 In 2009, Oracle and HP in collaboration brought to the market Exadata. Exadata was the first modern converged infrastructure and later that year, VCE was formed, it came out as Acadia with the VBlock and then a spate of announcements occurred over the next several years and Wikibon in 2012, two years ago, sized the total available market for converged infrastructure at 400 billion. Here we are today in 2014 and Stu Miniman just returned from VCE's first ever analyst meeting, I think the first analyst meeting ever in the history of converged infrastructure that was purely dedicated to that topic. Hi everybody, this is Dave Vellante with Stu Miniman and we're here to break down that analyst meeting, find out what was said and just talk about the state of the market, Stu. Thanks for coming on. Thanks Dave. Interesting as you said, it is something that was purely for converged infrastructure and speaks to the mission of VCE, which is to simplify IT, they've got 1400 people who all they do every day is design, build, sell and service converged infrastructure, while everybody else it's kind of part of the tool bag and something I definitely want to unpack with you here. Well so the meeting was in San Diego, correct? Yeah, it was actually in a lovely car, so VCE has had their customer advisory board for a couple of years now and Dave you know the customers, you have to take them somewhere nice. They originally wanted to have it actually somewhere in the valley, but these customers were coming from all over the world, some of the biggest customers, only about 20 of them. We're not allowed to talk about them individually, but what's nice is we actually did get to interact with them. It's a small group, less than 20 analysts that were brought in for this inaugural analyst event. Now what about VCE execs, were they there in force? Yeah, Dave the entire executive team was there, everybody from Praveen, you know the CEO, Nina who's their CMO, you know all of their executives were there to interact with the customers and the analysts, lay out everything they've done, the vision for the future and really to get advice from the analyst community and their important customers also. So before we get into the VCE information, how would you characterize the state of so-called converged infrastructure or you know David Floria calls it single managed entity SMEs? How would you characterize where we're at with converged infrastructure? So I think we are really poised for just tremendous growth right now Dave. We really see VCE seems to be hitting on all cylinders, some of the competition is really starting to gather around it. You see both the big companies, IBM just shifted off part of its converged solution over to Lenovo, HP's obviously been a player in converged infrastructure, so everyone has an option out there. Plus there's a number of startups that are trying to get especially into the mid-market where there's huge opportunity, as you said Dave, we think there's you know a $400 you know billion dollar TAM for this by the time we get to 2017 and you know it seems a little bit aggressive but you know convergence is definitely gaining steam. Well TAM is a good way to hedge a forecast right because it looks at the total available market and the way we came up with that is we looked at the you know entire server and storage of business and the opportunity to bring networking together and it's giant. I mean whether it's $400, $200, $800 a trillion it's enormous. So what kind of data came out of the analyst meeting? Yeah so first of all you know it's about growth. If you look at VCE they did over a billion dollars in 2013 and when I say they did over a billion they're not giving exact figures but they didn't just get past it they were significantly past it. If you look at the Q1 numbers I think EMC said they did like 70% year-over-year for the quarter and growth for the entire year was up 45% so that's significant now. Over a billion dollars good momentum. There's no reason why VCE can't be a significant growth here in 2014. Over 800 customers and that's another thing really to point out here. You know VCE is not trying to be all things to all people. They're really focused on you know service providers and large enterprise shops. So you know there's only really you know kind of the top 2,000 CIOs that they're trying to reach with their message around the world. These are companies that either are service providers or their IT shop looks like a service provider. They do have some smaller offerings VCE expanded their portfolio to have kind of the small of large configurations and they'll win those tactically and through the channel. The channel actually is I'm trying to remember somewhere in the area of about 70% of their business is through channel partners and especially the smaller configurations are all through the channel but even most of those smaller configurations tend to be a big company that's deploying more smaller V blocks. So billion dollars in revenue is significant. We've heard about a billion dollar backlog. We've heard that both from VCE and Oracle. To your knowledge is this the first company to crack a billion dollar in revenue? Has Oracle got there yet? Well so if you look at the numbers from you know the big analyst firms you know it depends. IBM or an Oracle and you can count your your licensing on top of that they've probably reached that billion but from an infrastructure standpoint alone you know absolutely and of course VCE is not only you know the server the storage and the network they did launch their first software product last year which is the VCE vision insights. So a lot of people have questioned sort of the merits of VCE of course early on they were hiring like crazy of spending a lot of money and then a lot of people would point to the the rift between you know who is it I guess it's VMware and Cisco but ultimately it's EMC's Federation the acquisition of NYSERA. How committed is in your view Cisco to the VCE relationship? Yeah so good point and it's you have to look at this from the various angles Dave. So first of all you know from a Cisco and from an EMC standpoint you know VCE is very important not only are they over a billion dollars but if you were to take you know the VBlock product and to look at it as a business unit inside either EMC or Cisco number one it's probably their fastest growing product and number two it's on track to be a billion dollar business for either of these companies so you know as long as that growth continues I don't see there's any way that they're moving away from it you know look at Cisco especially Cisco's UCS is really critical to its data center growth and without its storage partners which are not only VCE but what EMC is doing with V-specs what NetApp's doing with FlexPod they would not be getting into its larger accounts. The typical VCE engagement is a seven or eight you know figure deal so these are not you know kind of the mid-market that Cisco's channel is really good at these are large service providers as I said you know sometimes you know 10 15 20 million dollar deals where UCS is getting embedded in these accounts and becoming the standard and that's what VCE helps break new ground it's people say first of all it's nothing but Cisco and EMC people if you look at the company while the management team itself is almost exclusively Cisco and EMC I think I heard the number in the field it's 70 to 80 percent of the field are non-parent company employees so the 1400 people a lot of them came from service providers or end users or big you know vars and system integrators that are helping VCE get into these accounts and secondly you know these are guys that were just going to buy EMC or Cisco gear and while there are plenty of customers that will do that there are not a lot of new logos that are getting on the sheet that VCE is helping to knock down. How much of this business is incremental Stu versus sort of replacing existing install base? Yeah so you know it's always a little tough to unpack this you know VCE did a good job of putting customers in front of us that had used you know for example there was one that was an HP customer that you know used HP servers everywhere and has now switched everything over to Vblock and UCS on there you know they definitely I've seen plenty of you know examples that you know they're displacing Oracle they're displacing IBM they're displacing HP but you know if you were to listen for the vendors themselves say oh this is you know 70% you know net new business I'm not sure that it's quite that much but there definitely are accounts that they're getting into that they wouldn't before because it's not just a best of breed sale it's an entirely new sale to the front of the office having you know that strategic discussion as to how am I going to really transform my business and what's really kind of compelling about the VCE sale and the customers that we got to talk to is these are what you would call the change agents inside the business this is not you know the traditional storage guy that's kicking and screaming not wanted to do anything in different or even the networking guy that is you know very you know reticent to do you know any adjustments to his network you know these are guys that say I buy into the vision of you know automating my environment building you know a cloud environment some kind of hybrid cloud environment and VCE is the enabler to that because it just makes my infrastructure look invisible and therefore I can focus my IT on more strategic elements you say Cisco remains all ends you could be potentially a billion-dollar business over the next couple of years for Cisco and it's I guess it's disruptive I I think mistakenly clearly mistakenly back I don't know couple of years ago I wrote a blog one of my predictions year in predictions with Cisco will fall flat in its face and servers and I think I think I didn't really think through how Cisco was going to market and how it would leverage EMC's channel so I presume I'm wrong on that one Cisco successful in service right so so there's two big dynamics and servers number one is you know Cisco has taken over that performance part of the market so IBM used to be the dominant player when it came to you know performance in a blade server especially and also with the rack in the stacks and as we saw IBM exited the business there was too much on pressure from them from Cisco on the performance side as well as the ODMs on the cost side so this is kind of the the unsaid thing in the Cisco you know ecosystem is Cisco's helping to eat some of the legacy vendors but you know the Taiwanese guys that are making the you know low-margin white box servers are eating the entire business so they consist of over 45% of the overall market so the question is how much further can Cisco continue to grow and how much of it is just going to become commoditized on the server side over the next couple of years it's a good quality business for first I mean you're talking about going up against you know Lenovo and ODMs I mean I think for EMC it's essentially it's selling VNX's and VMAX's which is good business right you know what the gross margins are on those products is it is a crappy business for Cisco so so both UCS and VBlock are great margins for Cisco I mean they're making real good this is a value sale that they're not you know having to aggressively discount from what I hear in the marketplace so now that this is good business it you know is a little bit overall dilutive to Cisco's you know overall margins because as everybody knows Cisco's just has ridiculous margins just because they are so dominant in the networking space so high value what about the TAM so they're focused on essentially direct sales I know they're going in with partners but it's it's the global 2000 that they're focused on is it well I guess I guess not I mean they grow in it would just say 45% 45% last year so my question is aren't they narrowing their TAM but at 45% growth I guess they're not worried about that but at some point right you know do they sort of run out of space definitely a big challenge for them that's specifically for VCE Cisco on the UCS line has grown they've expanded their rack business and some of the other solutions outside of VCE are trying to push down market and expand but when it comes to VCE right the question is if I've got 800 plus customers and I've got over a billion dollars you know definitely that that company is on the road to you know two billion and maybe more but you know right how many years from now will VCE hit a wall and if there's not growth where will they go from there the other point I want to make is if you look at the next big battles for both EMC and Cisco in the software defined space things like Viper from EMC and the ACI solution on Cisco VCE should actually be what you know one of the at the tip of the spear for these companies to be able to sell into these environments the companies that are looking to you know use IT as a differentiator are going to you know look to VCE to help deliver you know the Cisco and EMC type solutions. So where do things like NSX fit into this whole equation and how does Cisco respond with NCME is that part of Vblock and VCE or those sort of separate vectors? Yeah so there definitely is a collision a little bit on the on the VCE side VCE very early came forward and said that when it came to you know building the hardware for network they are a Cisco networking company and therefore ACI is the hardware they will sell so that means from an NSX standpoint it doesn't preclude customers from doing it but it is not because NSX isn't hardware it is software and can I do NSX you know with an ACI well there's really nothing from an engineering standpoint that would allow it but there's a very different philosophy as to how those two were put together so VCE definitely is at the middle of that and the other piece everybody would bring up of course that Cisco bought Whiptail which is you know an all flash solution that fits at the server level and that obviously completes with things like what ExtremeIO was doing and VCE is going to offer both so you know from a storage standpoint it's EMC but the way Cisco is branded it it's actually UCS Invicta is what the it is now known at so it's a server storage solution so VCE is going to sell non EMC flash sure but that's no different than I could have bought a month from now I could buy FusionIO and a Cisco UCS and that would be supported no problem I could buy you know there's lots of flash boards I could put into the server because it's a server and it's server and Dave it's an interesting point as people tend to think that Vblock is you know all things are black you know no flexibility and we've really seen VCE extend it blew me away about two and a half three years ago we had a call with them talking about databases and VCE said you want to run bare metal on a Vblock no problem we can do at least half of your environment you want to run Hyper-V you want to run you know environments that are other than VMware we can put them into the environment we're working through the all of the support issues and we will give you the flexibility to offer that so VCE is really expanded to really have to have that balance between flexible enough to meet what the customers want but sustainable and you know standard enough that customers can deploy it fast stay on a release stream and move forward okay so wave one was just get the concept of of a block of infrastructure you know into the marketplace they succeeded doing that kind of wave two seems to be opening up some you know greater options and flexibility for customers and then maybe maybe and that deals with the near-term TAM expansion and maybe longer term you got to look at other other approaches but what about specifically so so part of the equation of course is VMware what about alternative platforms like say an open stack or or Microsoft Hyper-V where do those fit is is VCE sort of just saying sorry what's all VMware all the time or no no actually they already that there was a blog post from VCE last year that says if you want to run other hyperbodies we'll allow that so specifically Hyper-V and KVM absolutely and we did an interview last year was one of the execs at EMC world and said what about open stack and they said you can expect to see VBlock become infrastructure for open stack you know in the near future so you know message I hear loud and clear from VCE is you know yes of course you know VMware is you know a very important partner and should be a solution that they can deploy and by the way if you look at Cisco Cisco is looking for alternatives to VMware but over 90% of UCS's go into VMware environments but you know you want Microsoft you want KVM you want open stack VBlock is going to be flexible on those type of deployments so that's just a response to customers wanting choice absolutely all right what about you know early on it was very difficult to bring these three companies together you know HP for instance IBM talks about the single throat to choke obviously Oracle same thing is does VCE really have a single throat to choke how are the cultures meshing between VMware Cisco and EMC you know VMware trying to be an independent software vendor you know we talked about some of the other other tensions what's your take on how those things are coming together yeah the interesting thing one of my biggest takeaways looking at VCE is that they are a very different company than either of the parents while the management teams you know came from Cisco and EMC what one of the kind of you know funny conversations is well they know those cultures and would you like to rebuild those because if you want to have a customer focused approach I mean both Cisco and EMC very focused on the customers but you know VCE you know is really riling around you know the entire really experience that you know the VCE your experience is what they're looking at if you look at you know the president of VCE is Frank Hauke who's you know years of building what was called at EMC the total customer experience and we kind of joked you know VCE should be renamed TCE it's the you know total customer experience it's really focused on making it super simple making the customers happy making it you know so their jobs are so easy to do that everything can be consumed and managed the way you're supposed to and you know you're just going to buy it and keep buying more over 60% of VCE customers are repeat customers and you know they definitely are seeing you know huge growth inside those those customers how much talk at the meeting did VCE and the other analysts spend on on the competitive environment I mean you got obviously Exadata competes with its unique red stack you got HP announced sharks you know last year and going you know after their their their single SKU approach you got NetApp doing well with with FlexPod IBM yes they got they're they're selling their x86 server business and so part of that converged infrastructure goes but they've got patterns they've got application affinity they're building their own stack what about the competitive outlook what how much discussion was spent on that topic and what's your take on so it definitely it was a topic that we discussed quite a bit with the analysts talking to the customers it didn't seem that most of the customers actually had a lot of competitive competition on the converged infrastructure it they had competition at some of the peace parts but one of the things we heard quite a lot is that VCE is one of the few companies that really just lead with converged infrastructure and that's all they do so you know if you want to do something other than converged obviously they'll hand it off to the parent companies to try to still win those deals but they said most of the time when they were running into an HP or an IBM it was convergence was an option but it wasn't necessarily the option they were pushing it was only once VCE pushed things far that the competition kind of scrambled to get back absolutely you know I mean Oracle and IBM are great at putting together an entire solution you know IBM would you know if they're they're selling especially the application they're going to sell all the services if they can just bundle in the infrastructure as part of it that that makes it a tougher deal to split out and from an Oracle standpoint you know on big customers that have you know giant licensing deals you know Oracle would pull out a lot of pressure just to get that entire red stack in there so you know those are definitely competitors that you know VCE doesn't win 100% of the time but you know VCE's position is they're winning a lot of them and most of the other competition is really below them so to be honest I've said this many times VCE is very channel focused and so is NetApp with the FlexPod solution that they do with Cisco and most of those channel partners are the same and they will kind of shake out which use case this fits in and there's not a ton of overlap there. What about HP? HP going hard after environments like SAP HANA you know the Sharks announcement they seem pretty pumped up what's what's your take on HP? Yeah you know HP I think has done a lot Dave I think HP could be even more serious about converged infrastructure and to be honest it wasn't one that we spent a lot of time on at VCE which was kind of telling. Okay now so you're positive on the story I mean if it's focused so you're you're you're favorably disposed but what about the challenges what's what's on VCE's to do list? So first of all Dave you know you know when you say what is VCE in their role you know they definitely you know started they had actually their first eight patents last year that they'd applied for and going through they had their first software product that they launched with Vision so you know what is VCE if it's not you know just kind of the love child of you know Cisco and EMC it's building this experience it's building really these processes I mean business processes are often you know underestimated as to how important they are so it's great that customers can deploy things faster deploy things reliably and you know that's that's an area that they can build on but for how long you know the competition can catch up on a lot of these you know how do I educate the channel and how do I roll things out faster and you know what happens in a couple of years if the growth slows down because that's the driver you know EMC and Cisco as long as they're bringing in new business and bringing in more business that's going to be great but you know that that's a challenge down the road but I could see in you know another three or four years if things slow down you know what would be the fate of VCE? Well the gain and share I can't think let's see I think Amazon's got a big they got a three billion dollar business that's grown probably 60 70 percent a year you have VCE at a billion dollars growing to 45 percent a year there aren't a lot of billion dollar businesses growing at that rate so it looks like they have a lot of runway big team. All right Stu thanks very much for for coming on and breaking that down. Thanks Dave. All right everybody thanks for watching this Cube conversation we'll see you next time this is Dave Vellante with Stu Miniman from Wikibon headquarters