 Live from San Francisco, California, it's theCUBE at VMworld 2014, brought to you by VMware, Cisco, EMC, HP, and Nutanix. Now, here are your hosts, John Furrier and Dave Vellante. Okay, welcome back everyone. We are live in San Francisco, California at VMworld 2014, this is theCUBE. I'm John Furrier with Dave Vellante. Our next guest is Carl, actually about the president and chief operating officer of VMware. Welcome back to theCUBE, great to see you. Thanks for having me again, Dave, appreciate it. Looking good. The question I want to get to you right away is VMworld gets bigger and bigger and bigger every year and your job gets bigger and bigger and bigger every year. So give us the update on what's going on at the top of VMware, obviously operationalizing cloud and with AirWatch and user computing, obviously server-defined data center, you're still on your mission. What's the big change or impact to your business? Yeah, so at the top of VMware, we've recently announced some realignment of our executive staff. And it started with myself, Pat and Jonathan, our CFO sitting down and having a conversation on how can we scale our company to be $10 billion from $6 billion where we're at today. So we looked at all the different operational aspects, we looked at our go-to-market aspects, we looked at the strategy and how we run our M&A business. And we decided to break things up and I've now got responsibility, continue to have responsibility for the go-to-market aspects, our partner ecosystem. And I also have responsibility, obviously, for marketing, so these events, and Robin, Matlock, our chief marketing officer. And I also recently picked up the responsibility to support our strategy efforts as well as our M&A efforts. So all of that at the same time. And I've given up a few of the operational responsibilities I've had and given them to Jonathan's and now Jonathan can really look at the back office and make sure we're built to scale operationally. And this has freed Pat up then to really focus his efforts and time on each of the strategic initiatives we have around the software-defined data center, the hybrid cloud, and our end-user computing components. And it's really worked out well, the structures work, and we have a great executive team that really like to work together. So you got a guy running the trains on time in the back office, you're watching the chessboard, kind of stringing the products together, trying to build out the vision, essentially. Yeah, exactly. So I got to ask you about, just in general, the overall plan with M&A, for instance, obviously AirWatch, very successful acquisition. Pat was kind of glowing about it, didn't give specifics. Certain a lot to do, growing market, a lot of white spaces, a lot of new things, like Docker, obviously Evo Rails and end-user side. Before we get to kind of that vision, talk about AirWatch, how has that done? Can you be specific about some metrics? Yeah, so we're very excited about the AirWatch acquisition. Obviously it took place earlier this year and we've achieved everything we expected to achieve out of that acquisition. It's really hit its mark based on the business hand we built as we went into the acquisition. And what I'm really excited about now is, how do we get leverage? How do we get economies of scale and leverage out of the existing VMware footprint that we have on a global basis to really help AirWatch expand deeper into our large accounts and faster internationally? So as you could imagine, VMware having a large international footprint, AirWatch did not. We're leveraging our international footprint to get AirWatch deep into parts of Europe and Asia and Pacific where they haven't been in the past. And then the last area of leverage we're really excited about is, it was just last month when we put the AirWatch product on our price list that now gives not only VMware core sales folks the ability to sell it into the market, but also our channel. So now our channel has the ability to sell, if you will, all of the AirWatch products into the market and not just do it themselves in their channel. So there's a lot of leverage we're going to get. So go to market, scene's exciting, a lot of action going on. Talk about the name changes. Obviously there's been some decoder ring blog post we're putting together around, okay, you got the Air name, DeCloud Air, a lot of stuff changing on kind of the nomenclature of some of the products. What's the rationale behind that? Was there a method to the madness? Was it just kind of like just trying to align everything? It's not just water vapor anymore, right? Yeah, exactly. No, yeah, so we actually have a, under Rob and Matt like our CMO, we have a team that focus on naming and branding. And when we looked at all of the components we have, we actually were getting a little bit disconnected in how we take to market our products, their brands and their names. So we've decided to streamline everything. Everything always starts with a small V. So now we have V Cloud Air, right? For our hybrid cloud. We had V Realize, which is now our suite of management automation and provisioning tools and operation tools. So we just thought it was the right time to do it. We had this great event called VMworld to take our new brand and naming conventions into the market. And everyone seems to be responding quite well to it. Everyone recognized V something around VMware and we're just trying to streamline that across everything we do. So there's some consistency in our naming convention. So you're not going to call this the VQ, are you? No, I'm actually, I'm very open to doing that. You are at VMworld. And if you want to change the name, we can make that announcement right now, John. We have a price tag. Dave and I won't settle for anything. If you're running out of anything, we'll talk about that later. I'm just asking. I do run M&A now. So you guys pretty much, I think, nailed the Docker positioning obviously at this conference. I mean, announced a big partnership. OpenStack, you know, there was a lot of buzz about that. Before all these disruptive technologies seemed to have a good playbook for saying, okay, how are we going to address these? How are we going to embrace them? And how is it going to help us attack our TAM? So we started to pull the other day though. I got to ask you this. So who gets the 10 billion first? AWS or VMware? So you mentioned how do you get the 10 billion? Now, Barrett yesterday at the analyst meeting, I thought, asked a very good question. He brought up, he basically said there's conventional wisdom out here that Amazon is going to rule the world. He said, I don't agree. Pat said, there's at least one other guy that doesn't agree, you obviously didn't agree. So I want to talk about that. It's the one piece that is still hard to understand because you got guys like Andy Jassy on one end of the world saying, okay, this is what the world's going to look like. And guys like yourself and Pat and Joe Tucci say, no, no, no, this is what the world's going to look like. And certainly you talk to customers. Are you guys both right? You both, is one wrong? Is one right? What's your take on it? Well, I obviously can't comment on whether they're right or wrong, but I can give you our views and opinions on this. Nobody really checked. We'll find out in a few years. So during the keynote yesterday, I thought Bill Fowler's had a great slide to talk about the amount of workloads that are on-premise versus the amount of workloads that are off-premise in a public cloud. And still to this day, less than 10% of the workloads are in the public cloud. And even if you look out many years from now, there will still be less than 20% of the workloads in a public cloud. So the opportunity still exists in private clouds and on-premise. But what we need to do is we need to make sure that we're not locking any customer into a or strategy. Is it on-premise or off-premise? Is it hybrid cloud or is it public cloud or is it only public cloud and hybrid cloud? It has to be an and strategy. That's why we tried to articulate the power of and. And that's how we think we're differentiating ourselves into market. So we don't think about it as we're competing against the public cloud providers because we have a differentiated platform. We're bringing this hybrid solution to market to what we call hybridity that allows our customers to move workloads inside out and outside in. And when we pull all of that together, I think the winner will be the people who can truly deliver a hybrid cloud infrastructure and allow companies to seamlessly and securely federate their workloads and move them on-premise and off-premise. And that's our focus. So I like that strategy. I mean, basically you're saying we're focused on the customers. You've got about half a million customers now. We have half a million customers and 50 million virtual machines under man. So the strategies of you, if you service those guys you're going to do well. And I buy that at the same time, Carl. In a way, I feel like while you may not be competing with the public cloud, AKA Amazon, your customers in a way are. And what I mean by that is there's pressure from the corner office. Now, you have to be their advocate and help drive those costs down. You've cited, I think yesterday you've cited, but look, when it comes to security, reliability, availability, that's where we're going to win. That's our sweet spot. So my specific question is, what do you make, for example, of the CIA deal where a company like Amazon was able to take on a company like IBM and knock them out? Is that a unique corner case? Or I wonder if you could give a perspective on that. No, I think as we go forward, we're going to see more and more, if you will, vertical clouds start to emerge. You can think of the CIA transaction with AWS as a vertical cloud specifically to serve the CIA department. And I think you'll see more and more of them emerge in the future. And it's a very competitive world that we live in, right? I mean, everyone bid on that except for VMware because we didn't necessarily have our product in the market for the federal government. We didn't have our certification to service the federal market. But now we will have, in the very near future, all of the certifications we need to build a vertical cloud and go and support Department of Defense agencies. So I think in the future, it's going to be a competitive battleground. Everyone's going to vie for it. But at the same time, I think people can over rotate and say, hey, they won that and that means they're going to dominate this market. This market is still very immature. It's growing. The majority of the workloads are on-premise. And I still go back to the fundamentals of the hybrid approach that you talked about to securely and seamlessly move workloads. I think we're well-positioned, but time will tell, right? Well, the average age of an enterprise app, I think is almost 20 years. 20 years, exactly. So those are just going to disappear overnight. Yeah, no, they will not disappear. And again, just remember that slide from Bill Fathers' presentation yesterday. I remember it. There's a lot of DNA from VMworld that started 50 years of 2010 when Paul Morris was the CEO. He laid out the vision and it's happening. Maybe in a different form, how you get there, but it'll now out separate company. I got to ask you the Pat Gelsinger question. I'm getting some comments here in LinkedIn. People from my friend John Bear at CMO at Mintago who worked with Pat at Intel. People tend to forget Pat led the Intel team that designed 486. He knows this stuff technically. Pat certainly is a technical person. So Pat's got some time freed up. You're doing the M&A. I asked Pat yesterday, is you guys playing defense or offense? Of course, what's Pat got to say? Offense, you know, he's an offensive player. So. Did you really think he was going to say defense? No, I didn't. I was actually saying he's an offensive player. No, but it came up in the cube earlier. Somebody said, oh. I said, no, Pat's definitely an offensive player. And he doesn't play defense when knowing that. So I had to ask you the same question. What is the offense for your plays in strategy to go to market for VMworld? What hills are you going to take down first? Given your base position, you've got a lot of clients who are adding value, certainly that's cool. But as you go out and compete and win, what's your offensive strategy? So listen, the thing we do every year at VMworld is we come out and we go on the offensive. We're a very disruptive technology, innovative led company in a very positive way. Disruption can be viewed negatively, but I think we're a very disruptive company in a positive way. And what we did this year is we absolutely went on the offensive. We looked at the market dynamics. We looked at the shift in how people might want to consume technology in the future, whether it's open source, open stack, or this whole emergence of the containers that are happening. So if you just stop and look at where each of those are at, open stack is still very immature. You're not going to find a lot of people have built big implementations of open stack successfully. Containers has just emerged in the last, if you will, six months. We're actually recognizing that as a potential market movement and we're embracing it. So this is an opportunity for VMworld to say, we're not trying to defend our strategy. We're not trying to defend our turf. We see containers, we see open stack as a market expansion opportunity for us. And I think one of the things people tend to forget, if you go back a decade ago, there was many different value propositions around just server virtualization. But one of the key ones was it allowed us to break down the silos that existed in data centers for many decades. And with virtualization, we brought to market a platform that allowed people to get easy access to infrastructure in the same four factor. So it was a platform play. Now think about that. We broke down the silos a decade ago. If we go back and as an industry, we start to deploy VMware, which most customers have today, then all of a sudden now I need an open stack environment and let's now think about a container strategy and deploy something like Dockers. And you do that all on different physical infrastructures. You've built a lot more silos and it only makes it that much more complex for our customers and our partners. This is why we're now taking to market in a very offensive approach to say, support VMware, but if you want to run these other things, please do so. But we believe we're the best platform for service delivery that gives consistency and lowers both OPEX and CAPEX for our customers. Yeah, and you said the consumption's key and this cloud consumption model is changing the game on how customers consume technology. So you're saying, hey, we want to protect our VMware base, but we're going to give them the choice. Is that what you're saying? Feed-in and flexibility of choice is one of our key tenants of our strategy and as our company, if you will, values. So I want to talk about cost. I mean, it's kind of boring in Monday, but when you talk to, we have a CIO, San Mateo County coming on one of your customers shortly and there's always a focus on cost when you talk about infrastructure. And VMware has got a very tough act to follow because it created such a huge cost savings by taking all the waste out of, or much of the waste out of servers. So where does that next sort of wave come from? There's certainly a lot of innovation going on. We're seeing that. Is it things like hyper-convergence, what you guys announced this week? Can you keep that cost curve? Is it volume with your 4,000 partners? I wonder if you could talk about that a little bit because I'm sure your customers are beating up all the time. How do we keep costs going? What have you done for me lately, Carl? Yeah, absolutely, it's a great question. So to your point, over the last decade, we've brought our customers a massive amount of cat-back savings. You take 100 widgets, you consolidate that to 10, there's an immediate ROI there. But you have to remember, where you are now, not just a compute virtualization company, we're a data center automation company, and we're taking the core tenants of the cat-back savings that we brought many of our customers over the last decade and we're moving from compute and we're doing the same on networking and we're doing the same on storage. So if you look at it networking alone, by implementing a technology like NSX as an abstraction in an overlaid networking platform, you don't need to rip and replace your hardware infrastructures to get network virtualization. If you think about our customers who have a whole bunch of servers out there today, and a lot of those servers have local disks on them, most of them are never being used in VMware environments. You're using a NAS or a SAN, a storage array around VMware. Now you implement something like vSAN, you can take advantage of all that unused excess capacity that people already have in the data center. That is just three examples of cat-back savings we're bringing our customers. So it's not just that we did it in compute, I fundamentally believe we have an opportunity to do the same across the rest of the physical state of the data center. Now on top of that, by implementing management, automation, orchestration, and remediation, proactive remediation tools across the software defined data center, we know there is massive cat-back savings and op-ex savings we can bring our customers. The labor cost, we can take a server administrator who used to support 100 physical servers, now can support 500 virtual machines. The op-ex savings around that is just incredible. Is the business case greater, in your opinion? I think with the software defined data center, the business case is even greater going forward. Because again, we're doing it on the server, but now networking compute, and as the automation tools really start to take shape and form to manage the software defined data center, I think you can drive more value. And even going back a decade ago, I once thought our play was really cat-back savings, but if you talk to most of our customers, while they got massive cat-back savings, even in the earlier days, the amount of op-ex savings they got because of how we've implemented our technology and architecture in our data center was even greater than the cat-back savings. So I think when you pull it all together, this is a biased statement, so I'm going to say I'm biased up front so you can't call me biased, but I don't think there's a technology in the last decade or in the next decade that has driven more value, both business value as well as capital savings in the data center than VMware, and we're out to do it again. I'm independent, I would say the same thing, by the way. Carl, I mean, to connect the dots there on the op-ex piece, and also you guys do software defined data center, hybrid cloud and end-user computing, if those things all come home and happen the way you want, you move to your next fail point. So I got to bring up the globalization conversation. If cloud goes down this path, the consumption model will be, I want, pay by the drain, all services, and global becomes a huge deal, so because globalization outside North America, you have different issues, data center, cloud, is it in Ireland? Data sovereignty, all those issues. So what's your take on that? You guys have a huge base, what's your globalization view in that piece? If things start to materialize really aggressively, you build on your base, cloud comes home, cloud's happening, consumption is happening, what's the global strategy? Global impact, I should say. Yeah, so let me talk about our global strategy and then global impact. So first of all, VMware is very global. If you look at our book of business today, the greater than 50% of our business is outside of the US and North America, right? So we're already doing very well internationally in how we go to market and how we're generating revenue across the company. What you're talking about as the world becomes more and more global in the context of cloud computing, how do we play into that? So what we've done is, we've taken our vCloud Air platform and we said, where are the biggest markets in the world for cloud computing? It's the US, right? It's the UK, right? It's Australia, it's Japan, it's China. And if you look at what we've done as we've built out our own data centers, we're addressing probably greater than 95% of the infrastructure as a service market in the world with our vCloud Air platform. Where we're not, we allow our partners to do that. Those 3,900 partners that we showcased yesterday on stage cover almost 100% of the cloud opportunity. So we're not going to do it ourselves. We're not going to be in every country around the world but our 3,900 partners are in over 100 countries and we're servicing the cloud market opportunity directly and indirectly across vCloud Air and the vCloud Air network. We're getting the hook, but I want to get that partner thing is just to kind of get pivot quickly for a quick comment on that. Obviously the partner networks are huge. They care about margin expansion and serving customers. What's going on with VMware? How's that going for the partners? Yeah, so I guess it depends on which type of partner we're talking about, but I would say in general, our partner ecosystem is alive and well and all you need to do is take a few steps down over there and go look at the solutions exchange floor and you'll see every technology company in the world that has either integrated or wishes to integrate with VMware in one capacity or the other and it is our responsibility just like we have over the last decade to bring our ecosystem along with us to enjoy the rich opportunity we see in the mobile cloud era. The booths are big, the booths are packed. VMRals rocking, I'll give you the final word. Put the bumper sticker on the show this year as the car drives away out of San Francisco. What's it say about VMware? What's going to say on the bumper sticker? Well that's a great question. What do you think it should say? Pat Gelsinger had a good one, Brave New IT. Yeah, well that's our motto. It's the Brave New IT, but I actually think what it will say is let's go do it again. We've had a hell of a journey with our customers and our ecosystem over the last decade and I say let's go do it again over the next decade and disrupt this market in a very positive way and break innovation and technology to market each and every year. Carl Escherbach, President and Chief Operator of VMware, making moves on the offensive, VMworld 2014. We'll be right back with our next guest after this break. Thanks.