 Live from Boston, Massachusetts. It's theCUBE at the HP Vertica Big Data Conference 2014. Brought to you by HP with your hosts, John Furrier and Dave Vellante. Okay, welcome back everyone here live in Boston, Massachusetts for theCUBE, our flagship program. We go out to the events, extract the signal noise. I'm John Furrier, the co-founder of SiliconANGLE Media with my co-founder over here, Dave Vellante, of SiliconANGLE Media, which is Wikibon theCUBE, SiliconANGLE. Our next guest is Alan Nance, VP of Technology at Royal Philips, huge conglomerate international and a huge company. Obviously have huge modernization challenges to stay current, stay relevant, a lot of new competition with a lot of legacy. Welcome to theCUBE. Good morning. So we're talking transformation. We believe we've been saying here in theCUBE, we've been talking about the trends, very disruptive, we've been saying things like transforming industries and if you're not evolving, you will be disrupted. That's kind of the thesis that we see. And with this whole new era of born in big data, whole new generational shift that culturally we're seeing with developers, management, everything else. So I got to ask you, how do you see transformation for a large company like yours? What does the technology transformation look like? So we're in the middle of a very major technology transformation that affects the end-to-end business processes within Philips. Philips has for 140 years been a very diverse company of standalone P&Ls and each of those companies have essentially created their own technology solutions. What we're doing now- Aka silos. Silas. So we have multiple SAPs, multiple SRMs, 57 ways of creating an invoice. Now what we're going to do, what we're in the middle of doing is we're standardizing end-to-end processes across all of our businesses, whether they're healthcare, lighting or consumer lifestyle, around standard idea to market, market to order, order to cash. The technology supporting those is standard. So our CEO made a statement three years ago that 85% of our IT spend was non-differentiating to Philips in the marketplace. So it makes no sense to have these highly customized Philips systems. So we're replacing all of those systems with standard solutions. So salesforce.com, SAP is still a mainstay, Eloqua, and all of those types of systems. Windchill. Underneath that, and that's the thing I'm really responsible for, is we're creating a cloud-based common infrastructure and operating platform that supports both the commercial as well as the enterprise systems of record systems of insight. And what that is, is basically it's seven cloud services. So data analytics is one of those. Connected devices, Internet of Things is one of those. You have the more traditional storage, compute security, high-volume transport network, and then underpinning that as a control plane. And all of those have to be rooted in consumption-based cloud services. Describe, I'll just write it all out so that's really good. So explain and define consumption-based infrastructure because there's a reason for this. We've been talking about consumption changing with mobile, cloud, and data, new apps are coming, new user experiences, new interfaces across the board, from developers to users. So what is consumption-based infrastructure? Now, I'll tell you how we got there. So we put all of the primary suppliers in a room for four days, four separate day-long sessions. So Amazon, Google, everybody was there. And we said to them, you know, what do you believe consumption-based is? Everybody wrote it down, everybody got to vote on it. And when they finished the vote, we had a list of 12 things. And we said, okay, everybody agrees on this, now let's go do it. So what is it? It means that there are no startup charges, there are no launching charges, there are no termination charges, and you pay for what you use. So it's really quite revolutionary in that respect because it's the end of the ELA as we know it. So we have now 16 companies that have signed the consumption-based charter, including the ones who are more obvious, like an Amazon was the first to sign, but also Rackspace assigned, Dimension Data assigned, HP, IBM, Microsoft assigned. Is it actually a terms of service or SLAs and more of like a bill of rights or like a philosophy culture? I'm buying into the fraternity checking, I'm signing my parameters, the vendors have to live up to me. The blood is in blood too. Well, so that's down to the enforcement. You're absolutely right, it started off as a charter, a principal charter, and also because of anti-trust stuff, you've got to be careful about saying this is the only way you can do business with us. But we have made it very clear, if you cannot provide a consumption-based arrangement with us, you will not be primarily considered. So we do have one vendor with three acronyms, I'll begin with an S, who can't find their way to signing it. And so we've told them then the only way you can do business with us is through one of the people that are signing it. So we have our first consumption-based SAP system, which is being provided to us through another supplier. So in theory they could sell through Amazon or something like that? Yes, in this case it's through ATOS. Through ATOS, okay, so great. And now is your private cloud, your on-premise team participating in this Bill of Rights, or is it all externally sourced? We, fundamentally our legacy systems are in private clouds. So they're already in there, but for everything that is new in the new setup for the transformation of Philips, those things will all be based on this. So what do you envision that increasingly the spend is going to go toward this sort of external sourcing? Yes. So you're doing the big switch? Yes. And not only that, but what we also want to be able to do is take our current fixed budgets that have a chargeback mechanism and make them consumption directly to the business. And the impetus was to get rid of that, what you called, your CEO called non-differentiated IT spend. Exactly. And so this is fascinating. So Jay, this is back to the people process technology transformation. Yes. So like consumption-based buy by the drink, however you want to do that seems to be the model. How has it gone over internally as you go with the business unions? Those are change-involves? Do people have to be slapped around and put in line? I mean, how do you do it in a Dutch company? I mean, do you get them in a headlock and say, you're doing it? We know how we do it on the East Coast. How do you do it? Well, I do. If you know anything about Dutch companies, they're very consensus-driven. So there's a lot of talking around this stuff. The biggest challenges for us in terms of process and the way people look at it has been in procurement, legal, and compliance, and things like that. Because when you do away with RFPs, because basically what you do is everything is pre-contracted. And so you don't have a commitment. So for instance, for procurement, the RFP process goes out the window. So how do you ensure contestability? Big challenge for them. In the same way, finance. I mean, I'll give you an example. Finance is used for us to coming in with an approval that says, this is the investment. You know, this is the CAPEX. This is depreciation. And now they get a form from me that says, 0, 0, 0, 0. And they say, well, how can we approve this? Yeah, I'm sorry. It's your form. So there is a mindset change to go down this route. Also, the suppliers, even the suppliers who are bought into this also have to do some work back at the base. You know, I've got to be honest about it. So I know that, for instance, IBM and HP, who have more traditional business models than an Amazon, there's some work that needs to be done. But everybody's stepping up. And we've got the first contracts in place. As I said, we've got our product lifecycle management running on Amazon. We've got order to cash running on SAP as a service. So it's happening now. And talk about the business case. Was the primary metric to shift that 85%? Was it to save money? Was it to improve agility? I wonder if you could talk about that. Agility is the big thing. This is not a cost-saving exercise. This is about time to revenue. So I think, just now, the biggest challenge that we have is the markets are very, very competitive. The turnover in products is very fast. There's also a race, if you look at the internet of things, where Philips is a big player because of our consumer lifestyle health care businesses. So getting stuff out to the marketplace is incredibly important. Now, technology is part of it. But also, you can't underestimate the compliance cycles that we have to run through, especially in the health care industry. So the faster we can provision, the faster we can dial up and dial down, the better it is. There's also a second thing in agility, and that is we are finding lots of companies that didn't exist three years ago, four years ago, are now critical in some of our value propositions. So you want to be able to add them and take them away in the same way. And you also want to be able to say, OK, we're no longer going to do this. We're now going to do that without long-term termination clauses. So the 85% was the catalyst. Yes. It's not necessarily the metric. It's basically saying, why are we doing this? Let's basically go to the cloud. Time to revenue, I think, is the most important driver for us. So talk about the compliance and the security edicts because Amazon's got great security. Google's got great security. Rackspace has great security, but they're all different. So how do you rationalize that? So there are various initiatives that we're looking at right now. Because if you look at most of my colleagues in the industry, they have point-to-point connections to the cloud. We're also trying to look from cloud to cloud connections. So we've created a concept which is called inter-domain connect in which we put nucleuses in the clouds of the suppliers as like traffic cops for us. But security is still a major issue because a lot of the cloud suppliers haven't looked at security or compliance from a global perspective. So a lot of the large players are what I would call domestic offshore players. They have all their data sense through the United States. And then you run into issues around privacy, data restrictions in Russia, Germany, France, where data can't be stored anywhere other than in those countries. So those are challenges that we need to look at. And sometimes I find that some of the smaller, even though they're big names, smaller players in the United States do not understand the complexity of this going forward. John, you remember we talked to the head of security at Amazon and we pushed them on this. We used Germany as a specific example. He said, well, we have a data center in Ireland. He said it's inside the EU and that basically complies. We said it has been tested in the court of law. He said, no, what do you think? I mean, as an example, I don't want to pick on Amazon. No, no, no, I think Amazon is, yeah. So here's the challenge for us though is we do not believe over time that having one data center in the EU is going to be sustainable. We also don't want to go to having 153 data centers all around the world either. So one of the things that we do in the SIOP model is try to portion things out. So who does have a data center that can store that in Germany or in France? So for Amazon, it's a challenge. It's a very big, but for Salesforce.com it's a big challenge as well. And I think it's getting worse because of all the discussions around the NSA and there's a feeding frenzy on the concerns. And you saw, I mean, like only four weeks ago, Russia passed legislation that said, no data about companies or private persons can move out of Russia. So what do we do? Is Amazon going to put a data center in Russia? Or is there some other way that we can meet that need through a storage cloud and still do compute somewhere else or, and it also depends on every country's rules are slightly different. So for instance, for Germany, looking at something from outside of Germany counts as being outside of Germany. So it's a complicated- That's all the domicile issues. I'm sure there'll be all kinds of circumvention and rules to get around it, but on that thread I got to ask about open source. In your principle based contract of consumption infrastructure, how does open source play into all of this? Well, we are looking, for instance, in China right now, we're looking at CDH. Personally, I would like to focus on Haven because I think if I look at Hadoop and some of these open source things that their security is not rigid enough for a lot of the applications that you want to use. There are lots of things we can do that do not require that. But I think we'd rather look to a company like HP because they understand the entire enterprise. And they're global. And they have a great global footprint. They have a great global footprint, as does obviously IBM and others. But I think right now HP definitely has the edge in terms of the Haven capability and certainly the Vertica suite. Yeah, and Dave, there's something we talked about, the global footprint. We were talking about, I was talking with the CEO of EMC, Joe Tucci, Mark Andreessen, and David Dwell FireEye at the AVMware event. And the growth internationally is a massive opportunity for US-based companies. Now with this, certainly the Asian market and Europe obviously is still growing, the challenges though are unique. This is an issue that's going to be coming up significantly. It's the number one thing. I think security and compliance are going to be the biggest drawbacks. For the further expansion. Now I would also say that Phillips, I mean I was on a call with McKinsey and a whole bunch of banks. You know, I don't think every industry is going to be able to do what we're trying to do. I think the industries that are going to follow us are going to be internet of things based industries that have this need. I don't think the banks are going to go down this route. So I think it's going to be per industry. And I think it's going to be the companies that are in manufacturing have complicated supply chains that are going to benefit most of us. So you're essentially building a set of infrastructure services that you can offer to the business that aligns whether it's the edicts of the local domicile or the business needs, et cetera, et cetera, et cetera. How do you deal with the possibility that you're just creating a set of stovepipe cloud services? I don't think we are because there are in these seven things, what the business does with them, that's where the differentiation has to occur. So, and of course, Phillips has the edict to do things end to end. So it's not like, I was talking to somebody the other day about a friend of mine who's doing a big project in a bank and I was saying to McKinsey, so what's the difference in what he's doing and what we're doing? And he said, look, here's the difference. Your ex-co is saying we're going to do this. You're being driven down and the only question you get is why are you not ready? Whereas in the bank, this guy's got an idea. And he's trying to sell it. And so there's a big push top down to have enterprise, reusability, common platforms. And so that will avoid us getting the stovepipes in my mind. The other thing too, David, we talk about, here I'm in Palo Alto in California and we love Chipotle and it's basically a franchise in Chipotle but it's the same in every location but they don't make their own knives, they don't make their own accessories but the format is standardized. So the thing that's interesting about what you're doing is to the stovepipe question is, if you're standardizing, are they stovepipes? Or are they just unique elements to an overall standard system like a Chipotle? It looks the same but yet. The horse for course kind of thing. Yeah, so what would you take on that? Is that the key thing standardization? Well, contestability is also a big thing, right? So you could argue that we are moving towards certain internet exchanges around storage, for instance. So if I look at what we call box and store archiving service, whether I get that from Azure or whether I get that from Amazon, it is almost a price issue. So yes, there are things that are so commoditized it doesn't matter and you want to have the flexibility but I don't see it and also you're gonna have certain applications that only run in certain environments because of compliance or what they do and... Well, standard is actually not a bad thing in the franchise example. It's the operating system if that works. That's the critical standardization. How they do it day to day. That's the consumption piece, right? So or their deployment. But it's also a supply chain thing, right? It's also, so basically you're right that what you're doing is you're sourcing through the supply chain. So your efforts move from the individual activity to the overall supply chain. That's the crucial thing in the platform. How do I do the monitoring? How do I control the platform becomes a big issue? So your analytics as a service includes Vertica? Is that right? Is that part of why you're here? We're in the middle of those conversations. So not yet? So we are running right now. We're running a number of very, very interesting proof of concepts. We believe that Vertica has the head start although there are alternatives. Pivotal is an alternative. Amazon has an alternative. It's a lot more work for us. And I think that the analytics platform is absolutely going to play a role in Phillips. The Vertica analytics platform. And it's going to be workload dependent. So I got to ask you a question. Obviously I love the international perspective because this is actually the future, right? Globalization is a reality. And I think you guys are the front end of a tsunami of transformation in the industry. So advice for the vendors out there. You mentioned obviously HP, the Global Footprint, IBM and others and EMC. Pivotal doesn't really have a global footprint but they can say through EMC whatever the federation that they have. Amazon certainly, we love Amazon and everything else. What's your advice to the startups out there? That are coming out. That are like pre-IPO, like the cloud areas that just don't have it yet internationally that are racing to build out. Are they ready? What's your advice to the HPs? What is the global requirement of the future? If you could share some tidbits to those guys. That's a tough question. So first of all, I do think the United States market is very significant and huge and you can be very successful without trying to internationalize. And I would say be very careful about your internationalization plans because you can spin your wheels a lot. It sucks up money. So you've got to really either follow a client or have a very, very clear targeted strategy because it does require deep local knowledge. Now you mentioned IBM and HP. You're absolutely right. Both of those have a very strong global footprint. It doesn't mean they always act as global companies though. So a great example is when I go to China. So I'm going to China tomorrow because we're trying to onboard Alihuin, the Chinese AWS. Huge cultural things. Huge cultural things. They're very willing. They want to be part of us. There's lots of commercial reasons why we want to work together. But there's fundamentally things they don't understand. So nobody speaks English at a certain level. So getting contracts in place is tough. Talking about compliance regimes is tough. But I do think if you really want to be global, you're going to have to have a global footprint. At least I would say in the major countries like China, like Germany. So not Ireland because I think Ireland has been our default for all sorts of reasons, tax reasons, and others. But I think if you look at where the crux of the legislation, it is Germany. Germany is the role model and not Ireland for that. So yes, that's how I regard it. I'm just trying some tweets there. I think that's a good challenge. Follow a client. It sucks money. If I've seen companies come and go with the international strategy, they think they can throw money at it. But it's actually not just double. The old swag as a start-up is, that's your budget. Just double it. That's a good swag. But not international. It seems to be 10X maybe if you make a misstep. And also, it's non-scalable investment. So most of these startups are highly scalable. There's like 10 people and they have a huge business that they run. That's not possible when you go down a globalization route like this. You have to have specialist people in the country that understand it. So it's a non-scalable investment as well. I have to ask you, so if you think about the list of vendors that you manage, it's enormous. What percent get this initiative and really buying into it? I know it's not 100%. I can almost envision a lot of the guys saying, yeah, well, just renew them or keep bumping along with some of the legacy stuff. I mean, you're serious about this. This is not an experiment. This is the future of how you're going to do business with Phillips. Absolutely. So there are companies who, I think, signed up because it's Phillips. And they don't want to not be on the list. And so they've, but I will tell you that one of the companies, a given example, they signed up. So yeah, we're totally into this. And then they sent us a proposal that had four pages of termination clauses. And so we sent it back and said, you've got to get with the program. And to be honest, they did. They've turned it around not just for us, but they've turned it around to a one-page document. They took out the termination clauses. So I think they're busy because I think a lot of suppliers feel that this is a way forward. This is a very strong business opportunity for them if they get this right. It will help them go global. And I think other companies are watching us to see if we can pull this off in the way we intend to. And if we do, I think you're going to get more people asking for this. So a firm that is not, as John likes to term it, born in the cloud, so a firm that is primarily on-premise, their play is they've got a partner with somebody who's got that cloud offering. Is that right? And they've got to distribute their software, for example, through that partner or their hardware through that partner. Well, so I'm not interested in the hardware at all, because now I am totally devoid of that. You're not buying hardware anymore. I don't buy anything. So there's no investment, no campaigns. You're not buying gigabytes. No, in certain storage things, you are, right? But we're not dictating, even though we can, through our software contracts, we can dictate their metal. But basically, we're buying services. Right. This is awesome. So this is going to be a great experiment. But the consumption-based infrastructure, Dave, is very relevant. And I think that is going to be an interesting thing to see who will jump on that bandwagon. So did you model this after? I mean, have you peers that have done this? Do you have a mental model? Are you guys breaking new ground here? I think we're breaking new ground. Not because we want to, but we talk to all the people, the usual suspects. And nobody had a model. Nobody had anything that could help us. So we work with a very niche boutique company called Virtual Clarity. And they helped us, mostly because of the people there, who helped us. It's been a lot of brainstorming with people. I'd love to tell you we get it all figured out. I'd love to get the notes in the meeting when you asked Amazon, Google, to put up their version of consumption-based infrastructure. I mean, that would be great content. Well, but it's easier for those guys, right? I mean, they have to have that kind of stuff. I mean, I tell you, the big one for me was Microsoft. And they had to go all the way up the chain to get that signed off. Yeah, I mean, for them not to have an answer. They're an ELA shop. Now, do you think Microsoft pre-Nedella, Microsoft post-Nedella is sort of a different mindset? I actually see a huge difference. Although when you float down to the commercial teams, still a lot of people make their money on the ELA sales model, which is an easy sales model for a salesperson. So even though the CEO may support this activity, what you're going to find is that there are people in the field trying to sell it that blows their mind. So I want to ask you a question about some things we've been talking about since you're here. This is awesome content. Thank you for coming on. Appreciate it. Interfaces everything. We heard that quote on the cube. That's more about how people interface, whether it's developer to end user. Growth hacking, which is a term used in this new model. But since you're going to cloud, I've got to ask you about DevOps. DevOps has been a movement that certainly has been the poster child for the Amazon model. Facebook growth came from vertically integrating from an app down to the bare metal. In their case, they're hosting their own stuff. But now we're, and that was kind of like a unique person. Now it's got a negative connotation as we were discussing because what's more important? DevOps, Facebook's model used to be move fast, break stuff. Now it's move fast, be reliable. So they've changed their ethos to move away from that. It's not cool to break stuff if you're in a large company. So what's your take on DevOps? What is that role? Is it cloud ops? Is it engineering? Is it a revolution? Well, so I take a step back and I never like the word DevOps because I've been around too long and so you get inspired. It's just like agile. If you overuse the word agile, you get chaos. I do think that continuous delivery though is the right way to go. But again, I would say that depends on the model that you're pursuing. So I'll give you an example. I think somebody else told me this. Consumers do not do well with a new car every week. So if you bought by a car at the end of the year because you want the new model, you don't want to hear that somebody had a totally different car in January or February or March or April. So I think when we look at DevOps, it also has to be suitable for the consumption of the business that's doing it. Lots of businesses have a cycle where they have to have product introduction. But I do think the continuous, if it's about continuous delivery, I think that is going to stay. I certainly get gas every week, so that could be software. So let's go into continuous delivery. Software seems to be the common thing. When we heard infrastructure as code, Mark Andrewsson wrote that article about software eating the world. Do you buy that and how instrumental is the software equation? First of all, we agree with you on DevOps. We think that's going to change the definition, but it's about engineering or continuous delivery. But software seems to be the key common thread. Do you agree? I do. And what we're doing in Phillips is we're taking things like the agile concept and putting them into the business. Because the other side of this is I think DevOps has been seen as an IT thing, just like agile has and scrums have. And what we're finding is we actually put them into the businesses when they're creating products. So we have something called the digital accelerator and we bring in agile teams that do exactly what we would normally do in an IT environment, but they do it to get a product out. So the connected air purifier that we're launching in China is the direct result of an agile continuous delivery with the business, not with IT. Alan Nance, VP of Technology at Royal Philips. Great to have you on the keyboard. I'll give you the last word in this segment. Great content. What is your preferred outcome in all this? Let's go right to the finish line. If all the things fall into place, if you pull the string and everything happens the way you'd like, what is the outcome that you see happening here? I think the biggest thing for us will be a synchronicity with the revenue. So I think the idea is that we get closer to the business. So the ebb and flow of products, the ebb and flow of cost mirrors the revenue of the company. And I think that has to be a very one-on-one relationship. It's not today. It's completely different cycles. But I think if we time our releases, our upgrades and our costs in line with the revenue of the business, I think that would be a great outcome. Synchronicity, orchestration. These are buzzwords that are coming out of this, right? Absolutely. So orchestration is essential. There are two things that are absolutely essential here, and that's orchestration and network. Alan, great interview. Thank you so much for coming. I appreciate it because I know you got to catch a flight to China off travel in the world, getting things lined up over there. Four pages of termination clause. I could just want a nightmare. I love this commentary. Alan Nance, great to have you on the Cube. We'll be right back here live in Boston, Massachusetts here at the Big Data Conference. We'll be right back. That was fantastic.