 Live from Las Vegas, Nevada, it's theCube at IBM Interconnect 2015. Brought to you by headline sponsor, IBM. Okay, welcome back everyone. We are live here in Las Vegas. This is theCube Silicon Angles flagship program. We go out to the event, extract the symphony noise, I'm John Furrier. My co is Dave Vellante, kicking off day three of wall-to-wall coverage. Day four days in Vegas. His life feels like 10 weeks. He's been coming here so many times. A lot of action here. IBM's conference, new way to fill in the blank. New way to work, new way to do social, new way to do cloud, new way, really highlighting kind of the build out phase of the cloud. You're seeing a lot of innovation around big data, internet of things. Obviously we put out the trending hashtags. It really is around the cloud. And big data, mobile, big part of that, internet of things, again part of that. This is about building out the conference for developers. And you're seeing a lot of solutions oriented. What do you think? I mean, what's your take so far? The two days hearing the guests come in here. What's the theme? What's the story? A lot of customer success stories, but at the same time, they're putting out progress reports on their innovation. What's your take? New way to party. That's right, IBM Z folks. You know, there's an interesting conversation we had yesterday with Ray Wang. I had brought up to about $25 billion of IBM's 90, whatever, five, six billion dollars of revenue. It was this new strategic stuff and it's been growing at, let's say, 15, 16% a year. And Ray Wang made the statement that the balance of that business has to grow at 40% a year to offset the declines and the balance of the business. And here's why I don't necessarily agree with that. Mainframe. Right, nobody really talks about it except the mainframe guys. It's not a big theme of the show, but you know the old saying, John, what's good for GM is good for the country, good for America. Well, what's good for the mainframe is good for IBM. IBM's entering a new mainframe cycle. It takes multiple years, three to five years to develop a new mainframe. And it's hitting the cycle. We talked to people at the Zee announcement that said that they're basically going to be buying those site unseen. Why is this relevant? Why is it important when we hear talking about cloud and mobile and everything else? Two things. One is from a marketing standpoint, IBM can talk about how it's modernized the mainframe, it's all true. But from a financial standpoint, as the mainframe goes, it really is a great business for IBM. Why? Because it's high margin, it drags along software, it drags along other services. And so I think that's going to be a little hidden secret of IBM's business this year. Just like when Windows, when Microsoft comes out with a new Windows release, everybody was surprised. Were you shocked that Microsoft all of a sudden had started throwing off more cash with the Windows upgrade cycle? No, you weren't surprised. Same with the mainframe. So that's going to buy IBM time to bridge the gap between all the strategic initiatives, cloud, mobile, analytics, social, big data, bridge the gap between the new stuff and the old. I got to talk about IBM's place in history. You know it's a mainframe. That's a good point. The mainframe to me is the secret weapon here, the story that no one's really talking about on the mainstream press. It is the backbone of IBM. It's the computing industry. This is their heritage. But it's evolving into something bigger for them. They're modernizing it. It's big iron. That's the term that has been called the old glasshouse mainframe days. But now in a distributed computing market, big iron means performance. And I think that's a big thing. The second thing is blue mix. Blue mix is getting significant momentum and a lot of energy is underneath that. IBM's putting a lot of wood behind the arrow in cloud. Energy, patents, and again, this morning, top news Apple was told by a jury to pay a half a billion dollars on a patent trial. They'll appeal, of course. They got tons of cash. But patents, IBM's got a ton of patents. Apple is twice the value of the next public company. So IBM, can they be like Apple? I mean, in the sense from a value standpoint, IBM was once the gold standard in terms of stock price. You can't go wrong with buying IBM. You can't go wrong with IBM blue chip stock. Obviously, they're doing some things there. Apple's certainly showing the business model is direct to consumer. Just kind of, as a company, they have to get their products together and deliver solutions that have high margins. It's a really good point you're making. But again, when you go back to the Gerstner days, the mainframe sort of bought them time to invest in things like e-commerce and web sphere and their software business. And I think I see the same thing happening here. I think the big question, John, is what does IBM come? I mean, it was largely, even though they didn't market it that way, but it was largely a services company the past decade. Okay, can it be, your question about can it become like Apple? Apple's a product company. Can IBM become a product company? And other than the mainframe, what's the product that IBM has that is the number one product that you associate with leadership in the marketplace? Well, would you argue that Apple's a solution? It has a collection of products. I'm an Apple user. I got an iPhone. I got a Mac. I might buy the watch. I'm wearables that come around the corner. The solution is lifestyle. It's computing. So I would argue that products have to be there to make the solution. But IBM, but Apple's got great products, right? It's got the best phone. It's going to have the best watch. It's got the best pad. IBM traditionally always had great products. They were the leader, but now you argue and say, okay, why isn't those products leadership turning into value and solutions? You could say products need to be modernized. Solutions need to be tightened. Let's go through it. Let's go through it. Who's got the best cloud? Amazon. Okay. Who's got the best database? Well, I would argue open source. Oracle, in terms of industrial strength. Who's number one in database? Open source. Okay. All right, maybe. Who's number one in storage? EMC. All right. Who's number one in mainframes? IBM. Okay. Go through the list, right? Who's number one in mainframe? Who's number one in apps? How big is the mainframe market? Who's number one in apps? I don't know. I don't know. This is my point. So can IBM, does it want to become a product company? Again, it used to be. So you think the database company is Oracle? Well, it is. Oracle is in the number one database company. How do you know? I mean, it is. Right now, is it going to be affected? Is it going to be affected by open source? Absolutely. All right. Apps. You got to throw a Microsoft somewhere. So how would you rate IBM's product portfolio? Jeremy Burton at EMC said to me in a crowd chat, how are the portfolio? IBM has always had these different divisions. This is what, in my opinion, when Gershner chose to go after services, he said we're going to be number one in services, okay? He chose to say, okay, we're going to have good products, great products across the portfolio. We may not lead in any one category, except maybe mainframe, but we're going to have great products best of breed. So the portfolio is fantastic. Okay, so that's the question is, what do they want to be in this next era? So they want to be number one product company? Do they want to be the number one solutions company? Number one cloud company? Here's my thing. Here's my take on what I think. I think IBM needs to own the cloud all in. They need to go in and do whatever it takes to pull out the patents, reorganize. We heard that from Nancy Pearson yesterday. The cloud is the critical link. BlueMix, they're playing with the cloud foundry, the foundation, I get that, it'll accelerant, but they need to come in, grab the Play-Doh, shape it up, and own cloud, and deliver everything on the cloud, and then they got to win the big data solutions battle. And we heard that from Doug Bailoff. He nailed it. Running in data, consumption of utility computing, whether on-prem or off-prem, and BlueMix and the cloud division is critical. Everything else would be the pacing item off the cloud. Yeah, so what I'm calling cloud a product. So I really believe, so why is it, John, that Oracle always talks about IBM, and why is it that San Palmasano said, I don't worry about HP, I worry about Oracle? It's because of R&D, and the key in this business, it's the technology business, you have to take R&D, and you have to translate R&D into product that sells, or solutions that sell, right? And you have to cycle those products very, very quickly because obsolescence will kill you in this business. That's why Apple's doing so well, obviously in the consumer side, that consumer mentality is coming to the enterprise that's here, and that I think is IBM's big opportunity. Look at Watson, it's spending money like crazy in R&D. The Steve Mills billion dollar playbook play, that is the key, in my opinion, to IBM's future. Can they execute on that and turn that billion dollars of R&D into product, quickly cycle into the marketplace and leadership? That will drive cash flow and that'll drive competitiveness. So again, IBM, let's look at this from a big picture standpoint, and it's interesting, Dave. They got a lot of work to do. I mean, if you look at the different divisions, they got a boatload of work to do. Now, I mean- Let me ask you a question. You kind of asked Ray Wang this yesterday. You're sitting down with Ginny, right? You're in the boardroom, you're addressing the IBM board. What would you do? What would you tell them to do? Well, I would ask her, hey Ginny, you want me to sugarcoat it? You want me to- No, come on, straight to you. Of course, you don't even have to ask that question. Give it to me straight. Okay, here's what I would do. All in on the cloud, win the cloud business, number one, okay? You got to own the cloud. You got to clean up the bureaucracy internally for agility. You got to go faster. You got to own the big data fabric, not necessarily be the solution provider. I think the Apple deal and what they're doing with Twitter is the partnership. I think the collaborative nature of kind of partnering with those big whales is right in the middle. So do what you're doing now, but do it faster. I would put the mainframe out as big iron. I would market the hell out of that as big iron. I'd get the winning, get the God box. I would market the hell out of the mainframe, but you got to win the cloud like in the next 12 months. You just can't like, you got to go faster. And what does that mean? Developers, resources and everything. The storage group, you got to go to storage and clean up the storage and make storage the epicenter of the action. Make storage products mainstream, make them relevant and go after EMC and just put out a great product on storage and let the middleware stuff evolve around that. And I think that was what I would do. So wouldn't they say, John, aren't we doing those things? Yeah, I think the answer is yes. I mean, that's fundamentally, you just laid out, you know, maybe there's a couple of things we missed, but you just fundamentally laid out. Well, I would also tell, keep the buybacks going, keep Wall Street, throw the wolves meat, you know, do the buyback thing. I have no problem with the buyback. People argue that that's a financial issue. How can you not do that? Yeah, that's like, you don't pass the intelligence test. If you don't do stock buybacks. Yeah, but why do you want to have a distraction on execution? You want the wolves of Wall Street, you want to throw them in the cage and feed them the red meat. Do the buyback, control the flow, do all those financial things to keep the returns going and heavily move the R&D needle forward and focus all the execution internally to straighten narrow on cloud and everything around big data. And you know, everything else falls in that. You look at internet of things. If you look at what this was trending on Twitter today, Dave, you'll see exactly the conversation space, right? The conversation space around the customers is, you know, DevOps, cloud, internet of things, big data, and a lot of other marketing stuff, new way to work, it's just, you know, directional marketing, but the meat on the bone is cloud and big data, and everything else, internet of things, mobile, all are part of that fabric. So I would own the fabric, own the cloud infrastructure as a utility vehicle, and just absolutely not let Amazon get an inch in my client base. That's what I would do. What would you do? I think I would do a number of the things that you talked about that they're doing. But I also think you're right. My big issue with IBM is, I said it before, they've got to translate that R&D into product. Right now, we're seeing that with Watson, but it's not consistent across all the divisions. You mentioned storage, for example. Take that as a good example. They've got to take their R&D and accelerate the product life cycles. Why is a company like EMC lead in a market like storage? It's because it's got tons of products coming out. Now, IBM's software group, I think does a really good job there. The other thing I would do if I were IBM is, I would figure out a way to consolidate, maybe through that middleware layer, all my SaaS applications. I think they've got to have a fusion-like initiative, Oracle Fusion-like initiative, to integrate the top of that stack, the SaaS apps. That's, to me, a huge opportunity for IBM, and it's a big pill to swallow, but I think it's something they've got to do. Okay, we will be right back into the short break with our next guest. Day three of wall-to-wall coverage. Again, full schedule today here inside theCUBE. We are at the IBM Go Social Lounge. Go to interconnectgo.com. That's the social experience, the digital experience website. That's powered by the crowd. All the video feeds are there, from the sessions, the keynotes, and theCUBE and some of the developer action. Again, three channels of video. The rest is powered by the VIP influencers, and powered by the crowd. Amazing good stuff on there. Trending stories from the crowd, by the crowd. That's a crowd-sourced social experience. And again, if you want all access to some deep IBM stuff, you can sign up for that as well. But really, it's a great place to find out what the crowd's doing, what the influencers are saying, and what's going on here at the show. So go to interconnectgo.com. This is theCUBE. We'll be right back after this short break.