 ServiceNow Knowledge 14 is sponsored by ServiceNow. Here are your hosts, Dave Vellante and Jeff Frick. We're back live at ServiceNow Knowledge 14. We're here at Moscone South. Come on in and see us. Come in, the Moscone South look right. We're right there. Great setup that ServiceNow has provided for us. Check out crowdchat.net slash no14. It's our CrowdChat that's going on today. CrowdChat's great engagement app. All kinds of Twitter action going on. Doug Leone is here. He's a partner at Sequoia Capital. Cube alum, Doug we met last year out in Vegas. Great to see you again. Likewise. So great action going on with ServiceNow. We've just been thrilled to be part of following the trends. Been a really interesting year. Stock way up. Pull back a little bit. Great buying opportunity for some folks that I think people are excited about. But you've got to be thrilled of being here from day zero. Well, it's just wonderful to see so many customers being so enthused over what ServiceNow has built over the years. It's just great to see a conference like this grow from a handful of customers to thousands of customers being here. When you're investing in a company, one of the things you presumably look for is big markets, right? But there's been a lot of discussion about the size of the potential market of ServiceNow. You remember when they were doing the IPO? Frank talks about this all the time. They were talking about a $1.5 billion market. Now, I mean, I've sized the TAM at many tens of billions, maybe 30 billion plus. Was it just a gut feel that you had the sense that the market was big? Did you not know? I mean, take us back to the early days. What we knew is that we had a very special founder in Fred Luddy who, when he came to Sequoia, instead of selling us about all the great things he did, instead told us all the things he screwed up. And he had the reverse approach. But we knew he was a clear thinker, had built a great product, and had a vision for the future. And when we see a founder who can articulate very clearly a vision, we know that if you articulate something clearly that you think very clearly, he had lots of customers, he had momentum, and that caused us to make an investment with relative ease. Yeah, so, and we've seen that investment evolve into something that, I mean, I just don't know anybody who really predicted this. But I wonder if you could talk a little bit about sort of other trends that you're seeing in the business. Frank talks about cloudification. You know, what are some of the rip currents that you're watching? Lots of trends in the business. First and foremost, it's the arms race and security. That's always an evolving topic. And as we implement a new solution, the bad guys are implementing a new attack. So that's a trend that's probably never gonna end. A second trend is the move to SaaS, which we all know of. It's the early innings. If you look at the total SaaS revenues, maybe it's 100 billion. If you look at the overall revenue in a software industry, it's probably closer to 900 billion. We actually think it's got a long way to go. And any CIO that thinks their financials are not gonna be running in a work day type solution or one of its competitors, SaaS competitors five, seven years from now, is just incorrect. So we actually think that most software systems and if not all software systems are gonna SaaS. And then another trend, a new trend, is IoT, Internet of Things. We've created in the last 12 months as much data in the globe as we have for all the years mankind has existed. And I think that pretty soon, whether it's all the items in your home, all the items in your companies are gonna be tracked, they're gonna communicate with one another. And that opens up a whole new market for big data and a new set of analytics companies. Yeah, you got Internet of Things now and billboards coming out of, you know, coming into San Francisco. So it's almost going mainstream. And they're related too, where you think about the security arms race and the potential damage that can be done on the Internet of Things. Takes you back to Stuxnet. And you start to think about securing that infrastructure. Those are high-staked games. In your opinion, is security as a result of IoT? Is it a do-over or is it just sort of this evolutionary, you know, incremental investment? No, it's an incremental investment where I think we have to assume that the bad guys have entered our network. And the next question is, what do we do about it? We went from black listing to white listing, from signature base security to a new generation of routers to advanced threat boxes. But at the end of the day, we tend to believe at Sequoia that unless you encrypt everything and then the next question is, which encryptum algorithm are you going to use? Because I don't think anybody's trusting the algorithms that are available right now. And all the key data management issues associated with that. I just think it's an arms race. One step in front of the other and it's going to go on for a long time. I want to ask you about AWS, who talk about disruption. You must love disruption in your business. But here you have this $3 billion plus entity growing at 60, 70% a year. I can't think of another example of a company that's sort of the gorilla and also the fastest mover. But they seem to have such an enormous lead. But one would think that that lead is maybe not sustainable. In other words, there will be other competition. Do you buy that premise? Yes, I mean, absolutely. And one of the reasons is that no one wants lock in to AWS. So large corporations have invested interests in making sure there are competitors to AWS. It's tough to discount what Google has. I think you want to keep your eyes on AT&T and others and also Microsoft. So I actually don't think it's a one-horse race if only because it's the vested interests of corporations to make sure it's not a one-horse race. Well, and the economics too, right? I mean, a lot of times, I mean, we've seen, despite lock in, you know, people, they've seen the ascendancy of Oracle, right? And they gobbled up all the software companies. But it seems the economics of cloud, even though they're very attractive, right? You're seeing online service economics, you look like software economics, but hardware economics, the marginal cost of hardware will never go to zero. So you would expect that from an economics standpoint, you'll see, as you mentioned, Google, Microsoft, kind of interesting what's going on with Nadella, you know, bringing those guys into the cloud. What's your take on Microsoft? Well, I think Microsoft has great cash flows and I think they have to do something quite drastic. They brought in someone from the inside, I hope he's a talented executive and I hope he has a mindset to go acquire and do something different. I actually think the opportunity for Microsoft is to own the enterprise. And they should take, in my opinion, some drastic type steps and go acquiring some key assets to move them up the stack, maybe up the SaaS stack and really own the enterprise. Now go hard after it, interesting. I wonder if you could talk about how Sequoia has changed over the last, you know, several years. How are you guys evolving, you know, reacting to the market changes? We have changed in subtle ways. We asked ourselves the one question seven or years ago, or where do we think the most valuable companies in the globe are gonna be built? And it was no longer clear that those companies would come out of the US or Silicon Valley. So we expanded into India and China and right now we have a big operation in China. We have had 24 initial public offering where investors are some of the largest companies. Also as the world has gotten more and more flat, lots of our companies in the US are very interested in figuring out on how to go to India where we see the largest growth in a mobile type population around the globe or in China, which here to four has been very tough to penetrate. And in companies like LinkedIn, we've done a subsidiary where Sequoia Capital is an investor along with LinkedIn and a China sub to help LinkedIn go into China. So we think that the world for the first time maybe, it's really, really flat. Nothing in Ukraine? Not yet. Okay, we'll let things stabilize there. We've heard a lot of talk, Doug at this conference about the CIOs, how CIOs are transforming. What are you seeing from the CIOs? Are we finally at the point where CIOs are gonna lead the charge to value production? We've heard that for decades. Are we there now? Well, I think CIOs were always in value type of production. I think what they were though, that they were the stop sign. They were the enemy of the end user. I think the CIOs of the future, in order to survive, they have to be enablers. They have to get in front of the parade. They have to be the best friend though of the end users and try to build flexible type of systems, whether it be infrastructure or software systems, that in many ways, obvious that need for the CIO. Why have that layer if you've got a provider and a user in a corporation that can communicate with one another? So I think CIOs more and more, and I see it maybe for this year, for the first time, are not thinking that this is a fad, that this is actually a trend that they better get in front of. So Doug, things that are feeling a little frothy around the valley, big investments, big numbers. What's kinda your take on the current state? Yeah, I think that my take is we are in a high price, I don't wanna call it a bubble, a period of time. Now, the prices have adjusted. Now, I'm not making any comment as to the earnings announcement of any of our public companies. Although I can tell you that business is very good both across our enterprise and consumer companies. And if you heard what I said about our SaaS companies being in the first inning, we have a long way to go. So do I think that SaaS companies should trade at 30 times revenues? Probably not. But I do think that given the runway that these companies have, and given the business model of recurring revenues, higher prices that maybe are awarded into an on-prem software companies are in order. And I actually think that the price adjustment that we've seen over the last few weeks is quite healthy because gone are the tourists, gone are the people that come in and want to do the pre-IPO rounds. And here we gotta go again with the investors, I think of substance, the investors that are in there for the very long term. I agree, I think it's a good, healthy pullback. It's sort of interesting to me to observe companies like ServiceNow, Splunk, Tableau, Workday, they seem to be trading together, completely different companies, different business models. Companies like Tableau really not even SaaS, yet they sort of trade with those other SaaS companies. As they pull back, do private companies reset their expectations or do they stay lofty? Well, it's a funny thing, you know, private company CEOs are interesting. If the market goes up at 10 a.m. in the morning by 1 p.m., the prices go up in a private company. If the market drives like 500 points at 10 a.m., it's as if nothing happened. And so I think there's latency on downpricing and there's speed of light immediacy on uppricing. It's an interesting algorithm, isn't it? All right, Doug, we're going to have to leave it there around the time. Thanks very much for coming back to theCUBE. It was always a pleasure. Thank you. Thank you. All right, keep it right there, everybody. We'll be right back on our next guest. This is theCUBE. Thank you.