 Live from Las Vegas, it's theCUBE, covering AWS re-invent 2019. Brought to you by Amazon Web Services and Intel, along with its ecosystem partners. Well, welcome back to theCUBE live here in Las Vegas for AWS re-invent 2019. This is theCUBE's seventh year, eighth year of re-invent. We've been there almost from the beginning. I'm John Furrier with Dave Vellante extracting the signal from the noise. Got two great guests here, two senior leaders of VMware and AWS, Sanjay Poonan, COO of VMware, CUBE alumni, Mike Clayville, Vice President of Worldwide Commercial Sales and Business Development for AWS. Guys, you're the senior leaders out on the field making things happen. I got to say, the AWS VMware relationship, which we covered a couple of years ago when Gelsinger and Jassy were doing the little love fest there in San Francisco. A lot of people were skeptical. This show here, we're hearing things like, that's my Super Bowl moment. Things are working great, cloud is scaling, so congratulations and welcome to theCUBE. Good to see you. Thank you. All right, so let's get to the relationship. Talk about you guys' relationship and how it's morphed into such a success. We're hearing great feedback. The numbers on the research that Dave's been digging into shows customer spend is up. Is that the wave of cloud? Is that the integration? Sanjay, what's going on? Give us, give us the update. No, I think we're delighted. You know, Mike obviously and I have been friends for years. He's had some connections with VMware in his past that certainly helped in setting up his partnerships. We're grateful to Mike and Andy and the team for that. And it's two and a half to three years now since we announced it. Tremendous amount of customer interest. Listen, we said at the beginning of this, when you take sort of the king of the public cloud and the king of the private cloud together and don't force customers to say these have to be separate doors. You can do them both together. Customers like that message. And what we've been really doing over the course of the last 12, 18 months is perfecting use cases for this platform. I think to us, the key word is migrations, cloud migrations. When people are moving their workloads off an app off VMware vSphere or our cloud foundation, we want this to be the best place for it to land. VMware, cloud and AWS for a migration opportunity. And anything short of that, refactoring app would be not something that would be a good use for people's time and money because they should be then modernizing with all the wonderful services that Amazon's built once they've migrated. So we've really perfected our message in the course of the last six, 12 months to two M's. Migrate and modernize. Migrate and modernize. So we could migrate you into this avenue and then modernize with a set of container and other services. So that message working we put on stage at VMworld and there are many of them here. Two big Amazon customers, VMware, cloud and Amazon, Freddie Mac and IHS market, and they were telling our tens of thousands of customers at those shows and similarly many of them here that that's the best option to be able to do things. It's great by the way because it's a frictionless migration, right? So you've got a platform that same code base working on-prem, same code base in cloud, creating a seamless integration between the two platforms. Some are finding customers very enthralled by that. That's what they say, they say they love that because it's less disruptive for them. Yeah. But at the same time they say, but eventually I want to change my operating model to really drive profits to my bottom line. So can you talk a little bit about what that journey looks like? And I'm really interested in longer term, Sanjay, how you play in that. I'll let Mike start and I'll start. So the first thing I'd say, one of the real reasons I love it is because they've got a big investment today and that investment is in skills, that investment is in operational processes, that investment is in licensing, and all of that comes along with them on their journey, whether it's a migration journey or a migration and modernized journey. It's working. So when you're talking about the bottom line like you are, this is a great play for that bottom line. Yeah, I know and I'd say listen, from our perspective, we want to, you take Freddie Mac, when they spoke at VMworld, they have I think 800 applications, 50 of whom are SaaS and the other 750 are custom built, deeply virtualized, and they're going to move all of them over the course of the next 12 months. I fell off my chair when I heard how fast they plan to do it. IHS market has very variety of very spread accounts in Amazon. Now we're going to help them move a lot of their workloads there. Once they're there, we want them to then use the tools that Amazon's built. I'll give you two examples. Maybe some of their backup tools into S3. CloudWatch, some of their analytical monitoring types of tools. And then of course AI, database services. And the best place once you've moved it there is to make sure that that migrated stack is stable. You have the best of the VMworld tools, vCenter, vMotion, all you know, and the best of the Amazon tools. So when people start to see this, I think the myth of sort of saying, refactor and replatform that application, which is in essence like taking a home, and having to destroy the home and completely rebuild it. And that's just to me a waste of money and time when you could migrate it and then modernize it. So we just need to get that story well understood, get our, you know, I mean, Amazon probably has a few million customers. We have a half a million customers. If all of those customers can hear the story and begin on their journey with us, I think we will tip this in a way. It's starting to tip. To get back to the point of your question as well, look, our two companies have been engineering these solutions together deeply. So this just isn't a paper partnership. This is an engineering partnership that started years ago. And what that means is, as customers migrate to VMware on AWS, now they have access to over 175 AWS services. Can it write significant native access to a broad range of services that they can continue to innovate, identify new business models, and it all seamlessly integrates back into a single platform. You know, one of the things I always said when I talked to Andy and Amazon folks is that the competitive advantage of the business scale and also the new announcements that come in. So one of the things we heard yesterday from a customer, one of your joint customers was, you know, I asked him about Outpost, which you guys now going to ship in 2020, which was announced, you already got native Outpost general availability. He goes, look it, we love VMware. We could probably look at VMware and kind of poke at things, maybe do things differently. But frankly, I don't want to have to re-architect my stack because I want the data science stuff from Studio, SageMaker Studio, because the demand for the business results is coming in from the new capabilities. So this seems to be the trend where the migration is just lift and shifts, keep the operational flow going foundation, and the business value over the top is whatever you guys can bring in from an NSX and then the apps. Is this something that you're hearing more of because this points to all the discussion around the platform is irrelevant because the business value is coming in from the data? What, how do you guys react to that? Is that something that you're hearing? Well, the first thing I would say is the, you know, the pundits will tell you that by 2020, 90% of customers will be in a hybrid model. So, you know, the migration as you talk about is in play and arguably 2020 will be the year of the most migrations in history if those pundits are correct, right? And so that gets a lot of customers in the mode of being able to leverage BMC and then be able to take advantage of all the, you know, the extensive amount of data services we have available. But if you ask me, what are the big reasons driving the migration? It's traditional economics, right? It's, I don't need to be a capital expense, heavy organization anymore. Why do I have to build data centers? Why do I have to extend data centers? Why am I building, why am I buying air conditioning? That's not differentiating my business, right? All of those things are creating drivers for this migration. Now, as you begin the migration, that's when you begin to see, wow, imagine the simplicity of the same code base, same operational processes. I don't have to retrain a bunch of people just moving it right onto the cloud. And now let me really dig in through the new services available from AWS. Look for those new business models. Our customers having that focus of differentiation and looking at VMware and saying, let's keep it and expand it to the edge and do things like that and focus on. Yeah, absolutely. I mean, listen, I think they had Cerner yesterday on stage and I think, you know, it was interesting to hear the CEO there talk about three verbs. Migrate, modernize, and innovate. I mean, that's the thing. So I think when you start to see that becoming a very active dialogue, not just from CIOs, but from CEOs and boards that are saying, listen, you know, part of the reason we want to move to the cloud is it improves our agility. It's not just a cost reduction. Yeah, I mean, I don't need to have 80 data centers if I could have half or zero or one or two. So that I get, but beyond cost, if we can kind of get agility going faster. And for many of these folks, I think when I sit down in their customer advisory councils, when we are advising them, they're all trying to serve their customers better, get data to become sort of the oil of their ability to make decisions better and AI and analytics sort of help in that area. And then of course, get more efficient in lowering costs and risk. And I think when you're doing at the scale that both of us have experience doing, we understand data centers really well. We've softer defined them for 20 years. These guys understand cloud probably better than anybody else. When we bring that sort of scale together and as Mike pointed out, a deeply engineered solution, we have a significant R&D investment in this. And we're doing that jointly with them. When I often sit down in our joint QBRs, I joke about it with Mike and Andy and others, I sometimes forget is that a VMware person speaking or an Amazon person, because they're finishing each other's sentences. So there's a lot of that joint trust they've built and we just now have to keep showing that this is a solution that's innovating every three months because you're running on monthly and quarterly cycles and get large customers. I mean, trust now it's less so about the noise of getting everybody on stage. It's much more of a showing customer traction. So I wonder if we could talk about one of the other big problems in the industry. Mike, you talked about deep engineering and you guys are, you're never done, right? But you've solved that problem or solving that problem of making it easy for customers, VMware customers to run in the cloud. There's another big problem, a big concern about customers is security. And there seems to be somewhat of a dissonance and I wonder if you could share with us maybe some of the thinking around this. So Stephen Schmidt, for instance, who is Amazon CISO says, hey, the state of security in the cloud is great. And it is, it's, you know, you don't have a lot of technical debt coming in to the game. Pat Gelsinger is saying, hey, you know, security, the state of security in my world is broken. So what's the conversation with you guys in terms of addressing that big concern on the minds of CIOs and- Yeah, I'll start and you might feel free to add on top of this. I mean, we've talked to Steve, we're like Steve, he's a very, he's an innovator and a thought leader in security. We're coming at it from a place that's complimentary to some of the point of views of Amazon. And I've shared this at our last VMworld discussion. When we look at the control points of security where traditional security is spent, network, endpoint, identity, cloud and analytics, those are five core control points where a lot of security is spent inside the $50 billion security market. We picked two that we're going to do really well, the network and endpoint. NSX has been doing really well there. Now granted, a bunch of that is on-prem. It's replacing or complimenting Cisco, Palo Alto, Checkpoint, Fire, I'm sorry, Riverbed, F5 net scaler spend. And now that business, 13,000 customers, Incense has become a 40, 50% of its security in the use case of the network. We just acquired Carbon Black. It runs on the Amazon platform. It runs a next-gen endpoint security that's an evolution from the old world of semantic, McAfee, and there were only two vendors doing this at scale, Carbon Black and CrowdStrike. We built, we got the better one. So when you put those together and collect a significant amount of telemetry from that, we think we could do something highly differentiated in security. So VMware's goal, and to the extent that Amazon or others are doing things in security that compliment our view of it, we'll build on it. Whether it's identity and access tools, whether it's load balancers, whether it's security event management capabilities. But we're integrating those two into the security in the cloud, which makes it seamless security, which is critical. And our goal would be, listen, when we go and when we talked about this is what we're doing in security, we go to Mike and Andy and the team and said, listen, this is our ambitions in security. We don't view Amazon as a competitor in that space. Very much complimented. They will be on the fringes. They have a load balancer, we now have a cloud. That's okay, but that's the bigger part. If they were going after end point security as we'd be competitive there. If they were going after network security, but they're not. So I think when we share our intents, which we do very openly, we have open commode sessions. Hey, this is where we are, this is where we're going. That's what we are. And we go deep in that. Trust us. Look, this is a historic partnership. This is not a partnership that I've seen anywhere in the industry in my 35 years. This is something that's at the next level. And I think you'll look back, history will look back at this partnership and recognize that its impact on cloud is going to be substantial. We hope so. You guys deserve a lot of credit. And again, the critics were critical of the announcement. We were obviously favored. We saw the vision. But I think what surprised me most is that the spend numbers reflect is you guys clarified your cloud play with this move. The customers saluted it 100%. They were on board and the numbers are showing it. But as Andy and you guys go to the next level, I got to get your thoughts on this trend of transformation. We have two memes we started on theCUBE this week. One was if you take the T out of cloud native, it's cloud naive. And the other one is one I said in my post about being reborn in the cloud. So you got born in the cloud startups and growth and enterprises who are becoming reborn in the cloud, which means they're transforming. So as the trillions of dollars that are coming into the migration, you look at the numbers, there's only 20% of IT spend in cloud, roughly give or take. You're talking about trillions of dollars of new money. You guys are the commercial guys. Hey, look, it's still day one for the cloud. It's still day one. You have a lot of people who might not make the migration might die of starvation. Okay, as they move to the new model, you guys are out there to take and you're going to go get that cash. What are you guys seeing? Cause this is a big trillions and trillions of dollars are on the table. You started my job. Well, look, you know, Sanjay talked about it. You see these customers and how enthusiastic they are about the opportunity here, right? And Freddie Mac's a great example of a hundred million lines of code. And I've got to get out of three data centers in 24 months. Bam, they're out in 10 months, 10 months, right? A hundred million lines of code over hundreds of applications done in 10 months. Now imagine the rest that the company can do now that they've got that behind them, right? And that's what we're seeing is this partnership enables our customers to get a bunch done very economically, much faster, and now they can get onto the other things that they need to do. Yeah, let's build on that. Listen, we track about a trillion dollars of IT spend. And if you add up all of the cloud spend today, it's probably, I mean, Amazon and Salesforce are probably the biggest in infrastructure and apps. It's probably 150 billion in total cloud spend, maybe 200 billion. So that's 15 to 20% of the total IT spend, which is massive, right? But it's still, as my point is, it's early innings. Is that 20%, it's probably going to become 50% at some point soon, right? If you look at the pace at which the cloud companies are growing. So the key question is, who's going to go as 150 billion? The one trillion total number is going to grow, but probably a little bit faster than GDP at most. Three, five percent max. Who's going to go grab that 150 billion as it goes from 150 billion to 500 billion and the on-premise spend slows down, right? I think that, you know, I think that Amazon's very well positioned. And from our perspective at VMware, we have a 10, 11 billion dollar business. We're trying to tilt this increasingly more cloud. We announced in our earnings call, 13% of it now is hybrid cloud and SaaS. That 13% should become 20, 25, 50. They are a pure cloud company. 100% of their business is cloud. We're in that transition. But why are we in that transition? Because we see that 150 billion of IT spend likely becoming 500 billion. And if we don't get it, somebody else's. Well, hybrids are a tailwind for you guys, because Outpost is actually a statement that says hybrid at the edge. Now the data center's an edge. You got edge, what is an edge? So cloud operations is now the standard. I mean, we actually coined the term hybrid six years ago and everyone, five, six years ago. And everyone really laughed at us. And now I think it's becoming validated. So it's very gratifying now that Amazon has a similar vision to hybrid as us. We believe both the VMware cloud on Amazon, Outpost and VMware cloud running on Outpost. We're very committed to that joint vision. Yeah, you're talking about the spending data and VMware yet another revenue hit. It's pretty consistent in that standpoint. But if you look at the spending data, virtually every sort of traditional company with very few exceptions is you're seeing a share shift to the cloud. VMware is an exception. It didn't used to be that way a couple of years ago, but you're embracing the cloud, really changed and became, you made cloud a tailwind, not a headwind. I think this partnership helped in that. And you put it right, right? Everything in life is either an opportunity or a threat. I think, and I've talked about it in your show before, cloud and containers were a significant threat. When I joined Amazon, sorry, when I was a partnership with Amazon, I joined VMware six years ago, I asked Pat, I said, listen, I think the threats to VMware are Amazon and Docker in 2013. Now Docker is a whole different story. Kubernetes took their head out. But to our credit, we, a joint credit, we partnered here. And I think from our perspective, you see, we at VMware aren't able to do a complete pivot like Adobe did to say, burn the boats on on-premise and completely shift everything's ass. Why? Because customers still want NSX on-prem. Customers still want our HCI product on-prem. People are still buying these from on-prem. So we've got this more delicate balance of starting to shift an on-prem business, the aircraft carrier, you know, at the time five billion, five, six years ago, now 11 billion, to something that's a blend of on-prem and cloud. While the cloud part grows a lot faster, that 13% of revenue we announced at earnings goes growing 40%. So we can keep that growing faster and faster while the on-prem business is not decaying. It's still growing, but not growing at the same pace while it's changing. Then make that transition a few years from now to being a lot more of a cloud company. The other thing you're seeing in the spending data, I wonder if you could comment is, you know, digital initiatives really started in earnest, let's say 2016. And people were doing a lot of experimentation. They were throwing everything for the new stuff against the wall. And what we're seeing now is they're narrowing the new and they were keeping the legacy stuff around because they were sort of running in parallel to hedge their bets. What we're seeing now is less experimentation than the new and they're starting to unplug some of the older stuff. What they're not unplugging is cloud and they're hanging on to VMware. And we're seeing, you know, spending levels revert to pre-2018 levels. I wonder what you guys are seeing at the macro. Well, the first thing I would say is I see experimentation continuing to accelerate, right? All of the new functionality that we bring out every day, everybody's experiment. Because you're the sandbox, right? It's a, for us, it's very invigorating because we love people to experiment. And we, you know, a lot of those experiments turn into amazing new startups as an example. And, or a bunch of those experiments turn into major new projects in our big enterprises. We're continuing to see a real push towards experimentation and driving agility into the business. I don't know what you're saying. Yeah, no, I, Mike, I'd agree. I mean, listen, we, in some senses, we have a very good, strong, you know, on-premise business. But when we see a really innovative company that's in the order of 33, 35, 35 billion, growing in the 40s, 30 to 40%. I mean, that's incredible. When we see companies like Salesforce and Adobe that are giant SaaS companies approaching, you know, 10, 11, 15, 20 billion, growing 20, 25%. I think that infrastructure as a service and SaaS business, for us, are trailblazers of where this cloud is headed. These are the biggest companies in infrastructure and in SaaS. And we follow that. Now we have to then navigate to say, listen, the growth rates and the spending is going to be reflected by cloud spend that's heavily spending on there. And the way in which the on-premise world is spending. We have a bunch of hardware companies. We work very closely. We're watching how that spending is playing out, whether it's Cisco, whether it's HP, whether it's Lenovo, Dell, and others. And then of course we got VMware sitting right in between. And I think what we're trying to manage is you got a whole world of on-prem, driven primarily by hardware companies. You got a bunch of these cloud new companies, Amazon, Salesforce, Adobe. And VMware right in the middle saying, okay, listen, we want to be dragged by both while many of our customers still want some on-prem. It's a delicate balance, but there's no, I mean, we are very clear within VMware. We want to be led by a cloud-first policy wherever we can. I'll give you an example, Workspace One, manage these devices. We bought a company five years ago named AirWatch. Why did we buy them versus somebody else? It was cloud. It was cloud-first. That business now, and user computing, has tilted itself to be primarily cloud-based, very subscription-based. It was on-premise VDI. At the time, Mike was at the company six, seven years ago. It's become now completely cloud-based on the back of a Workspace One kind of thing. So that's how we're thinking about it. The new acquisitions we've done, whether it's carbon black, whether it's fellow cloud, whether it's cloud health, they're all cloud-based. Well, you guys made a good bet on cloud operations. That's the real shift. The cloud operation model is right in your wheelhouse. You guys have operators, VMware. You guys have cloud operations everywhere now. Edge with outposts, congratulations. I want to say Sanjay, it's been a great journey with you. You've been with theCUBE all 10 years, all seven years, we've been governor. Congratulations on the 10-year anniversary. We've been documenting the history. Wow, that is very cool. And documenting the historic moments like you guys together. Very exciting. AWS really appreciate it. Congratulations. And of course, always good to see more action coming, cloud 2.0, next-gen cloud, competition, controversies. I mean, you can't ask for a better movie here. And John and Dave, we're going to bring mugs next time. Okay, we're going to have cute mugs. No mugs. Third year on theCUBE. I'm John Furrier, Dave Vellante, Sanjay Poon and Mike Claibill. The leaders, senior leaders of AWS and VMware out with their customers here on theCUBE. This is our AWS Intel set in the middle of the floor here at Reinvent 2019, our seventh year. Thanks for watching. More coverage, day two of theCUBE. We'll be right back.