 Okay, welcome back everyone. We're here live at theCUBE. Exclusive coverage, SiliconANGLE's exclusive coverage of IBM Pulse Live in Las Vegas, and we are here, all the action, premiere cloud show for IBM. I'm John Furrier, the founder of SiliconANGLE. I'm Joe, my co-host, Dave Vellante. Our next guest is Ralph Rio, Research Director, Enterprise Software, ARC Advisory Group. Welcome to theCUBE. Thank you. So I got to ask you, what's your take on the show? You look at the, from a landscape perspective, how does IBM do it? Is it hanging together? Is the story hanging together? And what did they get good grades and where do they need to improve? Well, the show is fantastic. There are, as you probably know already, 11,000 people here, which is a huge increase from previous years. I think the story IBM has around cloud and the new cloud stuff is fantastic. I happen to focus on enterprise asset management and IBM has had a great story around that with the Maximo and TriRiger products. They had recently added a great story around mobility. So I think IBM has a fantastic product line off for around enterprise asset management. So actually cloud shows all the, as all the sex appeal, you know, cloud, mobile, big data, but they have smarter enterprise. That's some big messaging for them. So under the hood, what is the asset management, the facilities guys, supply chains, all these guys out there who are working with IBM, what does this show mean? Because you know, this was a Tivoli show, systems management, a lot of data center stuff. So how does that stuff fit into the packaging here? What new things are they announcing here that ties into the cloud, hybrid cloud expansion? Well, one thing they do is show their product roadmap. So people who attend the show get an inside track on what is going to happen in the future with the Maximo and Tivoli products and smart infrastructure in general. So one thing is the inside track. Another thing is that the products are very mature, but they still need new functions and new features. And IBM's adding those. So when you get to know the roadmap, you have a much better understanding of where it's going in the future. So Ralph, talk about, so Arcadvisory Group is a rather large research firm focused on the manufacturing sector, right? Your specialty is, as you said, asset management software, right? So talk a little bit about Arcadvisory research group and your customers. Oh, all right. ARC is what they call a boutique analyst firm. Actually we're a little on the small side. We only have about 80 employees altogether. We're focused on industrial and manufacturing. I would consider that Ralph, boutique plus. Many boutiques of four or five guys, right? Oh, all right, okay. That's pretty good, that's pretty good. It's a mid-market boutique. All right. Okay, it's not Gartner or IDC or Forester, but it's substantial, so. So with our focus on manufacturing, and we go from the plant floor, sensors, PLCs, DCS systems, clear up to ERP and enterprise asset management. So with that focus on the applications, we have deep domain knowledge that our clients like to learn about. And your clients are large global manufacturers? Yeah, so it goes from discreet industries, people like Boeing, all the way over to the continuous process industries, people like Dow and DuPont, and everything that you can imagine in between. So you serve primarily that buy-side constituency, and I'm sure the sell-side participates as well. But so I wanted to ask you, what's going on in that space? What are your clients, what are the changes that are going on? Every industry's getting disrupted. I mean, obviously your clients have had to deal with China now for a decade or more. Oh yeah, yeah. China and India, a whole outsourcing trend. What are the big trends you're seeing at the end customer level? Just a minor distraction. Most of the, there isn't as much outsourcing as the politicians would make you believe. If you look at the decline in manufacturer employment in the U.S. over the past 30, 40 years, 90% of it is due to automation. Only 10% of it is due to outsourcing. Now the politicians love to make that a big campaign stop, but the truth of the matter, that is not a significant factor. In terms of now trends for the second part of your question, sorry to go off on that tangent. That's good, that's good point. Good clarification. The second part of your question, what's new in enterprise asset management? One big aspect is mobility. Now what I'm talking about here is a mobile device in the hands of the technician where they can manage a work order while they're on the site doing the work. This does provide some improvement in efficiency, but the big benefit is the data integrity. So when you got good data going into your EAM system, it's real time and accurate, then people have more confidence in it and they use it. Now the second big thing going on is of course SAS. IBM at this conference just announced SAS for enterprise asset management for Maximo, and that is allowing smaller companies, and it's opening the market for smaller companies who may not be able to afford the IT infrastructure to be able to afford a robust EAM application like Maximo. And what about larger companies? Are you seeing a slow shift from the sort of CapEx intensive install the hardware and the software to that SAS model, or is that really largely going to be focused on the small enterprises? Well, nothing is black and white, but for the most part the big companies have the financial resources so they can afford to the CapEx and to buy the equipment. We're seeing for at least for now the larger companies and the major applications continuing to be, I'm talking Fortune 500 type companies, continuing to be on premise. Now there are other applications that they're bringing on new that will go SAS of course, but the mainstream applications in the Fortune 500 for the most part are still on premise. And is that because of the economic advantage of being on premise or is it concerns over security or is it also sort of competitive advantage and unique capabilities of the software customization that they're doing? Yeah, it's more around their cost of money is low enough so that they can afford to buy the equipment and the SAS business model isn't quite as attractive as a smaller company. Keep in mind the larger companies already have an infrastructure of technical people who can provide security. It's the smaller companies who don't have that infrastructure that having an on premise application that's connected to the internet creates a lot of risks that they really don't have the resources to manage. So they are much more likely to go to SAS. So does your research show or confirm that it is actually at some scale on whatever that crossover point is that it's actually more cost effective and more secure and probably more compliant to stay on premise? Does your research bear that out or is it still too early to tell? Again, there is no black and white here. For now, we see the larger companies staying with on premise Fortune 500. Go below the Fortune 500 and ask greater and greater adoption of SAS. For a lot of the reasons you mentioned, security, cost, and I can't get the skills to do security right. That's the smaller guys going, but so what I'm trying to get to, Ralph, and again, we may not have an answer here, is are the large companies holding on to their existing models because of economics slash security, is there a strong business case or is it more inertia? That's kind of the way things are done. It takes a long time to change. What's your gut feel there? Well, part of it is inertia, but right now the economics aren't as strong as it is for the smaller person. Let's talk about internet of things. That's something else that obviously is happening. AT&T and IBM have got together. You're seeing GE push the industrial internet. Big customer GE, big customer of IBMs, but in a way, the smarter planet and the industrial internet are sort of counter poised and competitive, right? So what do you make of the internet of things? What does it mean to your clients and your research? What does it show? Yeah, so when I talk about the internet of things, I'm going to focus around asset management. So here we're talking about assets in a plant or assets out in the field. So take power in a plant would be the generator, power distribution would be the transformers and the breakers and all that stuff out in the field. Those things need high uptime. One of the key metrics of why people get EIM systems is the uptime. When the equipment goes down, it has an impact on revenue. Also there's a lot of material can get lost so that impacts profitability. So just focusing for a moment on the uptime metric. What does the internet of things do? Well, it allows you to remotely monitor an asset and predict when it's going to fail so that you can take corrective action before it fails. Now that has a couple of huge ramifications. One is often a small component will fail and if you don't do anything about it, it will cascade into a much bigger problem. Much like if you run out of oil in your car, it's $20 worth of oil. If you don't take care of that, your engine's going to seize and that's going to turn into a $5,000 repair. So being able to anticipate failures has number one, use ramifications in terms of the cost of a repair. And number two, now you can plan the downtime rather than ugly unplanned downtime. And when you plan the downtime, then it's less likely to be a big repair and you can schedule it so it doesn't impact revenue. So this is anticipatory capability that you just described. There's I'm sure a number of dimensions to that. There's the interconnectivity, there's I'm sure some kind of mobile capability for points of control and access and visibility on the systems. There's also a big data analytics. So there's a lot of moving parts that I'm sure I'm missing five or 10. There's a lot of moving parts coming together. When you talk to your clients, which presumably a lot of engineers and the like, are there headwinds in terms of absorbing this stuff or are they ready to jump in, which is your sense? Yeah, the primary headwind we've seen for manufacturers is the security question. Often IT will become very concerned if an outside company has access to through the firewall to the equipment inside the facility. So that seems to be the major headwind. Okay, so it's a belief that a connected world is inherently less secure, which is probably true. Well, let me go in a little bit more detail because this varies by industry. If we were to talk about semiconductor, they've been doing this for five or 10 years where the supplier monitors the equipment because it's very complex equipment. They call it tools in that industry and they can go from the cheap one is 10 million to 500 million dollars and they're very complex. So the supplier monitors it and they send in technicians to repairs. So this has been going on in semiconductor for a long time. It's, depending on the industry, it migrates in. What I was talking about the resistance to because of security IT, I see that in food and beverage accounts, which are more constrained. They're fairly low margin constrained and may not have the IT resources to address it right now. Let's talk about the, John and I always like to talk about the horses on the track. Sort of the competitive outlook. So who are some of the supply side competitors that you watch? I mean, obviously IBM and the SAP is a big player and there are others. Layout, sort of who you see as the sort of gold standard of the, like to look at whales, barracudas and minnows. The whales out there and are there any sort of interesting mid-market companies that are emerging and any startups that you're tracking? Maybe share with us what you're finding there. Yeah, there's, ARC tracks 160 companies in their space as part of our market research. And there are a few leaders and we could characterize the leaders, the top six or so, in three camps. Either they're an independent best of breed like IBM Maximo. There are others that are part of a control system supplier, a DCS supplier. So they bring in a different attribute and then there are others that are part of the ERP application like SAP. And each account is different and how they go about choosing and selecting what's best for them varies quite a bit. So who are the guys we should be watching? Obviously IBM, SAP, Oracle's got to play here as well. Well, the, its IBM is the leader right now. Okay, so IBM's number one. It's number one. In terms of asset management. With Maximo and Troyerica, yes. And then we would follow by a company called ABB, the Ventextal Vision recently did, past few years, did some acquisitions. So that is the example of a control system supplier. They can supply DCS systems. And they now add EAM as part of the reliability story. And then you have your ERP people and that's both Oracle and SAP. They have their modules, add-on modules to their normal inventory management, et cetera. Do you track the size of the market, even in rough terms? Oh yeah. So that's a big part of what you guys do? In non-rough terms, very precisely. So you guys kind of like the IDC of your space? Yes. So you do a supply side, you look at a demand side, you forecast out, so roughly how big of a market is it that you're trying to talk about? Well, globally, it's roughly a $2 billion market. And surprisingly, it's growing about, I don't remember the exact number off my head, but it's larger than most software markets, it's in the order of eight to nine percent. Okay, so most software markets are probably growing what, four or five percent? Well, if you're an ERP, it's around five percent. Yeah, okay, yeah. All right, so it's growing at twice the rate of the market. So the maximum piece, which is an IBM acquisition, is part of the IBM strategy, IBM tries to find growth areas, bring them in, blue wash them, and then off and running. So that's a good move. $2 billion market growing at eight or nine percent a year. And what kind of potential does it have here? Do you see it continuing that kind of growth? Yes, because the, if you look at the CEOs or executive suites metrics, return on assets is a big metric for those people. And to manage that, you need an enterprise asset management system. And one that's global, let's just go get some more. You may ask the question, if I can, about dynamics, what I see. Do I see something a little interesting? So I talked about the big guys, you know, top six, eight. There is some dynamic behavior going on among some of the smaller suppliers. There's one that particularly attracts our attention. It's totally SaaS-based. It's called Dude Solutions. Dude? Dude. Like a dude? Yes, exactly like dude. So they have two applications, Facilities Dude and School Dude. And it's all SaaS, and they, with School Dude is the one that's really successful. And they focus in on schools, basically high schools for the most part. And so it's targeted at that particular segment of the market. It's a market that was unserved. So they've been able to grow the market by entering that area and would totally assess solutions. Really? So they're tracking school assets, like what, steam boilers? Well, yeah, you have that kind of stuff too, but you also have things like equipment. Equipment. Computers. Computers, it goes on and on and on. It's particularly nowadays. There's a surprising lot of assets in your average school. All right, Ralph, great stuff. Really good analysis. We'd love to go deep, John, with the... He loves to talk to the analysts. I'm just sitting here, just minding my own time. My final question for you is, as an analyst, you see things come and go. You've seen IBM make some moves. For the folks out there following IBM, they're seeing really some good vibe here. What is, why is the vibe so positive in your personal opinion? Well, particularly at this conference, a couple of dynamic segments of the market, software market, are being addressed by IBM. You know, one is SaaS and Cloud, very dynamic segment of the market. I mean, in the EAM space, among the smaller suppliers, we've seen over the past six years, remember I said I tracked 160, we've seen about 60 drop out of the market because there are on-premise smaller suppliers, and we've seen about 50 new ones come on board with the SaaS business model. Now, these are all smaller companies, but it's just a data point on how dynamic this market is in terms of adopting SaaS and Cloud, and IBM's right in the middle. It's table stakes now, and if you can't hang with the SaaS, you're out, right? Yeah, I agree. And speed is key. Another thing, speed is just, like the speed of value is another differentiator. Well, time to benefit is much quicker with a Cloud SaaS type approach. All right, Ralph, thanks for coming on theCUBE. We really appreciate it. This is SiliconANGLE's exclusive coverage of IBM Pulse, live in Las Vegas. I'm John Furrier, Dave Vellante. We'll be right back.