 Let's go, extracting the signal from the noise. It's theCUBE, covering VMworld 2015. Brought to you by VMware and its ecosystem sponsors. And now your host, Dave Vellante. Welcome back to San Francisco, everybody. This is theCUBE's SiliconANGLE Wikibon's continuous coverage of VMworld 2015. We're in Moscone North this year at the street level, stop by and see us. Good friend Tom Cook is here. He's the CEO of Permabit. Long time, CUBE guest, Tom, it's great to see you again. Always a pleasure. Great to be back, David, thank you. So yeah, this is kind of the Super Bowl of the story's become the storage show, hasn't it? It really has, it really has. You remember the old Comdex days, we'd all get together. Well, it's really VMworld is now that main sort of ecosystem storage show. And it's funny, you know, you thought the storage problems were going to get solved back in 2009, 2010. It said, okay, the ecosystem's going to rally together. We got all these APIs coming out and the problems of storage are going to go away. Just the opposite has happened. What's going on in storage? Well, it certainly has. When you think about the efficiencies that have been brought to compute by this company, by, and what's happening in the ecosystem, it's really created stress in the storage marketplace and has actually created more storage. And so we're going about the task of solving that, really helping to bring the same efficiency to the storage side that VMware brought to the compute side. And so I think it's a really exciting time. So, Permabit, data reduction specialist, you OEM your technology to a number of high profile players. I'll let you say them because I'm not sure which ones I can publicly talk about but we know you have a relationship with IBM. We know you have a relationship with Atachi and many others. And so you are very efficient, very fast. You're not suck in performance and you've got an affinity with Flash. So give us an update on your business. Yeah, so you're right. We're working with a lot of the leaders today. So NetApp, HDS, IBM, EMC, NEC, there's a good list of companies that we're working with and having a great time in the marketplace with. And the IBM people are here in force today because it's really a major market opportunity for them to continue expanding their footprint in virtualized world. What we're really seeing flashes become really significant in the marketplace, of course. But when you really look at what's going on in the marketplace, it's products that have data reduction that are winning and leading the marketplace, whether they're hybrid or whether they're Flash designs and almost everything's a hybrid today. And so what's really happened is we've seen this shift where performance today is very available but capacity is expensive in the Flash world. Well, our technology helps to bring that in line. So the same efficiencies that VMware brought to compute we're bringing to storage and we think that's a really important thing to be doing. So it's interesting, when you guys first came out, the Flash was kind of in this niche and it was expensive. You kind of were fighting headwinds to get people running spinning disks to use your technology. Flash would become a huge tailwind for you. Adoption went through the roof. And I want to, it's kind of a nuanced question but the market now seems to be segmenting between what David Florey calls latency storage and capacity storage and fast and slow. Is the attitude toward data reduction on spinning disk changing or do you think that's going to sort of continue and really your sweet spot is going to be Flash? Well, so I certainly think everything is relative. When you can bring savings even to spinning disk it's very important. But the difference between the two medias is something worth looking at. It's kind of nuanced as you said. So spinning disk was very inexpensive for capacity, very expensive for performance. Now we've got Flash that's very inexpensive for performance, very expensive for capacity. So capacity optimization becomes the important technology to bring that to market to really expand the footprint of Flash. And what we're seeing is who wants latency? Flash can inherit many, many more environments when you bring down the effective cost of the capacity and that's what we're doing and others are doing in the marketplace. I think it's become the real trend. And you know, we've studied this and the floor has done some tremendous work here and just putting out the cost curves and everybody can do the cost curves but he's nailed it very well. And at the end of the day it's driven by economics. It's all economics. And so you're seeing is a massive uptake in Flash. I mean, you mentioned a number of the customers, IBM's coming on later, Mike Hewn, whom you guys work with. You guys came on it, was it either interconnect or edge, I can't remember now, but that is really an interesting marketplace. You mentioned EMC and Atachi. So pretty much everybody needs a data reduction strategy. I mean, 100% of the players out there need a data reduction strategy and your approach is pure OEM, correct? It's 100% OEM. So we're working with partners. Our thesis was this. There's enough a raise in the world. What we really need to do is help companies to make their raise better and to make them less expensive on an effective cost basis. And that's what we bring to the marketplace and that's why a lot of companies have come to us. So the OEM business model is challenging from this standpoint. It's a very long sales cycle. So you got to get qualified. You go through, you know, the not invented here. You go through, you know, employees come, they go. And that sort of took a long time really to get people to adopt the SDK. Now, once you get them to adopt, you usually get long term relationships with them, but you're always kind of sleeping with one eye open. So how are you sort of as a CEO thinking about diversifying your business? You know, what's on the product roadmap? Maybe you could talk about that a little bit. So first of all, we've made our technology easier to consume all the time. So we started with an SDK, then we moved to a full-fledged application we call VDO and then an appliance with deduplication compression and thin provisioning in it. So we just made it really simple for our partners to consume that and bring real efficiency to their products very quickly. So a lot of companies have started out with us with Sandblocks, our appliance, and now they're moving to embedded models on their arrays so that we'll be embedded, our software will be embedded with them down the road. And what that does is makes the customer experience completely seamless. And we really are just a supplier to the marketplace the same way many other companies have been successful models in the past, LSI, others like that. We're doing it with all software. Yeah, well, what's interesting, right, I was just going to say, what's interesting is what you're doing is software-based. I think that's the advancement of the marketplace too. And Sandblocks kind of breeze life into existing infrastructure. So it's a return on asset play and then you've got the innovation going with your other software products. Let's talk about the industry. You and I, we'd love to sort of pontificate on what's going on. You kind of have, let me sort of set it up. You've got the cartel, which a lot of the cartel buys from you. And they're sort of still controlling the chessboard, but now you're seeing all these startups popping up all over the place, particularly this week. What do you make of the, and I want to add, you've got VMware now, getting more and more into storage, EMC little, giving them a little bit more rope to do things like VSAN. What do you see, sorry, one more thing. Then you've got all this sort of addition of open source, open stack. You've got Amazon now as the $8 billion gorilla growing at 80%. All kinds of really interesting waves going on. What's your take on the state of the industry? So I think there's kind of a classic squeeze going on in the industry. We've seen some upstarts come into the marketplace and these are companies, and they're no longer upstarts. They're becoming pretty well-skilled companies, companies like Pure, like Nimble, and others like that. They've come in with a much better value proposition than incumbent arrays had. And the reason they're doing that is because they really went for more flash and they brought data reduction into their products immediately. So the incumbent products were left in the old capacity world, the old spinning disk world, and 80% of their investment over the years had gone into trying to get more performance out of spinning disk. All of a sudden, that investment's worthless in a flash world. And so we've seen a shift there and the upstarts have come in and done a really good job. In fact, better than I would have thought they'd do because they'd been able to scale and had plentiful capital. On the other side of the marketplace, we've got the Amazon, Google, Microsoft, IBM, and a few other companies. I think that's going to be hugely dominated by very large, very capable companies, ones which pure storage players can't buy. And so all of a sudden, there's this new force in the marketplace that's taking a significant amount of market share. I think the storage players end up fighting for that on-premise, high-performance storage, and that's why we're seeing a lot of play in that market. Did you have an opportunity to sort of squint through the Pure S1? What are your thoughts? Yeah, well, I mean... Were there any surprises in there? I was astounded by the amount of money that's being spent. The growth is spectacular. The execution's been spectacular, but spending $2 for every one can only be sustained for so long. And we'll see where that goes in the marketplace. Overall, I think as a startup company, they are solving yesterday's problem rather than tomorrow's problem. And that's where Google, Microsoft, and other people, Amazon, are living and where they're going today. Yeah, and ostensibly, some of the startups that we've seen come out here, I mean, Formation, Mark Lewis' company, so they came out last night. Infinidat is starting to have a bigger presence, Moshe's company. So you're seeing others, Papa Brian Biles' company's coming out, or has come out. So it's unclear where those guys fit. What I wanted to ask you is, if you look back when we first started doing these events, like 2010 with theCUBE, and you saw a wave of acquisitions, three-par, compelling, of course, Equalogic went, Isilon then went, Data Domain gets acquired as a public company, as did three-par. Nice exits, two, two and a half billion, couple billion here, 1.8, one, nice, really nice exits. And I've always wondered, well, the Flash guys achieve that same success. We saw Violin spike up and clearly spike down. We saw Fusion hit a billion plus, and sort of get sold. What are your thoughts? Do you think that these new Flash companies will be able to achieve escape velocity? We've had this sort of conversation before, but I like to have it every now and then you've got great perspectives on it. Well, so, first of all, I don't want to rain on that parade because they're doing really well, and big capitalizations, I hope to see investors make a ton of money. But overall, I think they're fighting for a market that's contracting. And, you know, somebody taught me along the way, you know, like my dad said, something about tailwind and things like that, find a place where there's tailwind and it's a lot easier. They're fighting for a market that's shrinking, if you will, the on-premise storage marketplace, and we're going to see this cloud marketplace really grow. I believe Amazon, Google, and others are really coming at that hard. IBM's clearly equipping their business model to address that. VMware is definitely equipping their business model to compete and to be a major supplier in that world. And I think there's some large companies that are going to inherit that space. Well, and I think, you know, a lot of your customers have pretty good product portfolios in the Flash space. It's not like, you know, HP had such a huge hole as it was sort of living off of EVA install base, you know, and Dell had to get into the business if it didn't want to be reliant on EMC, so it just opened up some M&A opportunities for these companies that had achieved critical mass. But you saw EMC and certainly IBM get ahead of the curve this time and pay up for, you know, much smaller companies, but it seems to be paying off. I mean, you know, these guys who run these big companies aren't stupid, you know, they sure are. They've made mistakes and they've had a lot of successes and they really, you know, they have cash. And so it seems to me that the big guys, the cartel, unless I'm missing it, you know, have pretty good strong product portfolios that are going to allow them to lead in this space. Well, so I would really contend that Flash as it comes, because everyone can get Flash, so now we can get performance that makes building an array an easier thing. And so that's not a differentiation point anymore. And I think the innovation that's been introduced is a sustaining innovation rather than a disruptive one in the end. And the big companies tend to do very, very well over a period of time in sustaining innovation marketplaces. And this is a sustaining innovation in my mind. Let's talk about Permabit and your objectives as a company. I mean, you have patient investors. They've really given you the opportunity to find, you know, to hang on until you can thrive. And that's really what's happening. You know, survive until you thrive, as they say. And so where are you now as a company? What are the objectives? I mean, do you want to sort of stay a nice private company, you know, get profitable? Do you want to do IPO? Do you want to get bought? What's the long-term goal? So great question. So this has definitely taken a couple more years than we thought it was going to take. We thought the market was tipping two or three years ago and it's taken a little longer. But we think the power of the marketplace is even stronger today than we had anticipated. And what we bring to the marketplace, extremely low latency, very high performance, very low footprint, massive scale. Those are things that are not going away in terms of needs to the marketplace. So we're just continuing to really pour into R&D and make sure that we're staying way ahead of the marketplace. And by the way, among our customers, they've had projects in the past that they've either curtailed or canceled and they've come back to us and said, hey, we want to use your technology. So this is a thorny area to develop in. And I think people, it's easy to prototype. It's very hard to make it scalable and make it fast and do all those things. So what we want to do, we want to make our partners successful. They sell more, we sell more. We're OEM partners to them. It's kind of a preclic basis. And so if we can help them to grow their market share, if we can help them to expand their footprint, we win. And so our real goal is to build their businesses, help them to build their businesses. And we get deep channel involvement with IBM right now, very engaged in that, helping that grow. And if they're successful in that, then we're very successful as a company too. Well, the marginal economics of your business should be better than a company that makes a box and puts, let's say, compression or DGIP just inside that box. I mean, your volume, in theory, should be significantly higher and give you that flywheel effect. That's right. Are you starting to see that? Yeah, and we really like being attached to multi-thousand unit array products. And so those are the targets for us as a company because we think the companies that are selling that number can do really well. The other thing that we can bring is a completely cross-platform and complete portfolio solution to them. So if a customer says, hey, I really want this same thing throughout my portfolio, we can deliver it to them. Any platform, any OS, really any architecture. So at this point, TAM expansion is not keeping you up at night. You feel like the TAM is plenty big. You got to keep focusing, executing, innovating, making the products easier to consume, as opposed to saying, oh boy, we're running out of space. We need to go spin up some other skunkworks. So what you can see publicly in our company today is that we're working with the major incumbent vendors and helping them to gain market share and maintain market share and maintain margin. But in the background, I can tell you we're working deeply with the ODMs who will be supplying into the cloud market space and we're working directly with the hyperscale cloud companies as well. So we see the next world occurring and we'll be part of the software-defined storage revolution that's going on. We think we can ride these waves. So big cloud, mega cloud is an opportunity for you guys. Absolutely. To OEM your technology. Absolutely. Those guys, you're finding everyone's different. But on balance, there's opportunity for them to OEM your product because they'd rather buy it than build it. It's not necessarily a core competency and the ones that are interested. Is that right? Well, they've found it to be more challenging than they might have thought. And this is a pretty crowded IP space and we've got some pretty formative IP in it as well. And so that's something we bring to those partners. What's the patent portfolio looking like these days? We're 45 patents today and growing. So we think it's an important area and certainly some other big companies have been active in that space. And so the hyperscale companies are pretty sensitive. So what are investors saying to you? You guys meet at your board. You have your quarterly meetings. Tom, hey, you're at site to get in some traction. Yes, it took longer, but we stuck with you. Good job. What else can you share with us? They're really psyched about our partnerships and what they're doing with me is giving me a lot of latitude to work aggressively with our partners. Again, with IBM, they have a channel strategy that they go to market with. We've been able to match that by staff additions in our company and working with companies like Aero in distribution and their key vars. It's a real leverage point for us. So my board has been really supportive and what we're hearing from other investors, private equity investors, is they want to participate in this marketplace. They get a little scared with the valuations in arrays and things like that, but they think we're a really interesting place. So we've had a lot of demand in that area. So my last question is impressions of, you know, VMworld and generally, but VMware specifically. With their VMware is kind of theme. You know, you've got the Elliott management thing. You've got OpenStack or Amazon, all the things we talked about before. What are your impressions of VMware and where it goes? I think VMware is a very well-positioned company and I think it's going to be real interesting to see how this all plays out in the marketplace, whether they're part of, whether they're outside. But certainly, this is a company. I mean, VSAN is a revolutionary product. The traction of the product is spectacular in the software-defined world and the capabilities that could be in there with our product phenomenal in terms of value proposition. What would you do if you were on EMC's board? What would you recommend? Would you say, stay the course, do the federation, buy VMware, suck it back in, let them buy us? What would you always be? Oh, wow. I'm definitely going to create some enemy in this kind of stuff. First of all, there's- Hey, listen, Dave, I'm sure they're having these conversations, right? I mean, there's no easy answer there. Yeah. So let me say, I think that VMware is a great company and deserves a day to shine. And to me, that's part of what this is all about and the way that they partner throughout the entire storage community has been really valuable and I think we'll continue to see more of that. Yeah, well, when your stock price goes sideways for as long as it has and your cash flow is diminishing, investors can get you in a headlock and they can get an extra five or 10 points. They're going to listen. So that's leverage for the investor community. But at the same time, you like to see an opportunity for a large company to continue to thrive. So it's going to be really interesting to see how it plays out. Tom Cook, great to see you as always. Thank you, David. It's really a pleasure. All right, keep it right there, everybody. We'll be back. This is theCUBE, we're live from Moscone right after this word.