 Live from Las Vegas, Nevada. Extracting the signal from the noise. It's theCUBE covering IBM Edge 2015, brought to you by IBM. Okay, welcome back everyone. We are here live in Las Vegas for IBM Edge 2015. This is theCUBE, our flagship program where we go out to the events and extract the signal from the noise. I'm John Furrier, my co-host Dave Vellante, our next guest, Jamie Thomas, general manager of the storage and software-defined group at IBM. Welcome back to theCUBE. Great to see you. Great to see you guys. So this is a hot area storage. You guys had a good quarter. You guys got great momentum. The software-defined message and products are rolling out. What's the new update? What's going on? Well, first of all, it's great to see you guys and have you at the Edge conference again. Well, we just kicked off Edge in a big way. We had a very large attendance for our storage session this morning to focus on storage for an hour and a half with all the clients, partners, and analysts that are here. And last time we spoke, we really spoke about some key announcements we had just made, particularly around IBM Spectrum and our Flash system family. So we're continuing that journey here at the Edge conference. So we're making some additional spectrum announcements. Those are focused on the continuation of our ability to support cloud, big data, as well as some of our enhanced virtualization support. But another key element of what we're announcing is just moving the control layer, if you will, making that easier for clients to get access to it and the analytics associated with it to software. So that's another key announcement that we're making around the family. And that's a big part of what you bring to the group as a software executive. Maybe talk about sort of how that's evolving and sort of what your vision is for software to fund. Yeah. Well, first of all, the Spectrum storage family includes storage management and optimization. So as we spoke last time, it's really focused on data protection, control, and archival, as well as the ability to support these different models, virtualization, scaled out data, and cloud. But our vision is we're really creating an open ecosystem. We're creating an environment and a set of capabilities that have APIs that allow others to integrate with them more fully to provide value added solutions. And I think you've had some of our ISV partners here perhaps have taught with you today about some of the things that they're doing. So I think that through the evolution of Spectrum, combined with the power of the ISVs, we can actually bring more value to clients and much more rapid speed. I mean, that's one of the key elements of what we're really wanting to have happen here is to create a vibrant ecosystem. So it's safe to say the vast majority of your R&D spend goes into software development. I mean, it probably did anyway, but now it's heightened, isn't it? That was a substantial part of our investment. We've clearly announced publicly that we spent a billion dollars on Flash and we are spending a billion dollars over the next five years on Spectrum. But clearly a lot of the value in the existing appliances that we have today are really manifested as part of the software that comes with those appliances. So I don't think that fundamentally has not changed. It's just that as we go forward and we create some of these new capabilities that I think are much more effective in these dynamic environments, particularly in cloud, you can expect that that's going to increase over time. So customers come to this session, they're interested obviously in Spectrum, software defined, the other Flash obviously is hot, but just sticking on software defined for a second, what is it that's motivating them? What are customers telling you? Is it the flexibility? Is there a new economics model? Talk about that. I think it's both. So if you look at a lot of the new workloads that clients are implementing, and analytics is clearly a big tip of that sphere, but if you also look at what's happening around these new development models, things like BlueMix, and how those services will be managed from an operational context, the architectures are fundamentally shifting. And so clients are wanting to be able to support those new models, support those new workloads effectively with a much more agile infrastructure. And yes, there's an economic advantage too. So if there are clients that are worried about OPEX versus CAPEX, if they're thinking about what are longer term depreciation models mean to me, then having the flexibility to buy the products differently is a benefit to them. So you bring up the point, I just asked Tom Rosemilia, which is talk about the difference between traction and transformational in terms of products out there and what you guys are working on, because you can have traction, it's a nice product, people are using it, good uptake versus transformational. You mentioned that shifts happening. Can you give some examples of differences between a product that is solutionous to traction, one that's transformational? Well, I think we have a lot of products that we would say are very well established to help clients modernize what I would think of as more traditional systems of record, right? And that is an element of transformation, but probably not as dramatic perhaps as what I'm talking about when I'm talking about these new workload environments. Because in those environments, you need to have an architecture that can more easily scale out and scale back. So it's going to require a difference in terms of how you think about the hardware dimension. That's why power eight is announced, some new hardware form factors to really allow them to be more effective in those kind of environments. But you also have to then marry that with a software architecture that I think allows you to be a lot more flexible. Okay, so follow up on that would be, okay, something that's operationally proven products that will help keep the lights on. And you mentioned operationalizing new stuff. That's the challenge. What areas do you see that right now where customers are really focusing on the new operationalizing products? For lack of a better word, like something that has been operated before. This is software. So can you give an example of these new areas? Well, I think the biggest area is really that we see, particularly with software defined, storage is all rooted around analytics. But analytics is very diverse. So I could be talking about retail-based analytics. I could be talking about financial services analytics, which is like credit risk analysis, fraud detection, Monte Carlo simulation. I think we've spoken about some of these things before. I could be talking about industrial modeling because I'm a manufacturing concern. These analytics-based systems are in every industry, and they do really require a different model. And in many cases, what we've seen too is a lot of the departments in these organizations have kind of spun up their own skunkworks. And so they've created what we call and talk about as islands of data. So one of the other jobs I think we have in hand here is to bring these islands of data together effectively and allow the client to be able to deal with the unpredictability of bringing in huge sets of social data depending on what they're actually executing. Because maybe I'm looking at social data. I could certainly look at it from a retail perspective, but I may be using social data too in my financial risk analysis. So then how do I deal with these spikes of data coming in? Those are different dimensions that these clients are having to think about. And a lot of the islands of data, Jamie, have been created by the technology industry. They see an opportunity, somebody creates a product. Hey, that's a very product-focused and a lot of stovepipes. And pretty much every large vendor has to have multiple products or else you can't participate. Does software-defined change that? Does it change the integration points? I mean, it's a complaint of customers and yet they continue, you talk to customers, they have one of everything. Does software-defined change that? Well, we do think that it helps us in particular because what it allows us to do is to create a software asset that has predictable behavior. But I can take the software asset, I can ship it standalone, I can then partner it in an appliance-based form factor or I can run it on software and I can have different price points. Now, you have to have the right kind of software assets and run on software effectively. But if you design it appropriately, it does give you a lot of flexibility. The other thing that we're able to do then is take some of these software assets and then combine them in the future with our flash system in different ways. But the net of it is that software asset has got the same characteristics as it has from the very first instantiation. And that, we believe, is a benefit. It's a benefit to the clients and it's a benefit to us because by reusing that effectively, we get better quality and better outcomes, I think, for the customer. So, let's talk about flash a little bit. It's a hot area. You guys made an acquisition. You had a strategy to leverage your sand volume controller stack and now you've brought together that stack in a single product. Doing well in the marketplace. Gartner just came up with numbers. You guys were in the top three. Are you happy where you are? Do you think you can get accelerated momentum? What's your take on that? Well, I mean, listen, we're very pleased that we were named as a leader in capacity units shipped and capacity, total capacity that clients have actually purchased. I mean, that to us, we want clients to get benefit out of this. We don't want, quote, shelf wear. But we're never happy with where we are and we think that we could actually do more with flash and that's our goal. Flash is still predominantly being used for a tier zero base solution and we think that economics are definitely approaching the bar, if you will, for tier one storage. And you look at the total TCO cost in terms of the space savings, the energy savings, the other parameters that I think are pretty important when you think about a flash system and we start to really see that price point be much more effective. Do you think the all flash data center is a pipe dream or is it a reality that's going to happen in the next five years or so? We think it's a reality. A lot of the clients will tell me that as well. They think particularly the, depending on what geography they're located in and the size of the client, that many of them say, I don't really think about energy as much as I should. In some cases, the operational team doesn't directly pay for the energy bill, but just things like energy and space are really critical issues for a lot of these clients over the longer haul. How has the integration of all the different solutions affected your job internally at IBM? Obviously GM of storage, it sounds monolithic, it sounds siloed, but you guys are taking a much more horizontal approach. We hear smart cities up on stage, mayor of Nashville, grant award, Twitter data, Facebook data. I mean, this is like, it's not a storage conference. This is like, it's bigger. So how has it affected your job and share with the folks out there who are watching what's it like now managing in this new era of computing digital transformation? Well, when you think about it, data is the natural resource that all of those efforts are totally dependent on. And you can't have effective data without effective storage. So what's really interesting and I think exciting about storage right now is that we're a major player in the overall agenda that IBM's embarked on, cloud analytics, mobile social, and the internet of things. Because all of those efforts, if you will, or all of those agendas drive enormous growth in data. So our job is really to provide the best mechanisms for the clients to be able to deal with this phenomenon. I think it gives us a lot of opportunity. It also has given us a lot of opportunity to work with other parts of IBM. So we are not an island. We do extensive work with IBM services. We do extensive work with the folks that are doing things like internet of things, the analytics teams, because as analytics evolves and our teams create new offerings around things like big insights and what's in analytics, they have to be integrated with an effective storage layer and effective infrastructure layer to really to their results. So they have to be a real time organization internally and keep agile with the rest of the group. Yes, we do. Well, there's some synergies there. You mentioned storage, right? I mean, storage, you store internet of things. You got low latency edge storage. All that's going to be controlled by software. So in a way, storage kind of conversation drops down under the covers, right? Exactly, storage is a critical aspect of many of those killer applications doing what they need to do effectively. So if you go to the solution center, you can see a lot of this in action. You can see our latest evolution, if you will, of our platform computing scheduling. For instance, working with Spark. So Spark is really hot out there. You can see the demonstration event. It's really important that as we look at storage, we have to understand how it affects the broader IBM business. How does it affect what our services teams are doing and helping them be more efficient, helping our outsourced clients get to flash and software to find? How do we work effectively with all of these other units that where data is just a critical resource for them? Well, and it seems like data traverses those units. And Mike, I want to ask a question on M&A. I know you're not going to specifically talk about who you look at, but IBM's always been a very good acquirer of companies. You've got a competence there. You tend not to overpay. I say, you're sharp. You know how to, you know, bluewash is the sort of term we always use. So in thinking about M&A, do you feel like you guys have your swim lanes down as these things change? More software, more analytics across. Have you sorted that out internally and externally? Well, you know, clearly with something like storage where the industry is going through dramatic shifts, your point of view today could change in six months, right? So you always have to keep that in mind. Whenever I look at M&A and activity, and we have quite a few people that come to us for discussions and evaluations, I have to make sure it's a long-term thread, if you will, that it's a long-term asset that's really going to be sustainable for us. A good example of that is when we look at Flash, we're clearly seeing the benefits of that and what we've been able to do, both around the hardware engineering when we are acquired in the software engineering. If I look at something like XIV, the reason why it's been so valuable to us is it had both enormous hardware and software benefits because we've been able to abstract that software now and create yet a new offering. So when we look at the M&A activity, we're looking for gaps that we perhaps have as we always have done, and we're looking for sustainability. So is it just a flash in the pan, interesting thing that's gonna be here for a year or two, or is it a much longer opportunity? So XIV was kind of a gap in the portfolio, and you filled it, and then you look at two other acquisitions, well, store-wise, and TMS, I guess TMS was a gap, too, but store-wise is sort of a competitive, but you're right, in all three of those cases, you had, all three had legs. Yeah, and that's what, given our experience with acquisitions and IBM, what makes some much more successful than others? Yeah, but this is a real opportunity, I mean, XIV was a couple of years ago, but now you mentioned the shifts. There's a lot of startups that aren't going to get that escape velocity, whereas Taiwan is in the cube, even the pure storage of the world has a billion dollar valuation, but global economy, sales force requirements, and the product teams are shifting, so an acquisition for hiring could be a great strategy as well. Exactly, well, you have to go into it with your eyes open. Clearly, I understand when I acquire companies that there's parts of the world in geographies where people stay with us longer than they do in others. And we have to look at other dimensions, like I said, is the technology going to be something that's going to carry us into the future, or is it overvalued? One of the things we see is quite high valuations for a lot of the startups, where there's very little revenue and very, very high acquisition price, and you have to make sure you're going to get, that we would get our return on investment, of course. Yeah, and that's risky, right? You've got to get it in. Yeah, you've got to get it in early. You've got to get it in early, and then you've got to figure it out. A lot of the VCs can price themselves out of the market because they do the higher rounds and there's no sales or... Well, that's kind of where Pure is right now. I mean, Pure's got one choice of an exit, it's IPO, I mean. Well, even a venture-backed company, it's on a series C, you know, 500 million dollar valuations, like, you've got 20 guys. And when you look at the revenue, you have to be able to understand realistic scaling of that revenue. Despite the power and size of an IBM, we're pretty adept now in understanding how we could scale that revenue and at what base. CMS is a great example of that. It's a relatively small company. Didn't have the sales and marketing capability. You bring them in for, it was good price for them, but it wasn't ridiculous, and now you're just seeing a rocket ship. It is a great example of one that's been very successful for us. Jamie, it's always great to have you on theCUBE, you're a pro. We'd love talking with you, great conversations, always. Final word, share with the folks out there. What's the big news here at Edge? What's the vibe? You got your reorganizing under your belt. You're integrating with other parts of IBM. What's the vibe here? What's the key takeaway for the folks who are not here? I think the key takeaway that I would share with the audience that's not here is that this is really a significant continuation of a journey that we just started last year as a glimmer in our eye. We talked about a different IBM storage business that was really founded on principles of software to find and flash, and now we believe we've realized that in a big way. Fundamentally, with these announcements we've made around our next generation flash system and this IBM Spectrum Storage family, and the extensions we're making to that family here as part of the core announcements this week. We really think we're on a great path, not just to advantage those particular offerings, but if you think about it, we're infusing these capabilities in our entire product line. We're infusing flash across the product line, our high-end storage, et cetera. Our tape is advantaged by our software to fund strategy as well in terms of- And we didn't talk about tape. Big data and how clients can more effectively take advantage of tape as part of this. We're really excited that we are where we are and we're happy to have 6,000 clients to talk with this week. Great assets and the vectoring in the right market place. It's a very disruptive opportunity to try to transformational. Jamie Thomas here inside theCUBE. Always great to see you. We'll be right back after this short break. This is theCUBE, live in Las Vegas for IBM Edge 2015. I'm John Furrier with Dave Vellante. We'll be right back.