 Live from Las Vegas, Nevada, it's the Cube at IBM Edge 2014. Brought to you by IBM. Hi, everybody, we're back. Welcome to the Cube. This is the production that we have at the Cube of IBM Edge. This is our third year doing Edge. First year was in Orlando, second year in Vegas. We're back in Vegas. Great venue. 5,000 people here. Tom Rosemilia is here. Tom is the Senior Vice President of STG. Tom, welcome back to the Cube. It's good to see you again. Thank you, Dave. I remember doing this last year with you. Yeah, so, as I was saying, the progression of Edge continues. It's growing nicely. A lot of practitioners. Good buzz. At the Sands. How do you feel? I feel pretty good. I must say, you know, when I set in the main tent and infrastructure matters and when I said no matter what we do to R&D, you still need to run something and I said, no matter what we do to R&D, you still need to run software on hardware. You know, everybody clapped. And so it was kind of a refreshing feeling that people realized that no matter how much R&D we come up with, you still got to run it somewhere. You know, whether it's on-prem, off-prem, private cloud, public cloud, whatever it is, it's still running on something, you know? And that matters. You worry about your qualities of service. You worry about whatever it is you're contracting to get, right? So now, at the same time, you've got all kinds of changes going on in the business, right? All kinds of pressures. One or two. Public cloud. You've got software defined. You've got big data cloud, mobile, social. How is that changing sort of IBM's direction, its strategy, and how you as the leader allocate resources? Well, I don't know if you remember this, Dave, but a year ago, I was just, I just had been named in this role and I spent the year prior doing strategy for IBM. Basically, head of strategy. You're taking over for Ginny, right? Next. Yeah. Not that. But we really fundamentally changed our whole way of looking at the world. And I did it anyway. I call it the prairie dog role where I got to really look around and see what was happening with mobile, with social, with analytics, and the cloud. Changed my whole perspective on it. And we really, not that I did it, but we collectively have changed our whole agenda around cloud, analytics, mobile, and social. And in each one of those areas, we've gone deep. And I won't try to cover the whole breadth of IBM. But if you look at cloud and the number of engagements that we and STG did, last year's 5,000 engagements around private and hybrid. And hybrid is a very exciting topic for me because it's the intersection of these systems of engagement and these systems of record. So all the stuff you do on your mobile device, if it's really serious business, it's going to end up somewhere. And it's going to get connected to somewhere. We got 90% of our mainframe clients are saying that they're seeing the effects of mobile on their business. Because it's driving more transactions, driving more queries. People look stuff up because they can. Or they take pictures of the check and they send it into the bank. So now all of a sudden it becomes six transactions instead of a batch job to run there. So for us, cloud is all about getting utilization rates up for people so that you can benefit from the hardware and the software you already bought. You look at analytics and what we've done to the portfolio. It's fairly dramatic changes around analytics in the STG portfolio. What we've done with power, we built power eight from the ground up just for the big data solution. I mean it always been good at analytics but really, really designed for big data. You talked in your keynote about economics and you said the driver for a lot of this cloud stuff really isn't economics. That's not the starting point. It's agility. At the same time, economics matters as infrastructure matters. So I have a question for you. Is rental always going to be more expensive than owning? It really depends what you're doing. Let me just correct one thing. I didn't say it started with economics and now it's about agility. I should have said it started about people thinking it was going to be less expensive and then it became about agility. So it's always about economics. Everything's always about economics. So for me it was about, and the economics are positive for cloud in the agility space. In the speed with which you can get started, you can get up and running. You don't need to build a data center. If you're a startup, the first thing you do is you pull out your credit card and hopefully come to us with soft layer, but you go to competition, you can get up and running very, very quickly. So the rental model or the OPEX model versus the capital expenditure has been really good for the industry in terms of giving people capacity when they need it as they need it. And so I think that's what's really fundamentally changed. At the end of the day, if I've got an up and running system, it's not clear to me and the data that I referred to this morning and the analysts, financial analysts in the industry and the financial analysts are saying, if you go here to save money, don't do it. Go here for the speed, for the flexibility that you can get for the experience that you can get, for the acquisition experience you can get. If you're doing this purely about saving money, you may be very surprised that you're not going to save money. Everybody throws around that race to zero. Stu and I talk about John Furrier as well on the cloud. Why is the cloud not a race to zero interview? First off for us in IBM, it's a great way, and I'll speak at the IBM level, it's a great way for us to reach clients we don't reach today. So if you look at our software acquisition and you see some of the some of the main clients who are running on software, it's the Yelps, it's incredible numbers. If you look at your iPhone or your Android device, half the applications on there are hosted on software. So this is not a substitution. These are people that weren't our clients before. So if you look at what we're doing with BlueMix at the middleware, at the platform as a service layer, there's a whole world out there of customers who can now try and buy software that may never have gotten called on by a sales rep. So to me it's an expansion, not a substitution for our business. And that's why we're very excited. It's why it's not a race to zero. Then when you get into places where you're betting your business on something, you're going to want to know that that hardware and that software and the systems management that go along with it are superb. Otherwise, your customers are one swipe away from saying I'll go somewhere else. So whatever it is, whether it's streaming this or purchasing that, or the number of people who are making acquisitions from their mobile devices or moving money in their 401k on their mobile devices, I need to know that stuff is secure. They'll pay for that value. They'll pay for that value because they know that if they don't as a company, if I don't provide you an outstanding experience, you're going to go somewhere else. So one of the things we've done, again, it's not my area, but mobile first, is about designing things for these devices, not designing it for a browser and then trying to port it. You spend all your time doing this and that and this. You can tell it was a browser-based answer that now I've called my mobile app versus something that takes advantage of the smarts that are in those devices. So Tom, if we talk about the big trends in the industry right now, cloud, mobile, social, it's mostly about the modernization of applications and infrastructure serves that up. I was at OpenStack last week and if you'd asked most of the people there, does infrastructure matter? They're like, I don't know, we're going to standardize it and just give you some APIs and do open source. What do you say to all those people that say application drives everything? IBM's got a huge portfolio of big data and analytics and mobile that they're doing out there. How much does infrastructure really matter? So first off, it's interesting that you say that. We've got a lot of people, probably the most in the industry, contributing to OpenStack. So we're big supporters of OpenStack. OpenStack, by the way, is infrastructure. So if they say it doesn't matter, they're saying, we don't matter, which boggles my mind because what they're doing is doing it in an open and a standard way. But everybody who's embracing OpenStack is delivering infrastructure. Matters when it breaks. So I would debate that what they're doing is not infrastructure, it's absolutely infrastructure. Systems management, right? I don't just mean hardware when I talk about infrastructure. It's the hardware and it's the governance of that hardware, the security that goes along with it, provisioning of it, use of it. Much more than just hardware. Absolutely, absolutely. We saw Ginny last week on CNBC before the financial analysis meeting. Look good, very confident, poised, comfortable with where IBM was at. Our whole company stopped. We said, oh, Ginny's on. Everybody gathered around. Listen, listen to her words. She's also, I imagine, very demanding, just observing. And a big part of her business is your business. So I wonder if you could talk about some of the things that are in your control. I mean, some things are out of your control, but some things are in your control. You've got a new line of storage portfolio, obviously, your STG, so it's a little higher level than just storage. But you refresh the line, and then you have a new software to find me. What kinds of things are in your control, and talk about your business and what you expect going forward? So, like most business people, you have a fixed set of monies you can spend and a fixed number of people that you have. And the biggest decision we make every day is how do we deploy the people? What are the priorities that we're going to call? What are they going to be working on? And so we've recast our entire business in a cloud analytics, mobile, social vein to say, what does STG mean for those spaces, right? So we've got people working on those things because they're such important businesses for us. So we've called plays, we've enabled teams, we've actually changed our messages for it, not just for the marketplace, but for internals to say, here's what we're doing, here's why infrastructure matters for cloud, for analytics, for mobile, for social. All of those things are decisions that I make to transform this business. And you're right, there's a lot of moving parts, there's a lot of things undergoing change. The mainframe for me is a cyclical business, as we've declared, as Jenny has declared, because I'm never as good as my great-looking quarters, I'm never as bad as my bad quarters. But that thing just comes and goes, and there's so many people, Western civilization still runs on that. So the downturns are reversible, right? Is that what you're saying? Well, actually what I'm saying is that what we look at as an industry, and there's no other way to do this, I'm not suggesting it's wrong, is we look at the quarterly hardware revenue. But that doesn't say whether people are, you know, when I grew 70% one of my quarters when I was just running the mainframe, I didn't grow 70%, meaning that I had 70% more customers, or that there was 70% more capacity up there. Cycles. They were cycling through, so you couldn't actually tell what's happening to the install base. It's really the install base that you worry about, is it saying, are they still using my stuff? This quarter they don't happen to buy new stuff, but they still have my stuff. So there's a big difference between the quarterly hardware revenue and what that does to the install base. And we have grown the MIPS install base out there. We have grown the power install base out there. I mean, storage is growing like 35%, you know, in just gigabytes. So the industry is consolidating, but the install base is not consolidating? Is that what I'm hearing? I'm saying the install base is not going away. You know, we deliver them. You know, one of my challenges, we deliver them outstanding price performance, which is great for them. Year after year after year. It makes it hard for me to grow revenue when I'm saying, you know, the stuff now comes at, you know, twice the capacity, half the price. You know, you do the math and you go, man, that's a lot to sell. So the price performance that we deliver, in a combination of just the sheer speed, optimization we're doing with our software, and then raising the utilization rates. Look at the utilization rate. Average server utilization in the industry is, what, 10 to 15 according to the McKinsey data? We've got customers running 60, 70, 80. Mainframe customers running 90, 95. I mean, these people are getting the most out of that, you know, capacity that they bought. That's a hardware software and actually a labor statement because I'm maximizing, you know, what I have. So I'm selling into that, right? So they're not going away. They're just not necessarily meeting as much more as would take to grow my revenue. That's my challenge. Now, you guys, you're embracing software defined. You're embracing open source. A lot of people would say, conventional wisdom, would say, Tom, what are you guys out of your mind? You're going to put everything on command for open source? How are you going to make any money? What would you say to that? So for us, open source is really a development model, not a sales model. It's not about, you know, selling open source for us. It's about embracing it, clothing it, and delivering it with increased value, increased testing, so quality assurance that goes into that, you know, the performance tuning that goes into that, the support that goes into that. So it's not open source or make money. It's, for us, it's about, that's why we contribute so much to open source. But you talk about, you know, storage since that's one of our focus areas here, I'll try to end with that. You know, there's a lot of disruptions going on in the storage space right now, and I'm good with that. You know, software defined is a huge disruptive play because it says that I can, you know, I can use commodity based hardware and make it up in the software, the infrastructure software that rides on top. Not application software, the infrastructure software that says I can figure out how to recover from failure, so if I have older disks that are going to fail, I can keep going. So software defined allows me infinite scale at up to 90% lower cost. That's a pretty attractive value proposition for a client. If you look at flash and what it's doing to the industry, it's not priced per gigabyte or priced per terabyte. It's priced per what I need. It's, you know, and I need far less flash than I do spinning disks. I don't have to underfill it. I could fill it almost all the way up, and the performance I get is dramatic. So that's a game changer in the industry. I'm good with that. What we're doing around power with open power and the consortium with now 31 members of the consortium, I'm good with that. I think that's a wonderful move for us. Well, we heard one of your customers on stage talking about a two-order of magnitude improvement. I tweeted out there's got to be some flash in there somewhere. But I learned in Boston last week you're going to ride the coattails of Watson. You bring in HPC and big data to get into storage and analytics and flash. Those are all the disruptive factors that you have to push those levers. I do, I do, and that's what we're pushing. We've really re-changed the agenda to be about those things right there. All right, we'll have to end it there, but I'll give you the last word. The bumper sticker pulling away from Las Vegas as you go on to your next show, your next customer meeting. What's that bumper sticker say? What's the message to customers? I think it might be infrastructure matters. Infrastructure matters. There you go. Thank you, Tom. I appreciate you coming on theCUBE. Thanks, Dave. All right, keep it right there. We'll be right back with our next guest. This is theCUBE. We're live from IBM Edge in Las Vegas.