 Live from the MGM Grand Convention Center in Las Vegas, Nevada, it's the queue at Splunk.conf 2014. Brought to you by headline sponsor, Splunk. Here are your hosts, John Furrier and Jeff Kelly. Okay, welcome back everyone. This is the wrap up of day one of the Splunk conference, Splunk.conf, the .conf 2014. This is the queue, we go out to the events and instruct the students with noise. This is our editorial wrap up. We'll put a bow on day one. Jeff Kelly, my co-host today, the number one analyst at Big Data at wikibon.org. The queue goes out and talks to the athletes, talks to the pros, extracts the data out of their head, serves it up right here on the video. And we had a great day. Jeff, I got to say one, we talked to the execs, some execs at Splunk, not like all the execs, the key dudes, the product guys and the CMO. Thought that was good in the government guy. The rest were all customers. And I think that is Splunk's marketing strategy. Splunk's marketing strategy is to bring all their customers and let the customers do the talking, you know, the customers speak volumes and the customers aren't scripted. So again, like last year, the customers come on the queue, share some data, share best practice and through the knowledge and excitement, they're pimping Splunk. It's really awesome. It's, you can always kind of get a good sense of the traction any given company's getting by the number of customers that come on theCUBE and how they talk about not just the company, but just their overall journey. As you mentioned, you know, they're not scripted, they don't have handlers, they're coming up here and they're just talking off the cuff and really giving them real information. And that's, you know, that's a real testament to them but also to Splunk. I got to say, one of my favorite, first of all, their interviews were all good. We're going to try to tease out my favorite interview but only because I love Domino's Pizza and get delivered to me when I got that, when I have a football game going on or whatever. Domino's was awesome. So we had Russ Turner, Site Reliability Engineer at Domino's, really talking about the big data angle. And again, we had a lot of different folks come on, IT ops, cloud, healthcare, security, dev ops, really across the board. And again, this is the beautiful thing about what Splunk has. And I love this business model because their product has so much leverage. They have an innovation engine with the platform, Jeff. They have a tooling capability that people are using and there are many different ways to use the hammer, if you will. And so you have a really amazing set of use cases that are quite diverse. It's the beauties and the eye of the beholder. In this case, air brakes, saving billions of dollars, on a 10 gig license. I was going to say, a lot of great guests today. I think that was probably one of my favorites. Greg from New York Air Brake. Because when you think about big data, oftentimes the criticism will be, well yeah, certainly the web startups, the Facebooks of the world, the Googles of the world are leveraging big data. But your more traditional enterprises and traditional organizations aren't able to do that yet. Well, you get an industrial player like New York Air Brake coming on who's been around for 120 plus years and they're doing things with data, streaming off locomotives that are moving around the country. I mean, to me, that really illustrates that we're moving into a new phase of quote unquote big data when you're seeing companies like that really start to put things into production and drive value. So before we go down, let's review each guest the ones we like. Let's talk about, let's analyze Splunk as a business. Let's talk about the market. Let's talk about their customers and what's going on around them. Certainly, the theme of the show is adventure, discovery. Because big data is basically people are being liberated with big data. They're actually being creative. The developers are close to the front lines. And so Splunk has an interesting business model. So I want to ask you as the analyst covering big data, certainly the growth is there. They've got 500 customers and their stock has been down from a high of 106 down to 52, I think, this morning. So the slope is going down on their stock. Yeah, they just put 50 more customers this quarter. The ingest data, they're moving outside of IT, machine data, search and analytics. I mean, Splunk has a headroom. Now the question for you is, is that real growth or does Wall Street just not understand Splunk? Well, I think part of it is not understanding Splunk. And you could argue, when it hit the high of 100, it was potentially overvalued at that point. But what you're seeing now is Splunk is clearly demonstrating that they're not a niche solution. They're moving well beyond that initial use case of IT operations support and moving to other areas of their customer's business. So whether it's marketing, whether it's security, obviously it's a big one we're hearing a lot about. So I think part of it was maybe Wall Street didn't quite get it and it's still kind of catching up. And we talked to earlier, John, about is Splunk an application company or is it a platform company? And the thing is it's a bit of a hybrid. It's built a platform that it's leveraging itself to build applications for its customers, but it's also opening up the platform to its customers to build their own applications. So Splunk, I think, is a little bit hard for some analysts on the Wall Street side to understand. In terms of their possibilities, as they move to a more general purpose platform, the challenge there is if you're a general purpose analytics platform, it's difficult to customize to particular verticals. As we talk about all the time on theCUBE, big data requires not just the technology and the analytics, but the domain expertise. And being a general purpose platform company does make it a challenge there. But what they've done to address that is they are very, very tight with their customers and they are leveraging their customers and what their customers are bringing to the table to build that intelligence, build those smarts back into the application, back into the platform so when they can, so when they do build their package applications, they're delivering on all that domain expertise of their customers. So as they start to leverage their customer expertise and as they expand to new use cases, industrial internet being one of them, it's really, really interesting the possibilities for them. So my question for you is, how do you think about their business model in terms of, we heard a lot about in recent days in the media a little bit about Splunk's business model relative to perpetual license versus subscription and they're kind of making that transition from one to the other. But what's your take on the business model? Well, I think you nailed it. I think Wall Street doesn't get Splunk. I think their stock is down because I think the mechanics of stock picking, they're looking for a pattern that's old enterprise software and I think the big trend at a high level in the marketplace, and this is again, Kramer on CNBC should bang this around, which I'm surprised he didn't get this yet, but Splunk has the modern business model. So I love this company. Like Tableau and others in this new modern era, they got the leadership, they got the go-to-market, they have the technology innovation engine, they have technology leadership with the domain expertise of the core tech and the platform, and they have confidence in their value partnership. We had Steve, the CMO, but it's the same, we're not changing anything. We have an amazing customer acquisition business model and this is the key. The innovation in the platform and their value proposition looks like a tool to the customer and tools are easy. Now venture capital or investors don't like tools companies. That's the old way of thinking, don't like tools. Tools don't have scale. Microsoft was a platform, Google's a platform, but when reality, Splunk is a platform, not just a tool. Now people buy the tool and their pricing is so low touch that a customer can get into Splunk for very, very low cost. Use the tool and then some of the platforms like a 10 gig license, which is on the low end, you got a really specialized business with internet of things providing billions of dollars of value to their customers. That is significant, amazing technology. Now it's a new business model and this is the acquisition, customer acquisition business model of the cloud. Consumption easily and large net contract value increase. So the fact that they're getting repeat customers actually is not a negative, it's positive because the net contract value is increasing. So a lot of leverage in the technology, leverage on the sales acquisition and again, I just think that this is the model that is the future. Freemium and or low way to get addicted to the product. And then once you see value, the time to value becomes a critical thing. You know what you're getting into, you do a little heavy lift, you see value and then you go more. Yeah, the old consumption model was, you know, you're a software company, you go to a customer, you do approve a concept that last month, you get them to plop down a huge sum of money up front, you take another six to eight months and install the thing, get it running and maybe you see value in six months, eight months a year. The new model and the way customers want to consume now that we're seeing more and more, I mean, we're validating this on theCUBE every day is they want to start small, they want to try, experiment and then grow. Yeah, I mean, we talk to customers all the time and that's exactly it and that is fundamentally hitting the nail on the head. The old way was I'm big in a big license, millions of dollars, big heavy lift and I don't even know what I'm getting into, it's like the dark tunnel. All this investment and work goes in, you have no idea what even directional outcome will be on value. With the splunk on this new modern era of consumption, you can do a heavy lift, go a little bit in but you instantly see the value of which then you recalibrate your next set of innovations on top of it. This is why people are happy. This is why developers get close to the front lines. This is why data is now being programmatic. That's why things are more creative. All these things are happening because of the new business model. The new business model is about value, fast, prove it to me and I'll buy more. That is the cloud, that's DevOps, it's mobile. Right, and the way, you know, and Splunk is making moves to make it easier to get into new customers. They're lowering prices, over the last six months ago or so, they essentially doubled the capacity, the amount of data an entry level customer can bring in and an entry level license. They're lowering their cloud subscription pricing. So they understand, look, let's get into the company, let's show the value and then it's proven that we can expand once we're inside these enterprise accounts. I mentioned earlier about two thirds of their upsell revenue from last quarter was horizontal upsell, meaning it moved beyond the initial department or use case that was involved in the initial deployment, it's moving from IT to marketing, for example, or IT to product development. So they recognize this model, their customers like the model. Now, admittedly, there's always going to be price pressure. I mean, you know, if you really push customers, obviously customers always want a better deal. That's just kind of the way it goes. But if you can deliver value, they're willing to make the investment. That's clear. I just got to know from Andy Jassy on Facebook, Facebook Friends, like, hey, thanks for looking forward to seeing that re-invent. This is why I love this business that we're in. That's why I love theCUBE. Splunk, ServiceNow, Tableau, Amazon, these are companies that are creating more value than they charge for. We had Steve saying we should raise our prices. I mean, he's joking, but of course they're not. That's awesome to get happy customers. But here's the thing, Amazon is a black box and make almost no money. So even though that Splunk is losing money, they're kind of their net income numbers increasing faster than the revenue, or not faster, just at the same pace, means they're investing. So I want to get your take on this, Jeff, because like Amazon, they're pouring a lot of OpEx back into the business and CapEx back into the business. So they did talk about innovation up on stage today. They said, we're here to do more innovation. What's your take on that? Are they plowing it back into the business? And are they realizing value out of it? What's your take? I mean, look, from the announcements that we saw today around Splunk now available on AWS, essentially pay by the drink, we're seeing acquisitions by Splunk. They're spending their money to acquire companies like BugSense, which they just rolled out, essentially the first product to come from that acquisition called Splunk Mint, which is helping mobile developers understand data coming off of their application so they can better innovate and make their applications more efficient. So they're spending on acquisitions. They're spending in a few other areas that God Resolve and the CEO pointed out to you in the keynote. They were on mobile first. This is one area where they're seeing their customers are very interested in mobile. So that's related to the Mint announcement. Continuous app delivery, that's an area where their customers are clearly, that's a DevOps kind of area, that they clearly need more data coming from their applications in real time so they can make real adjustments, sorry, real time adjustments to impact the customer experience as it's happening. So these are some areas where they're really focusing on. The cloud is another area where we're going to be interested to see where Splunk takes this. Increasingly we heard a lot of customers on today talking about IT and kind of moving away from just keeping the lights on, running the infrastructure and potentially moving that to the cloud and focusing on where can IT deliver business value and that's increasingly around the data and that's where Splunk comes in. So just a lot of really interesting developments in this space. I think Splunk's got a huge opportunity in front of it which is why they're reinvesting. They know that the growth is not over. This is just really starting for them. Very similar to what's happening. So this is what, another thing I want to point out. So they are investing but here's the proof in the pudding and that is that the customers that we had on theCUBE today healthcare, data-driven outcomes and we want to do a shout out to Bert Latimore, all the guys on the crowd chat kit and guys who appreciate it and of course Tim, Tim was on there as well. Data-driven outcomes and healthcare, we heard that. We heard the mainframe has Splunk. I mean, it doesn't get any better than that. When the mainframe guys say, I want to put mainframe data on Splunk, you know you got a winner, right? So that was one. We had the other one was security. The security theme here is huge. You had the government guy on, they are winning in security because app developers are programming DevOps, infrastructure as code, security programs and that's all data-driven. The DevOps cloud security play is all data-driven and you need a real-time system to do that. You need large-scale data ingest. Splunk's got it. They have analytics in search, they got it. So I think you're going to see the machine data connecting to security hence the theme of stuck-net security. Security could be the holy grail for Splunk and future growth. So John, what are the challenges for Splunk moving forward? You know, from my perspective, it's all around growth and how much of your revenue do you plow back into the business? And you know, as a public company. It feels like we're in Tableau conference. I was going to say very similar conversation. They're basically breaking even at this point. They're plowing all their revenue back into the company. They clearly see a lot of more growth potential. But you know, as a public company, you're going to continue to, you're going to get increasingly going to get pressure from investors to start turning a profit. I hasn't stopped Amazon from reinvesting in the company. Well, you know, but the question is from Splunk's perspective is, you know, when do you take your foot off the pedal in terms of investing and start returning some of that money to shareholders? From a financial perspective, that's one question. I think that's criticism that you could lob in there, Jeff, but I think you look at what Tableau's doing in Amazon Web Services. You really, I think it's too early for that. I'll tell you why. I call this on Twitter way back in the day. Don't focus on monetization until everyone's using your platform and now they're making billions. This deal right now, in my opinion, is their only risk right now is not to screw up the lightning in the bottle moment. They have lightning in the bottle with a great product market fit. They got happy customers. They're adding new customers every time. And their only weakness, if you want to like go for weaknesses, is that they don't show good numbers to Wall Street. And I don't think that's a bad thing. I think that's a good thing because why try to placate an old institutional, I got to look and quack like a certain way. I don't think that's a good strategy for them. I think they just mind their own business. They keep adding customers on. They keep adding to the innovation engine of the technology and they'll win. Now, I think their biggest challenges is that they have a really complex product to talk about. I think Steve Sommers on the Cube earlier is are you a tool or a platform? And I think that causes a lot of people who aren't inside the industry to go, okay, what kind of company are you? Are you a big billion dollar massive next Google or are you just some hammer company selling hammers and nails? I think they're more than a tool, clearly analytic search and the innovation engine. And that confuses people because most of their customer acquisition come in from the tool and then upsell to the platform. And I think that's an amazing business personally. That right there is magic. That's lighting in a bottle. So I think the best move is not to do anything. So it's hard to be picky to go after Splunk but pricing, they got to watch. You got to watch the messaging. So I think that's the area that I would look at if I was an investor. Pricing, net contract value, the operating leverage. Are they adding still customers and then look at the numbers from there? I agree, marketing is a challenge for Splunk because of the business model and the approach as you just outlined. Pricing could potentially be another challenge, I think. We heard a little bit today about, customers want to pour more and more data into their Splunk index. But that can get expensive. So we heard one, I'm forgetting which guest said it but essentially your data needs to go on a diet. And you don't need to put everything into Splunk. So you got to make decisions around that. So there is some price sensitivity from customers. So I think Splunk needs to be aware of that. I think they are. But as long as they're delivering more value for customers, I think they'll be able to navigate that okay. The model that we're seeing increasingly is a lot of the essentially hot data being moved into Splunk for more real-time analytics. But the historical analytics is being done in other environments, maybe it's like Hadoop where storage is essentially close to free. That's not the case in Splunk. Splunk is a more expensive platform. It's delivering more value because it's delivering analytics, an index engine, and in some cases, depending on your use case, specific applications. But that is one area where we're hearing a little bit of pushback from customers as well. If I'm not careful, I'm going to move too much data into Splunk and my bills are going to go up significantly. So that's just something they have to be aware of. And maybe help customers understand the proper use cases and when data needs to go into Splunk and when it doesn't and how long to leave it there, those kind of considerations. All right, well let's wrap up day one here. I'll start by giving you my summary of what I think's going on with Splunk and around their ecosystem. I want to hear your commentary. Bottom line, this show for Splunk's about data outside of IT. They own IT, they have a good beach head there. They entered the market, they create all that revenue in public on IT. They got that. Beyond IT, one core theme that's relevant. And the other is the two themes that I see on the conversation space and in the hallways is healthcare and security. Huge value opportunities for Splunk and those two markets. I think Gov's kind of a checkbox right now they're not going to explode growth there. Certainly when there, we had Bill Cull on earlier. But I think healthcare and security, brand new green field opportunities to expand the market for Splunk's around the revenue side. Finally, the big summary for me and my takeaway personally from this first day was the role of the developer. The role of the developer with data, Jeff, is critical. And I called it in 2007 and said data is the new development kit, data is the new asset for developers. And here's what I learned and this is all kind of coming together from all the different cube gigs in the epiphany I had here. And that is that developers getting closer to the front lines with DevOps and access to the data and the customers creates more synergy with real-time agile programming, gives them good sandboxing data to work with, creates better creativity on the mind of the developers and creates better morale. So you have happy developers writing better code, more creative, that's a winning formula in the age of modern era of mobile. That's a huge deal for me. I think developer and enlightenment with the data is huge. I think that's transformative and enterprises start getting that going, that's it. So that's kind of my big picture take. What's your take? Well, you know, just to build on what you just said I think a little light bulb went off for me too today. We're talking about the DevOps component of Splunk and where DevOps and data analysis kind of merge in the role of data in a DevOps environment and being agile, being able to spin up new applications quickly. A lot of the value of big data is in being real-time, being able to react quickly to situations with your customers, with the market, whatever the case might be. And that requires some level of data savvy on the part of application developers. So that was one area that was interesting to me today. But just the larger picture, I think, anytime we come to a show, again, it's all about, you know, the first thing I'd notice when I come to a show is what is the mood on the ground? What's the mood in the keynote? And, you know, you can't, you can't necessarily, you can't fake kind of customer enthusiasm when you're here and you're viewing, you're really on the ground and you're seeing people, you know, in this environment. And the reality is, these customers are enthused. You know, the mood is, if anything, has gotten more enthusiastic since our, since last year or the year before that, where we've had theCUBE at .com. So clearly they've got customer momentum, they've got customer loyalty. And again, the fact that there were so many customers on theCUBE today, you know, some shows we go to, frankly, it can be a challenge to get customers to come on. To me, that's a red flag. Quite the opposite here. Customers, I mean, they had more customers than we can, one can even accommodate. So when you get that level of customer enthusiasm, that's always a good thing. The more your customers can talk for you, the better. They have a leadership team that's awesome, with domain expertise, the founders, they've got the market, go to market with their customer acquisition, their technology engine, and they've got the value proposition that everyone loves and it's so easy to get in. And again, if I'm an analyst, I'm at Wall Street now, let's look at the net contract value and look at the life of the customer. I think the numbers will really be interesting. Okay, that's theCUBE. Wrap up for day one. We'll be back live here in Las Vegas for day two with Jeff Kelly and Jeff Frick tomorrow. So stay tuned, we'll keep watching live.siliconangle.tv. And of course, go to siliconangle.tv for all the extensive coverage of all the CUBE interviews. We'll be up there. Also go to youtube.com slash siliconangle. See the latest uploads. That's a wrap. Thanks to all the crew here today and also on CrowdChat and all around. Thanks for watching. We'll see you tomorrow.