 From San Francisco, it's theCUBE, covering Radio 2018, brought to you by VMware. Hello everyone, welcome back. This is theCUBE's exclusive coverage here at VMware's Radio 2018, this is their seminal big tent event for their top engineers, smartest people come together, present their reports, their projects, and come together as a community and share a great content agenda. As Steve Herrod, former CTO says, this is like a sales kickoff for engineers that's motivated and they flex their muscles, technically, stretched their minds. I'm here with Pat Gelsinger, the CEO of VMware. Great to see you, welcome back to theCUBE. Hey, thank you very much. It's fun to be here on Radio. So this is Nerd Central, this is- Absolutely, this is like Geek City, baby. Dave and I always compliment you on your business acumen. Obviously you're doing great as the CEO, the numbers, business performance, world-class organization, check. Best place to work, one of the best places to work for, check. But you're kind of a geek at heart. You like to get down and dirty, technical. This is your event, you getting down with the folks? Yeah, you know, it's fun. I was just at our sales, we have top sales people, our sales club. So we did it in Abu Dhabi this year. So it was just over there a couple of weeks ago for that. So hobnobbing with the sales guys, which is super important. Their motivation, their creme de la creme of the year. But to me, this one is better, just because now the tech guys coming together, because most companies don't do anything like this. So it really is a unique piece of the VMware culture where the tech guys get together and they just geek out for a couple of days and to be awarded best of radio, it's like, oh man, you're a god inside of VMware. It's like the Sundance Film Festival, Conn's Film Festival, the Oscars, it's a huge accomplishment in knowing people internally. You know, I mean, some of the raised numbers this morning as he showed in the keynote, I mean, it's a competitive, to get your paper shown here is competitive, right? So there's a set of judges that are picking the papers that are here. Out of this, we already have over 200 invention disclosures that have come out of just the preparation for the conference, and we haven't even gotten started yet. Now, the keynotes this morning and poster sessions all week long, and letting the engineers just really vibrate off of each other's ideas and challenge them, and all of our PEs and fellows roaming around here, they're sort of like the big guys on campus, but hey, the young Turks are coming up, and they're challenging them on ideas. It really is a delightful few days. I love your perspective, I want to get your reaction because one, not only do you have a story in history, we're going to entail really a great innovator, the founder of the Silicon Valley with HPs of the world, and now you're the chief of VMware, a modern era is here, and you talk about this all the time publicly on the business context and at the events, but it's different. Google had pioneered this notion of 20% of your time you could work on a side project, more of an academic culture Google has, I mean, I love that, it's cool, but VMware is a unique culture, and I want you to talk about that dynamic because you have to be versatile now, agile more than ever, you have to be faster, time to market, and it's always been hard for companies to crack the code on knocking down the big ideas, solving the hardest problems, but yet making it practical at the same time. What's your reaction to how you guys are doing it, what's different? Cheers to the call. You know, in some ways, and I think some of the panel, we had a panel session this morning, Steve did one session, but we had of the original engineers in the company, you know, the five of the original engineers, right, were here, and they were saying, it was sort of like we're doing research in a business who had business objectives, right? Solving problems that had never been solved before, sort of the VMware culture is, if it's not a hard problem, it's not worth it, right? You know, and our objective isn't to be two acts or 10% better, but to be 10x better, right? You know, and when you're doing those kind of things, you can't always put that on a schedule, right? You know, the problem is solved when it's solved, right? Yes, right, and you know, I was just meeting with one of my teams last night, this is well, right? That looks pretty good, but I don't think you've met the minimum of viable product yet, you know, so let's put it in an open beta for six months before we actually call it GA, because I don't think you're done solving the hard problem yet, right? So you're squinting through and looking at the projects from there? Yeah, yeah, right, you know, and, you know, is it ready, right? You know, and have we really delivered something that customers can say, yeah, here's the value proposition you promised, here's what you're delivering me, it is a quality product, right? You know, which is something that's deep in that history of, you know, VMware, right? In many cases, and I love one of the statistics this morning, they said the early core dumps of ESX, right, they found that over two-thirds of them were a result of memory parity errors, not of ESX failures of any sense, so meaning that the hardware was less reliable than the software was, and that's always sort of this magic that we say, you know, we're out to produce world-class infrastructure software that's better than the hardware ever could have been, and, you know, for a hardware guy, you know, that's sort of, oh, yeah, that's a good one. That was your problem. My original, I think it was on your watch, actually, the first core dump. It would throw back Thursday with the core dumps from like 10 years ago, look at a similar code, look at Exodespo, hey, look at that core dump, hey, look how cool that is. If I see the BIOS problem, though, my gosh, where did that come from? You know, let's get some final records, and look at some core dumps from 1992. So Pat, now this is important, because I think this is a killer point. You know, when you look at innovation, you know, VMware has to meet the challenge of being on that next wave, and you said on theCUBE many times, you're not on that next wave, you drift with. A lot of companies who try to do R&D, end up solving hard problems to attract the top talent, but they end up getting so focused on the problem, they end up in a cul-de-sac on the wrong wave. They miss the next wave. How do you manage that? Because this is your sticking point, is make sure you don't miss the next wave, you transition properly. How do you avoid that problem of getting so focused on the intoxicating aspect of solving a problem and being in a cul-de-sac, no market, wave missed? Yeah, you know when it's hard, right, in that sense. And I'll say there's, you know, we sort of look at it from three different dimensions. You know, one is, hey, you got to keep this, you know, bubbling cauldron of ideas, and that's why we're here at radio, right? You know, just these people working on ideas, you know. Right, and you know, right, you have some really cool stuff and every once in a while you're telling the engineers, well, that's good, but you haven't solved the hardest piece of that problem yet, and so on. Then you have to be able to take it from that bubbling cauldron to, I'll say, an incubation product, right? You know, because, you know, VMware, yeah, we do R&D, we do core research as well, you know, but fundamentally, you know, we've been able to create markets based on our products and really scale them, and right, you know, the embarrassing truth of any enterprise software company is for every dollar of R&D, you spend $2 of sales and marketing. So we can't underinvest in those products that we've picked that now are scaling into the market. You know, we have to put the dedicated sales, the SEs, et cetera, it's really frightening. You know, when I'm done innovating a new idea, you know, maybe I've dumped 10 million or 15 million into the core idea. Okay, now I get to go spend twice that amount on the early marketing of it. And boy, you know, it's expensive to bring things into the enterprise, and if the product isn't robust and solid and really compelling, right, you know, then it might be three or four X. So you're now rewarded with, you know, your R&D investment to go spend on sales and marketing now. So, you know, we've really taken, and we have, you know, a very, you know, BCG matrix kind of view of how we, you know, take products from incubation into early market success and then into, you know, scale and finally cash cow and retirement. You know, that process is one you have to be equally disciplined about. You know, and the third piece of it is, is you have to be able to declare failure. And, you know, when four failures, it's how do you harvest technologies and learning, but be able to look at something like VCloud Air and say, okay, we weren't successful. And now go build, you know, a multi-cloud and Amazon partnership coming out of it. We have to be able to make those shifts, right, and be able to declare failure, be able to move our customers forward, and then move on to the next big thing. Because you're not going to get them all right. When you, so to your point, the math works when you can abandon quickly. Yeah. That's where the winners are because then you can move to the probability of success somewhere else. Yeah. And if you can't declare failure, right, and view that in a positive and proud way, you know, one of the failures of, you know, VCloud Air became the success of our hybrid cloud service capability now. Right, a lot of this ability to move workloads between public clouds, you know, was a direct harvesting of our VCloud Air failure. We were able to take that technology forward, and that's now one of the pillars of, you know, how we're differentiating our Amazon service, OVH partnership, IBM, you're building on those hybrid cloud capabilities. You know, Pat, we've been watching you. That's one of the things I will say that you're really amazing at. You're good at, you're the captain. You got your hand on the wheel. You got to know when to say, hey, close that hatch or we're going to sink. You got to, or I'm not that good, knowing when to make the calls. So I got to ask you, when you look at the marketplace now, you have the option to build, the option to buy, and you have to kind of also balance those three years. You've got Ray, you've got Rajiv, and you've got Corp Dev guys. They have to work together. And sometimes, hey, let's go buy that hot startup, or no, I have it internally. And sometimes it might be in a core competency or talk about that as the CEO, you got your hand on the wheel. Okay, the ship, you're steering the ship, you're setting the direction, the team's working hard. How do you make those calls, buy, build, and when it's in the core area, as the market's shifting, what's that look like for you? What's your view as you look forward? Yeah, you know, there's clearly, we think about the case, let's take two examples of our buy, AirWatch. Hey, we saw that we had nothing in mobility, and if we're going to be an end user computing, we must have mobility in the family. So we really, in some degree, we didn't have a choice. We had to go buy if we're going to be in that space and it became foundational for us in that area. You might have argued, hey, we should have done that five years sooner, but we didn't, we had to make a buy decision. And then we went out and shopped. Literally, mobile iron or AirWatch, we looked at those and baked those off until almost the last day, right? And I went into that expecting we were going to buy mobile iron. Really, what was the tipping point? Right, well, I became a Silicon Valley company. I thought their technology was a little bit better. I thought the AirWatch guys were a little bit too much market and focused on winning the early market. I didn't know if the product had the quality of a VMware product. So I really, I was handicapping the mobile iron win and the team came out unanimously with my agreement that AirWatch was the right thing. In the case of NYSERA, one of the other foundational acquisitions that we did, we had a lot of the distributed virtual switch technology we had already innovated, but we hadn't put a control plane, a scale control plane against them. That's what NYSERA did. So there it was really bringing those pieces together, which really has become, I'll say, a marquee aspect of our acquisition. In many cases, we're in the space. You feel good about that. How much you paid for that? Oh, yeah. I mean, at the time, people said 1.2 billion for less than 10 million of revenue. What are you guys, stupid? Now everybody says, wow, you're brilliant. So they didn't look at the underlying technology. Absolutely, four years of hard work, core technology, right? And bum, we're unquestionably the leader in software defined networking now as a result of making a pretty bold bet at the time. Obviously, organic innovation is the best because it sort of fits in your stream. You don't have to go change gooey practices or test release practices. It's already part of you as well. But sometimes, hey, I get to look over 10 startups and pick the winner. I may not be able to fund 10 startups internally and pick the winner, but I can look out over, you pay a premium. And one of the unique things about VMware is that over the 60 or so, 70 acquisitions, I think we've done now, as a company, we have a highly successful track record. Is that because the architectural decision is not just bolt on a business unit and say stand alone and produce cash? You guys are thinking strategically around how it fits architecturally. Is that the difference? I'd say it boils down to a handful of things. That's absolutely one of them. We're looking deep at technology. How does it fit our technology? Can we bring it in? Second, we look at the culture of the company. We've said no to some acquisitions just because we've decided that culture won't fit our culture or we're not going to be able to mold it into our culture as well. Number three, we protect this thing. We run a process by which, hey, if this is the acquired company, and here's the CEO of the startup company. He has passion and he is the commander of his universe and tomorrow some low level legal person can't say no, you can't do that. Right, yesterday he was, you know, but you know, right, you know, do we protect them, do we turn their passion and get them to believe that their passion, remember, they're, yeah, they want to be successful, but they want to turn their passion and objective into a big industry changing event. And is that passion better executed inside of the platform of VMware? So we protect them, you know, that low level legal person can't say no or that finance person, we run a special board process around them, you know, to protect them. You don't want people handcuffed. Yeah, absolutely, we want them to be unleashed, you know, that they have more power, not less after they become part of this company, that the platform for their vision of passion becomes bigger as part of ours, so we protect them like crazy in that process. And you hear it in radio as well. You want to unleash the ground swell, get the grassroots movement going, let the sparks of innovation kind of fly out there. Yeah, and our, you know, and our success rate is close to 90% on acquisitions and the industry average is below 50%. So I think we've really mastered organic and inorganic innovation as good as any company has in the industry. I will say that's totally true. And also, Desan became a project that came out of radio that's been highly successful. Yeah, totally organic in that one. So you guys, thanks for teaching me, it's not just bolting on revenue, although that could help if you can find it. There's not much out there for you guys. Let's talk about some of the hot trends here at radio. One of the things we're seeing, obviously with time of the competitors, but also the camaraderie. A lot of, it's interesting to see how competitive it is, but also, again, VMware's got a hardcore engineering culture, but also hardcore community culture. That shines through, it's obvious. So props to the folks running radio and then the process. But when you look at like the trends, what's trending up is blockchain. We talked to some of your folks there, you guys are looking at this as a really strategic aspect, you talked to Dave about it, briefly at Dell Technologies World. What's your view on blockchain? Obviously, you look at infrastructure, you, blockchain jumps out at you, your reaction to the hype and illusions and reality of blockchain, cryptocurrency, not so much the ICS, I think there's just a funding dynamic, a lot of project-based stuff, but really there's some infrastructure dynamics. Your thoughts on blockchain as an infrastructure enabler for a future wave? Yeah, a couple of comments, and one is, I think blockchain as a algorithmic breakthrough is on par with public-private key encryption, right? It's just sort of opened up the world of general-purpose cryptography. I think this idea of an immutable distributed ledger, sort of busts apart the database, I don't have to bring things together now, the database spreads across it, immutability, right, transactability, et cetera, takes a lot of the asset characteristics of core databases, and now it does it in a fully distributed way, very powerful. And I think it's going to change supply chains, change financial systems, it's going to have very broad implications. So overall, we're in, we believe, very much in the importance of that. Real quick, really real quick, because I wanted to get this thought in because you brought up general-purpose. One of the things we've been kind of talking off-camera amongst our team members is blockchain looks a lot like maybe processors, general-purpose processors opened up a PC revolution. In the sense of general-purpose computing, blockchain seems to have that same dynamic potentially, not as a direct metaphor, but if you can open up a new dynamic, that could explode new business models yet to be foreseen. Yeah, yeah, absolutely, and you know, if we could take the cost of transactions down by an order of magnitude, right, if you could increase the reliability of a supply chain, if you could, right, in fact, guarantee the source of origin of any product against its ultimate place of consumption, these are industry-changing type of capabilities, so we do see it quite significantly that way. But then as VMware looks at it, if there's not a hard problem to solve, then we shouldn't be in the space. So our team, one of the core problems of blockchain is the exponential compute requirements of higher-order blockchains. So our team has solved that problem. We've done some algorithmic breakthroughs that we believe allow blockchain to scale at close to linear scale as opposed to exponential scale. Wow, that's game-changing for, we're also solving the auditability problem. Immutable, right, anonymous, immutable, it was great, but a lot of things need to be automated. So how can you bring some of those core concepts into blockchain? So those are some of the hard problems that we're solving, sort of back to the 10x culture. Solve hard problems in fundamental ways, and that's what we think that we can bring to the blockchain universe. Well Pat, I think it's amazing that you're here at the event, I know that you look forward to this as well, but you have the CEO come in at the radio event and really lead the troops by example is awesome. We've got VMworld coming up around the corner. Yeah, yeah. Give us some teasers, what's happening? I know you're going to get in trouble from Rob and Matlock, but come on, tell us what's coming in VMworld. Well, of course we have a lot of key products, updates and other things that are coming out. I hope to broaden at VMworld this year, the view of the cloud, right? And you say broaden the view of the cloud, what are you talking about Pat? Well, you're going to have to come to VMworld to get the full story, but I do think that we've thought about the hybrid cloud world largely in this idea of public and private in the past, right? But we see that the vision that we're pursuing is one much larger than that, where it's public, private, telco and edge, right? And the confluence of those four worlds, we believe is something that VMware is uniquely positioned to be able to bring right to the marketplace and the implications of that. So I'm quite excited as I broaden our general view of the cloud as we come up with VMworld. And one of the exciting things is our ninth year at VMworld. We've been every year one since theCUBE's existed and thank you for your support. But I got to say, one of the things we can do is look at the tape as they say, you said in 2011 or 2012, hybrid cloud, and I kind of was like, Pat, come on, hybrid cloud. Now everybody's talking about it. I think that's what it is. Yeah. 2012, how many years ago is that? I think 2012, I think is when we first started to use that word. Yeah, you put the stake in the ground. And again, you saw there's a wave and a lot's been changed. And you look back since 2012, you make the right calls, you feel good about where you're at, things you could do over. What would you do from a progress standpoint? What's changed radically in your mind? Because we're still talking about private cloud, and what, I mean, obviously, service measures around the corner, other cool stuff's happened. Yeah, clearly, I think when we think about the SDDC, hey, we called it right, we're executing better than anybody else. So you can sort of say check, right? Virtual storage, check. We talk about what we've done at end user computing, transform the workplace, check. We're unquestionably the industry leader in that area. I think this idea of hybrid cloud, it's taken us too long, too hard to realize that the multi-cloud vision, so that's the one I'd say, okay, we haven't delivered as rapidly or as effectively as we needed to. It's now really starting to materialize, but it's taken me a couple of three years longer than it should have to get there. And we commented on the vCloud air and a little bit of the myths that we had there and that delayed our schedule. Also, some of the Amazon aspects kind of sideways a little bit, but hey, I think we're on a very good path now, but then to broaden it, to what we're doing in Telco, what we're doing in Edge, okay, this gets to be really, really powerful. Pat, great for your success. Thanks for coming by theCUBE here at Radio 2018. This is where all the R&Ds for the ideas are booming. I'm John Furrier with Pat Gelsinger here in San Francisco for Radio 2018. We'll be back with more coverage after this break. Thanks for watching.