 Okay, welcome to theCUBE, SiliconANGLE.tv's always extensive coverage of what's going on in technology. SiliconANGLE.com is the reference point for innovation and I'm John Furrier, the founder of SiliconANGLE.com and we are here in Orlando, Florida, live for IBM Edge 2012, which is their innovation conference around storage technology. theCUBE will be here for two days broadcasting live wall-to-wall coverage of what's happening within IBM around storage or on converged infrastructure. We're bringing to you live from theCUBE. I'm John Furrier, the founder of SiliconANGLE.com and I'm joined with my co-host this week. I'm Dave Vellante of Wikibon.org and we're here in Orlando and we're going to give you wall-to-wall coverage of Edge. John, we've been, we're on the summer tour. It's not even summer yet, we're on the summer tour, but so two weeks ago we were at SAP Sapphire last week at EMC World. We're here at IBM Edge. At Edge is a conference that really was spawned out of a sort of an informal customer conference that occurred last year and IBM realized that it really needed to have a storage event. So we've got, the plan was to have 1500 people here, the evidently it's sold out, the number's closer to 2000, so registered, I think it's 1900 registered, so there'll probably be at least 16 or 1700 that show up here. And as always, theCUBE will be covering this wall-to-wall. We've got the executives, we've got customers, we've got independent perspectives, we've got analysts. We're also joined by our colleague, John MacArthur. John, welcome. Thank you, Dave, great to be here. I appreciate the invitation and looking forward to a great event today. So, Johns, at its peak, IBM held 50% of the computer industry's revenue in two thirds of its profits. Obviously had the industry's first known monopoly and we all know the story of how that changed with the personal computer. Over the course of the last 20 years, IBM's strategy has changed dramatically as it's moved more towards software and services. About 10 years ago, IBM started to de-invest in storage under the leadership of Bill Zeitler. Bill Zeitler actually made a statement to me at one point. He said that, you know, something's gotta give. He said the industry's R&D is increasing at 16% a year, but the revenues are only increasing at 9% per year. So what gave was storage investment. So IBM actually de-invested in storage. It sold off its controller business, as you recall. It sold the hard disk drive business, which was a smart move, and as a result, it began to lose share. About five years ago, under the direction of its new leader under STG, Rod Atkins, it began to reinvest in storage. It made an acquisition of a company called Diligent to get into the backup business. It acquired XIV, more recently it acquired StoreWise. Over the course of that timeframe, it invented the sand volume controller, one of the few innovations that we've seen from some of the big whales. I mean, really new innovations. And that product has done very well. So IBM is retooling the portfolio, really trying to get back its storage mojo. And that's what we're gonna be talking about here today. Can IBM get back its storage mojo? I think one of the things that's interesting about IBM is that whole area of investment. As you remember, they had a huge investment at IBM Albedin, they were designing a lot of their own systems. When I started looking at the kinds of acquisitions that they make versus the acquisitions that some of the competitors make is really interesting because IBM seems to like to get technology at a relatively early stage of development. Things that are then embeddable into systems and platforms that they have. So you look at the Diligent acquisition, you look at the StoreWise acquisition, you look at XIV is a little different. Even look at the relationship that they've got going with Actifio right now. These are things that they can layer onto their platform that they can invest in. But they don't have to do all of the investment themselves, they can leverage the venture community to do some of that. Yeah, I mean, Dave, my take on IBM right now is that if you look at historically, IBM has been probably one of the most successful pivots turnarounds and transformations in the computer business. As you mentioned, they were a leader in everything in the computer business in the 70s, 80s, and 90s. But late 80s, they really had that bloatedness of with client server booming, the mainframe, and it's well documented. But they've since transformed themselves over the past decade. But storage is an interesting innovation area for IBM because it's been kind of boring, slow industry, but now all of a sudden the past two years, we've been with theCUBE documenting the innovation around flash and around storage, and that's really the key opportunity for IBM. And relative to the market, Dave, my observation is that we've been covering big data and cloud computing, for instance, and it really is the perfect storm for technology, company, and the services company like IBM to come in and actually re-win and expand out their base. And specifically, the research that you guys done around converged infrastructures is compelling. So, converged infrastructure represents a half a trillion dollar opportunity in the market size, because two thirds of all enterprises have to deploy some sort of converged infrastructure, retool and or tweak to their infrastructure. So, Oracle, HP, EMC, IBM, all the big guys have to kind of figure out what their converged infrastructure strategy will be, and it's unique now in the sense that requirements are different. It's not siloed or stove piped, as you say, Dave. It's really has to work across boundaries and across applications. So data, something that we've been talking about heavily at SiliconANGLE Wikibon is a key driver in this, and I think IBM, if they can put together their portfolio of storage with technology, they can really make a good run at the infrastructure, converged infrastructure market. So that's the way I see it. It's a really integrated set of compute, storage, and networking. So I see that as a big market opportunity. What I'd like to get your guys take on this week is, as the analysts, what do you make of the converged infrastructure market, the business models behind it, and also what products and technologies does IBM need to have vis-a-vis their competitors? So, Dave, what do you take your cut, and then, John, I'd like to get your perspective on it. Well, I think, John, the first thing I would say is you're right on. When you look at IBM and you think about at the top of the show we were talking about, can IBM get back at StorageMojo? How does IBM compete in this storage market, this $50 billion storage market, and I think you hit right on it? IBM's strength is integration. IBM's pure systems announcement, it's pure flex announcement, validated the market for converged infrastructure. In fact, David Floyer wrote a piece to that effect. Now, of course, we all know that in 2009, VCE came out with VBlock, we had Mike Capellis on theCUBE last week. IBM's entry into that market really validates the concept, and IBM has a lot to lose and it has a lot to gain. So IBM was not messing around. They started that initiative for converged infrastructure, what they call integrated systems, with a blank sheet of paper. They tore down their mindsets and they started from scratch, they acquired BNT, they have something called scale-in networking. They're essentially totally recasting their blade server business. Now, in terms of what I think about that market, as you said, it's a $400 billion total available market that comprises server storage and... I rounded up to a half a trillion. A half a trillion, well it'll get there. Sounds better. It's absolutely enormous, and as I said, IBM has a lot to lose, but it's got a lot to gain. Now, IBM's unique differentiation in that market I see as two-fold one, and I think this is the most important. It has embedded knowledge and codified knowledge from its services and its software business into its systems, so that it can align and optimize for workloads and applications. And that is unique. We asked Prasad Rampali at the VSpecs announcement, is that possible? Can you do that? And he said we are just starting to do that. Well, Dave, Dave, I want to ask your perspective on this because, you know, we talked to HP, we're here at IBM, we've talked to IBM in the past, and all the big vendors, and even startups, for that matter, around Flash. The new architectures that are out there are obviously driving this. The question is, we know HP and IBM have the tools. I mean, IBM has got systems management expertise up and down across the applications across their servers, now storage. Is it a storage solution? And the question is, how fast can they retool? And that's going to be ultimately what I'm going to look for is not so much the mega announcement, like a big launch, you know, a new product. I think they got the tools. So I'd like to know from you guys, what did they need to do to retool and get to the marketplace with these integrated solutions? So I think the, so the second part of their innovation here is storage. Now, storage wasn't a buildup from the ground. So they're plugging in the V7000 into their converged infrastructure, their integrated system strategy. Now, John, as you know, that storage that they're plugging in is the V7000. So IBM is the only systems company, I believe. I think I'm correct in this statement that actually will allow you to plug, no, that's not true. Hitachi will allow you to do this as well, but to plug in other people's storage. But Hitachi and the systems and server businesses, you know, it's nothing compared to IBM. So IBM really is a major whale saying we will allow you to connect virtually anybody's storage into our converged infrastructure and we validate it. We'll sell it as a single skew. So the trend in this business is towards what we call these reference architectures, which are these Chinese menus of choice. But people want the simplicity of a single skew. IBM, with its pure systems announcement, is attempting to give the world the best of both. Well, I think one of the, I think you have to step back just a little bit further when, if you look at some of the missteps that were made before the current regime, what we've got is we had, we had IBM actually being sort of broken up into very small business units. And with those small business units focused only on their area, IBM didn't do very well. And then through the late 90s and through 2000, things got very much pulled back together. Pulling that back together was amazing because as one former IBM storage exec said to me, we've now got lots of ways to make margin. That if you're in the services business, if you're in the application outsourcing business, if you are in the business process outsourcing business, you can sell servers, you can sell storage, and with IBM Global Finance, you've got a lot that you can pull together to other ways to make money. I think with the sand volume controller, one of the interesting things is that they can use that as a data, they can use that both to virtualize other people's storage, they can also use it as a data migration platform. They can use that to pull assets into the IBM Global Finance capabilities to help people sort of re-engineer their balance sheets. So I think there's a lot of ways that they can contribute to IBM's bottom line. And that's been, there are very few companies that have that full set of capabilities. What do you think about their ability to kind of retool and pull it all together? Obviously they're, you know, the separate groups is kind of decoupled, now they're kind of coming together. We've been talking about software as a big innovator in storage, obviously with tiering and now you have flash. Kind of these architectures are changing, we're seeing new use cases, kind of the old way, new way. What do you think about their ability to retool? And two, is that consistent with what you're seeing as architecturally, directionally correct? Yeah, so I'll go back to the example of where they're investing in R&D, so they don't have to do it all themselves. Now they're partnering up with other companies to deliver some of the sort of next generation platforms. So the notion, for example, of a single data repository for backup and archive. So they've got some of their own products that they brought in from the acquisition of Diligent with Protectier, but they've also got relationships with other companies where they're running their systems on an IBM platform. So IBM sells servers, sells storage, but they don't have to necessarily make the investment in the data management layer. So I think that's one trend that we're going to see IBM expand on. I think it's also important to point out, in 2011, IBM actually outperformed Apple as a stock. And so IBM, as a company, is doing incredibly well. It throws off a huge amount of free cash flow. And so it's a very successful business model. Now that business model is largely led by services. And when you have a business model, which was Gershner's transformation, that's largely led by services, what suffers is the product side. Now, IBM is really unique in that it has a very strong product portfolio and it is the services giant. So the question comes down from a product standpoint, a technology standpoint, how does IBM compete? And the way it competes is, it's certainly leveraged services business, but that's not been sufficient for IBM to dominate the market. So it is, at this event, really the storage market. That's correct. That's what I mean, talking about storage. So in the context of this event, IBM is talking about reinvigorating its portfolio. It's not making a ton of new announcements per se, but it's really emphasizing the breadth and depth of its portfolio. We heard some rumblings last night, Dave, about some performance improvements and some little announcements that they'll make around storage. But to me, the big takeaway from me about IBM is, is that they were once a leader in storage, obviously you mentioned, John mentioned, the Alamedin in California, and inventors of disk and really innovations around disk technologies, back going back to the mainframe days. But what's interesting about storage now is it's not about storage per se, and if you look at the leader in storage, EMC overtook IBM in storage in the 90s. EMC is transforming away from being a storage vendor. So what's interesting is, is that, you know, they're running to be a cloud meets big data company, so we're seeing a much more of the, it's why I brought up the Converge Infrastructure piece. IBM is perfectly positioned to take storage as a very interesting piece on the chessboard. And use it as a lever to integrate in storage. So that's why I'm looking at the systems management, the software, and the overall Converge infrastructure. They can pull that together, they can have a huge winning formula. And again, they could really just cut EMC's legs out and really look at the Oracle environments and just take a huge lead around this, if they can execute it. Well, the systems companies have been threatening to do this for decades. And thus far they haven't succeeded. But times are different. You know, the Converge Infrastructure trend is in their favor. Having said that, who started the Converge Infrastructure trend? It was EMC and Cisco with the whole Vblock thing. So I'm impressed with EMC's ability to get ahead of these trends. Having said that, you know, IBM's pure systems announcement, in my opinion, is the most impressive announcement to date of integrated systems. Having said that, it's three years after Vblock. Right, I think you also have to look at who's the leader in some of the application areas that are getting a lot of attention. So IBM in data analytics. I know we're going to have some guests on later who are deeply involved in some of the data analytics work that IBM's doing. Well, that drives a ton of storage. It may or may not be on an IBM platform, but IBM's going to be in the mix. Well, let me ask you a question. So here's the conundrum, I think, that IBM has from a product standpoint. From an ROI perspective, if I'm running products at IBM storage, I can probably get a better ROI by integrating with some DB2 capability. Then I can chasing EMC and some product features. I think that's true. At the same time, the short-term ROI helps drive cash flow and it's profitability. That's the strategic dilemma, right? Did you chase the P&L profits or invest for position in the half a trillion dollar conversion of the construction market? So, you know, they'll expression, eat your own before someone else eats it. So cannibalize their current momentum so they might go for the low-hanging fruit to drive revenue. So, you know, we'll- So can you do both? I mean, that's the question that we really want to explore with, you think they can. Yeah, I mean, they have to. I mean, there's no doubt they have to. Otherwise, they'll miss some of the key vectors into the market around, especially around big data and flash. Look what flash is doing around the cloud and big data markets. It's enabling a whole set of new solutions. It perfectly fits into their integration and services strategy. So, they got the field sales force. They got the integration teams out there. They got the huge customers. The question is, customers will go somewhere else, EMC or violin or somewhere else to get these solutions. So, I think they have to do both. So the other thing that is unique about IBM is, it does get ahead of some of these mega trends. For example, China. I mean, it was first in China and now they're pointing the beast at Africa. IBM is investing in Africa in a huge way. IBM believes that Africa could become its new China. You don't hear that from any other company. You hear about brick companies, brick cloths, blah, blah, blah. IBM is going forward in Africa and will spend a lot of money and a lot of effort in there. And so, where IBM does very well in these emerging mega regions like China, like Africa does a lot of business with the governments because they're retooling industries and they actually sell a lot of mainframes into those environments. So to my point, if you're an IBM product person in storage, you can actually make a lot of money integrating with mainframe capabilities because they're super high-margin. You look at IBM's average pricing on purpose-built backup appliance. Appliances, it's double or triple what HP gets. Why? Because it sells so much into the mainframe market. So there's huge margins there. So that is the strategic conundrum that John mentioned. Dave and John, I want to ask you guys, before we kick off, this is theCUBE, by the way. We're SiliconANGLE.tv's theCUBE where we go out to the events and extract the signal from the noise and share that with you. We're here at the IBM Innovate, I mean, Edge 2012 event, storage technology. Innovate is actually going on this week. Innovate's going on, which is the software team. So IBM's got a lot of activities in the market going on right now. We're here covering it live and getting all the data for you. So Dave and then John, I'd like you guys to answer this each if you could. What are you guys looking for this next two days from IBM? Specifically around the innovation and the market opportunity. We talked about the conversion infrastructure market being a half a trillion dollars. We talked about some of the features around their management approach and organization. And then you talked about some of the products. What are you guys looking for? What key things do, does IBM need to show and talk about here this week that you're looking for? So for me, John, I really want to see is can IBM break out of that services first mode and really show that it can innovate in storage. And it's key messages here, efficient by design, cloud agile. Those are smarter storage. They sound good. I want to see if they resonate with customers and they can translate those branding messages into product action that customers can actually deploy and get value out of. That's what I think IBM has to prove at this event and subsequent activities. And I want to see, certainly, IBM knows more about applications than just about anybody else on the planet. Other than the pure software companies like SAP and, well, formerly Oracle, right? But they know a lot about applications. What I want to know is can they take their knowledge of applications and translate that into value add in terms of how their storage interacts with those applications to deliver a better total solution? Or are they going to instead go sort of broad horizontal, I want to compete in storage. So that I think is the main thing. I think they can. I'm looking for candid answers to the questions that we want to ask them around those things. That's a good point. And find out, really, look in their eyes and see if they actually have the innovation mojo. Because a lot of the reorganizations in the past on IBM seem to be kind of like me too, catch up. You know, they bought store-wise with all those acquisitions going on. I just want to see a package. I want to see IBM use the strategic nature of storage to really drive the solution. So the fact is that IBM's portfolio, much like HP's, was deficient. So it had to go out and buy Diligent and buy XIV. XIV was a major acquisition for IBM in the sense that it really didn't have. I mean, it was OEM-ing from LSI. It's still OEM-ing from them as well as now in Genio. But in NetApp, so it was relying on OEM back to Bill Zeitler's. R&D is growing faster than the market. So you can't just, as you know, John Furrier and John MacArthur, you look at what Mark Hurd did at HP. He cut R&D. You can't just overnight say, okay, now we're going to start investing and have an impact. It takes years. So IBM is, five or six years ago, really started down this path. And so the question is, can they shine a light on that portfolio and kind of have an impact? It's about time, right? Now is about the time. I mean, we're talking about five years from the point at which they said, okay, we're really going to go for it in storage. And they presumably got Palmasano's blessing to do that. So now is around, five years is around the cycle where you should really start to see a market impact of gaining share. The challenge is it's a very competitive market. You got HP getting back, getting serious. You got Dell beginning to do its own IP and then EMC continuing to innovate and drive the narrative in the marketplace. What's the buzz out there pre-show? We last night, Dave, you and I both had some conversations with some folks from some partners with the IBM. John, you're talking to some folks coming in as we prepared for this program these next two days. What's your, what are you hearing on the ground? What's the buzz that you can share with the audience out there pre-show around the edge this year? Well, I think, if I may, so I think the channel is something we haven't talked about. And that's a huge deal, right? There's a big land grab going on for the channel. And IBM has to participate in that. So if you're a channel partner of IBM, you really want to know, okay, where can I add value? Are you going to compete with me with your own services? And how can I work with you and integrate with you to get my products that you don't have currently in your portfolio out to the marketplace? Those are, I think, the things that IBM really has to demonstrate, events like this and others. Yeah, and I appreciate you bringing up the channel because I think that's really important. There was, there's one major, you know, billion dollar plus IBM partner in Mainline who drives an enormous amount of IBM business. About a year and a half ago, I think it was, that they had made a decision to actually add HP. They probably added HP at the worst possible time. The reason they added HP was because they found that there were deals in which they couldn't be price competitive. And, you know, nobody can drive prices down better than HP and Dell. If they decide they want to win a deal based on price, they can do it. And so, they were looking for some alternatives to be able to do that. Well, you know, I talked to some of the folks, their sense and they're going, well, not sure about that decision now, you know. So, I think I see them shifting more of their focus back to IBM. Yeah, so we're here, this is SiliconANGLE.tv's continuous coverage of IBM Edge. This is the cube where we go live into events, we extract knowledge, we bring you the signal, not the noise, although you can hear a lot of noise around us, but. So, let's see, I am at D. Volante, he is at Furrier and you are. Oh, way too long, at JT MacArthur 56, whoa. Okay, at JT MacArthur 56, but so at Furrier, at Volante, at JT MacArthur 56. Tweet us if you have questions. We got a number of guests coming up. We're going to have Brian Traskowski, who's the general manager of IBM's storage division. We have a number of partners. We have some CIOs coming on. We've got some analysts coming on from ESG and some other independent folks that we're going to bring you the perspective on this event and really try to address these and other questions. Yeah, and stay tuned here, because we're going to be at the cube here in Orlando, and then we're going to Las Vegas with HP, later in the week, back to back events, and really this is about the consumerization of IT. Two thirds of all the enterprises, large enterprises, will be moving to converge infrastructure, which means a complete retweak of their infrastructure, adding new technologies, new services to deliver applications and business value, and the conversation will range from big data cloud, we'll be here covering it in the cube, and also we'll get geeky, we'll get deep around some of the storage technologies that are strategic, flash, software, and it's all changing, and we're here covering it live. So, stay tuned to SiliconANGLE.com, SiliconANGLE.tv is where the live feed is, and we'll be right back with our next guest, and we want to thank IBM for their support, so watch their ads, they allow us to bring this independent coverage to you live at their event, so watch their ads, they're really cool, and we'll do our thing, and so IBM can provide their ads to you, so we'll be right back for our next guest here inside the cube.