 Live from San Francisco, it's theCUBE. Covering IBM Think 2019. Brought to you by IBM. Hello everyone, welcome back to theCUBE's live coverage here at San Francisco, Musconi North Valley. We're here as part of our exclusive coverage to theCUBE for IBM Think 2019, their annual conference of customers and employees coming together to set the agenda for the next year for IBM and its ecosystem. I'm John Furrier with Stu Miniman, Dave Vellante and Lisa Martin co-hosting this week four days of wall-to-wall coverage, day two of our coverage. We're really day one of the show kickoff. We're here ending up that day and just had the CEO's keynote and we're going to do a review and analysis. Dave and Stu, we had a lot of interviews coming up to this. The theme is pretty clear. It's AI, cloud and everything else going underneath that classic development application developers. Developers in general making applications. That's classic, but AI is the big story and like always cloud and the promise of where that's going which is hybrid and multi-cloud. Dave, you said on the keynote, any surprises from Ginny Rometti? I wouldn't say there were any surprises. First of all, I like Ginny. I think she's a great presenter. I'd like to hang out with her. We were kids, I would've wanted to hang out with her. She's the type of person I think I would feel comfortable talking sports or business. She looked good. She had a really nice, sharp white suit on. She's self-deprecating. She was drinking Starbucks. They're obviously a client of IBM's. I thought the best moment was when Jim Whitehurst came on stage. He said it's great to be here. She was like, yeah, I give you 34 billion reasons why it's great to be here kind of thing. So that was pretty funny. And she made the comment that we've been dating Red Hat for 20 years before we decided to get married. She was trying to make a case. Normally in Ginny's presentation, she makes a really solid, puts forth a solid premise and then sort of backs it up with her guests. Today I thought her premise, which was we're entering chapter two, it's all about scaling and embedding AI everywhere. It's about hybrid. It's about bringing mission critical apps. You know, move those forward. And then she had a number of other lessons learned. I thought she laid it out, but I think it sort of missed the back end. I don't think they punctuated the tail end of Ginny's talk. The guests were great and they had guys on from Kaiser Permanente, AT&T and they were, I thought very solid, but I don't think they made the case as strong as the premises that she put forward. And, you know, we could talk more about that. And Stu, obviously Red Hat on stage, we've been commenting, we've been analyzing the acquisition of Red Hat, big number, 34 billion dollars. Critical point you guys talked about in your opening on day one, the leverage they need to get out of that. This is the Alamo for them with the cloud in my opinion. IBM has a lot to bring to the bear in the cloud. AI anywhere, telegraphs that they want to have, their stuff with containers and multiple clouds. They want to be positioned as a multi-cloud company but still have their cloud providing the power for the workloads that makes sense for IBM. This is their last stand. This is like, you know, Alamo for them. They need to make cloud work right now. Watson moved from a product to a brand holistically. OpenStack, does it tie it together, Stu? Your thoughts on OpenStack and how this fits into their narrative. So I think you mean OpenShift, right John? So from Red Hat standpoint, absolutely what they're doing, they are involved in OpenStack, but OpenStack kind of a small business. They're one of the few that are sanguine on OpenStack. Red Hat, I mean Red Hat, OpenShift, my bad, long day. Absolutely, and it is complicated in the multi-cloud world and lots of different pieces. We've had a number of conversations with the IBM people that have worked with side by side, Red Hat in the open source communities. IBM no stranger to open source and as we talked about in our open on yesterday, it's the developers is really what, where IBM needs to go and where Red Hat has a bevy of them. And John, what you said about multi-cloud, absolutely. It's if IBM thinks that buying Red Hat will make them the global player in cloud, I think that's wrong and I don't think that's what they're doing. When I wrote a blog post when it came and I said, is this move going to radically change the cloud landscape? No, can this acquisition radically change IBM and change the trajectory of where they fit into multi-cloud? Absolutely, so there's cultural differences. We had Stephanie Shirison who's a longtime IBMer who now runs the biggest business inside of Red Hat and she talked about the passion of open source. This is not lip service. I have many friends that have worked for Red Hat. I've worked with them, partnered with them and covered them for most of those 20 years and absolutely you've got over 10,000 people that are passionate, involved in communities and when you talk about the developer world, you talk about the cloud native world, this is what really Red Hat's moment has been waiting for. You know what's interesting John, and I wonder if you could comment on this, is hearing IBM, Ginny talked about chapter two, she talked about digital reinvention. There's yet another company using the reinvent terminology. I think that's sort of poignant. She talked about 40% of the world is going to be private, 60% is going to be public cloud. So sort of, that's the first time I've heard those stats. She said it's flipped if you're a regulated industry. But what are your thoughts on people essentially using sort of an Amazon's narrative on reinvention? Everyone's using Amazon's narrative. Here's the bottom line, Amazon is winning, in fact large margins. I think the numbers are way skewed in the favor of the people trying to catch up. I think that's more of a gamification by the analyst firms. Amazon is absolutely blowing away the competition when it comes to public cloud. The only game at the table right now for the Oracle's, IBM's, and Microsoft's, and Google is to slow down the adoption of Amazon. And you see the cloud adoption with Amazon, whether it's in the government sector, which I think is more acute and more illustrative, the Jedi contract, the $10 billion contract. That is a, quote, sole source deal, but it was bid as a multi-source deal. It means anyone could bid on it. Well, guess what? That is going to be an award probably to Amazon as a sole winner because IBM doesn't have the certification, nor does Microsoft, nor does Oracle. Nobody's got it. Amazon's winning that. And that begs the argument, can you use one cloud? And the answer is yes, you can. If the app workload works best for it. And procurement does not decide output for the cloud. For example, if it's a Jedi contract, it's a military application. So like a video game, would you want to play a video game and be lagging? Would you want our military to be lagging? Certainly the DOD says no, so one cloud makes sense. If you're running Office 365, you want to use Azure. So Microsoft has taken that and their earnings have been phenomenal by specializing around their workloads that make sense for Azure and they're catching up. IBM has an opportunity to do the same for their workloads, the business workloads. So AI anywhere is interesting to me. So I think this is a good bet if they can pull it off, that's the strategy. And the world will go multi-cloud where certain clouds will be sold for the sole source for the workloads that make sense for those workloads. So this is where the market's going, right? So this whole notion of there won't be multi-cloud. It's going to be multi-cloud and it's going to win or take most. And the game right now is to stop Amazon. That is clearly the case. And you're seeing it in the bids, you're seeing the customer base and IBM is catching up as fast as they can. They've got the people and the technology. The question is, how much do they catch up and level up to Amazon? Well, Stu, despite Ginny invoking the reinvent terminology, her keynote was starkly different than what you would expect from an Amazon keynote. She mentioned a couple of the announcements, Watson Anywhere, which by the way is about time. It's about time that Watson ran on other people's clouds. I mean, that's what should have been a while ago. And then HyperProtect is the world's most secure cloud. But we don't have any really details on that. And then IBM Business Automation with Watson. And that was really it. I think it was by design not to give a big product pitch. You know, very non-Steve Jobs-like, very non-Andy Jassy-like, which is all product, product, product. I mean, kind of surprising in a big show with all these customers, you'd think they'd be pitching, but I think their intent was to really be more content-oriented. Well, so Dave, you know, goes back at the core, what is IBM's biggest business? IBM's biggest business is social services. So I've done a number of interviews this week already, talking about how IBM is helping with digital transformation, how they're helping people move to more agile and developer environments. The multi-cloud world. How do they, you know, IBM has a long history with CSPs and MSPs. So they have large constituencies and sure they have products, you know. Great stuff talking about, you know, how do they have the best infrastructure to run your AI workloads and the strength that they have in supercomputing and HPC and how they can leverage that because IBM knows a thing or two about scale. But, you know, Dave, one of the questions I have for you is we've seen the big services organizations go through radical downsizing, you know, HP spun off their business, Dell got rid of the pro business. You know, IBM still is, you know, services at its core. Is IBM built for the multi-cloud, cloud-native, you know, AI world, or do they still need to go through some massive changes? Well, multi-cloud is complicated and IBM does complicated services, you know, deal with complexity, but I still can't help but feel like... Well, I think I want to comment on that. I think the services, if the manual services, professional services drop down, IBM has a great opportunity to move them to cloud-based services, meaning I can write software and this is where I think they have an advantage. They can really nail the business applications which will become services, whether it's domain expertise in a vertical. And I think this is their cloud opportunity. If IBM can capture that, they can take an entirely new category of applications, business applications and services, automate them with machine learning, automate them with cloud scale, their cloud scale, while making them portable on multiple clouds. So the notion of services will be to be professional services, classic, you know, grandfather's services to cloud-based services at scale. Yeah, well, I think you're right. And I think that's one of IBM's biggest strengths. I mean, Ginny did that acquisition, by the way, the PWC acquisition. It's 100,000 people. It instantly brought IBM into that deep vertical industry expertise. And they're not going to give that up anytime soon. And there's so many opportunities to codify those services through software and make them repeatable services. I mean, they're at, as a service business, is one of the fastest growing parts of IBM's revenue stream. So I don't see that going away at all. I do think there was a missed opportunity and maybe they can't talk about it for some regulatory reason or they're just paranoid. But you had Whitehurst up on the stage, you just spent $34 billion. I would have liked to heard more about the rationale. Even though we've heard it before, they did a, you know, Jim and Ginny did a tour. They were on all the big TV shows, they were on Kramer. But I would have liked to heard sort of six months on what that rationale is and how they're going to help transform in this new chapter and what that role that Red Hat was going to play. I thought it was a missed opportunity. Well, I'll speculate on that. I think one of the things probably, they probably don't have their answer yet. And IBM's very good on messaging. You know, they're pretty tight. But I think Arvind Krishnan talked to us this morning on our first interview. He brought up the containerization and Kubernetes trend. I think that's where Red Hat fits in. That'll give them cloud native developers in enterprise Fortune 1000. They also got the cloud native ecosystem behind that, the CNCF, et cetera. But containers does for legacy, containerization and Kubernetes really preserves legacy. It allows developers to essentially keep the old while bringing in the new and managing the life cycle of those applications. Not a rip and replace. This is an opportunity for IBM. And if I think the messaging folks and the product guys are probably going to figure out, okay, how do we take the Red Hat and OpenShift and be cloud native and take all the goodness that comes in with cloud native, the new developers, the DevOps infrastructure as code, make the under the covers infrastructure programmable. And as Rob Thomas pointed out, have a horizontal data layer that enables new kinds of business services. So to me, containerization, it's kind of nerdy, Kubernetes, but this is really a new linchpin to what could be a sea change for IBM in terms of revenue, keeping the legacy customers happy because then the pressure to move to Amazon goes away because I can say, whoa, wait, if the question is why adopts, if customers have an answer for that, that gives IBM time. This is what they want. Otherwise, the cloud native world's going to move very, very fast. We've seen the velocity of the momentum and I think that's a key move. I think your point about slowing down the Amazon momentum is a good one. And I want to talk about five things that Ginny said, that lessons learned. She said, one, you can approach the world from outside in and focus on customer experience or you could do inside out and identify new ways to work and new workflows, kind of driving change. The third lesson learned was you need a business platform fueled by data with embedded AI. The fourth is you need an AI platform and then the fifth is Rob Thomas's because you can't have AI without AI. You need an information architecture, which by the way I believe is to be true. So those are business oriented discussions. It's not something that you'd necessarily hear from Amazon. They're kind of chewy. There's a services component to all that. The big question I have is, will Watson be that AI platform? Yeah, I mean something I look at is why do I choose a platform and a partner? So we understand Amazon, they want to be the leader in everything. They have a lot more services than anyone, but if I want data services, first cloud that comes to mind to me is Google. Google has a real strength there. Where does IBM have a leadership compared to Google? Business productivity, IBM has a lot of strengths there, but Microsoft also has a place. So customers, if they're going to live multi-cloud, they're going to in many ways go back to best of breed, and therefore where will IBM differentiate themselves from some of those big ones? Well, we have visibility now. It's clear now. If you look at the industry, you're starting to see some clear lines of sight on a few major trends, and it's pretty clear on where the industry's going for the next 10 years. Application developers at the top of the stack going to build apps. The infrastructure is cloud, cloud something, multi-cloud, cloud native, infrastructure is code, and data and AI. You see that at Amazon Reinvent, SageMaker, you're seeing all the major innovations happening around. Apps using data, powered by cloud scale. That's it. Everything else to me is glue or some sort of fabric component or piece of that distributed architecture, and it's in cloud, AI, and applications. As Dave has often said, it's the innovation sandwich of today. Yeah, well, so I guess the other piece I want to mention is because of, I mean, there's been some high profile failures with Watson, but Watson was trying to do some things that were not voice response to Alexa, trying to solve cancer and world problems. And so I think IBM has actually earned the right to be in the discussion, and I think the Red Hat acquisition gives IBM instant credibility in this game, especially in this multi-cloud game. Well, they got me, they got the right to be, they got zillions of customers, they have a lot of business model innovations that their customers are innovating on, and if they keep the cloud innovating, they got to match the specs of the cloud, they got to be there with cloud. If they don't make the cloud work, then they're going to be subservient to the other clouds. They have to make it in the top three. This is clear. The AI thing, I think, will work. They got a lot of experience in data. I think Watson kind of finding his home as a brand is natural fit. Got a portfolio of data. I think IBM will do very well in the data front. It's the cloud game that they got to really shore up. They got to make sure that the IBM cloud can serve their customers. But the good news there is they're in the game. We saw HPE try to get into, HPE tried to get into the cloud, it failed. Cisco for a while was trying to get in. We saw EMC make numerous attempts. VMware made numerous attempts. IBM spent $2 billion in software. They've got a cloud. You know, they've transformed what was essentially a bare metal hosting platform into a cloud. They've jammed all their as-a-service products in there. Their SaaS portfolio. So they're at least in the game. And again, I've said often, I think they're very Oracle-like. It's not the biggest cloud. It's not going to scale to the Amazon levels. But they've got a cloud and it's a key part of the strategy. Innovation sandwich. Applications, cloud with data in the middle and AI. That's the formula day we set on theCUBE here. All right, day two coverage for theCUBE of four days. We're here in the lobby of Moscone North, part of the new refurbished Moscone Center in San Francisco, Howard Street's closed. It feels like Salesforce, Dreamforce event. Big event in San Francisco. I'm John Furrier, Stu Miniman, Dave Vellante. We're here for four days, day two of four days of coverage for IBM Think. Back tomorrow, thanks for watching.