wall coverage, day two. We'll be right back with our next guest after the short break. Stay with us. Thank you very much for having me. Appreciate it. Thank you.