 From theCUBE Studios in Palo Alto in Boston, connecting with thought leaders all around the world, this is a CUBE Conversation. Hello everybody, welcome to theCUBE's exclusive coverage of IBM Thinks 2020 Digital Event Experience theCUBE, covering wall-to-wall. We've got a number of interviews planned for you going deep. My name is Dave Vellante. I'm here with Stu Miniman. Stu, how you doing? Doing great, Dave. So we're socially distant, as you can see, in the studio in Marlboro, everybody's six feet apart. Got our masks on, took them off for this segment. So Stu, let's get into it. So a very interesting time, obviously, for IBM. Arvind Krishna doing the big keynote, Jim Whitehurst, new president, so you got new leadership. A lot of talk about resilience, agility, and flexibility. Which is kind of interesting, obviously, a lot of their clients are thinking about COVID-19 in that context. IBM is trying to provide solutions and capabilities. We're going to get into it, but really the linchpin of all this is OpenShift and Red Hat. And we're going to talk about what that means for the vision that Arvind Krishna laid out. And let's get into it. Your thoughts on Think 2020. Yeah, so Dave, of course, last week, we had Red Hat Summit. So Red Hat is still Red Hat. You and I had a nice discussion going into Red Hat Summit. Yes, $34 billion acquisition. They're now under IBM. Jim Whitehurst slides over in that new role as president. But one of the questions we've had fundamentally, Dave, is does an acquisition like this, will it change IBM? Will it change the cloud landscape? OpenShift and Red Hat are doing quite well. We definitely have seen some of the financials. And every audience that hasn't seen your analysis segment of IBM should really go in and see that because Red Hat, of course, is one of the bright spots in the financials there. Good growth rate on the number of customers and what they're doing in cloud. And underneath a lot of those announcements, you dig down and, oh yeah, there's OpenShift and there's Red Hat Enterprise Linux. Well, so a long partner for decades between IBM and Red Hat, but is how will the IBM scale really help the Red Hat pieces? There's a number of announcements underneath. Not just how does the entire world work on Z and power and all of the IBM platforms, but I believe it's, Arvin says, one of the enduring platforms needs to be the hybrid cloud and you heard at Red Hat Summit the entire week, it was the open hybrid cloud, it was the discussion. Well, yeah, so actually it was interesting, you brought up Arvin's sort of pillars. There were three enduring platforms that he cited and then the fourth, of course, is I guess open hybrid cloud. But the first was mainframes, the second was, and I'm not sure if this is the right order, the second was services, and then the third was middleware. So, basically he's saying, excuse me, we have to win the day for the architecture of hybrid cloud. What's that mean to you? Then I'd like to chime in. Yeah, so Dave, first of all, when we did our analysis when IBM bought Red Hat and says, my TLDR was, does this change the cloud landscape? My answer was, no. If I'm Amazon, I'm not sitting there saying, oh geez, the combination of IBM and Red Hat, well they're partners and they're gonna be involved in it. Does IBM have huge opportunities in hybrid cloud, multi-cloud and edge computing? Absolutely. One of the questions is, how will IBM services really be transformed? Dave, we've watched over the last decade some of the big service organizations have really shrunk down. Cloud changed the marginal economics. You've done so much discussion of this over the last handful of years that you need to measure yourself against the hyperscalers. You need to see where you can add value. And the question is, Dave, when and where do we think of IBM in the new era? Well, so coming back to sort of your point about Red Hat and services, is it about cloud, is it about services? Near term, I've said it's more about services than it is about cloud. Longer term, I think it is about cloud, but IBM's definition of cloud is maybe a little different than ours. But when Ginny went on the road show after the Red Hat acquisitions, he said this is going to be a creative to free cash flow within one year. And the reason why I always believe that is because they were going to plug Red Hat, and we've talked about this, an open shift right into their services business and start modernizing applications right away. They've actually achieved that. So I think they had pretty good visibility. And that was kind of a mandate. So IBM's huge services organization is in a good position to do that. They've got deep industry expertise. We heard Arvind Krishna on his keynote talking about that. Jim Whitehurst talking more about services. You really didn't hear Jim previously in his previous roles talk a lot about services other than as part of the ecosystem. So it's an interesting balancing act that IBM has to do. The real thing I want to dig into, Stu, is winning the day with the architecture of hybrid cloud. So let's start with cloud. Let's talk about how IBM defines cloud. IBM on its earnings call, we talked about this on our Red Hat summit analysis. The cloud was 23 billion, growing at 20 plus percent. When my eyes have been bleeding, reading IBM financial statements in 10Ks for the last couple of weeks. But when you go in there and you look at what's in that cloud, and I shared this on my breaking analysis this week, a very small portion of that cloud revenue that last year, 21 billion, very small portion is actually what they call cloud, cloud and cognitive software. It's only about 20% of the pie. It's really services. It's about two-thirds services. So that is a bit of a concern, but at the same time, it's their greatest opportunity because they have such depth in services. If IBM can increase the percentage of its business that's coming from higher margin software business, which was really the strategy go back 20 years ago, it's just the services became this so big and so pervasive that software percentage, maybe it grew, maybe it didn't, but that's IBM's opportunities to really drive that software-based revenue. So let's talk about what that looks like. How does OpenShift play in that IBM definition of cloud, which includes on-prem, the IBM public cloud, everybody else's public cloud, multi-cloud, and the edge? Yeah, well, first of all, Dave, the question is where does IBM technologies, where do they live? So look even before the Red Hat piece, if we looked at IBM systems, there's a number of times that you're seeing IBM software living on various public clouds. And that's goodness. One of the things we've talked about for a number of years is how can you become more of a software company? How can you move to more of the cloud consumption models? You're going more OPEX and CAPEX. So IBM had done some of that and Red Hat should be able to help supercharge that. When we look at some of the announcements, the one that of course caught my eye the most, Dave, is the IBM cloud satellite, would say the shorthand of it, it's IBM's version of Outposts. And underneath that, what is it? Oh, it's OpenShift underneath there. And how can I take those pieces? And we know OpenShift can live across almost any of the clouds and cannot live on the IBM cloud. Absolutely, can it be OpenShift be in the data center and on virtualization, whether it be open source or VMware, absolutely. So satellite being a fundamental component underneath of OpenShift makes a lot of sense. And of course, Linux. Yeah, Linux underneath. If you look at the one that we've heard IBM talking about for a while now is CloudPacks, is really how are they helping customers to simplify and build that cloud native stack? You start with Red Hat Enterprise Linux, you put OpenShift on top of that, and then CloudPacks are that simple tool set for whether you're doing data or AI or integration, that middleware that you talked about in the past, IBM has ways that they've done middleware for decades, and now they have the wonderful open source to help enable that. Yeah, I mean, WebSphere, BlueMix, we're in IBM cloud now, but OpenShift is really that PAS layer that IBM coveted. Right, and I was talking to some of IBM's partners getting ready for this event and they say if you dig through the 10K, CloudPacks is one of those that, there are thousands of customers that are using this, so it's good traction. Not just, hey, we have this cloud stuff and it's wonderful, and we took all of these acquisitions, everything from soft layer to software pieces, but CloudPacks is a nice starter for companies to help really move forward on some of their cloud native application journey. Yeah, so what have we talked about this past week in the breaking analysis, and certainly David Floyer has been on this as well, is this notion of being able to run a red hat-based, let's call it, stack everywhere. And Jim Whitehorse talked about that. Essentially, really, whether it's on-prem, at the edge, in the clouds, but the key there, Stu, is being able to do so natively. So every layer of, again, call it the stack. IT services, the data plane, the control plane, the management plane, all the planes, being able to, networking, the transport, et cetera, being natively able to run wherever it is so that you can take fine-grain advantage and leverage the primitives on respective clouds. The advantage that IBM has, in my view, I love your thoughts on this is that red hat-based platform, it's open source. And so, I mean, is somebody going to trust Amazon to be the cloud native, anybody's cloud solution? Well, if you're part of the Amazon stack, I mean, Amazon, frankly, in Oracle, have a similar kind of mindset. Red stack, Amazon stack, make it all homogeneous, and it'll run just fine. IBM's coming at it from an open source perspective. So they, in some ways, will have more credibility, but it's going to take a lot of investment to really shepherd those standards. They're going to have to put a lot of commitments in, committers, and they're going to have to incent people to actually adhere to those standards. Yeah, I mean, Dave, it's the idea of Paz. The platform is a service that we've been chasing as an industry for more than a decade. What's interesting, if you listen to IBM, what's underneath this? Well, it's, you know, taking advantage of the container-based architecture with Kubernetes underneath. So can I run Kubernetes anywhere? Yeah, pretty much. Every cloud has their own service. OpenShift can live everywhere. The question is, what David Floyer is rightly putting out, okay, if I bake to a single type of solution, can I really take advantage of the native offerings? So the discussion we've always had for a long time is do I virtualize something? In which case, I'm really abstracting away. I get to, you know, I can't take advantage of all of the various pieces. I do multi-cloud, in which case, I have some least common denominator way of looking at cloud because what I want to be able to do is get the value and differentiation out of each cloud I use, but not be stuck on any cloud. And yes, Dave Redhat with OpenShift and based with Kubernetes and the open source community is definitely a leading way to do that. What you worry about is saying, okay, how much is this stuck on containerization? Will it be able to take advantage of things like serverless? You talk to IBM and say, okay, underneath, it's going to have all of this wonderful components. Dave, when I talk to Andy Jassy and he says, if I was rebuilding AWS today, it would all be serverless underneath. So what is that underlying construct? You know, is it flexible and can it be updated? Redhat and IBM are going to bridge between the container world and the serverless world with things like Knative, but absolutely we are not yet at the nirvana that developers can just build their apps and know that it can run anywhere and take advantage of anything. So, you know, some things we know we need to keep working on. So a couple of other things there. So Jim White here has talked about ingesting innovation, that the nature of innovation is such that it comes from a lot of different places. Open source obviously is a fundamental component of that. He talked about the telco edge. He gave an example of Vodafone. Arvind Krishna talked about Anthem, kind of redefining healthcare post COVID. So you're seeing some examples. Of course it's good that IBM puts forth some really, you know, proof points. It is not just, you know, slideware, which is good. I think the interesting thing, you know, you can't just put, you know, containers out there and expect the innovation to find its way into those containers. It's going to take a lot of work to make sure that as those different layers of the stack that we were talking about before are actually going to come to fruition. So there's some other announcements in this regard. So there's Edge Computing Application Manager, let's say the telco edge. A lot of automation focused. You mentioned IBM Satellite. There's the Financial Services Cloud. So we're seeing IBM actually sprinkle around some investments there. As I said in my breaking analysis, I'd like to see them dial up those investments a little bit more. Maybe dial down the return of cash, at least for the next several years, to shareholders. Yeah, I mean, Dave, the concern you would talk to most customers and you say, well, if you try to even optimize your own data center and turn it into a cloud, how can you take advantage of the innovation that the Amazon, Microsoft, Googles and IBMs are putting out there in the world? You want to be able to plug into that. You want to be able to leverage those new services. So that is where it's definitely a shift, Dave. You think about IBM over a hundred years. Usually they're talking about their patent portfolio. I think they've actually opened up a lot of their patent portfolio to help attack the COVID-19. So it is definitely a very different message and tenor that I hear under Arvin Krishna in very early days than what I was used to for the last decade or two from IBM. Yeah, well, at the risk of being a little bit repetitive, one of the things that I talked about in my breaking analysis is I highlighted that Arvin said he wants to lead with a technical story, which I really like. Arvin's a technical visionary. His predecessors, his three predecessors, were not considered technical visionaries. And so I think that's one of the things that's been lacking inside of IBM. I think it's one of the reason why services has been such a dominant component. So look, Lou Gershner, it's harder to argue with the performance of the company, but when he made the decision, and IBM made the decision to go all in on services, something's got to give and what gave, and I've said this many, many times in theCUBE, was product leadership. So I'd like to see IBM get back to that product leadership, and I think Red Hat gives them an opportunity to do that. Obviously Red Hat and Linux, you know, open source, is a leader, the leader. And this is jump ball, as we've talked about many times in this multi-hybrid cloud edge, you know, throwing all the buzzwords, but there's some interesting horses on the track. You got VMware, we throw in AWS just because they're there. You can't talk about cloud without talking about AWS. Certainly Microsoft has designs there, Cisco, Google, everybody wants a piece of that pie. And I would say that, you know, Red Hat with open shift is in a good position if in fact they can make the investments necessary to build out those stacks. Yeah, it's funny, Dave, because IBM for the history, the size that they are, often can get overlooked. You talk about, you know, we've probably spent more airtime talking about the VMware-Amazon relationship than almost any in the last few years. Well, we forget, we were sitting at VMworld and two months before VMware announced the Amazon partnership, who was it that was up on the main stage with Pat Gelsinger? It was IBM, because IBM was the first partner. I believe, I saw numbers that IBM was saying that they have more hosted VMware environments than anyone out there. I'd love to see the data on it to understand there, because, you know, IBM plays in so many different places. They just often are not, you know, aggregated and counted together, you know, when you get outside of some of the, you know, middleware mainframe, some of the pieces that you talked about earlier, Dave. So, IBM does have a strong position. They just haven't been the front center leader too often, but they have a broad portfolio and very much services led. So, they kind of get forgotten, you know, off on the sides. So, IBM's stated strategy is to bring those mission-critical workloads into the cloud. They've said that 80% of the workloads remain on-prem. Only 20% have been cloudified. You know, when you peel the onions on that, there's just so much growth in cloud-native workloads. So, you know, there is a somewhat of a so what in that, but I will say this. So, where are the mission-critical workloads? Where do they live today? They live on-prem. We can agree on that, but whose stacks are running those? It's IBM and it's Oracle. And David Fleur has done some research that suggests that if you're going to put stuff into the cloud that's mission-critical, you're probably better off staying with those stacks that are going to allow you to a lower risk move, not have to necessarily rip and replace. And so, you know, migrating a mission-critical Oracle database into AWS or DB2 infrastructure into AWS is going to be much more challenging than going same-same into the IBM cloud or the respective Oracle cloud. So, I guess my question to you, Stu, is why do people want to move those mission-critical workloads into the cloud? Do they? Well, first of all, it's unlocking innovation that you talked about, Dave. So, you know, we looked at from a VMware standpoint versus a Red Hat standpoint, if you talk about building new apps, doing containerization, having that cloud-native mindset, do I have a bimodal configuration? Not a word that we talk about as much anymore because I want to be able to modernize it. Modernizing those applications, doing any of those migrations, we know we're super challenging. You know, heck, David Fleur has talked about it for a long, long time. So, you bring up some great points here that, you know, Microsoft might be the best at meeting customers where they are and giving people a lot of options. IBM lines up in many ways, in similar ways. My biggest critique about VMware is they don't have tight ties to the application. It's mostly, you know, virtualize it or now we have some cloud-native pieces, but other than the Pivotal Group, they didn't do a lot with modernization on applications. IBM, with their middleware history, Red Hat, with everything that they do with the developer communities are well-positioned to help customers along those digital journeys and going through those transformations. So, it's, you know, applications need to be updated. You know, if anybody that's used applications that are long in the tooth know that they don't have the features that I want, they don't react the way they want. Heck, today, Dave, everybody needs to be able to access things where they are on the go. You know, it's not a discussion anymore about, you know, virtual desktop. It's about, you know, work anywhere, have access to the data where I need it and be much more flexible and agile. And those are some of the configurations that, you know, IBM has history and their services arm can help customers move along those journeys. Yeah, so, you know, I think one of the big challenges IBM has is it's got its fingers in a lot of pies. AI, you know, they talk a lot about blockchain, talk about quantum. Quantum's not going to be here for a while. It's very cool. We have an interview coming up with Jamie Thomas and, you know, she's all over the quantum. We've talked to her in the past about it. But I think, you know, if you think about IBM's business in terms of services and product, you know, it's whatever it is, a $75 billion organization, two thirds or maybe not quite two thirds, maybe 60 plus percent is services. Services are not an R&D intensive business. You look at a company like Accenture, Stu, I think Accenture spent last year $800 million on R&D. They're a $45 billion, $46 billion company. So if you really isolate the IBM, you know, company to products, whatever, call it $25, $30 billion, they spend a large portion of that revenue on R&D to get to the $6 billion. But my argument is it's not enough to really drive the type of innovation that they need. Just another, again, Accenture data point is kind of a gold standard along with IBM, EY, and others and a couple of others in services. They return 76% of their cash to shareholders. IBM has returned consistently 50 to 60% to its shareholders. So Arvin stated he wants to return IBM to growth. You know, every IBM CEO says that. Ginny, I used to talk about has to shrink to grow. As I said, unfortunately, she ran out of time and now it's up to Arvin to show that. But to me, growth has got to come from fueling R&D, whether it's organic or inorganic. I'd like to see organic as the real driver for obvious reasons. And I don't think just open source in and of itself obviously is going to attract, it'll attract innovation but whether or not IBM will be able to harness it to its advantage is the real challenge unless they're making huge, huge commitments to that open source. And in a microcosm, you know, as a kind of a proxy we saw what happened to Hortonworks and Cloud Era because they had to fund that open source commitment. You know, IBM, we're talking about much, much with the hybrid, multi-cloud edge, a much, much bigger opportunity but requirement. And we haven't even talked about AI. You know, bringing, I think you have a quote on data is the fuel, what was that quote? Yeah, so it was Jim Whitehurst. He said data is the fuel, cloud is the platform, AI is the accelerant, and then security, my power phrase is the mission control there. So it sounds a lot like your innovation cocktail that you've been talking about for the last year or so, Dave. But... Yeah, data AI, cloud. But so, okay, but AI is the accelerant. And I agree, by the way. Applying AI to all this data that we have over the years, automating it and scaling it in the cloud is critical. And if IBM wants to define cloud as, you know, a cloud experience anywhere, I'm fine with that. I'm not a fan of the way they break down their cloud business. I think it's bogus, and I've called them on that. But okay, fine. So maybe we'll get by that, I'll get over it. But really, that is the opportunity. It's just, it's got to be funded. Yeah, no, Dave, absolutely. IBM has a lot of really good assets there. They've got strong leadership, as you've said. Can Arvin do another Satya Nadella transformation? There's the culture, there's the people, and there's the product. So, you know, IBM, you know, absolutely has a lot of great resources and, you know, smart people and some really good products out there, as well as some really good ecosystem partnerships. It's, you know, Amazon is not the enemy to IBM. Microsoft is a partner for what they're doing. And even Google is somebody that they can work with. So, you know, I always say back in the 10 years I've been working for you, Dave, I think the first time I heard the word co-opetition, I thought it was like an IBM trademark name, because they were the ones that really, you know, led that as to have a broad portfolio and work with everybody in the ecosystem, even though you don't necessarily agree or partner on every piece of what you're doing. So, in a multi-cloud AI, you know, open ecosystem, IBM's got a real shot. Yeah, I mean, a Satya Nadella-like move would be awesome. Of course, Satya had a much, much larger, you know, cash horde to play with, but I guess the similarities do are, you're notwithstanding that now we have three prominent companies run by Indian native-born leaders, which is pretty astounding when you think about it. But notwithstanding that, there are some similarities just in terms of culture and emphasis and getting back to sort of the technical roots, the technical visionaries. So I'm encouraged, but I'm watching very closely, Stu, as I'm sure you are, kind of where those investments go, how it plays in the marketplace, but I think you're right. I think people underestimate IBM, and but the combination of IBM Red Hat could be very dangerous. Yeah, Dave, how many times did we write the article, you know, has the sleeping giant of IBM been awoken? So I think it's a different era now, and absolutely, IBM has the right cards to be able to play at some of these new tables, and it's a different IBM for a different era. Somebody said to me the other day that, and you probably heard this, you have too, but it was the first I heard of it, is that within five years, IBM had better be a division of Red Hat versus the other way around. So, all right, Stu, thanks for helping to set up the IBM Think 2020 digital event experience. We're coming at you wall-to-wall coverage. I think we've got over 40 interviews lined up, Stu. You've been doing a great job, both last week with the Red Hat Summit and helping out with IBM Think, so thanks for that. Dave, no rainy week at the new Moscone, like we had last year, really good content from the comfort of our remote settings. Yeah, so keep it right there, everybody. This is Dave Vellante for Stu Miniman. Go to siliconangle.com, you'll check out all the news. Thecube.net, we'll have all of our videos. We'll be running wall-to-wall, wikibon.com has some of the research action. This is Dave Vellante for Stu Miniman. We'll be right back right after this short break.