 Live from Austin, Texas, extracting the signal from the noise. It's theCUBE, covering Dell World 2015. Brought to you by Dell. Now your hosts, John Furrier and Dave Vellante. Distract the signal and noise. I'm John Furrier, the founder of SiliconANGLE. Joe, my co-host Dave Vellante, founder wikibon.com. Chief research analyst at Wikibon, breaking down basically Dell worlds and their big moves. Obviously, Michael Dell was on theCUBE yesterday. Had a great conversation. But the ramifications of the EMC acquisition is really still ripples that will continue for months and months and months and certainly have an impact to the ecosystem and the technology at large. Dave, this has really been a game-changing moment. Michael Dell certainly got a spring to a step. He's got that entrepreneurial mojo. And I like this deal because I like the guts of Michael Dell. I like how he's standing up and putting the entrepreneurial 5.0. He's 50 years old. I call it 5.0 for that reason. And he's really taken the bull by the horns here and going for it. And he's essentially collecting, essentially the biggest asset in the market at EMC. But the ramifications are significant. VMware stock is down 20%. They lost $10 billion in value yesterday on a stock drop. Obviously an impact to the deal and will affect ultimately, potentially the outcome of the deal. But more importantly, it is an indicator of the public market's lack of understanding or hence confusion of the deal. And really this is a big point of the overall arching impact of the Dell EMC acquisition. And I think it's a great thing. I think EMC brings a lot to the table. Essentially, I'm actually was calling it yesterday when we were having drinks and talking to Derage at Newtonix and a bunch of others. This potentially is like a reverse merger of Dell and EMC. EMC kind of going private through a Dell vehicle. Kind of in cahoots, if you will, but really a good combination. If they can pull it off, there's a lot of moving parts. Hence the confusion, hence the lack of understanding. Certainly there's synergies, and yet there's a lot of overlap and confusion. VMware again, down 20%, $10 billion in value that's what they do today. We'll be watching the stock market. What's your take on all this? Well, I think the stock drop was a function of two things. One is that VMware guided lower and Wall Street's just punishing anybody who guides lower. Even ServiceNow is a tremendously successful company. They hit their numbers, and their guidance was in the range of numbers, and they were off. And so even super successful companies like that with tons of momentum are getting penalized. So that was one factor. The other factor is that EMC and VMware announced that they're going to take VirtuStream infrastructures of service components and VCloud Air infrastructures of service components and strip them out and create a 50-50 joint venture that will roll up into VMware's income statement. They're also going to take the software assets of VirtuStream and the software assets of VCloud Air, strip those out and have them under Ajay Patel as a division of VMware. So, and I think the street just said, whoa, what's going on? They must have competition from Amazon and they really don't know how to handle it, et cetera, et cetera, et cetera. And so that was sort of a pile on, which I was surprised that the street didn't already realize that, but it raises a lot of questions about EMC and VMware's cloud strategy. I think it underscores that VCloud Air was failing. It underscores the frankly desperation that EMC had to shore up its cloud business with the VirtuStream acquisition. And it shows that EMC and VMware are still trying to figure out how to shuffle the pieces. And the last thing I'll say about that, John, is it was strange to me that they split them out of hardware and software. I want to understand why that is. And of course you've got a third cloud piece, which is Pivotal with the platform as a service. So essentially now, under the EMC Federation, you have three different cloud business units. I'm not sure what the logic was in not putting them under one cloud business unit with a single leader and a single shared vision and then directing people to go target cloud service providers, which is what Ajay Patel is supposed to do, or target enterprises, which is what Rodney Rodgers is supposed to do with VirtuStream. So, and one other thing, I said it was the last thing. I think to your point, EMC's going private through Dell. Why didn't EMC choose to go private as an independent company? That, the answer to that question is I think very interesting. And I think the answer is because EMC didn't have the confidence that it could go it alone. And I think it needed a Dell-like mentality, low cost, high volume to compete in this new Cloud Air. Also, they had a lot of cash. They were thrown off a lot of cash. And also the investments required for EMC, I pointed this out yesterday on our wrap up, that EMC was very close to having essentially a product portfolio that can meet the needs of a full spectrum. But with the VirtuStream thing you bring up is very interesting. Neither vCloud Air or VirtuStream is fully complete yet. And from my notes yesterday, one of the questions I'll read here from some of my notes, neither VirtuStream or vCloud Air, it's from last night's conversations, by the way. Tell them some sources. Neither VirtuStream or vCloud Air have a viable Cloud development offering that will compete with AWS Azure. Both Azure and AWS don't offer Cloud Foundry as a service. And the question is really how much investment is being made by EMC into VirtuStream and vCloud Air, or both? And is that going to come from the debt? So you have a debt service offering that Dell has to support, as well as an investment in the Cloud business to really make that relevant. So those are going to be key factors that we'll be watching. Well, it's interesting to see how the Federation is operating. I mean, it's sort of counter to what everybody's doing, putting parts together. EMC and the Federation continues to have these thousand points of light. But VMware has lost a number of senior executives. Matthew Lodge, who was the VP of marketing and product has left. De Blasio, who was running sales, he left. A lot of people are left from the core engineering. There was no mention of Bill Fathers in this announcement. And I have to say, at VMworld last year, I thought that Ajay Patel did a much better job of describing VMware's Cloud strategy than I've ever seen Bill Fathers do. So he may, in fact, be on his way out. So still a lot of questions. So Rodney Rogers is still at the helm of VirtuStream, which is a really good thing. He's a solid guy. We know him. We've been following him. And it's going to bring up a big point, which is what happens now? I mean, if you look at what EMC has done with, let's just take VCE, for instance. I made a comment yesterday with Mark Lewis, former CTO of EPC, about VBlock, right? VBlock really was a key thing. And if it wasn't for the EMC Salesforce, Cisco's UCS might not even be where it's at. And I got some comments last night on this, which is, you know, VBlock is a great thing. And look what happened with Cisco. Cisco's UCS explosion in growth. And we've had Jim McHugh on theCUBE many times from Cisco talking about the growth there. That really came about from some of the VCE efforts. So I think if you look at the EMC Salesforce brings to the table, you are looking at a significant impact to Dell overall. So Dell could get a huge bounce off this. EMC's presence in the market is significant in the tier global accounts. Well, so there's dissonance though, John. I mean, Dell essentially, Dell's strategy has been, we don't want to own a public cloud. You see HP going back and forth. HP announces a public cloud. It sort of doesn't talk about the public cloud. Yesterday it announced it's not doing the public cloud. Dell's always been consistent. We're not going to own a public cloud. EMC and VMware have been fence sitters in that front. So VCloud Air is a public cloud and they bought Virtustream. It's more of a soft layer like play, especially with the platform as a service piece. So let's break down the fact. So Virtustream was about $100 million in revenue prior to the acquisition of EMC and 65% of that really came from their managed cloud business, which was primarily SAP workloads. The rest came from consulting services, something that they called Xtreme. The VCloud Air business really wasn't that big. I mean you're talking about maybe $25 to $50 million in business, so not a large business, but huge expenses, 10 to 11 data centers around the world. Most of those were Colo facilities. So my point is it wasn't working. So they have said, all right, let's buy Virtustream, let's put Rodney in charge. Now what I don't understand is why they're carving out infrastructure as a service, separate from the software management pieces and of course separate from pivotal assets and platform as a service. I understand the pivotal piece. The pivotal piece is because they want to do an IPO. If they don't do an IPO with pivotal, people are going to leave. That's why people are at pivotal, right? It was the vision. Pivotal is doing well right now in revenue. They've got the cloud foundry asset, but more importantly, this is a developer model that's really powering the cloud. They have, from what I'm hearing, a lot of pipeline of sales. So the revenue is significant and they think they can get valuations in the three billion plus range. And I think if they can go public at a $5 billion valuation, you are talking about a significant force on an IPO. Pure storage went public. They still got a market cap of 3.5 billion. Pivotal probably can stretch in the $5 billion plus range if they can continue to show revenue growth. The question is, where is that revenue growth? Is it scalable? And that's going to bring up an interesting concern for what Michael Dell does. Now, that's going to be a very interesting question. Well, Virtus. Stream now though has multiple cloud management frameworks. They got the sort of VMware cloud management frameworks. They have their own cloud management frameworks. It's very unclear how they're going to deliver this vision of hybrid cloud. Again, what we saw from Microsoft and Dell yesterday was very clean. We're going to have Azure Stack. We're going to have Dell components. It's a solution. Boom, clean. It's kind of a mess right now. And now, in fairness, we have not talked to Rodney. Rodney tweeted me yesterday. He said, Dave, let's sit down and talk. I'll help you understand this. And we will. And Rodney, as you said, strong executive. So there's smart people. Well, you brought up a point yesterday with Michael. And he said, yeah, that's a viable concern, which is how do they handle the existing install base? So you have a storage area as EMC. You have to invest more in the future. So you brought up the point of, you know, increasing the price, increasing maintenance. But if you look at where they have to invest in the cloud, Virtus. Stream clearly is the asset. They're going to put the wood behind the arrow on. So if they're going to put more money into the cloud offerings to become table stakes on the compete with Azure and AWS and have a hybrid cloud offering, they got the SAP market locking with Virtus. Stream. They now have to go and knock down new territory. That's an investment required for the new world order. That means they have to reduce their investment on the storage side, as well as pay down the debt. So if you are looking at the chess board, you say, okay, I have to pay down the debt. That's throwing off cash flow. And I got to reduce the storage investment. We have the storage portfolio with the Dell combination. And I got to invest in the cloud. That's going to be an interesting chess move for the new combination. Well, I asked Mariush yesterday, Mariusous, is it fair from a customer standpoint and I should expect that for older products that are not growing, you're going to reduce R&D, elongate product cycles and jack up maintenance. And he said, okay, well, it's kind of what companies do. But I want to get back to VCloud Air and Virtus. Stream. So I want to ask you a question, John. Where's the developer angle? Yes, I understand Pivotal is targeting developers, but where's the developer angle within Virtus. Stream and within VCloud Air and whatever happened to the Google partnership? There was no mention in the press release yesterday of the Google relationship with VMware. What happened to that? I asked Pat Gelsing about the Google deal and I said, Pat, is it a Barney deal? And he's like, Barney deal, you know, referring to Barney. I love you, you love me kind of thing. It wasn't a real deal. And I always liked the Google relationship because I think that's a good move by VMware. But the market is moving so damn fast right now. So I'm not sure the pace of that deal could keep up with what's going on. With respect to VCloud Air, I think the developer angle is very simple. They have a developer model with Pivotal. Ultimately, the IT model right now is about re-architecting the enterprise. Michael Dell pointed it out yesterday and I think that the enterprise development angle is about first solutions, architects, understanding how to combine on-premise, private and hybrid to public cloud architectures and rolling out an infrastructure to enable rapid deployment of applications. So the applications will be the driver of the development in the enterprise. It won't be a pure play cloud like we see with Amazon and Amazon web services. I think Azure is playing it perfectly. They're playing their own game right now. They're going after the Microsoft install base, they've brought Docker containers to dotnet in the development community and they're building a cloud for the Microsoft ecosystem. It feels like VCloud Air and Virtustream might have to be groping for market position and that's going to be a very difficult transition. So they got to get clarity on the developer angle. To me it's what I call the dev ops for the enterprise or cloud ops. Dev ops is hard to implement in the enterprise because it's hard to find those kinds of killer dudes who know how to program full stack developer, 10X developers as we say, because those guys have been a little slower to adopt but look at what IBM's doing for instance, Node.js, these new languages, Go, et cetera. This is the new normal. And I think the enterprise Dave is all about having a kind of a horizontal but yet niche vertical specialty in applications development. So apps will drive it, but the architectures are under transition and those transitional architectures have to be solidified and that's going to be the game. Architecture and then enabling rapid development of applications. So I think I want to comment and we talked about this before in theCUBE about what's going on in cloud. Amazon's cloud business is obviously growing. It's about a $7.3 billion run rate. It's got a billion dollar plus storage business and it's growing at 80% plus per year. Very impressive. The interesting thing is now that they've started to report results and they claim that they're fully loading costs. Amazon's operating profits are the same, Amazon web services are the same as EMC's. So it's not a race to zero, folks. This is a very, very profitable business. And Andy Jassy, John, you've interviewed Andy Jassy, you've had a number of private meetings with him as have I. He doesn't talk competition. Very respectful, outwardly of the competition. But I guarantee that Amazon is looking at this saying, wow, there's such a huge price umbrella in the enterprise. We can make a lot of money here because we can come in, appear to be lower cost and we can lock people into our system and then keep selling them more value services. They don't use that lock-in term as my term. And so, how do you compete with that? Because Amazon's got such a massive volume. Google and Microsoft can have the massive volume. I've said a number of times, Amazon is driving the marginal economics of provisioning down to zero. Okay, used to be services were expensive to deploy, now they're cheap. Instantly, instantly. So to compete with Amazon, you got to do two things. Either you have massive volume like Google and Microsoft, or you have to have an advantage up the stack, like Oracle has or like ServiceNow has. They have unique advantages, SAP has, up the application stack. So the question for VMware and EMC is, what's your unique advantage? It's not volume, okay, and it's not application affinity up the stack. So to your point, they've got to have a developer angle and they've got to have some specialization. Maybe it's SAP, maybe it's other industries, but right now it's not working. If you look at the hyperscale market that we've looked at the web scale guys, Yahoo, Facebook, Google, the big trend in terms of, in Amazon, obviously, are huge case studies. They built their own stuff. So if you look at Amazon, for instance, they make their own servers. Google makes their own stuff. They've, over the past decade, have a core competency in building out big iron. And if you look at what they've done, everyone has Google, Facebook, Amazon, Envy right now. That Envy really comes down to scale. Commodity-based infrastructure that enables rapid development. But if you look under the hood of Amazon, Google, and these guys, nothing's changed for over a decade. It's still the same servers, storage, and networking. There's no radical, you know, aha technology that's making it all happen. It's a business model. It's different. It's a construction of commodity gear, ODMs, and or proprietary stuff that's been lower cost, that enables them to go large-scale data centers. Dell could be that new ODM. Their OEM business is throwing up about $8 billion in revenue. And for people who want to build their own Amazon, they're going to go to Dell. Dell has a commodity model that can scale their OEM business. So telcos, big service providers, enterprises, could build out their own private clouds at some level of scale to commoditize that level of infrastructure from a cost standpoint, while enabling high-margin applications, big data, storage solutions. These are the high-margin, workload-specific, business outcome-like stuff. So to me, I look at the Dell and say, hey, no one can build their own. If you go to some big, large enterprise, like, we're going to build their own PCs? No, they're not in that business. Dell is. So I think Dell's supply chain, their commodity approach over the years as industry standard hardware could be the solution. And that's why I think they're not doing the cloud. So I think that's a great point. And what I liked about the announcement yesterday was it went at the Achilles heel of AWS, which is on-prem IT. AWS doesn't use the term hybrid cloud. They don't believe in it. What Amazon, what Dell and Microsoft announced yesterday was an on-prem solution that mimics the cloud. I like that. I like clean strategies. Dell's strategy is to be an arms dealer. Now, here's the question. Can they leverage their supply chain, compete with the ODMs? Are the guys inside of Amazon and Google and Microsoft saying, you know what? We want to consume Dell servers because they're the best and they're the lowest cost. Or, because we know that Dell sells servers to Microsoft. The question is, is that a Barney deal? Because Dell and Microsoft have a long-term relationship. Or is Dell substantively competing with the ODMs? I don't know the answer to that. You just threw out a data point, which is very interesting, $8 billion of basically an ODM business. That's what I'm hearing in the hallways from the numbers. It's a pretty big chunk. It might not be a reported number, but that's what I'm hearing inside the hallway here when I'm reporting. $8 billion is a big number. And I don't know. This would be a good question for Floyer or maybe Matt Eastwood, somebody who really tracks this stuff. But time will tell, but I think that the very, one point is it's a clean strategy. I like clean cloud strategies. We are living in a world now where the word solution provider is a big deal. And Dell and IHP and all these companies like IBM, they have channels, they have partners. And when you look at the solution provider market, which is kind of an overused term. Oh, it's solution provider. I want to provide solutions to the customer. Come on, that's like kind of, we heard that. But actually right now, the word solution provider is the game with cloud. Cloud allows for agile development and really can deliver solutions. So to me, what I see Dell doing and I see what this hybrid cloud and Microsoft doing is, ultimately the customer wants solutions. Whoever can provide those solutions without having some dictated technology stack and or dictated hardware approach will win. So ultimately, if I'm a Dell or I'm an EMC or I'm an HB or an IBM, I want to create an environment where my partners, which are solutions, channel partners and ultimately the customers to provide solutions. And there's going to be a variety of kind of vertical apps built into these things. So the word solution provider is back on the table as a relevant, clean approach. And I think that's what we're seeing. Well, in this case, it's full circle and this is what I really do like. The aspect I do like about the EMC Dell deal is EMC is good at solutions, you know, and they can bring that to Dell, particularly for the high-end enterprise. All right. All right, day two kickoff here at Dell World, it's theCUBE, we are breaking it down. Obviously analyzing a lot of data, getting a lot of information we can in the hallways, at the events, at the parties last night, ran into D Raj at Nutanix CEO, shared with us that things are really doing well with the relationship with Dell. So he's pretty strong about some of the future roles that Nutanix has. And Dave, we heard about the virtual stream stuff. But again, pretty positive feedback overall. Again, a lot of questions to be answered, a lot of things to speculate on and certainly we'll be there. Go to silkenangle.com, go to wikibond.com and check out the research around this deal, special content out there on wikibond and go to silkenangle.tv for all the videos and join the conversation at crowdchat.net slash Dell World. We'll be right back with more for this short break.