 Live from the Oracle Conference Center in Redwood Shores, California. It's theCUBE, at the Next Generation Engineered Systems launch event. Brought to you by headline-sponsored, Oracle. Okay, welcome back everyone. We are here live in Silicon Valley. This is theCUBE's Silicon Angles flagship program. We go out to the events and extract the civil noise. I'm John Furrier. My co-host Dave Vellante, we're excited to have industry analyst, luminary Matt Eastwood, Group Price, President General Manager of IDC, Enterprise Platform Groups, and friend of theCUBE. Welcome back to theCUBE. Great to see you. Good to be here. So we have all the analysts at the table here. Let's do a breakdown on what's Oracle's going on here. I'm now seeing it's a launch, it's very intimate. Larry's the master of the long game, as John Fowler says. This is one leg of his sailing race that he's doing in the computing business. Kind of telegraphing, but specifically targeted. A lot of, no mention of VCE, but it smells like a little VCE. It's got compute, what's your take on this? What's going on in this announcement? What is Oracle up to? Well, Oracle's five years into this journey now, since they've acquired Sun, and bringing kind of a full system stack to the equation in terms of how they think of engineering. So they're thinking of engineering from way down in the subsystem level all the way up through the application. They're looking at all the same forces that everybody else is. The impact of mobile, the impact of cloud, and analytics, of course, on the marketplace, and the opportunities that that presents to their customers. IDC looks at this through that third platform lens, so we tend to look at more traditional, established environments as being second platform, and these emerging market opportunities really being around third platform. And for Oracle, it's really about building product that can serve both parts of that market, but kind of serving the needs of enterprises that are looking to get more efficient and automate that second platform world while they transition investment into third platform applications. Dave, third platform sounds like a lot of EMC talk there. I mean, that's the, you know, You've seen Stola from IDC. You know, like, you know, it's neat. You guys pushed that on EMC. I mean, that's the first I've heard of it in a vendor. You even see wrap their entire strategy around that. Oracle smells a lot like Amazon in the way of the integrated stack here. What you're seeing is a platform, they're not just going up to storage, they've kind of done that. So Dave, what's your take? I mean, you guys are the analysts. I mean, the horse is on the track. I mean, does this thing have legs or? Well, yeah. I mean, you know where I stand in the sun acquisition. And at first I was like everybody else kind of scratching my head, what are they going to do? It's been off and then started to see the strategy. And I wonder, Matt, what your take is on this? I mean, cause you talked to a lot more of the same people that I talked to, but you must have had a year full from Oracle's competitors about what a bad move this was. And I had many, many debates, arguments, whatever. And it seems like it's working out pretty well. What's your take in the time? I mean, again, I was sort of skeptical at the time five years ago, but now that it's progressed, it's, to me anyway, it's coming more into focus. Do you agree with that or? I do. I think, you know, Oracle's really as good as anybody in the industry when it comes to acquisitions and absorbing those acquisitions. And it didn't take all that much time for Oracle to create a situation where a sun was margin neutral to the company. And a lot of people thought they would meld to do that. Yeah, they brought it back to pre-acquisition margins in a pretty short timeframe. And I think where Oracle was really ahead of the market is when you think about engineered systems or we call them integrated systems at IDC, the initial phase was really kind of on packaging, but where we're heading now is really deep architectural considerations around the hardware and software stack and really kind of software defined, if you will, environment, and that's really the vision that Oracle had from the beginning. So they really set out to build engineered systems from the base level, you know, componentry all the way up to the system level services. And that was their vision five years ago. And I think they were really ahead of the market at the time. So, I mean, you look at what's happened. So Cisco's another one. They come into the marketplace. And again, I was skeptical about Cisco and I think in general I was wrong about Cisco. And so they've had some pretty good success. You're seeing, you know, Oracle would success. IBM exits the x86 business. It's almost as though Oracle's x86 strategy is exactly what, you know, companies like IBM wished they had. In other words, if you keep focusing on the profitable side of the business. So what do you see in the systems landscape? It seems like there's a systems renaissance going on and then the storage and the systems pieces coming together. What's your take on it? Yeah, I mean, the industry spent the last few years, if you think about the comment they made about, you know, first phase being around packaging. The first phase of this was really acquiring the pieces that you needed to service kind of a fully integrated stack. So you had to have compute, you had to have network and you had to have storage and at least had to have access to good deep engineering partnerships around that. And so Cisco, they recognized, I think what really changed on the infrastructure side in the data center was really the advent of virtualization. So as virtualization gained steam over the last 10 years, it really shifted how architects and CTOs thought of the data center and they really wanted to create a virtual pool of resource and they recognized that anything that happened on the server side had impact on the storage side and on the network side. So that was really where Cisco came out and started to differentiate. Oracle's really differentiated specifically in the stack around data, particularly with Exadata and with Exologic and now with things like Exolytics. They've been very focused on looking at very specific workloads that could be engineered in a way that they had incredible performance characteristics and so the focus is really on these workloads that had unique characteristics. So what do you see in your mind as this integrated systems, engineered systems, converged infrastructure, what are you going to call it? Is it evolutionary? Is it becoming more radical and revolutionary, particularly from a customer standpoint in an economics perspective? It's a good question. I think there really today are, if you look competitively at the landscape, kind of three types of integrated or converged infrastructures. You have the core infrastructure that's where Cisco's been playing with its partners with NetApp and EMC. Then you have Oracle, who's really been the leader on the platform side, taking that further up the stack and then you have the world of the startups that has really emerged around hyper-conversed and fabric-based computing that's happening kind of at the edge and so all three of those served somewhat different constituents and different workloads in the marketplace and the decision makers are a bit different as well. So Oracle's been very focused and having the most success on applications or workloads where performance really, really matters and the decision makers around those engineered systems tend to be people that Oracle has an awful lot of influence with. So think of database administrators. Application heads. Exactly. But the messaging we're going to hear today is also one cost. We're going to be the low cost supplier. We're going to be cheaper. Do you buy it? Well, when you look at the interesting thing about integrated or converged is wherever there's a winner, there's a loser and so this is really largely a share a wallet play and so if you're winning, you're able to win at a nice margin but at somebody else's expense and so this is, if you think about it at a high level, it's about selling higher utilizations. So higher utilizations on the storage, on the compute, on the network side, it's about selling better availability to the marketplace. So overall it has both a CapEx and an OpEx attractiveness. They're high margin systems. They're high value systems but if you do it right, you can spend less in total both on the OpEx and on the CapEx side. You basically call this sort of zero sum games. You've got the horses on the track, there's HP, there's IBM, there's Dell, there's EMC now taking back VCE, there's Cisco and NetApp, obviously Oracle, I guess Atachi plays here as well. If it is a zero sum game, who wins? So right now, if I were to break those three pieces apart, the infrastructure, the platform and the hyperconverged, so Oracle's the leader in what we would call integrated platforms. All the way up the stack. All the way up the stack. And the biggest competitors that they face there are IBM and Teradata. So competitors that they know well but where Oracle's really paid a lot of attention to out-innovating and moving a bit faster. IBM will feel some of the impacts from what they did with the divestiture of their SystemX business because a lot of the building blocks for pure app and pure data were in that x86 infrastructure. So they're now more dependent on Lenovo as a partner, as an OEM partner for those layers. So it'll be interesting to see what IBM does. And it maybe opens up some other partnerships too. Certainly, and IBM has gotten closer with Cisco recently, so. So Matt, how do you add into the Amazon equities? Because obviously we saw that at re-invent huge enterprise focus. You mentioned IBM, Teradata, usual suspects. We know Larry has a love affair with IBM in terms of being the competitive, you know, IBM, IBM. Everyone else is kind of like, ah, whatever. IBM is a real target on their back. Get that. Outside of IBM and Teradata, who else is out there? And what does Amazon fit in? Because Amazon approach, although not close to Oracle at this point. I mean, Andy Jassy, his team, they went integrated. They went from going from just storage or just compute to fully integrated from the beginning. Are they on a collision course? Completely different. See, Oracle's huge in terms of the workloads. Yeah, and I think, you know, to Dave's question earlier, really what's happening here is the control point or the overall value point moves higher up the stack, you know, higher up at the software. And so Oracle has an advantage there in that they have this robust high value stack that they make a lot of money on with good margin. What happens down below is quite interesting when you look at the competitive landscape from a systems provider perspective, is when I say the market goes from kind of a packaging exercise to a deep architectural exercise, what that's also saying is that those, the fundamental layers in the compute stack, commodity's not a term I really like, but they begin to homogenize. And the value moves up into the software layer. And so that's really where the cloud players like Amazon are spending a lot of their time is in creating innovation in that software layer. And they're working with companies like Intel, as is Oracle, to really create a more innovative hardware layer that's optimized for their stack and that creates their competitive advantage. I mean, Amazon's, I mean, they don't even touch an open compute. We see them kind of like just watching it, doing their own thing. Let's talk about the cloud. I'll say, do you think there'll be a second class citizen tiering of the cloud or one tier, one tier two? I mean, if you look at what Oracle's doing, we used that IBM system Z announcement, really impressive high performance, monolithic like systems, but yet versatile, right? So high performance, you know, fully converged. That potentially could torch this whole blue mix, cloud foundry, you got HP, IBM, and others trying to be Amazon, and then on one hand, and then you got, you know, trying to win the developer community, then you got Oracle and IBM over here could torch the feel on that. Do you see that risky, this whole middle layer battle as an orchestra tier two? Well, I mean, there's very much this, you know, kind of build versus buy analysis happening in the marketplace. And so if you look at the Amazons and all the hyperscalers, they've been building their own. If you look at enterprise, it probably doesn't make a lot of sense. They don't have the scale to really consider building their own in most places. They're focusing on how do they innovate more in apps and more in data, and how those applications are changing. They're becoming more about mobile enablement, they're becoming more about real time analytics and informing real time business decisions. So you have to use kind of a traditional model in the market, the industry's thought of systems of record as a long time, that backend, that's where really system Z, the world of systems Z, the world of big UNIX. And of course, for the last 20 years- And CME and ERP, same thing. Sure, sure. And for the last 20 years or so, we've been dealing with systems of engagement. How do we engage? And of course that model's moving to mobile. But really where the money will be made, my view in the future is really how you connect systems of insight back to those systems of record. So data's interesting and data's hugely valuable, but unless you can do something with it to inform a business process from real time, it's really not that interesting. So those existing systems of record become hugely valuable in terms of connection points to the insights that we have. So you see some balance, some natural segmentation that's somewhat healthy in the sense of big data and developer communities need to have a playground. What's interesting is you're bringing up an early, I think an excellent point is bringing, David Floyd has talked about this a lot, bringing the transaction systems and the analytic systems together. And last week, we can't say who it was, but you know what I'm talking about. Yeah, I was in the conversation. Really high profile finance customer. And he drew a picture for us. He bought a bunch of those new Z systems, sight unseen, and he drew the picture. I'm going to have that feeding through an infinite band into my exadata. Bingo. And then what did it do for him? Saved him huge cost. I mean, the whole value proposition was an order of magnitude significant. I mean, it wasn't even like a debate. It's stupid things like batch windows too, so you can open at the market. I want to ask you, from a customer perspective, when you think about, I think you call them integrated systems. Right, okay, when you think about integrated systems, why wouldn't or why don't customers do integrated systems? Are they afraid of lock-in? Does the channel, so the pushing, is there a different choice on them? What do you see as the headwinds? I mean, the two biggest challenges for integrated systems are, there's still a lot of people that question the cost. Because they do tend to be capex-intensive systems, but the obvious benefit is they drive down overall spend and they drive down operational cost. That's number one. I think the most challenging issue with these is the disruption they have to the marketplace in terms of the silence. So there are lots of organizational changes that need to be made in most companies to really absorb these smoothly because the decision makers are different. And so you get into conversations. What I tend to see, particularly when you get into the infrastructure layer, is highly virtualized, highly dynamic companies, companies that have high rates of change in the business, they tend to get it. They recognize that, I spent the last five or six years virtualizing. I want to move to more of a cloud-like model and the way to get there is on an integrated platform. They almost can't help themselves. They're first wave of this. They're kicking the tires and they're playing around with all kinds of configs. And whoever their supplier is of choice, they're asking for all kinds of different analysis on different configs. Once they've gone through that once and they understand the benefits, then they go much faster the second, third, fourth time. It's funny, isn't it even though OPEX and you guys have quantified this, two-thirds of the cost in IT is labor, but people don't see that as a hard dollar savings because they got people and it's essentially a sunk cost. What am I going to do? Am I going to retrain them? Am I going to lay them off? I don't lose that. So it's kind of a myopic view, but it's a real view, isn't it? It's real. I mean, we see it and we've talked about this day in the past where you have things like Moore's Law, which means the cost of computing drops in half every two years, but then you have that offset with data doubling every 18 to 24 months and applications doubling roughly every four years and the net effect is that about every eight years, the operational costs in a data center double and so they've been so focused on the CAPEX that it's really a penny-wise pound foolish type of an argument where they're so focused on what they're spending out the door, they're not recognizing truly what's happening inside and most IT organizations will readily admit they don't have enough people, but their people are in the wrong place. So it's about 80% of their overall investment going into keeping the lights on. What they do tend to tell us in their journey to engineered systems is that they're expecting about a 25% reduction in OPEX as a result and they want to put that OPEX savings into innovation and they want to innovate in new applications, new workloads, new areas of innovation as they build these digital enterprises. What about the hyper-converged guys? I flew at the late flight out on Monday, Doran Kempel was actually their CEO of SimpliVity, I think of those guys, I think of the folks like Nutanix. Where do they fit in this whole matrix? Well they're certainly changing the conversation and I think part of what's, one way I like to look at it is you have companies like VMware even changing their approach with Evo last year with to be somewhat responsive to the world of the hyper-converged players. They started with a 2U appliance and that they indicated they're gonna go full rack. Then you had the Microsoft Cloud Platform System which was with Dell. That was also in some regards a reaction but what's happening is inside these systems is architecturally they're being built in a way that's much lower cost than the infrastructures that they're knocking out. So in both cases you're talking about basically Jbots inside the systems and so that's where you start to have some pretty interesting architectural implications for what the infrastructure looks like and if you line that up with Intel's roadmap, they're kind of rack scale thinking where you can start to disaggregate a system down into trays of compute, memory, storage, I.O. and wrap some software around it. The next phase of this is really all about capturing the right layers of the software stack to represent those disaggregated layers back to the application. That software defined world and so you'll see that's where I think a lot of the M&A activity will start to begin. Last week Citrix bought... Sandball. Sandball actually. Really interesting. Kind of a component of a strategy. Like how do you think across compute, network, and storage inside that? Well it gives them a play in hyper-convergence now. With the Evo rail and answer to the Evo rail. So is that to fill in the blanks on their integrated strategies opportunities? I mean, because we're seeing like, we're seeing Dell, we're seeing HP, we're seeing IBM and all the old school dudes kind of retooling, right? So Dell guys are going to HP, HP guys are going to Dell, we're seeing some movement people changing their jerseys but that comes down to the bottom line is what do they have in the product closet? And if they don't have the tech, they got to either buy it or shift to say services. So are you seeing that other beachhead of services being a part of it? Because you can do some stuff with services like orchestration. So how are, is that a functioning of them just giving up saying I don't have the tech so I'm going to go get some territory in that area? What's that whole services piece? How do you look at that landscape? I mean, I think what I saw really happen in 2014 was a shift in the conversation that the vendor community and the analyst community was having with the user. If you think about all the underpinnings that we're talking about here today in terms of cloud and hyperconverged and just integration in general, a lot of it's been really led by the hyperscalers and the hype like the Amazons and the Googles and with the focus on really enabling this mobile ecosystem. So a lot of the workload that runs in these hyperscale environments is really kind of a mobile consumer workload. The next phase is really how do you get the enterprise on board? And when you start to think that way it becomes, you have to start to change the thinking in the enterprise. The enterprise has really thought a lot about how do you digitize specific business processes. But now we're talking about end to end digital enablement of a business. And so what started to change last year was not only giving the customer's permission but really giving them some sort of a sense of urgency that they need to start to think this way that any industry is potentially disrupted with technology. So you have lots of industry leaders like John Chambers will say that every company becomes a technology based organization or they'll fail. So that type of thinking is really starting to pervade the enterprise. And with the economy getting a bit better, you're starting to see people take a bit more long term view. What we saw right after the recession in 2009, 2010 was a lot of reactive spending but now it's becoming a bit more visionary kind of outlook spending. In the data center we were on earlier with the product engineering manager and senior director and he nailed it which is, the data center is now inside out, okay? So in the security models and then everything else, if that's happening obviously it has to be short up. The enterprises have to reign in an end. So there's an opportunity to slay the legacy. I mean the difference between the hyperscalers is they have a clean sheet of paper. So mobile's a layup, right? Not layup but compared to an enterprise. You've got systems of record you mentioned earlier. This is baggage from a momentum standpoint. And I think you'll see organizationally, so it still takes hardware, software and services to fulfill the need but organizationally what you'll start to see people do is focus on what we would call third platform or next gen opportunity, next gen digital enterprise opportunity versus more traditional. More traditional is always going to be very focused on how do you help the customer save money and how do you help them essentially reduce costs and what you want to do is help them shift that what they're saving into new areas and new areas to spend and how do you enable some of these next generation workloads and applications to be brought online. So I got to ask you about the three letter company, VCE. Obviously this is a lot of VCE like stuff. It's kind of dancing around. They're not coming out and saying VCE but we've heard companies say that it's basically built their own V block, okay? So that's going on right now in the industry. I was actually skeptical on VCE when it first came out. Partnerships really don't work and it was a big whales kind of dancing together. It actually works significantly well. Is this a VCE alternative? This announcement is the beginning of that kind of offering? Well I think you probably see two things happen. One VCE for an EMC will become kind of their integrated brand and there'll be lots of different technologies inside of that. So they'll continue to expand beyond V block and there'll be other types of V block offerings with other technology partners. What Oracle's done is they've of course, they've looked at the data center and they've looked at their own software assets and they've looked at what types of stacks can be optimized and whether it's a kind of a pure application if you will or some sort of middleware stack or even some sort of a, you know, something that happens on the back end like backup and recovery type appliances. So they're looking at all the things that you do in the data center and then trying to make that very, very easy to deploy. What they have to do is look for ways to make that attractive not just to enterprise but also to service providers. And I don't mean Google or Amazon. I mean the massive number of service providers that are in this world that MSPs and hosters and stuff like that. So what about Cisco? What do they have? If EMC gets VCE and Oracle has their Oracle engineering systems, what does Cisco have? Well Cisco, I mean Cisco, if you look at the two, so maybe tell the story this way maybe it's a good way to kind of sum this all up. If you look at the integrated systems landscape and you look at traditional storage and traditional server, there are only two vendors on the planet that actually are pulling more share in integrated than they have in general purpose. Oracle and Cisco. Cisco has a significantly more share in compute in integrated than they have in the overall compute market where they're five, six percent. They're running close to 40% in integrated. And Oracle, when you look at integrated platforms has a significantly higher share of compute and storage value in that platforms market than they have in general purpose compute and storage. So they're both, I think working this shift in the market to their advantage but they're not necessarily competing head to head because Cisco's really going after that infrastructure layer and Oracle, more general purpose layer and Oracle's been looking at that high value, high performance application layer. There's enough territory where they don't have to actually bump chests yet but I mean a networking vendor, I mean Oracle would look at Cisco, say oh they're a networking vendor, they're a database vendor, it's kind of wink wink but okay they have huge install bases that they're building up. So that's their core strategy to leverage their install price, right, versus vis-a-vis the other guys. So what do you think of the parameters for victory here or has there sustained success? So I think what I would say to Oracle and to Oracle's customers even is Oracle built a very successful business. They did that on their own with a lot of their own engineering and innovation but they also did it with partners and so if I think about Oracle, Oracle's got a full suite of solutions, we're going to hear more about that today in the engineered systems arena but they also need to think about ways to take their software assets and monetize them through other hardware partners. So you could start to see, we saw Oracle and Dell get a little bit closer last year, you could start to see Oracle doing some interesting things with other ecosystem partners, particularly in that infrastructure layer. Selectively. Yeah, selectively, where it makes sense for both parties. Well the final horses on the track analysis is is there a dark horse in all this out there that you see that is not on everyone's narrative? Is there someone, is there a start of John Fallows's, when everyone's done inventing, there'll be new inventions. Is there a market shift, inflection, shift winds that are changing that you might see, say, hey, we're watching that dark horse over there or that dark market segment? I would say competitively that probably the two biggest things happening in the market today that potentially have impact here is the development of China as an ecosystem of technology players. So China as a market's grown to be the second largest IT market and they're trying very hard to build their own ecosystem of players, Lenovo, Huawei, et cetera. So I think that's one area to certainly keep a very, very close eye on. And then. It could be disrupted just on the numbers itself, just on pure net dollars. Right, exactly. Never mind the other things. And then open in general, when you think about cloud and third platform, a lot of what's happening is the shift into more and more open source technologies. And that's not necessarily new. It's something that the vendor community has been dealing with for the last 15 years or more. But you have to think about ways to build new forms of value on top of that, to really leverage that open ecosystem. And of course, the customer wants that and the vendor needs to figure out ways to live in that world. And we are here live in Silicon Valley with group vice president of IDC, Matt Eastwood, industry analyst. Great to have you. I'll give you the final word. Share it with the folks out there in the audience about this analysis. What is the bottom line here? What is Oracle doing? What's the big secret sauce here for this analysis? What's the meat on the bone? So I think really what today is all about is reminding the marketplace, reminding customers of how far Oracle's come in the last five years since they acquired Sun. And of course, engineering systems can even go back a click or two before that with HP. But their portfolio has really become quite significant and there'll be new additions to that portfolio today. So they're looking at ways to really operationalize and create new efficiencies in a data center by thinking about very specific workloads of very specific use cases in the data center and creating a new model for deployment there. It fits well for customers that are trying to make that transition from second to third platform that are looking to become much more efficient in the traditional world while creating investment for some of these new deeply mobile-oriented analytic applications that are coming to market. That's awesome. I mean, for me, I think this is about Sun. I mean, I 100% agree with you, but this is about Sun flexing their muscles. I think it's a proud moment for, look it, we did it. It's happening. The tree is growing. There's fruit coming off the tree. I think there's an underlying tone of, hey, Sun's back inside of Oracle and working. Dave, your thoughts on what this announcement is? Oh yeah, I mean, I think it's all about getting fruit from the tree. As you said, the R&D investments paying off and delivering a portfolio of products that can actually drive business. All right, guys, thanks so much. Top industry analysts here in Oracle's headquarters for the big announcement. Larry Alice is coming up at one o'clock. Stay tuned. This is theCUBE with more interviews. We'll be right back after this short break. I'm John Furrier with Dave Vellante. This is theCUBE.