 Live from San Francisco, extracting the signal from the noise, it's theCUBE, covering VMworld 2015. Brought to you by VMworld and its ecosystem sponsors. Now your host, Stu Miniman and Brian Gracely. Hi, welcome back to VMworld 2015 in San Francisco. I'm Stu Miniman with Wikibon and this is SiliconANGLE.tv's live continuous coverage from VMworld 2015. Joining me for this segment is Brian Gracely, my co-host here on the director's set and we're very excited to have one of the keynote speakers, regular friend of the cubes, Rodney Rogers, CEO of Virtue Stream. Rodney, thank you for taking time to join us today. Always a pleasure to see you guys. All right, so Rodney, big acquisition recently, you joined into the Federation, you're reporting to Joe Tucci, lots of intrigue out there as to what's going to happen with the Federation, but let's talk about the Virtue Stream Acquisition. Give us a little bit of insight as to what happened and what you've been doing since then. Sure, so we had built a pretty strong commercial business over the course of the last five, six years and we had gotten the business's revenue run rate into kind of that $100 million a year type of range, which typically is sort of that first qualifying hurdle to be able to credibly look at potentially public offering, taking the company public. If you look at the venture-backed cloud software and services space over the last five, six years, a lot of great engineering, a lot of great technology, not a lot of commercial success, it's somewhat rare. So we separated ourselves from the pack in that regard and towards the latter part of last year, early part of this year, I was really somewhat consumed with evaluating what our IPO potential was. We were within the short strokes of selecting a banker and beginning to write an S1. We'd done some pre-IPO roadshow checks where I'd gotten in front of large institutions, got a great reaction. A lot of the technology that you may have seen from the keynote this morning, drives sort of a, helps us on the margin equation and things of that nature. So we had a bit of a unique growth margin combination and as often happens when you go through a process like that, your suitors emerge and we had a number of large technology companies emerge, you could probably count on one hand, the companies that we were strategic enough to that would step up and take the value that we felt would be commiserate to what an IPO value would be and the like. And we got into that process, we did not run an auction, I didn't even hire a banker for the sale process, I did that myself with the advice from my board of directors and the like and just got into much more of a point dialogue with these companies. Got to a point, we had the great fortune to have a couple of term sheets and that at the end of the day, chose this path of the emcee and it's one of the things I say a lot, when you're a venture-back company, regardless of all the really happy platitudes people say after you get acquired, economics really drive where you end up, you have VCs on your board, their job is to not get sued by their LPs for taking a transaction that was under another potential path or another transaction. So we were fortunate to get the future value, discount back the present value of the IPO, had pretty good data around that, around where we would price and a number of interested parties. We had a very large private investment offered and we had a couple of different acquisition paths. We had all those values in a relatively tight distribution. So when I stand up and say we chose this path, it's actually, we actually really did choose this path. We had a couple of different options and I'm really glad we did. It's been an extraordinary experience so far in the three months or so. You guys, you and I have known each other a while, I know a little bit about what VirtuaStream does. Saw the other day somebody called you guys a unicorn, partially because of the billion dollar valuation. I kind of consider you guys a little bit unique because of all the sort of cloud players, the big clouds, you guys always focused on enterprise and big complicated applications. Walk somebody through, we hear from a lot of people that go well, enterprise applications, on-prime applications can't move to the cloud. Walk through why you guys were able to make that happen. Yeah, sure, so you're right. One of the things, we made plenty of mistakes building VirtuaStream, it's never a perfect process building something from scratch and building a venture backed entity. But one of the things I think we did well was we didn't pivot from our original aspirations. When entrepreneurs fail, they tend to deviate away from building what they know and selling it to whom they know. So my co-founder Kevin Reed and I, we were kind of like the antithesis of the Silicon Valley hipster. We were like the least cool guys in the cloud. We were these East Coast guys that knew, we grew up around enterprise. Both came from the IT services sectors and the like. And we said, you know, large enterprise spends anywhere between 50 and 70% of their entire IT budgets, well over a hundred billion dollars a year supporting these mission critical, core order through cash, spinal fluid apps. Why couldn't we apply the principles of modern multi-tenant cloud architecture to that? You have to solve three or four things, right? Those applications are very burdensome in terms of their memory requirement on the underlying infrastructure. You don't get the benefit of infrastructure where it triggers in the apps themselves. Resiliency is not handled at the application layer. And so, you know, if you're going to build something that has truly the automation, the efficiencies, the agilities, the economics of a true multi-tenant architecture and be able to deal with those inefficiencies in the actual product itself and avoid the concept of resource contention. At the end of the day, when these companies put these apps in the cloud, they can't take risk around their revenue cycle apps, you know, having issues. And so it's a lot of hard engineering but it was an engineering problem that's really driven more by the IO intensive nature of the app itself, the volume of the exchange of data between the app and the database as opposed to simply doing a thin transaction a million times an hour, right? Which typically are more compute intensive consumer oriented technologies that the cloud was founded on. And we have a ton of respect for that use case. We think it'll continue to grow and the like. We just didn't see anybody solving this problem. And it was a hard problem to solve but that's kind of, we kind of stuck to our guns and built a lot of that engineering into the infrastructure provisioning and the cloud management platform software that manages that infrastructure instead of depending on the app to do it because these apps were architected before, you know, sort of the modern era, gotcha? So I got to ask, you're now part of EMC, you're part of the federation, you have a huge amount of potential resources at your disposal, a huge amount of sales force and branding and so forth. But selling large application transformations is not, it's not a simple transaction. How do you scale that? I mean, services has never been something that's simple, easy to scale. How do you envision scaling that to the size of what EMC can do? Intuitive question, right? For the last six years, I went to bed at night and woke up the next morning worried about incinerating my balance sheet before I could create value, right? We had to punch above our weight, we had to innovate with software and compete with the industry titans. Now I go to bed every night, wake up the next morning worried about tipping over based upon demand that we have, right? And it is something that I don't have a simpler, easy answer to yet. This isn't like one of the key things that we're working through. We're doing things that sound somewhat simple but have been incredibly helpful, such as setting up a filtering deal desk that has multi-tierers of qualification, right? The thing that's most dangerous in this is unqualified leads, right? If we get a high degree of quality qualified leads, then it's a numbers game. It's a matter of first scaling your solution architects. Those guys are the most important guys in the sale. These tend to be highly engineered type of solutions, right? But you're absolutely right. It's not frictionless selling. It's something that you've got a really size engineering solution architect and sales resources to fit. And when we found the thing that's really helped us is filtering through the quality of the leads to get to a point where we can effectively size that, then it's still hard to find and hire the people, you at least stand a chance. Yeah, so Rodney, one of the things we've been discussing just early in this week is really the management of kind of that hybrid cloud environment. The keynote this morning, the VMware folks were talking about that unified hybrid cloud, but the reality is today is we've got a multi-cloud world and it's changing greatly, and there's not the best, customers, you don't have a leading dog out there that says this is the way we're going to manage all of it and who has it and puts it together. It can give us your thoughts as to the management piece and how are customers looking at this multi-cloud environment? Absolutely. I think hybrid washing is the new cloud washing, right? A couple of years ago, everything that wasn't a cloud was a cloud, everything today kind of gets that hybrid label slapped on it. I will tell you the Federation's assets, VMware's assets, EMC's assets, in my opinion, the best in the world relative to addressing and solving this problem. I mean, what else am I going to say, right? However, I would tell you that we went through, again, having a couple of different options and a couple of different paths, it allowed us to kind of have the luxury of really evaluating, almost doing reverse diligence on the technology that companies that were looking to acquire us. And I can tell you the quality of this asset base is really strong. The pervasive use case is still ahead of us in the marketplace, right? People are just starting to buy hybrid cloud. They typically either bought off-prem solutions or on-prem solutions. They're now starting to really see how these work together. It's all about the common control plan of software. It's about hybrid, it's easy to place a VM image in another location. It's another thing entirely to place and manage a workload based upon some economic formula that derives the best performance or best economics for that workload. That's the more sophisticated stuff. And our core micro-VM technology also allows you to sort of normalize the from to on the workload. So our technology is going to be quite helpful in this stack here going forward. But it will be the thing that the market will essentially value in this point forward. I find it's a controversial thing, right? There are plenty of guys out there that say if your app's not smart enough to use public cloud, then rewrite, re-architect the app. We think we don't subscribe to that. We think there'll be a multi-decade business cycle where all this will occur. And there's huge economic efficiencies to be borne out by that. We're doing it today for some of the biggest companies in the world. We have a Coca-Cola's, we have a video in our booth here at VMworld where the CIO of Coca-Cola Bottling is talking about how we're doing this for their apps. At the end of the day, the idealist, the Fortune 500 Enterprise IT is a place where I think the cloud idealist goes to die, right? There is every use case and every derivation of every use case. And I think if you can embrace that and be able to handle a common control plan over a number of different formats, you're going to win this game. And I think VMware or EMC is in the best position to do that. Got to do it yet. Yeah. I got to ask a question. So now that you're part of EMC, we're here at VMworld, part of their tagline is any application, one cloud. How do you rationalize the one cloud part? If you're talking to a customer and they say, well, one cloud, but there's the Virtustream cloud, there's VCloud Air, there's Pivotal Web Services that runs on AWS, like how does that come out to be one cloud? Or how do I think about that as a CIO for one cloud? Yeah, you know, again, I think you come back to it. I'm not sure there's a general answer for that. I completely understand the question and we've got some work to do to, I'll say normalize assets in that regard, but all of that is recognized, right? We're working through all of that. I've also heard, you know, CIOs, Fortune 500 CIOs refer to their cloud as a cloud that will have multiple cloud solutions under it, right? So the very top of the Fortune 500, you're most oftentimes going to have multiple providers in that company. Mid Fortune 500 down, you'll have the scope and scale of those businesses will tend to be a little bit more open to holistically outsourcing to a single provider. We have, you know, examples of a Fortune 400, 500 companies, you know, that type of size company running all their apps on our cloud. But at the end of the day, again, I think it's going to be how well you address the seams and connectivity and the intelligent placement of those loads, whether it's in your cloud or not, you know? It eventually all of this will aspire to the cell phone roaming concept, right? You know, and, you know, underlying infrastructure is going to have to get more sophisticated and customer use case will, that's the direction it's going. Right, right. Well, and we've seen that in our research. I mean, we're seeing certain big names have got a lot of revenue, but, you know, at least 50, 60% of the revenue is other, because it is so fragmented. And so, it's that trying to rationalize what is, is there really a hybrid cloud, like we talked about, should you really think about it as one, or do you think about it like you said, I need to manage this thing as if it's IT and resources, public, private, whatever don't really matter. Yeah, I agree. You're looking at crowd chat right now, we should be. Yeah, so, sorry about that. Yeah, Rodney, so, how can your public cloud, we're looking at reaction to get the stuff live. People are making some comments on here, but, you know, what about the Azures and the Amazon to the world? You know, I commented this morning that, you know, VMware didn't even mention them. They just, yeah, you're going to have some public clouds and there's going to be service providers. I mean, they're growing at such a fast pace. You know, how does that fit into the whole discussion? I've never heard of them. Yeah, just kidding. No, so again, to me, this all comes to, it comes around a use case, right? You know, at the end of the day, people tend to group AWS, Microsoft and Google together as really ultimately the web scale leaders, public cloud leaders, peer public cloud leaders. I don't look at them in the same light. You know, AWS has done an extraordinary job of developing a business that was based upon providing ubiquitous access for development platforms. You know, they're project oriented and the like. Our aspiration is to really lead with this mission critical sort of vector and then draw in supporting workloads for that. I see Microsoft as a little bit different. Microsoft somewhat in between kind of what our focus is and what AWS's focus is, specifically associated, or specifically focused on the mid-market. They did a wonderful job with 365. Sort of a launching pad into the cloud. And then, you know, what Azure has done in the mid-market developer ecosystem has been impressive, right? So, you know, again, I think you fail when you chase the taillights of others in this space. And so I believe that we'll establish our leadership position by focusing on our strengths. And I think our strengths will be hybrid and leading with mission critical. Our IP and what we do in that space is truly unique. We do that as, I believe, better than anybody in the world. Now, taking the competition question a little differently, when you become part of a bigger entity, so when you're, we're virtual stream, you show up on the Gartner Magic Quadrant, but you're still the size that you are. The big guys look at you a certain way, you know that. Now that you're a much bigger bullseye, what's your message to somebody who says, why wouldn't I use Oracle's cloud? They're making a big, bigger push, very, you know, application-centric SAP's got, other large partners. Why would somebody use virtual stream now that they're, what do you expect that conversation look like? Well, again, a lot of people when they purchase, a lot of customers when they purchase these solutions, start the conversation with security. They'll talk about agility. Regardless of what anybody may say, the conversation always includes cost, right? And so, you know, what we're doing is focusing on taking this sort of precious kernel of IP that we've developed as virtual stream and extrapolating it across the reach of the federation, but maintaining those principles. We, you know, again, what we've done with this abstraction and how we've essentially granulized the usage to the point where it's based on true consumption as opposed to allocated cubes of VM-based resources, we think is quite powerful and we think that's an entirely scalable principle, right? So, we're going to keep doing the things that we're doing. Again, we're going to bring in a number of assets. You know, we're going to leverage a number of assets, I should say, across the federation to accomplish that. But, you know, again, I think it comes back to, if you're chasing the taillights of another company's, you know, go-to-market and, you know, essentially their development roadmap and the like, you're not going to win that game, especially given who those players are and the type of market share they command. What we're hoping to do is create another example of that in an enterprise-enterprise-application-centric marketplace. And, you know, a few years from now, people look at us and say, well, how do you possibly unsee virtual stream in the enterprise, you know, and like? And that might sound a little crazy, but that's what my aspiration is. All right, so what's the developer angle for what you're doing? Yeah, so a number of different avenues. The, we have launched our own self-service, self-registration process, VCloud Air also has that capability. And one of our priorities is launching a Pivotal Cloud Foundry service on the virtual stream cloud here. That's in my near-term roadmap. I am so impressed with the Pivotal guys. You know, just what they've been able to do over such a short period of time of capturing platform three application development in a large enterprise is extraordinary. You know, we're in the large enterprise every day and they are the product everybody's talking about. And, you know, interesting, a lot of that development hasn't occurred on public clouds. A lot of that development's actually occurred in-house. And one of the things that we think we offer is this really unique kind of option to where a large enterprise doesn't have to, you know, provision the infrastructure themselves, but yet you get something much more secure and hardened from a performance perspective than just a general-purpose public eye has. So we're quite excited about that element of it, that aspect of it. Any final questions, Brian? No, I think this has been great. I like, you know, we talked about, we'd love to find out what's totally coming next. I know you guys have some things that are a couple of months out. Yeah, we do. But no, it's exciting that, you know, obviously you guys are doing well. The acquisition obviously shows what you're doing is doing well. Thank you. You know, I think people are excited to see what you can bring to the Federation, the Federation Cloud story, because, you know, you've got that experience, and experience is huge. Yeah, we, I say this, you know, my wife can't quite figure it out, right? I'm as excited about all those things, and I've sold three companies in my life, two for over a billion dollars, and I've never worked harder in the last three months. I can't quite reconcile that other than, you know, just the opportunity is so enormous. And so we're excited about it as well. Yeah, yeah, so Rodney, help us close out the segment. You know, why don't you just go follow the heat for the next season? What are you so excited about? And what do you want people to take away from this show about the Federation and Cloud? I'm kind of broken in that regard. I don't know what's wrong with me. I can't quite explain it. I'm kind of an addict for building things. And, you know, you see an opportunity like this come along once in your career. I mean, this is such a step change. I was around, I'm old, man. I was around like in the early 90s as a programmer and an analyst when client server kind of came onto the scene and then made it through, you know, the emergence of the internet which just changed everything, right? Just created ubiquitous access and automated everything. And this is a step change that is as substantial. And I can't, you know, I don't know if it's like being an aging boxer, you know, where you just can't retire or something, but, you know, we still feel going strong. And I tell you, you know, to close on the Federation itself, what a remarkable set of assets. You know, it's something that we have the burden of being effectively, we have to effectively articulate our capabilities. That's one of the things that I see us having an opportunity to improve upon. But if you look at the suite of assets from infrastructure through software, through now, the services component of that, I believe it's unparalleled and it's an organization that has a lot of strength and a lot of reach. And, you know, at the end of the day, you know, we intend to fully prosecute those assets and make our way in this market. All right, well Rodney, thank you so much for joining us and we'll be right back with our next guest here from SiliconANGLE TVs, coverage of VMworld 2015. Thanks for watching.