 Live from Las Vegas, Nevada, it's The Cube. Covering EMC World 2015. Brought to you by EMC, Brocade and VCE. Hello from Las Vegas, I'm Dave Vellante. David Goulden is here, he's the CEO of EMC. David, welcome to The Cube. Great to see you again. Dave, great, thank you. Thanks for being here. Day three, fantastic show. Our pleasure, day one, yours was a big keynote. You let things off this year. First of all, how do you feel, and then let's get into the keynote. Oh sure, no thanks, Dave. I think, actually, I feel great. This year, about 14,000 people, roughly the same size as last year, which I think is good because more companies are having travel restrictions and things like that, but so to have a big crowd, I feel great. I think the buzz this year is great. I think the message is really making sense for customers and it's also, we're seeing all the work we've done together for the last few years coming together in terms of the message to customers, the way that we've organized, the way we're bringing solutions to markets, so feel great. Well, and you are, if not the architect, certainly one of the key architects of the whole federation model. It's one of your areas of expertise is actually thinking about how to organize. Very important things, and we maybe have some time to talk about that, but a lot of talk about the digital economy, the digitization of companies. It's sort of a new theme that you guys are talking about. Where did that come from? Was that part of the new conversations that you're having with C-level executives? Did the federation enable that? I wonder if you could talk about that a little bit. It does, Dave. This whole concept of the digitization of business, I mean, this is the huge shift that we're talking about. It's going to disrupt industries. And that's where we talk about platform three and things that customers have to lean into to transform to become part of the information economy, because if they don't, they're going to get left behind and maybe go out of business. I mean, this is really at the core of where companies are facing their strategy and their direction. So that's the concept that we've been working on for a few years. You see us doing things like creating Pivotal for building those new applications. You see us doing things on my side of the business to build infrastructure for data sets that could be a million times larger than the data sets in the traditional platform two business. So this concept of digital transformation is a business imperative. It's an issue for the boardrooms and you see it being an issue in the C-suite of every company that we speak to. So you talk about platform two, you talk about platform three and the big issue for CIOs is how do I go from where I am today to where I want to go in the future without disrupting and ripping and replacing. And you've come up with this notion of platform 2.5. It's relatively new this year. So talk about that a little bit. What is platform 2.5? Yeah, I think that's a real, as we refine our strategy to try and help people understand what we're doing, this concept of platform 2.5 resonates because the simplistic view of the world is that you've got your existing clients that are ramps in platform two, you want to save costs there and you want to move budget across to spend on platform three, which is your new digital world. And that's a great message to 50,000 feet, but you can't do much with that because obviously platform three is a transformation agenda. But the way you want to actually save money in platform two is also to transform. It's not just by trying to do everything you're doing today a little bit less expensively. It's to really take a transformational approach to taking some of those key technologies that are going to be the drives of platform three, things like fully software-defined, self-service provisioning, cloud capabilities, and using that to build a transformational platform for your existing apps. So it's the application that defines the platform. The applications are platform two apps. And when you modernize those through a modern cloud infrastructure, that's really platform 2.5. The app is still the same, but the whole infrastructure it's running on and how it's provisioned and now it's different. So it's less expensive, it's faster, it's more secure, and it's more agile. And that's platform 2.5. Those same attributes, you absolutely need them in platform three. But the breakthrough in kind of our explanation of the strategy is really to get people to understand you got to transform platform two, not just cost reduces, cost reductions, while the outcomes is not the only outcome. So platform three, a lot of those apps are sort of on the edge. It's maybe hard to generate enough business to offset sort of the decline of the older stuff. So platform 2.5 from your standpoint, is that a way to allow from EMC's perspective so that you don't over rotate, and for example, into platform three. So in other words, can you do more transactions around platform 2.5 and direct real revenue? Yes, I think that's a pragmatic part of it, Dave. If I look at enterprise spending, true enterprise IT spending, it's probably today in the 80 to 90% range on platform two technologies. And enterprises in general, established enterprises spending probably 10, 15% on platform three. So no company can just go like ourselves, and go entirely into platform three. That's the future, but it's a balance. So companies will spend more money on platform two and platform 2.5 apps in total over the next few years than they will on platform three. It's interesting, nobody really knows when that will become 50, 50 inside enterprise. It's probably five years out, which means a lot of the spend dollars is still in transforming platform two. What the spend growth is in platform three. Platform 2.5 is a way to have a transformation agenda for the platform two apps, as well as a transformation agenda for platform three. So a large company like yours that is in the midst of an industry transition like this, you always run the risk of trying to protect the past from the future. The story of Extreme I.O. is quite interesting. You go out, you pay a fair amount for this company with no revenue, you bring this company in. It takes a long time, I mean, relatively long time in IT terms. 18 months to get it right. And then all of a sudden the thing starts taking off. Well, first question is, are you surprised by the rate of the ascendancy? I'm sure you're pleased by it, but are you surprised by it? I wouldn't say I'm surprised. We're very pleased. We knew that that was a, in some ways a disruptive technology, but again, it fits beautifully into my platform two, platform 2.5 example. Extreme I.O. is an all flash array. It's a block storage device. And it plugs into a storage area network or a SAM. So it does the same kind of things that we've been doing for years with a VMAX, a VNX, and that class of technology. So it's going into an existing market and doing things better. The applications that people are running are things like VDI, virtual servers, now transactional databases, things that are running in their data center today. Maybe the new app will be VDI, but it's still basically a platform 2.5 type app. So it was a product which is a transformational technology, but it fits into a selling motion and into a customer buying pattern that exists across our entire business. So with the right product at the right time, in the right marketplace, and we've seen just exponential growth, all right. So am I surprised? Honestly, no, we had aspirations for something this aggressive. Am I pleased? Absolutely. But you've got this cash cow of VMAX and VNX. And when that product Extreme I.O. became available, the tone of the company seemed to change. You're really going hard after it. I've always said it's better to eat your own than it is to have somebody else eat it. But if I heard it right on the earnings call, about a third of the demand for Extreme I.O. was going into existing, I think it was VMAX accounts, is that right? No, let me clarify, Dave, it's actually, we've done a lot of work to see where those Extreme I.O. systems are going clearly, because we do expect certain parts to cannibalize our existing business. And what we found is a third of the systems are going into existing EMC accounts for workloads that are running on either VMAX or VNX today. So a combination of both, not just VMAX. A third are going into EMC existing customers for new workloads. It could be something like a VDI, or they're putting in a new high performance database on their block system, and they're using it for that. And then a third is going into brand new accounts for us. We're opening a lot of new customers for the EMC family. So what we're finding is only a third of those sales are cannibalistic compared to what we have in the customer footprint today. And two thirds are basically expanding our footprint. And you talk a lot about the install base. The install base is maintaining of the traditional systems, right? Yeah, particularly what we watch very carefully is our install base of VMAX systems, because VMAX for a number of years has been our flagship. Obviously with VMAX 3 coming along, we've done a major re-architecture of that system. Launched it last fall. We started shipping it the late part of last year. Now it's going to be fully transitioning across. So we watch the install base of those systems like Hawk, because that is our high-end flagship storage system. And as I said, the interesting thing is that despite the fact that we're actually consolidating often when you put a VMAX 3 in, you may consolidate two or three VMAX 2s onto one VMAX 3. It's so much more powerful. The total number of installed VMAXs remain relatively constant over the last few quarters, which means that we are putting them in not just to consolidate, but we're also putting them in for some new application environments as well. So you've got this traditionally 60% plus gross margin business. I presume the flash can be as productive from a margin standpoint. Is that a fair assessment? It's actually quite interesting. The margin, what we do externally is we show people what's happening to our VMAX revenues, because that's very important. And then we do a bucket which we call Unified and Backup Recovery. And another segment called our Emerging Storage Platforms. And you put a stream.io in there, even though it's not organizationally. Though it's not, I'm just trying to do it from a revenue point of view. I'll talk about how we're organizing just a minute. But in that third category, extreme IOs in there, Iceland in there, software-defined storage in there, SRMs in there, so our new suites. And the gross margin profile of those three broad buckets is very close to each other within a couple of points. So what you're seeing is as the mix shift in our business occurred, and it occurred quite rapidly last year because of the VMAX transition, the mix shift revenue went from a large chunk of revenue from a mixed point of view went from symmetrics into emerging. You saw our gross margin profile was very steady during that period of time, which is good, which means that we can afford to really go at this aggressively because we want to move as much, well, we want to obviously grow as fast as we can in all three buckets. But we know that the real hyper growth is going to come from the emerging storage bucket. Yeah, and I presume you, well, I may ask you, I presume you don't micromanage gross margins. You try to add value, you try to compete, get fair pricing, and let the market decide. It is an outcome, exactly. It's an outcome. In fact, quite honestly, the way I think gross margin, it's a function of value added. So it's simply, how much value are you adding compared to, because we're obviously selling appliances. We're buying commodity components for all those appliances, whether they're a VMAX or a VNX, or even an ExtremeIO. And the gross margin is simply a function of what the market will bear for the technology you've put on top of those commodity components. So what's the software worth? What's the distribution system worth? What's your sales and support team? What's your support system worth to the company? Yeah, so I've been following this business for a long time, and since I've been in this business, there's been margin pressures on hardware. The reason I'm asking all these questions is, as we shift to a software-defined world, will the margin model look like a software-defined, a software margin model? Obviously, isn't that a good thing? Software gross margins are a very good thing. We have a great software company inside of our Federation called VMware. Look at their gross margins, you know, pretty close to 80%. Whereas if you look at a typical systems company, you know, margins are more in the 50s. And obviously, if it's a commodity hardware company, the margins are even lessened out by systems. I mean, look at something like our storage business, you see low 50s points of gross margin, which is great because you've got a blend of hardware and software in there. As we go forward, and the world moves to software-defined, there's a chance for margins to expand if all the value goes into software. But, I keep on telling people, even if you have software-defined storage, you've got to buy the hardware for somebody. And what we have found is that customers, because of who we are, often look to us to provide the solution, not just the software. So they want choice. So we'll give software-defined storage that can run on any hardware, but a lot of customers want us to come back and supply the system in the software-defined world, just like they did in the more closely-coupled appliance world of Platform 2. All right, let's talk about VCE. VCE is now part of VMC. That changes, you know, organization. Obviously, your go-to-market is, I guess, cleaner. It changes the accounting, I presume, right? It does. So talk about the reintegration, or integration of VCE, and what that's meant for you guys. Dave, we are delighted. I mean, that is something that we have been planning for a while. Integrations are always a little challenging, particularly when you go from a company that was very much set up as a joint venture structure with its own identity, now a fully-owned division. So the division is stayed intact. So we've integrated it as a division side of VMC. But it's great from a couple of points of view. First of all, it's the market-leading and converged infrastructure. When it's here in a joint venture, you have a certain amount of access to the expertise when you own it. We got 2,000 people. We came into VMC with VCE, who are experts at designing, building, selling, supporting CI, and that has proven really valuable. Secondly, you've got much more control over the destiny. So you saw us introduce VXRAC. That was the big announcement of day one at EMC World. That is a hyper-converged data center architecture that leverages the VCE expertise, it leverages the rest of EMC as well. And that's something that we've designed and brought to market since we've had VCE inside the company. Yeah, so, and it's a multi-billion dollar business. I don't know, I think you guys have done forecasts for 15, but we've set it probably three billion. I think you've made some comments on the size of the business looking back. Can we say that the business was basically a two billion dollar run rate business in the fourth quarter? Now, obviously the fourth quarter is always the biggest quarter. So that's the public number. Two billion run rate in the fourth quarter last year. And you're a leader in that space. So obviously very happy with the progress. It was really happy. A lot of people said, oh, VCE, crazy, crazy, crazy. Not so crazy. Not so crazy. I mean, Dave, VCE, people, there's much more to converge infrastructure than just the technology behind it. Obviously, a lot of technology goes into creating a system called the Vblock, much more than just some of the parts of the components. There's the whole management and orchestration layer. There's something called vision, which VCE builds, so you've got a single point in management. But also what we do is, once the system has gone in, we help the customer manage all the upgrades to that system in a very controlled way. So essentially, they get lifecycle infrastructure management from us. It's not just buying a system, it's buying a whole different approach to infrastructure, and it's a tool for transformation. So back to my theme. You got to transform in platform two to save money, to improve your speed and time to market as a company. You got to transform in platform three to build your business a different way. It's a transformation vehicle. And as I say, it did very well. It grew over 30% in the first quarter. Obviously, now it's becoming a big number from an installed base point of view. I'm very confident about the future of that business. So you guys, again, you use this platform two, two and a half, three sort of metaphor. It's a guiding force for your strategy, clearly. How does your organization line up to that vision? Well, it's actually helped us align the strategy, the communication with customers, and how we've organized. So what we did about a year ago, really getting focused on this, is we created internally inside of my business, in the infrastructure space, two R&D divisions. One, the core technology division, which includes everything we platform two and platform two point five, including extremely out. So you've got all the block storage arrays in there. You've got the backup recovery portfolio. And then we created another group called emerging technologies, which is really focused entirely upon platform three. So we recognize that whilst there's given me some common elements across these two worlds, like a data lake where you store data from both sides, you got to recognize applications are so different. You got to build the infrastructure from the ground up to support different classes of applications. So we have, about a year ago, organized against this strategy as well. So not only is it how we communicate to customers, not only is it how we talk about how we want to transform their business, how we're transforming our business. So we've got those core two groups, and then now, if you like, in between them, or in the middle of them, we've got VCE, where we're taking those technology and building them into V blocks. So the two core technology groups are building best of breed storage systems, storage solutions, backup recovery technology, to have leadership in our storage substrates, and then with VCE, we can take those and turn them into complete, converged infrastructure systems. Yeah, okay, and then the services organization stays pretty much intact as it was. And the services org stays intact, and the sales and go to market org stays intact, except what's interesting is for a number of years, we've built specialties in those groups as well. So essentially, we now have a specialty sales force inside of VCE that is the sales expert at CI, that now basically works with and alongside our core sales force that handles customers and partners, et cetera. So the model plugs together very seamlessly. I tweeted out during your keynote that you had essentially architected the greatest acquisition in the history of the technology business, obviously meaning VMware. I know you played a big role in it, others as well, so I'm certainly going to give Joe some credit. I'm going to give Joe a lot of credit. Follow the trigger. Somebody tweeted back, well, how about Apple's acquisition of Nex? They said, okay, Touche, that's good. We'll give that number one, your number two. But the reason I'm going here is when I think about your career at EMC, you've done, I don't know, how many acquisitions? Over 50, easily. I've been involved in many acquisitions too, yeah. Okay, a lot. And you've seen an evolution of those acquisitions. How would you describe your capabilities, EMCs? I mean, it's clearly matured. UNC was not always the great acquire of companies that it is now. How was that matured and how have you perfected that and how do you see that perfecting going forward and changing going forward? I think it's matured into a huge advantage for us. When you look at the companies that we have bought over the years, obviously VMware, Legendary, but look at the acquisitions on closer to my side of the business, things like Isilon, Data Domain, et cetera. Not only have we bought the companies and successfully integrated them, we've grown them faster after we bought them than they were growing before and we've retained key members of the leadership team from each of those companies because our model is not a one-size-fits-all model. That's one thing that we learned that you need to understand the mission of the application of the acquisition, how close is to your core if it's a market extension, a business extension, a product extension, and then how you go at integrating it is different in each of those scenarios. So we've done a good job of understanding that and having situation-specific playbooks for bringing these companies in. We've also recognized that in some case you want to do a reverse integration. So in the case of our backup recovery business, we took the assets we had inside of EMC, we reverse integrated them into Data Domain to create that business. So that's one thing that we've learned. Now, of course, in recent years we've learned a different skill as well because as we've mentioned up front with ExtremeIO, as you're buying either Platform 2.5 emerging or Platform 3 technologies, we've now developed a skill set of buying companies that are pre-revenue. That's a whole different skill set. It's one thing to buy a company that's maybe at 100 or $200 million revenue bringing in and accelerate that sales process to buy a company like what we've done with ExtremeIO, ScaleIO, DSSD, maybe a year to two years before revenue to nurture it. It's a whole different skill set. So what you do there is you basically insulate that business. You protect it. You give it the resources that it needs but you basically tell the rest of the company to leave it alone for time being because it's got a mission in place. It's got a mission to build a prog that it can bring to market. But also it's got a mission to build a prog that EMC can bring to market because that's a whole different standard. When customers expect a new EMC prog, they expect it to be mission critical, world-class, supported globally whereas if you're standalone startup, you get a pass on those. If the prog comes out and it's okay and you can't support it around the world, people will give a startup a break on that. They won't give us a break on that. So we have to not only bring a company in this maybe 18 months to two years before revenue. We got to make sure when it hits the market, it's ready to scale. So we have done things like we have developed beyond the beta phase. We developed things like a early availability program and then a pre-GA revenue program. So when we go GA, we say that prog is available globally. It really is. David, I know you're super busy. I wish we had more time. So many other things I want to talk to you about. David Goulden, outstanding organizational executive, execution pro at the heart of EMC's execution ethos. Thanks so much for coming. Thank you. Don't have to be with you. Thanks a lot. We'll be back with our next guest. Right after this is theCUBE, we're live from EMC world. Right back.