 From Las Vegas, extracting the signal from the noise. It's theCUBE covering InterConnect 2016. Brought to you by IBM. Now, your host, John Furrier and Dave Vellante. Okay, welcome back everyone. We are live here in Las Vegas for IBM InterConnect 2016. This is theCUBE, SiliconANGLE's flagship program. We go out to the events and extract the signal from the noise. I'm John Furrier with my co-host Dave Vellante, our next guest, Bob Egan, who's the founder and CEO, except for him group, analyst, been in the business for a long time, have seen ways of innovation, inflection point after inflection point, but also lived through a lot of the big ones, and including now, welcome to theCUBE. Welcome, John, thank you. Wow, great, it's great to have you on. One, as an analyst, you're covering hot area with mobile, okay, and impact to customers and CIOs, who actually, it's on everyone's agenda. Yeah, it's pretty much obviously a boardroom conversation. Whatever you want to say, that's happening. Now, making it happen, it's a little bit different story. You need a little cloud in there, you got analytics, you got data, you have some differentiation, and all under the digital transformation. And then throw some IoT to complex things on top of that. That's right. Give us your analysis. I mean, what are you seeing in the landscape right now? Obviously the trends are hot. What's your thoughts on the mobile meets CIO agenda? I think there's two things. First, IBM today has talked a lot about the big gap, right, so it's gap, cloud, and the migration between on-prem and hybrid. They've talked about a little bit about IoT and mobility, and it's not just about hardware mobility or metal mobility, right? It's really about services. But when a rubber meets the road, the real issue around CIOs, especially around mobility and IoT, is that when they're wrestling with all these issues and they're trying to drive business velocities, they've taken a look at mobile and they're saying, geez, this kind of feels like I'm standing alongside a cold, fast-moving Alaskan river with a lot of rocks, right? And so we've got all these different device standards. We've got this competition. We've got immaturity and a lot of DevOps standards. So the stand-back's saying, is this river ever going to get a little bit warmer? Is somebody going to clear the rocks? Is it ever going to be a lot more safe for me to make bigger bets for mobility and with mobility for my employees, right? Because we've seen the consumer wave happen, right? There's a million and a half apps in the Google Play Store. 100 million downloads, Apple quoted. Big deal. You're seeing some like adrenaline junkies sort of jump in. I mean, CIO are Spotify. I mean, I don't know much about Spotify, but other than I'm a client. We also have to separate sort of the new wave companies versus traditional companies that are trying to reinvent themselves, right? So IBM talks about thinking big, right? But when you think too big, there's big risks, right? And so we see the emergence of CIOs and chief digital officers trying to get their act together because face it, 85% of their budget is just keeping the lights on. What we're talking about is 15% of the budget and anything else they can beg, borrow and steal to drive innovation with areas like IoT, with cloud migration and with mobility. I mean, this river, icy river with rocks. You can also say the North Atlantic with icebergs with the Titanic reference, but it really is a dangerous spot. Well, I want to drill down on that with you. Is it a fact because of standards, lack of standards or just full acceleration from commercial vendors to open source, all of the above, what are the factors that make this a dangerous game, not only the chilly waters, but also the rapids and the rocks, you got a lot of threats there. So what is the, how will you stack rank the challenges for this IoT market and mobile? Is it the standards or lack of? Well, I think it's a lot of little things, some of the things you mentioned like standards, competing operating systems, you also have to realize that when you think about the average company, right, it's still a Windows environment. And now we've got this heterogeneous edge showing up, whether that edge are Android devices, whether they're Windows based devices, whether they're Apple based devices. And now we have all the sensitization of everything, whether it's wearables or the seven to 11 sensors are sitting in the phones, and what do you do all that? So the first thing is thinking beyond the desktop, right? Second is thinking beyond the app, right? And thinking a lot more about, what is the utility that someone needs in order to drive two fundamental metrics in the company, right? The first is how do you raise the return on the assets that you own? And the second is how do you drive bigger revenues for each employee as a contribution to the company, right? If you can't get beyond those two metrics as a CIO, you're just on the expense side of the balance. So it's productivity of the assets and it's productivity of the people, really. That's exactly what it is, right? Here's some benchmarks on just order of magnitude, just anecdotally, compare, contrast, what people might be familiar with, companies and their ratios of asset leverage and or revenue per employee. Well, you know, one of the big areas has to do with the automobile industry. We've seen a lot of stats even today by IBM thrown around. And the fact is that a company like General Motors produces about $1.85 for every asset that it's own. You compare that to someone like a new idea of a company like Tesla. They produce over $11 per asset. If you look at... Sorry, which company was that? Tesla. Tesla. Yeah, yeah, yeah. And if you look at the United Postal Service, right? They generate like a dollar per revenue per employee. If you take somebody like Box as a storage company, right? They generate over $3,000 of value per asset, right? And so somewhere in the middle... How about Uber? They have no assets. Or do they? Well, so here's the thing. New idea companies are not burdened with heavy assets and heavy metal, however you want to define that, where they are really loading up is on analytics and customer experience and reducing the friction of how both their employees and also how their customers interface with the services that they have for sale. So what's an asset in that equation? You can make that argument that if General Motors and Ford today will say, you know what, we're not in the car business anymore. We're in the transportation business. Like you and I were actually talking about that last night. I mean, they're beginning to take a look at what the future of that is, right? And you know what? Banks need to be rethinking what business they're in. They're not about moving cash around to ATMs and in other people's pockets. Well, certainly that's going to get the cloud attention. You're talking about OPEX versus CAPEX and Tesla certainly hides a ball on CAPEX. You look at their numbers. I mean, they're from our analysis is very unprofitable company on a per car. I think they're losing $50,000 per car from what has been kind of reported from some of our team members. But what are they subsidizing? I mean, this is disconnecting on the question. Where's the value shift? That's really kind of seems to be the- That's the most interesting point, right? So we're seeing a lot of these VC driven or early stage companies that have really big valuations and they have big ideas, right? And to some extent, winner takes all kind of thing, right? And then we have the old world companies that we know need to make changes, right? Somewhere in the middle, we're going to redefine the economics of what, how business velocity drives profitability, how customers experience defines, right? What the new world looks like. I mean, the big question I think on a lot of people's minds is that we have built a PC desktop market which is going to top out in a couple of years at maybe 2.2 or 2.3 billion units, right? The mobile phone industry is already a four billion unit market. The smartphone industry is a two billion, right? You could argue that based on the number of desktops around that the smartphone market is already supplanted the desktop market as the center of innovation, right? And now we're talking about IoT and all the sensors making that, you know, 10 or 20 times bigger than that. I mean, I would make that argument for sure, but so I love your two metrics, your return on assets and your revenue per employee. So if I'm a GM or a company with a lot of physical assets, I want to digitize those assets and I want to figure out how do I drive revenue? So what are you seeing out there? And what's the role of the CIO in terms of doing that? Is it the line of business person that's really driving that? Is the CIO sort of standing back at that, you know, that stream with the rocks in Alaska? Or are they, you know, you see people jumping in yet there's some companies that jump in. A lot of companies still wrestling trying to define what the future of a CIO is, right? And in some cases they're elevating other people into this role called chief digital operator. However, the name of the title turns out to be really is about digital transformation to your point. You got to digitize these assets. You got, in order to drive business velocity, you got to do something different. And I think what a lot of companies have come to do is take a close look that whatever your differences are as a CIO or as chief digital officer or a line of business person that says, look, I don't really care about all this stuff. All I wanted to do is get my sales people selling more stuff at a lower cost, right? They're all beginning to rally around this point around business velocity. At the end of the day, for every invested dollar, whether it's in mobile or IoT or cloud or anything else, where you have to ask yourself the question, if I have four billion new potential relationships because of the smartphone market out there, how can I capitalize my fair share and how can I avoid being disrupted by my competitor? Because if you look across the gap of mobile and IoT and cloud and analytics, you're either going to choose to be disrupted or you're going to get disrupted. And everybody's going to take a look at your gaps and they're going to figure out what your weakness is if you're not digitizing and building the analytics and gaining the intelligence behind that. So analytics and UX, obviously the new asset classes you're kind of speculating, we'll just put that and kind of pack it up, put that out there and digitizing everything. I coined that term this morning in the keynote. I mean, IBM should just say it, that's their strategy. Digitize everything because that's what they want their customers to do in this digital asset transformation build out from transmission video to everything else. That being said, I get that. I want to just get a comment from you on the Apple guy. I love, by the way, I love to see Apple on stage saying, hey, we're bad ass Apple, we're kicking ass, we're taking names at billions in cash all over the place. Hundred billion downloads, they own, they change the game. Everyone knows that. The iPhone was a seminal moment in history. But he said something interesting about Swift and he's talking about it on stage. Take advantage of the machines, of the hardware. Sounds a little like Oracle to me. Look back to the second book, put that on pause. I remember those days. Hold on, take advantage of the hardware. He's plugging native apps. Of course he wants native apps because they sell iPhones and gear. Take advantage of the hardware. Is that the right approach to write the native app and how do companies deal with the data ingestion and the programmability of the real-time nature? What's your take on that? Native, web response, what do they do? Well, I think it's the right design paradigm at the right time. Dave, you asked a little bit about what sort of a holo for the lot of CIOs. And some of that has to do with this war of the world around code portability, right? And so in a perfect world, we built the web because it was ultimately portable. And now we have cell phone manufacturers which are making the access to native hardware calls unavailable. And so unless you use their programming tools, right, like in the case of Apple with Swift, right, to get at the core attributes to make the application user experience better or more efficient or faster, right? And so for a lot of CIOs, they don't care about that, right, they care about what can my customers, what can my partners, and what do my end users do? So in some cases, if people are looking to get up fast and experiment, they're gonna walk away from maybe some of the cutesy little hardware-dependent factors, and they're gonna go right to web because it's faster. We don't have the issues at the network level anymore because the networks are fast. They have very low latency, which really the killer is out of the phase one, right? Networks were semi-fast, but there's a lot of delays. You ask for something and you wait it. Today if you wait more than three or four milliseconds, you lost your customer. So Bob, what do you make of the IBM-Apple relationship? When it first came out, some of the people said, oh, it's just an attempt by IBM trying to make itself relevant. It's a better deal for Apple than it is for IBM. And then all of a sudden, typical IBM, they pour all this money in. They're the number one Swift developer, 100 apps. But you're seeing it pay off in terms of business impact, business value that they're creating for people. I think it's certainly a great marketing relationship for both companies, right? I think Tim Cook and others may disagree with my view of Apple's market share in the enterprise, right? But a lot of companies certainly jumped on the Apple bandwagon. A lot of CIOs want to get out from underneath that bandwagon because they view it as too closed and too heavy handed in ecosystem, right? On the other hand, they worry about the security side of Android. And of course, that's what John Chen and Blackberry are trying to do is do an end run up the middle. I think for IBM, they've seen a lot of traction on the consulting side of the business because of that relationship with Apple, but I'm not so sure it's moving product, right? And so I think you saw a couple of announcements today around the product side about what they're doing more tightly integrating with Swift. We're seeing more work around Blue Mix and making things faster and easier. And so I think that they're trying to do an end run into the developer community, say, we have a better way. And I guess we'll see. Mobile World Congress is going on right now. What's your pulse in there? Obviously you got your ears to the ground, you're here, obviously physically in Vegas, but we saw Zuckerberg over there with virtual reality. 5G's been a big topic. Unified communications is changing radically. That's now business communications. That whole notion of voice and messaging has gone to a whole nother level than traditional enterprise unified communications. Boring, slow, irrelevant. Where's the relevance now, it shifts. Well, you know, in some cases, Mobile World Congress is sort of a tale of two cities, right? On the one hand, it's new phones. Like Samsung has got a whole slew of new announcements with their phones, everybody will have announcements on phones, and it's sort of a diminishing return on what those net new improvements are from a consumer viewpoint, right? I mean, who walks around complaining that their camera's no good today, right? Who doesn't like how good their screen really looks. They complain if they break, but they complain if they wet. So we'll see some innovation around some of that stuff. But John, to your point, I remember 1995 when the talk about universal communication was the big deal. And so the other side of the city is we're returning back to that future and we're talking a lot more about unified communication. Because we have a lot of disparities. Well, integrated different apps, though. Now you have virtual reality. You got AI, now you're a little Watson cognitive engines. You now have 5G, so you got all that happening. And then it's all data-driven now. So now you got IoT, so. I think when you look behind the scenes at Mobile World Congress, the biggest thing you're going to see is more and more talk about 5G for a couple of reasons. One is it's not a major forklift for an operator, right? It's all about getting more efficiency into the network. And because we'll see a 10x growth at minimum in the kind of capacity flowing over mobile networks that's going to be video and audio, voice over IP audio, that the operators really need that. They need to catch up with Moore's Law. The mobile operators and the cost paradigm for them has really been lagging Moore's Law. They get killed by over the top. I mean, WhatsApp is a great example. Skype had great leadership. And look what's happened with that business. Where are we with the Skype for Business now, right? Or actually, Link for Business is now Skype for Business, I guess, right? Yeah, the Skype for Business, they're doing their own video. But is it siloed anymore? This brings up the question here at the IBM Interconnect conference. Is siloed applications really aren't going to do well unless they plug into some sort of horizontally scalable fabric of some sort? It's kind of a catch-22, if you've got it. I think you'd argue that Apple did a wonderful job with the user experience and touch and the simplicity of apps, right? And now we've had a million and a half and over 100 billion downloads of applications. And people are beginning to say, do I really want to touch an app and open up an app and do something with that app? Or is it some sort of experience where I want to have an experience and embedded in that experience, I don't want to have to think, oh, am I going to do video? Or am I going to do audio? Or am I going to read a barcode? Or am I going to make a payment, right? They want a more holistic, seamless, not in truth as an experience. They don't want a lot of context switching. They don't. They don't. And today, we're app point driven. In fact, I'll make the prediction that as IoT gets really big, the app economy as we know it today disappears. That's a full prediction. Say that again slower so we can capture it. As IoT gets really big, the app economy, as we know it today, begins to collapse. Because it gets subsumed into... Not only gets subsumed, but think about what you're interacting with. You're interacting with a wearable. You're interacting with that thing. That thing is doing all kinds of things in the back, but you're doing something where all the sensors or the sensors are autonomously doing something for you. You're no longer interacting with an app anymore. Is the human no longer the last mile in that scenario? Well, the wearable becomes the last mile, right? I mean, I made a prediction. Somebody was talking about it last week that in 1999, I said, within five or six years, people will own three devices and carry two, right? And I was really poo-pooed by that. Oh, you were right on. Well, think about going into the future. We went from a... People in their cars had no microprocessors. Now they have 11. We have cell phones that have multiple microprocessors and between seven and 11 sensors. And now it's wearables, right? Five or 10 years from now, we'll own one device and we'll be wearing or interfacing with things that we don't carry anymore physically, right? They're in their cars. They're in our refrigerators. They're everywhere, but us carrying a tablet of phone and a laptop with us. Bob, thanks so much for coming on. I've got some great guests. Neil Henderson, Apex Coaching Founder, cycling guru is going to come on and give us some mentoring. But I want to get the final word for you here. Thanks for sharing your insight and the prediction was phenomenal. I love that collapse. I would even say slow motion collapse of the app economy. Not too... We'll both be favorites from Apple on that one. Give us your take on the IBM show here. What's the vibe in this time in history of IBM's inflection point? As they... I won't say turnaround, that's more of an HP term, but as they go to the digital transformation, they are essentially retooling. And you can see how they've organized over the past five years. What is the vibe of this show here in Las Vegas? My personal view of the show is that there's a lot of excitement. IBM has made some very interesting acquisitions and I think people are really listening closely to see how well they're going to integrate those acquisitions and capitalize them because there's a lot of partners here, there's a lot of customers here and they're saying, how are you going to do that in order for me to get more business velocity and generate more revenue and a return on assets that we talked about a little while longer? So a lot of excitement. We'll see what happens. Bob Egan, founder of Zifrin Group here on theCUBE, sharing his research, research firm. Great, check them out at Bob Egan on Twitter. Thanks so much for joining us. We'll be right back with more here on theCUBE after this short break. Great, thanks.