(bright upbeat music) >> Oh welcome here to theCUBE's coverage, continuing coverage of AnsibleFest 2021. It's a pleasure to have you with us today and also to join us today is Stephen Elliott, who is the Group Vice President of Management Software and DevOps at IDC. Stephen Good to see you today, thanks for being here on theCUBE. >> Hey thanks John, it's great to be here. >> You bet, good no, thank you again for the time. Well let's just jump right in, I know this is right in your sweet spot. You know, talk about IT automation. You've done a lot of research on this, but let's just talk about overall if you will. Give us that 30-foot perspective of what you're seeing in terms of your research, when we talk about IT automation these days, and configuration management. >> Sure, yeah. Yeah I know, I mean, it's been fascinating to watch with COVID the acceleration of the investments in automation across the board. And really our enterprise IT inquiry that we've taken, it really is just fascinating to see. Whether it's network automation, looking at self-service configuration, looking at provisioning, looking at a patch. I mean, you name the manual toil that enterprise IT organizations are, you know, looking to automate, and we're just finding tremendous investment themes across those areas. I think on top of that, there's been a lot of acceleration of this idea of DevOps, of driving automation across development and operations teams, and in certainly realizing that it's really hard to hire great people. And so we're seeing that companies are utilizing automation as a way to drive your career development, training across teams, and then certainly as a way to augment their teams to help these teams scale when they have difficulties hiring more and more staff. >> Yeah well let's take that first one, that last point first here, I think that's a certainly invaluable point, and that we've heard a lot about labor all over in all sectors right about, you know, finding the right talent for the task. So, in terms of this process, IT automation, and you're talking about maybe some companies being so much short handed or trying to fine-tune their labor needs or whatever. Tell me a little bit more about that in terms of automation and how this helps that process rather than hinders it. >> Yeah, you know, it's interesting, sometimes when IT executives talk about automation, they talk about staff replacement. And actually for the lean forward companies, for most companies that make these investments. That's not the case at all. It's actually an augmentation strategy where they realize, look it's really hard to find great talent. We have an opportunity to take the talent we have, apply new skills, look at automation as a way to get existing teams more productive, as well as an opportunity to learn new skills across teams. You know, whether it's development, operations, site reliability engineering, IT ops, et cetera, networking, you know, we're seeing organizations have a much more impact, you know, much more impactful opportunity to do staff development. And so this helps with scale, it also just helps give organizations, you know, the opportunity to move people across teams, particularly if you've decided that there's one type of automation that you want to utilize, one type of configuration language. It makes things very interesting when you have, you know, an operations person who might want to become a site reliability engineer, or, you know, a DevOps team that understands they have to utilize automation, maybe they want to utilize it, you know, a common framework for that. So, we're seeing executives really look at this as, this isn't about staff replacement at all, it's actually quite the opposite. It's about retention, it's about career training and development, it's about, you know, being able to share staff across teams, and then certainly, you know, this whole notion of augmentation and increasing productivity have organizations realize that, you know, with these generally net new models, you know, containers, microservices, public cloud, DevOps, software defined infrastructure, you know, agile, all these different organizational constructs, and types of technology architectures are driving up complexity. So the ability to simplify that through automation, the ability to drive higher returns on investment through automated processes and workflows, you know, it's really striking a chord with executive teams. >> And this is obviously I think just part of this natural trend, right? As the complexity, the networks and operations has increased, finding efficiencies through automation, that's just kind of this natural flow. Has it been pande-- or how has it been pandemic driven to a certain respect then? You touched on that earlier with your first comments, but what have you seen let's say over the past year at how companies have been reacting to that environment into their business operations? >> Yeah, I know it's been interesting from the C-suite down particularly, where CEOs have really started to realize that often their business architecture is in fact their technology architecture. And the pandemic has forced the C-suite to change their customer engagement models more often than not. So many, you know, B2B companies now had to become B2C. And so, you know, many companies had to pull back, or scale back their operations in the case of, you know, hotel, lodging, airlines. Where they really had to realize, wow, you know, we've got to figure out something because, you know, we're not going to fill capacity. So, you had a lot of CEOs and CIOs recognize that their technology architecture in fact can help make these adjustments. And part of that is driving automated, you know, work streams, whether it's through, you know, new digital services, whether it's through, you know, faster provisioning of infrastructure for their DevOps and development application teams, whether it's driving higher levels of system reliability, which as we all know, you know, customers are pretty impatient. So if digital services aren't working, you're going to move on to something else pretty quickly and give, you know, a competitor, you know, revenue opportunity. So, I think a lot of those swim lane, you know, a lot of those tailwinds, I should say, have really struck a chord in the C-suite and has really driven investments that are driving, you know, core modernization, application modernization, customer engagement models, and business models that, you know, were around 24 months ago. We're finding that the focus on reliability of systems, you know, across the applications to involve systems and networks that are, you know, public-private are really, you know, having that transparency. These things are the foundation. You know, you think about building a house, these are foundational capabilities that from an operations perspective, from a development perspective have really helped shape a lot of the thinking and investment themes that the C-suite now, because COVID accelerated a lot of these modernization projects have really driven, you know, positive outcomes for. >> When you talk about impatience, there's also kind of a, I guess, a queasiness you might say, or some anxiety about any kind of change, you know, and as you're talking about these automated processes, and bringing the whole new realm of opportunity at the business. And so also introduces maybe some angst, I would think a little bit, or what are you telling and what do you see in clients? And what kind of advice are you giving them in terms of their IOT automation decisions and about deploying these really massive changes in some respects to how they conduct the business? >> Yeah I know it's a great question, and we get that quite often. What we advise are a couple of starting points. You know first and foremost, most organizations are automating something somewhere. And particularly with DevOps teams, development, SREs, operations, infrastructure platform teams, networking teams. You know, these teams have a lot of opportunity to automate their toil. And so you have to start somewhere. So pick a use case that, you know you can win, you can get great benefits and a high return on that investment. And as you sort of go through that at the team or departmental level, start then to think about what are additional processes, you know, across your peer group. You know, maybe you're a networking you should be talking to operations, maybe an Ops talking to the DevOps teams and development, et cetera. And really start to highlight some additional ways that you can utilize that singular platform and reach across, you know, your peer groups to drive your more integrated, more automated processes. And these are types of use cases that run the gamut. So from a development standpoint, these would be, you know application release, it would look at CICD, you know, pipeline deployments, et cetera. Of course, you know, manual, moving from manual automated testings, or hot button issue. But from an operational perspective, many of those processes interlock, right with provisioning, with security mechanisms and processes. And then of course, you know, the involvement of the network in terms of, you know, configuration, which is a common issue. So things like configuration, provisioning, self-service, you know, the interlock of security mechanisms. A lot of these are pretty common themes regardless of the team, you know, and regardless of the outcome that's, you know, required. So I think first and foremost, start small, but think big. Secondly think about a potential platform play as it relates to automation. The third piece is make sure you get the right peer groups involved and the key stakeholders. You know, this isn't something you just flip the switch and boom, you know, you're successful. This will take a little bit of time and it's impactful in terms of the team, impactful in terms of the processes and of course, you know, the technology. So having a strong leader and, you know, set of key stakeholders who can drive this to fruition, can really, you know, not only get great wins from the business perspective, but also really drive, you know, a continuous improvement model and drive that theme of automation, you know, particularly as it relates to agile and DevOps and site reliability engineering. It can really play an important role in helping scale out those successes that many of those teams are already sort of built. So it's the extension of the investment but at the same time, it just makes for, you know, a continual cycle of improvement opportunities for these teams to drive further automation across their particular processes. >> Well, this is obviously based on a lot of the AnsibleFest coverage, I talked about that off the, on the outset of the interview. And so let's just focus on Red Hat for a little bit here. First off, give me your take, give me your 2 cents on Red Hat in terms of, you know, how they're doing, and obviously some big announcements, you know, port works and then some on the Ansible Platform. So, first off give me a little idea on Red Hat, and then let's drill down to the news they're making on their announcements. >> Sure, yeah it's interesting, you know, Red Hat Ansible is continuously doing very well in the marketplace. Both from an adoption perspective, as well as just, you know, continuing to get more net new logos. In addition to that, you know, post the Red Hat IBM acquisition, IBM continues to take advantage of Ansible across its portfolio. So, you know, we're seeing further reach into the market into accounts that are both IBM and Red Hat related. I think another piece too, we've recently did some work around, you know, business value of Red Hat Ansible Automation Platform. And a lot of those customers really talked to us about this notion of, you know, starting small, but also thinking more broadly across what type of returns they could get from the platform as well as, you know, it's not just about cost reduction, right? It's really about cost containment, it's about acceleration of your pipelines, it's about driving higher levels of system reliability. So, the other thing we found our customers are really recognizing, it's a balance of business and technical metrics that they want to sort of choose to drive and measure their success. But also at the same point, it's a recognition on the part of Red Hat and their product and development teams they'd really listen to a lot of customers, gotten, you know, features in and really started to think about this breadth of how automation can support, not just operations, but development. You know, this idea of autonomous automation, you know, being able to empower different sets of personas or customers to drive, you know, faith and trust in a product to say, hey, we want to automate a particular piece of a process. And we're just going to, you know, build up the policy, inherently use the templates and boom turn it on and, you know, set it and forget it. So that, that's, you know, a coming wave where customers are starting to, you know, work with Red Hat and particularly the Ansible Platform to understand what does that mean? You know, how do we execute that? And then, you know, as we get more comfortable with turning on that more autonomous perspective, you know, how can we then spread that idea out to different teams? So, you know, we're seeing a lot of these themes and as we talk to customers, you know, hearing a lot of good feedback with regards to, you know, Red Hat and IBM taking advantage of the technology, as well as more importantly customers getting, you know, significant value and returns from the platform itself. >> Right, well Stephen, I appreciate the insights. Certainly it's an interesting future awaiting off course the world of IT automation, a lot more intelligence, right? A lot more autonomy, a lot more challenges, but I'm sure Red Hat is very much up to that. And thank you for being with us here today on theCUBE. >> Hey thank you John it great to be here. >> You bet, Stephen Elliot joining us from IDC talking about Red Hat and Ansible and we'll continue with more coverage a little bit later on theCUBE. Thanks for joining this segment with Stephen Elliott. (bright upbeat music)

>> From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR, this is Breaking Analysis with Dave Vellante. >> Application performance management AKA APM, you know it's been around since the days of the mainframe. Now, as systems' architectures became more complex, the technology evolved to accommodate client-server, web-tier architectures, mobile and now of course, cloud-based systems. A spate of vendors have emerged to solve the sticky problems associated with ensuring consistent and predictable user experiences. The market has grown, I mean it's decent size, it's about $5 billion globally. It's growing at a consistent 10% CAGR. It's got a variety of established companies and new entrants that are attacking this space. Hi everyone, welcome to this week's Wikibon Cube Insights powered by ETR. My name is Dave Vellante and today, we welcome back ETR's Erik Bradley, who was the chief engagement strategist at Aptiviti which is the holding company of our data partner, ETR. Erik, my friend, great to see you. Thanks so much for coming on and spending some time with us. >> Oh, always enjoy it Dave. Great to see you too and I'm just glad I got some fresh material for ya. >> As always, you have fresh data. Now, Erik just recently hosted an ETR VENN session and on this particular topic, APM. Now VENNs are an open round table, they're exclusively available to ETR's clients and what we do is we sometimes come in theCUBE and we summarize those sessions in our Breaking Analysis. Now Erik, yo let's start with a summary slide here, guys, if you could bring that up, we just want to make a couple of points and... So as I said Erik, I mean this started back, you know in the System/390 days. Now, distributed systems and cloud of course create a lot more complexity, you got data that's really fragmented. You got user data, you got application data, you have infrastructure data and it gets complicated and you've got guys in lab coats having to come in and diagnose these stuff, lot of tribal knowledge. What are you seeing in the space? >> Well yeah, you know to start back, you know it's funny when the panel I hosted, one of the guys even brought up Tivoli, how long ago that was right? Then of course you get, you know you have the solar winds and you had people like that trying to just kind of monitor your network. You know what we've heard a lot about now is infrastructure has really become code-based. So when that happens, you really start wondering to yourself the lines are blurring between infrastructure and application because at the end of the day, what you're really monitoring is code. So it has gotten incredibly complex, you have OnPrem, you have hybrid, you have multi-cloud approach so it has gotten extremely complex and there's also now a third wave of next-gen vendors getting involved in the mix as well. As you're aware, New Relic and Datadog, obviously, Splunk has been in logging and monitoring for a long time. You also had some of the traditional players throw their hat in the ring through acquisition, that you know AppDynamics gobbled up by Cisco and obviously Splunk trying to continue to reinvent themselves a little bit by SignalFx. So it is a very crowded, complex space, it is a complicated problem but it's also a problem that needs to be solved. You know, we were looking at, you said in your intro about, it's only about a $5 billion market right now but there's been a lot of data out there from industry analysts saying that that's going to grow quite handsomely over the next five years and it could get up to 13, 14, 15 billion. And when I asked my panel about that, I had one gentleman say without a doubt, they see the next 10 years that spending in this space will continue. And when you pry and ask why, they simply state that digital transformation is not going to stop, it's marching forward, whether anyone likes it or not and as it does, monitoring is going to be critical, it's only going to increase and increase and increase. So right now, to your point, it's a small market but it's a growing market and there's a lot of entrance in there and their whole goal is to reduce this complexity that you're talking about. >> Now, one of the things we heard from the panel, guys if you bring up that same slide again, you know the third point on that slide was what's closely tied to digital transformation. You heard a number of individuals say, "Look, your digital business is critical, it's all about monitoring your applications and your data and your infrastructure. And we heard a lot that they wanted a, a single pane of glass and you made a number of points about the market. What are your thoughts on both the digital transformation, maybe the COVID acceleration of that mandate and that notion of a single pane of glass, is that aspirational or is it, in your view, something that is actually technically feasible? >> Not only is it technically feasible, it has to happen. It's going to be demanded by the large enterprise, they can't continue to monitor hundreds and hundreds of applications. They need something that not only can give them observability through their entire stack, but they need to be able to view it in one way, there's enough fatigue in monitoring and logging. And actually it goes even further than one pane of glass, they're demanding that these systems can now actually employ machine learning algorithms to be proactive. It's not enough to just say, "Okay, I observed this," you have to let me know that this may happen in the future and what to do about it. So not only is it feasible, it's something that is being demanded by the end-user market and the players that survive are the ones that already have that in their roadmap. >> Now, as we always like to do in these sessions, we're going to bring up some ETR data and we like to position the companies. So what we do is, we're going to bring up some of the pure players, pure-play companies and you can see them on this slide. But Erik, and when we talk about companies in this space, they are well over a dozen. It's just again for reference, you know it's Cisco with AppD, you mentioned that before Dynatrace is one of the leaders, New Relic has been around for awhile and is doing well, Splunk, Datadog. Now of course, and we're not showing them here, AWS, Microsoft and Google cause they just sort of, they pollute the chart. But so I want to start with the guys that are on this view and maybe talk about a few. Elastic came up a lot, certainly AppD came up a little, Dynatrace was obviously mentioned, especially in large organizations. Lot of conversations about New Relic. So let's go through them. Where do you want to start here? >> Yeah there's a lot to go through and we did spend the majority of the panel talking about the individual players, the differences between them and also what we thought their longer term prospects were but yeah, we'll go through each one. I think maybe to start with, let's go back in time a little bit, right? Cisco is a wonderful acquirer, they do a great job at M&A. A lot of companies will acquire something and let it die on the vine. Cisco has proven recently that they are reinventing themselves as a full platform play, whether that be through, you know, kind of, their networking reach or whether it be through the security. And AppDynamics is one of those that actually kind of gives you a little bit of both with being able to monitor. It is a great play for people that are already involved with Cisco. Now, I don't think you're going to see too many people that are non-Cisco customers run out and buy it. There you're going to see some of them, maybe the pure plays or one of my guests called the third wave of vendors. And that third wave is really about a Datadog and a New Relic. Let's talk about Datadog first. >> Yeah let's bring that back up guys, if you would. Now let me just, sorry to interrupt you Erik (indistinct) The vertical axis here is net score, that's the ETR's primary metric, and that's an indication of spending velocity, the higher, the better. And on the horizontal axis is market share. Now we're showing the July data, the October data is in the field, you know once ETR releases that to its clients, then we'll share that with you. But the first thing that jumps out at me is other than Elastic Erik, I mean, I'm not blown away by the spending momentum in this space but let's talk about that and then some of your thoughts on the specific vendors. >> Yeah, you know I'll go back because you asked a little bit about the digital transformation, I don't think I answered it fully. So to your comment about maybe not being impressed with the spend, I think this is one where the spend is going to come, kind of as a laggard because you're not going to rush out and go buy the software to monitor until you've built out the, what needs to be monitored. So as we're seeing this increase in the digital transformation, and I think you and I had a conversation in the past, but when COVID first hit and I did a series of panels, we had one person say that this virus is going to increase digital transformation by five to 10 years. Now that was an amazing statement. Basically, if you were on the fence, if you didn't, if you weren't already heading down to digital transformation, you needed to play catch up quickly. So now that you are doing that right, now that you're moving from OnPrem to a multicloud or a hybrid cloud environment, you have to get observability, you have to get monitoring into it. So now these players start to play catch up and this is where you're going to see the proof of concepts and you're going to see people trying to decide which direction they're going to take their company. Now back to the actual vendors. I believe that there is some differentiation, right? So we'll just take, for instance, Splunk. Splunk is obviously probably the biggest boy on the block when it comes to just straight up logging and monitoring. They've leveraged that big boy position to really, you know, add some costs, kind of intimidate their customers they've been compared in the past of the type of things that Oracle used to do from their cost perspective. And that's opened up some new competition, Datadog is one of those. According to my panel, Datadog is viewed more for logging and monitoring than it is truly full end-to-end observability throughout your entire network and application system. So that is one of the areas that's there. Now, to stay on those two names for a quick second, Splunk obviously has some holes in what they're trying to offer, they went out and tried to buy SignalFx to fill one of those holes. Now according to my panel again, did a great job filling that hole, problem is if you have a boat with three holes, you can't put your fingers everywhere. So they think, hey listen, Splunk scrape, they're going to keep the company they have and I know that we can talk a little bit more about valuations and the equity side later, but I think it's very clear that their sales and revenue are trending flat to down, whereas some of these other names still have great acceleration in their sales. So Splunk and Datadog both are really facing pressure from Elastic or generally just open-source. >> I was struck by the panel and how much emphasis they, how much complaining they did about Splunk pricing. Generally, I feel like hey, if your price is too high is the biggest objection, that's actually not a bad thing for a company but the way they kept hitting on it and said, "Hey, we're actively looking for alternatives" and Datadog was one of those and given the momentum that Datadog has, I don't think that that's necessarily a positive. But you know Splunk has a lot of loyal customers but you know to your point if you go back to the slide, Elastic came up very, very strong and they are head and shoulders from a spending momentum above the rest of the crowd here. >> Right. And you know, so you're right. If the only problem with a vendor or a technology is cost, usually you live with it because that means it's giving you what you need. So okay, it's expensive but it's also the best in breed and that's where Splunk has been for a very long time. And I think they're resting on their laurels knowing that. Enter Elastic and you say to these guys, the panel, I asked them, well okay, you can make Elastic work but is it truly a viable alternative from a technology standpoint? And the answer to that was not only is it viable, it's half the price. So if you can bring something in that can do the job the same and it's half the cost, it's really difficult not to at least try. And I had one of the other gentlemen who was a Datadog customer said, "Listen, we love Datadog, we were a huge customer and then I started getting enormous bills and I just switched over to open-source, I switched to Elastic, I switched to Kibana, I switched to Kafka and I can do this search myself. Now the difference is not every enterprise has the human skillset to do so and I'm not saying Splunk's going to turn around to disappear tomorrow, not even close. Because there is a difference in spending that money with the vendor or spending that money developing the human skillset to use open-source. But the bigger backdrop here is there are more alternatives than there used to be, there's more competition and the space is getting very crowded. >> Yeah, comment on open-source. I mean open-source is free like a puppy. But the thing about that, and we had one of the panelists was a very senior consultant, exclusively work with very large companies, he told a story about one of the companies years ago, he came in to solve a problem. The problem was they had 70% availability and then they had no visibility on their infrastructure and there's really no great, no good monitor, they get them up to whatever, five nines or two, three nines or wherever they got them to, but dramatic improvement. And so, but he said, "Look it, I work with companies with billions of dollars, $3 billion IT budgets so they don't rely on open-source for this stuff, they're happy to spend." But there's a huge market, particularly in the mid size where we heard that New Relic plays in a big way, it might be more receptive to open-source. >> Couple of great points there Dave, honestly. I'm going to jump over to the use case that was given by that person who was in a healthcare role. And essentially the part I didn't write into my summary was that his CEO was two days away from shutting down the entire business because he was so frustrated that he had no observability and Dynatrace was the one that was able to step in and fix that. And this gentleman did say that the majority of the companies that he does work with which are all in the Fortune 100, Dynatrace has a stranglehold in that spot. So that's really interesting to note. Now on the flip side, when pushed a little bit more later in the panel, he said, "Dynatrace is sort of resting on its laurels from a product roadmap standpoint and that's going to open up the possibility of a New Relic getting in," a transition to New Relic as you mentioned on their small to medium sized business. They recently launched a new pricing strategy which is basically a free version to get you involved to kind of get their hooks into you and see if you can work it out. And basically what they're trying to do there I think is, you know, make up for their lack of marketing. As you saw the panel that we spoke about said, "New Relic's technology is fantastic." They have the ability to provide a single pane of glass which is the Holy Grail in this space and they have the ability to provide machine learning and proactive type of ability which again are the two things that all of the end-users are asking for. The problem is that most people might not be aware of it because New Relic doesn't have as flashy a marketing department, they don't have the dollars as much as the others to go out there and compete with the Splunk and Dynatrace and Cisco. But from a roadmap perspective, it was almost unanimous that our panel agreed, New Relic is by far, one of the leaders from a functionality standpoint. >> Yeah, if you guys bring that slide up one more time, the X Y. I mean, I look at where New Relic is and I'm like wow, I'm surprised. I mean this company, I mean they were the hot company for awhile and I think still have the capability. You're talking about the technology. NRDB, New Relic database is like, it kicks ass. In fact, you know Erik, somebody brought up in the panel that they thought that snowflake could compete in this market because essentially Snowflake's positioning is this data cloud. But you know, here's New Relic, they have a purpose-built database specifically for monitoring an APM so you would think that with that technology, they could really make some moves. And then I just want to bring in two other companies to the mix here. Honeycomb who I think even their founder and former CEO now CTO, she coined the term I believe, observability. And there's another company that is run by Jeremy Burton, company's called Observe, okay (indistinct) and it's funded by the Silicon Valley Mafia. So that's going to be an interesting one to watch, they're coming out, well they're out of stealth but they're doing a launch on October 7th. So I think those are two companies that could disrupt this space and I would expect to see, as you said, it's a latent momentum in net score from a dataset standpoint because people are trying to plug the holes cause of COVID, you know security, work from home, that pivot and now it's really on to digital transformation and that's where APM really comes in. >> It really does and again, it comes back to that comment someone made a long time ago that everything's becoming code as software eats the world and everything becomes code, you need the ability to kind of monitor that code, enter Honeycomb. And as you know, we have two different studies at ETR, one of them is for emerging technology. Honeycomb is in our emerging technology study that's more of a private series B to series E round stage whereas our main study is for companies that are pre IPO or already public. But Honeycomb is a little bit different in my opinion, that they're focused very much so on the developers or the software engineers. They're a very microservices oriented type of product whereas some of the other ones may have started as an infrastructure monitoring and then kind of work their way backward into application. But Honeycomb certainly needs to be observed and it's funny when you talk about that, the one thing I think is, "Oh great, more players." The crowded space gets even more crowded. And I think well you know, kind of foreshadowing something you and I will be speaking about in a little bit but there's a lot of players in this space and there's a lot of other possible interest in there. You mentioned Snowflake. It actually wasn't brought up from our panelists, it was a question that came from one of my clients that said, "Hey, I'm curious, can snowflake play in this space?" And the panel thought about it for a second and said, "There's absolutely no reason why they can't, they most certainly can." And we all know the cash they have so I mean the easiest way to play in that would maybe be to buy some of the technology, integrate it in and yeah, they have that portability. And if I can real quickly, they've just, one of the things that came out that was so important about this, we haven't spoken about the vendors is, is the public cloud. The public cloud offers this. They offer monitoring, they'll give it to you for free. If I'm going to run Kubernetes at Google, I'm going to get the monitoring for free which is super nice, right? But if I have an enterprise that has multicloud or hybrid cloud, and I'm working outside of that public cloud silo, it doesn't work. This is the exact conversation you and I had about Snowflake. AWS Redshift's fantastic but it doesn't work outside of AWS. So if every one of our enterprises continues on the digital transformation, they need portability. They have to be able to go across any architecture structure and that's why these independent providers are really starting to gain steam when you would think they could never compete with the public cloud. >> Yeah man, that's a great point. And we've talked about this in the context of Snowflake that who are you going to trust with your multi-cloud strategy? Are you going to trust AWS? Are you going to trust Google? Yeah, okay, they got Anthos but we kind of know why they're taking that posture. Microsoft, look, I'm probably going to partner with somebody who can, who's maybe I have a relationship with them with my OnPrem and that is really sort of agnostic to the various clouds so I'm glad you brought that up. And you know the point you're making about Honeycomb is a good one and I'll add that, again, it gets more complex with microservices and containers, that's spinning them up, spinning them down. Sometimes these, first of all, these microservices, sometimes aren't that micro and second of all, you're sometimes talking about hundreds of thousands of containers so it's a really increasingly complex environment. All right. What I want to do is-- >> You didn't even touch on serverless, we'll do that some other day. >> Oh, yeah, I mean absolutely. A hundred percent, right. So, now let's take a look at some of the valuations, guys if you bring that up for me. So I put this little chart together and it's always instructive. Now I like to, simple guy Erik so I like to... So you see, the company, I take a trailing 12-month revenue and then the market cap as of 9/25. And then just a simple revenue multiple, just to get a sense, it's not a hardcore valuation model but it's interesting and there usually is a correlation to the growth rate, I just pulled that off the latest quarterly growth rate. I mean, look at Datadog. I mean that's like Snowflake pre IPO valuations. I mean you're really, right around there with smaller revenue, smaller growth rate, Snowflakes up in the whatever 120% range but well eye-popping. You know the same valuation as Splunk, I mean that's just amazing. What do you make of this data? >> Well, you know I was an equity analyst for almost 15 years on the Wall Street side. So the, my first caveat is a trailing revenue to the multiple is not always the same because people are looking at what the forward expected revenue will be but I actually do see the correlation here. And when you brought this up, my eyes popped open. I do not understand why Datadog has a 27 billion market cap on a trailing 350 million in revenue. I just don't know if their forward looking growth really warrants that and at the same time, then you look at a Splunk, right? I mean they have two and a half billion in revenue but their growth rate's down and truthfully, when I see a -5% growth rate, I don't know why you weren't at 12% sales either. I would argue that there's quite a few names on here that could be in for a reckoning, ETR actually as far back as a year ago caught this in our data and said, "Hey, there's some inflection points here and I think investors need to pay attention to them." And since we came out with the July report, a lot of these names we're talking about, despite insane valuations in the equity markets are flat to down. And, you know I do think that, hey if they stay stagnant and their technology is right but it's a crowded space, I think we're really leading to the point where as one of my panelists said, this industry is ripe for consolidation. These players are not all going to be here in 12 months, it's that simple. >> Yeah and by the way, thank you for mentioning that as a former equity analyst, you were right (indistinct) 12 months, it's kind of the rear-view mirror. But I'll tell you, two reasons why I do that. One is, I put the growth rate in there so you can pick your own growth rate and your own forward revenue. The other is it's really easy for me to get TTM off a Yahoo as opposed to >> Right exactly. >> And so truth be told. But, guys bring that back up one more time cause I want to make a point about New Relic. I mean I think they are potentially right for an M&A because they got great technology. Now remember Elliot Management is in there and when Elliot's is in there, stuff's going to happen. They're going to start cleaning house, they're going to really create changes, they don't just get in in a big way and sit back and watch, they are extremely active. And the New Relic, leader in this space, great technology, great heritage. So either they got to clean up and get that valuation back up maybe as you pointed out, little bit better marketing posture, et cetera or they get taken out. >> Yeah and let's think about the two things that coincide, right? You have one of the world's best activist funds get involved in Elliot Management. And as you said, they don't get involved to just sort of watch or observe as we're talking about here today, they are very active in trying to get some sort of a, you know, corporate action done. And at the same time, all of a sudden New Relic comes out with a new pricing model. They're trying to create a moat around the small to medium business, right? They're trying to grow their footprint. Now the great thing about getting involved in small to medium businesses, it starts off for free but you grow with them. So I don't think those two are a coincidence, let me just put it that way. I think that they're coming in, they're trying to entrench themselves in a new market and set themselves up for future growth and I truly believe that based on the product roadmap and the feedback we were getting from the end-users in my panel, New Relic has the ability to look across all architecture, it has the ability to provide a single pane of glass and it has the ability to incorporate machine learning for proactive response. Their roadmap is fantastic, they have an active manager inside as an investor, I don't think they're going to be around for much, much longer. And obviously that you look around and you wonder who the acquirers will be and it might be one of the major cloud players. >> Yeah that would be interesting. I mean it gives them a play in a multicloud world and either they're going to just use that for their own advantage or they will actually see that as an opportunity, we'll be itching to watch. Alright, anything we didn't cover that you want to touch on or give us your final thoughts, please Erik. >> You know I would also just sort of mention a little bit about Splunk. This is a company that has a tremendous amount of revenue, a tremendous installed customer base but many, many times we've seen it before and Oracle is the greatest example. They kind of forget about their customers and they don't treat them properly. And I can't tell you how many people I have mentioned to me said, "Hey when this all went down in the viral pandemic and I went to Splunk and I asked for a little bit of pricing flexibility, I asked for this, I asked for that and they just wouldn't give it to me." And I wrote an article once called (indistinct) never forget similar to an elephant. And when they come out the other side, they're going to find a way to replace them. And today I also wrote an article that it was our 200th interview and I entitled it, The Splunk Funk. And basically it's about all the alternatives that are now out there, not just open source, but other vendors, even the vulnerability management players like a Rapid7, like a Tenable are getting into this space now. Fortinet, which one guy called "Fortaeverything" is a company that's really expanding. So I would just really kind of caution some of those vendors out there that don't rest on your laurels, don't take your customers for granted because sooner or later, they're going to be in a position to bite the back. >> Well I'll say this about Splunk, I've been following the company since the early part of last decade and I've done a lot of Cube interviews at their shows. They do have a passionate, passionate customer base, they got the experts that run around with that crazy hat and I've seen Splunk killers emerge for the last decade and so... But I think your point is right. I mean they've, the SignalFx acquisition was something that, it was a hole to fill and it gets them into a subscription-based model, they're going through that transition now. But I think they have some real gravity with their customer base. So, all right, let me summarize. For years, the application monitoring and management, it's really relied on alerts, logs, traces and even what I call tribal knowledge. In that world of pre-distributed systems, that was fine, like I said a trace can tell you what was going on. But things have begotten much more complicated architecturally with cloud and mobile and they're really changing fast now. Erik mentioned serverless, we talked about containers. So, today it's much harder to understand the customer experience because it's difficult to get a full picture of the data. And what I mean by that is that the user data, the application data, the infrastructure data, they're all fragmented and the Holy Grail solution really takes all this disparate data, it ingests it, it transforms it. Connects the dots if you will, across clouds, Onprem and then it shapes it, brings in machine intelligence, really creating an organic systems view that can proactively tell you that there's a problem coming. And finally, nearly absolute Nirvana is doing this in a way that non-technical people are going to be able to understand the true user experience. You know in theory, this is going to allow organizations to remediate in 110th the time with much, much lower costs and that's going to be critical in this world of digital transformation. So thank you Erik, really appreciate you coming on today. >> Always enjoy it Dave, it's always great talking to you and hopefully we'll do it again soon. >> All right, I can't wait. And thank you everybody for watching this episode of theCUBE Insights powered by ETR. Remember these episodes, they're all available on podcasts. We publish weekly on wikibon.com and siliconangle.com so you got to check that out. And don't forget, go to etr.plus for all the survey action. Would appreciate if you kindly comment on my LinkedIn post or tweet me @dvellante or email at david.vellante@siliconangle.com This is Dave Vellante. Thanks so much to Erik Bradley, be well and we'll see you next time. (bouncy music)

>> Announcer: From theCUBE Studios in Palo Alto and Boston, connecting with thought leaders all around the world. This is a Cube Conversation. >> Hello everyone, welcome to this special Cube Conversation, I'm John Furrier join Dave Vellante for a special report and analysis on the Dell technologies VMware spin out transaction, contemplation, story, circulating rumors, thanks for joining. Dave, great to see you. Yesterday we filmed a Zoom, I was at home, you were in the office. We had to get the story out for the hot take on the news at Dell technologies is spinning out VMware. We had a lot of hot takes, you got some amendments to make but one of the things that came out of was that we, after we had the interview, we said look let's just go get some more data so I went out off on my own, you went off on your own to get some digging, get some data and get some reporting on this, investigate this further. Here's what I've found. I've heard a rumor and have confirmed from a great source that Michael Dell isn't selling so the story's off. Which would mean our half hour analysis is off. But I also got some data that points to some of the other things that we said are consistent. So one, I want to get your thoughts. The rumor that I'm hearing is that Dell is not selling, from my sources. What are you hearing? >> Yeah I think there's a different take here, John. I mean everybody assumed when the press release came out in the 13D that Dell was spinning off its stake, people inferred from that that they were selling. And I think in fact this is not a sale. I think everybody was wrong about that. I think in fact what Dell is going to do is distribute its stake, it's 81% stake to shareholders and so to Dell shareholders and of course what's going to happen is Michael Dell owns a very large portion of Dell technologies. I think by recollection it's over 60% and as a result he's the largest shareholder of Dell and he's that 81% is going to get distributed to the Dell shareholders, so he's going to end up with more than half of the ownership of VMware all said and done. So Michael Dell is I think ultimately going to have more than half of the ownership of Dell Technologies, I think it's 65%, probably 63, 65% somewhere in there by my recollection and he's going to end up with more than 51% of VMware, John and so you're going to have. I mean it would make sense wouldn't it that the majority shareholder is going to be chairman of both companies. >> And so you've talked to a bunch of people on this, is that right? So just to get some background, where'd you? >> Yeah I think some people on Wall Street have figured this out but it's definitely not hit the main stream news. I think if you read the news, you read the register I mean essentially we made the same inference that Dell was becoming untethered to VMware. I don't think that's happening at all. Also, I've talked to a number of customers, John about this, asking them what they thought about the news yesterday and there was a big shrug. I mean I talked to one customer, said hey you know in the old days I bought block from EMC, I bought file from NetApp, they both made great products, they both were VMware friendly, this doesn't affect me one bit. And other customers I talked to said yeah I don't really see any big change here. And I don't think anything's going to change. I think if Michael Dell is the chairman of both companies, I don't think anything changes. >> Alright so to correct what we had, our hot take which was untethering, spinning out VMware implying that there's going to be an untethering or VMware can make it on their own which I think our analysis was right on on the value of VMware. So I stand by that report no problem, it's the specifics of Dell Technologies appearing as if they're unloading it okay. So that's the nuance here. >> That's right. >> So the nuance is Michael Dell actually is going to maintain staying in control, he's not going anywhere. That's what you're just saying. Is that true? >> Yeah, picture the block diagrams you got Dell over here and inside of Dell you have 81% ownership of VMware and over here you have VMware and essentially what Dell is doing is saying okay all you Dell shareholders, we're going to allow you to now directly own those VMware shares and so they're going to transfer essentially from owning Dell to owning VMware directly, of course Michael Dell now is going to own VMware directly as opposed to owning it through his ownership of Dell. As a result, it cleans up the hair on this conglomerate structure which means it's, and you've seen it in the stock market today in the last month, it's unlocking value for Dell, it's unlocking value for VMware. John, on June 22nd, prior to the Wall Street Journal breaking that they were contemplating this, Dell's core value, in other words, the value net of VMware was around negative 23 billion, today it's negative 4 billion so they've already compressed about 20 billion dollars out of that negative value and that's the arbitrage play now and I think it just goes up from here. The second thing is a lot of investors that I talked to won't touch VMware stock because it's controlled by Dell. This liquidity hangover that I always talk about. I think this is going to bring other investors you know in from the sideline. So that is everybody inferred that Dell was becoming untethered, Dell becomes a lot less interesting without VMware. That's wrong, nothing really changes in terms of the commercial relationship between these two companies and the impact on customers. >> So essentially if I over simplify it for my simple brain here, Dell is IPOing shares of VMware to the shareholders of Dell. What a benefit that is. >> Yeah I mean again they're just-- >> I mean it's not an IPO in the sense of an IPO, it's basically saying. Hey, shareholders of Dell, good job, if you want the value of VMware go take it. >> So you remember how this all came about? Remember when Dell bought VMware they had a gap, I mean the amount of cash they could raise, the amount of debt they took on, the amount of cash that Michael Dell in Silver Lake and a couple other partners threw in, it was only about four billion to get 67 billion and the way they covered that gap was they created a tracking stock called DVMT and DVMT was supposed to track VMware value, it really didn't. And so what happened was, DVMT was a public company, Dell wanted to go public again and said okay we're going to do this through the DVMT vehicle and we're going to issue shares of Dell. And remember, Carl Icahn, and Elliot they were very active and they sort of got Michael in a head lock and said we need more if you're going to do that and they did. Ultimately Dell goes public but then they face this liquidity hangover and so also you might recall that Dell floated Pivotal and monetized that to delever, they paid down some debt and then basically went to VMware and said okay you're going to buy Pivotal back. They used some cash and they issued shares so Dell's ownership of VMware escalated to 81% at the time. That's how they got to 81%. I remember thinking wow how much of this company are they going to own? Well this is what it allowed them to do. It now allows them to distribute the shares and allows Michael Dell personally to have the majority ownership of VMware, it's absolute genius and it cleans up the structure of the organization so instead having to own VMware through Dell which by the way I've always said it's a cheap way to own VMware, good move if you bought Dell stock to own VMware, now you own VMware directly and of course Michael Dell owns it directly. Absolute genius move over the last three, four, five, years. >> Yeah, and one of the things we did say in our hot take yesterday was that that negative value of Dell technology world, Dell Technologies gets shrunk and also can create value. Here they're even gettin' more value into ownership of VMware but I got to ask you, you mentioned a comment about this liquidity hangover and they have this dividend, could you explain that 'cause I'm just not followin' this liquidity problem ? >> Well this is very interesting, so Dell because it has so much debt, number one, number two because it has controlling ownership of VMware and it has 90 plus percent voting power. Shareholders penalize Dell and so the big thing here is the debt. What essentially Dell is doing and people always joke that VMware is Dell's piggyback and it's true. And here it comes again, we saw that with Pivotal, we saw that with DVMT. What I think is happening, John is Dell is going to essentially transfer some of its debt to VMware so it's going to have VMware take on a little bit more debt. It is said that they want to maintain investment grade ratings for VMware which currently has great ratings, Dell does not have investment grade rating, it needs to pay down more debt so essentially it's going to shift some of that debt to VMware through a special dividend of which Dell will be a great beneficiary and will allow Dell to pay down some of that debt so that it can become investment grade and they want to take on an amount of debt that will not crush VMware's balance sheets so that it will also be investment grade. So they're creating this equilibrium if you will. Now, I've heard the ceiling on VMware's debt in order to get to equilibrium or in order to maintain investment grade is no more than five billion but I've also heard much much higher numbers. As high as eight to 10, to maybe even 12 billion. I don't know if VMware can take on that much debt and maintain investment grade. The point is there's some number there which Dell is going to force VMware to take on that debt, now one last thing I'll say is despite Michael Dell, Dell Technologies' ownership and control 90 plus percent control, it has a fiduciary responsibility to shareholders but my view is it's meeting that responsibility because the value it's unlocking value so who can complain? Again it's absolutely fascinating and brilliant but that's what that dividend is all about is Dell saying okay VMware you're going to take on more debt and you're going to help us pay down the Dell debt and you're going to take on more. We'll both be investment grade. >> And they both get value increase. >> Yeah, yes, correct. >> So it's a financial engineering deal, Michael Dell still can run both companies. Do you still think he will be running both companies? >> Yeah, I think there's no question that Michael Dell will be the chairman, he is the chairman of Dell Technologies, chairman of VMware and he's going to continue to be. And so this commercial agreement that they're going to sign, it's a wired deal. VMware and Dell and by the way there is every incentive for VMware to do this. People may say hey they're strong arming Dell blah blah blah but VMware, Dell is a huge distribution channel for VMware and I'll tell you something that Dell has done better than EMC and Joe Tucci ever did and you know we're big fans of Joe Tucci, but Dell has unlocked a channel for VMware the way EMC never did. VMware through Dell has seen incredible growth and it really is Dell as I would say VMware's most important partner, biggest partner because Dell didn't apologize for super gluing itself and VMware to it. Whereas EMC was always much more cautious, trying to play the ecosystem game. >> Well they were saving their storage business with VMware, I mean VMware saved EMC, some would say. >> Yeah, I would say. I mean if it weren't for the acquisition of VMware back for $650 million in the early 2000s you know EMC would've been a really uninteresting company over its last five to seven years. >> So they milked that storage dry but then they had that uplift with VMware, Michael says hey I'll put this right in the family and this is what it is. It's a deal where it's in the Dell family portfolio and what Michael's doing is to your point and what you're saying is, he's unlocking all this value for both Dell and VMware and saying okay, let's go to market and figure it out. >> I got to tell you this John I mean as a founder, the co founder you know obviously we're a little smaller than Dell but you got to appreciate what Michael Dell has done here. He went through hell taking his company private. You know he took on Carl Icahn, I said yesterday who beats the great Icahn? Well Michael Dell beat the great Icahn. You know who out maneuvered Elliot? I mean Elliot is a very influential player in the market. Michael Dell said you know what I'm not goin' through that again, I have control of Dell Technologies, I have voting control over VMware, I'm going to do what's right for me, for my company and my shareholders and Michael Dell's making his shareholders money. I mean who can complain about it. >> I'll tell you I mean there's two playbooks I look at, from Andy Jassy and Michael Dell. I mean Michael Dell knows how to make money right, he's always been a great money maker, he's also a geek, he loves to get down and dirty in the tech, he's got two 49 inch Dell monitors since it's his company he gets the best gear. All kidding aside you know he built a company, went public, took it private and that was a reset. I mean in his stage of his life it was his reset, this is his swan song. He's havin' a ball and he's financially engineered this success with the power that he built and it's a whole 'nother level, whole 'nother chapter in his life and he's a money maker. He knows how to make money. You put Silver Lake and Michael Dell together. You put Michael Dell with these kinds of brains, with his asset base, as you say the cash flow of Dell, with the asset of say a crown jewel like VMware that literally can pave the path to the future. He can ride on the cloud backs all day long, he doesn't need a public cloud for anything. >> Yeah well so before we talk about that I just want to double down on what you said. People just always say yeah Michael Dell he's a finance guy. It's not true, yes, well he's got a finance team that is amazing, no doubt Michael is instrumental there but he's a business genius, I mean he really business visionary guy built his own PCs in college so he's obviously like you said, he's a geek, technically extremely savvy, he's a visionary, he's one of the top I don't know 10 visionaries in the computer industry, I would say history. So, now you're absolutely right, well you said doesn't need a cloud. I think my concern about this whole deal yesterday when I misunderstood that this was spinning off and coming untethered is what about the edge? What about multi cloud? You know what's Dell's play there? Well Dell's play is still VMware, their strategy hasn't changed one bit. I mean nothing changes, the only change is the direct ownership of VMware stock which unlocks value. Nothing else changes. >> Let me tell you, to wrap my piece up here and then we can wrap it up. Just in interface with Michael over the years and knowing him personally, seeing him up close, here's how I think his mind works. You mentioned he assembled PCs in college. He built out you know pioneered you know putting suppliers and supply chain, getting prices lower, direct mail, he pioneered that direct to consumer all these successes. This whole world that's in there is like assembling a PC in his dorm room. Accept he's got it with billions of dollars. Little VMware here, processor, IO, I mean he's essentially a financial geek at this point, and although he likes to look in and he loves Pivotal, he loves some of the things he's doing with VMware, he likes to look under the covers and see the engine but he's a financial assembler now so he's looking at this and you can see how it's all working and to your scoop here. Yeah I guess it looks like a spin out if that's what people want to call it and the press jump on that but if pieces, takes the hair off the deal that's basically makes the IO move better, he's got a you know good bus there, 32 bits. Again, and assembling a PC, assembling companies and creating value. He makes money, Dave. >> I love it, that's a great analogy, the PC parts are a little bit more valuable but the other thing I just want to clarify what I said. The other thing that changes is the income statement. Dell will no longer recognize you know VMware revenue and so that changes and of course the balance sheet changes, that's a huge change. Now and I guess the caveat is, this in theory couldn't happen but it just makes so much sense. I was kind of sniffin' around it in my breaking analysis when this thing first leaked and I said in that, John if the financial geniuses at Dell can figure out some way to monetize this well here it is. It now is becoming much much more clear and I'm impressed. >> Well Dave, he was assembling PCs in college, now he's assembling companies, what did we do in college? Don't even go there. >> Let's end it there. >> I will end it right there. Dave, great scoop, top story. Michael Dell is not selling VMware. It's a transaction, it's going to have all that value and it's unlocking more Dell tech value. Look for the shares to be distributed to the Dell Technologies shareholders. It's the same game, super gluing together, creating value for both. Dave, great scoop, thanks for joining me. >> Thank you, John, thanks for having me. >> Cube Special Report and Analysis here in the studio in California, Dave Vellante in Massachusetts. I'm John Furrier, thanks for watching. (light music)

>> Announcer: Live, from Las Vegas, it's theCUBE. Covering IBM Think 2018. Brought to you by IBM. >> Welcome back to IBM Think 2018. This is theCUBE, the leader in live tech coverage. My name is Dave Vellante and I'm here with Peter Burress. Our wall-to-wall coverage, this is day two. Everything AI, Blockchain, cognitive, quantum computing, smart ledger, storage, data. Bina Hallman is here, she's the Vice President of Offering Management for Storage and Software Defined. Welcome back to theCUBE, Bina. >> Bina: Thanks for having me back. >> Steve Elliot is here. He's the Vice President of Deep Learning in the Global Chief Data Office at IBM. >> Thank you sir. >> Dave: Welcome to the Cube, Steve. Thanks, you guys, for coming on. >> Pleasure to be here. >> That was a great introduction, Dave. >> Thank you, appreciate that. Yeah, so this has been quite an event, consolidating all of your events, bringing your customers together. 30,000 40,000, too many people to count. >> Very large event, yes. >> Standing room only at all the sessions. It's been unbelievable, your thoughts? >> It's been fantastic. Lots of participation, lots of sessions. We brought, as you said, all of our conferences together and it's a great event. >> So, Steve, tell us more about your role. We were talking off the camera, we've had here Paul Bhandari on before, Chief Data Officer at IBM. You're in that office, but you've got other roles around Deep Learning, so explain that. >> Absolutely. >> Sort of multi-tool star here. >> For sure, so, roles and responsibility at IBM and the Chief Data Office, kind of two pillars. We focus in the Deep Learning group on foundation platform components. So, how to accelerate the infrastructure and platform behind the scenes, to accelerate the ideation or product phase. We want data scientists to be very effective, and for us to ensure our projects very very quickly. That said, I mentioned projects, so on the applied side, we have a number of internal use cases across IBM. And it's not just hand vault, it's in the orders of hundreds and those applied use cases are part of the cognitive plan, per se, and each one of those is part of the transformation of IBM into our cognitive. >> Okay, now, we were talking to Ed Walsh this morning, Bina, about how you collaborate with colleagues in the storage business. We know you guys have been growing, >> Bina: That's right. >> It's the fourth quarter straight, and that doesn't event count, some of the stuff that you guys ship on the cloud in storage, >> That's right, that's right. >> Dave: So talk about the collaboration across company. >> Yeah, we've had some tremendous collaboration, you know, the broader IBM and bringing all of that together, and that's one of the things that, you know, we're talking about here today with Steve and team is really as they built out their cognitive architecture to be able to then leverage some of our capabilities and the strengths that we bring to the table as part of that overall architecture. And it's been a great story, yeah. >> So what would you add to that, Steve? >> Yeah, absolutely refreshing. You know I've built up super computers in the past, and, specifically for deep learning, and coming on board at IBM about a year ago, seeing the elastic storage solution, or server. >> Bina: Yeah, elastic storage server, yep. >> It handles a number of different aspects of my pipeline, very uniquely, so for starters, I don't want to worry about rolling out new infrastructure all the time. I want to be able to grow my team, to grow my projects, and that's what nice about ESS is it's distensible, I'm able to roll out more projects, more people, multi-tenancy et cetera, and it supports us effectively. Especially, you know, it has very unique attributes like the read only performance feed, and random access of data, is very unique to the offering. >> Okay, so, if you're a customer of Bina's, right? >> I am, 100%. >> What do you need for infrastructure for Deep Learning, AI, what is it, you mentioned some attributes before, but, take it down a little bit. >> Well, the reality is, there's many different aspects and if anything kind of breaks down, then the data science experience breaks down. So, we want to make sure that everything from the interconnect of the pipelines is effective, that you heard Jensen earlier today from Nvidia, we've got to make sure that we have compute devices that, you know, are effective for the computation that we're rolling out on them. But that said, if those GPUs are starved by data, that we don't have the data available which we're drawing from ESS, then we're not making effective use of those GPUs. It means we have to roll out more of them, et cetera, et cetera. And more importantly, the time for experimentation is elongated, so that whole idea, so product timeline that I talked about is elongated. If anything breaks down, so, we've got to make sure that the storage doesn't break down, and that's why this is awesome for us. >> So let me um, especially from a deep learning standpoint, let me throw, kind of a little bit of history, and tell me if you think, let me hear your thoughts. So, years ago, the data was put as close to the application as possible, about 10, 15 years ago, we started breaking the data from the application, the storage from the application, and now we're moving the algorithm down as close to the data as possible. >> Steve: Yeah. >> At what point in time do we stop calling this storage, and start acknowledging that we're talking about a fabric that's actually quite different, because we put a lot more processing power as close to the data as possible. We're not just storing. We're really doing truly, deeply distributing computing. What do you think? >> There's a number of different areas where that's coming from. Everything from switches, to storage, to memory that's doing computing very close to where the data actually residents. Still, I think that, you know, this is, you can look all the way back to Google file system. Moving computation to where the data is, as close as possible, so you don't have to transfer that data. I think that as time goes on, we're going to get closer and closer to that, but still, we're limited by the capacity of very fast storage. NVMe, very interesting technology, still limited. You know, how much memory do we have on the GPUs? 16 gigs, 24 is interesting, 48 is interesting, the models that I want to train is in the 100s of gigabytes. >> Peter: But you can still parallelize that. >> You can parallelize it, but there's not really anything that's true model parallelism out there right now. There's some hacks and things that people are doing, but. I think we're getting there, it's still some time, but moving it closer and closer means we don't have to spend the power, the latency, et cetera, to move the data. >> So, does that mean that the rate of increase of data and the size of the objects we're going to be looking at, is still going to exceed the rate of our ability to bring algorithms and storage, or algorithms and data together? What do you think? >> I think it's getting closer, but I can always just look at the bigger problem. I'm dealing with 30 terabytes of data for one of the problems that I'm solving. I would like to be using 60 terabytes of data. If I could, if I could do it in the same amount of time, and I wasn't having to transfer it. With that said, if you gave me 60, I'd say, "I really wanted 120." So, it doesn't stop. >> David: (laughing) You're one of those kind of guys. >> I'm definitely one of those guys. I'm curious, what would it look like? Because what I see right now is it would be advantageous, and I would like to do it, but I ran 40,000 experiments with 30 terabytes of data. It would be four times the amount of transfer if I had to run that many experiments of 120. >> Bina, what do you think? What is the fundamental, especially from a software defined side, what does the fundamental value proposition of storage become, as we start pushing more of the intelligence close to the data? >> Yeah, but you know the storage layer fundamentally is software defined, you still need that setup, protocols, and the file system, the NFS, right? And, so, some of that still becomes relevant, even as you kind of separate some of the physical storage or flash from the actual compute. I think there's still a relevance when you talk about software defined storage there, yeah. >> So you don't expect that there's going to be any particular architectural change? I mean, NVMe is going to have a real impact. >> NVMe will have a real impact, and there will be this notion of composable systems and we will see some level of advancement there, of course, and that's around the corner, actually, right? So I do see it progressing from that perspective. >> So what's underneath it all, what actually, what products? >> Yeah, let me share a little bit about the product. So, what Steve and team are using is our elastic storage server. So, I talked about software defined storage. As you know, we have a very complete set of software defined storage offerings, and within that, our strategy has always been allow the clients to consume the capabilities the way they want. A software only on their own hardware, or as a service, or as an integrated solution. And so what Steve and team are using is an integrated solution with our spectrum scale software, along with our flash and power nine server power systems. And on the software side from spectrum scale, this is a very rich offering that we've had in our portfolio. Highly scalable file system, it's one of the solutions that powers a lot of our supercomputers. A project that we are still in the process and have delivered on around Whirl, our national labs. So same file system combined with a set of servers and flash system, right? Highly scalable, erasure coding, high availability as well as throughput, right? 40 gigabytes per second, so that's the solution, that's the storage and system underneath what Steve and team are leveraging. >> Steve, you talk about, "you want more," what else is on Bina's to-do-list from your standpoint? >> Specifically targeted at storage, or? >> Dave: Yeah, what do you want from the products? >> Well, I think long stretch goals are multi-tenancy and the wide array of dimensions that, especially in the chief data office, that we're dealing with. We have so many different business units, so many different of those enterprise problems in the orders of hundreds how do you effectively use that storage medium driving so many different users? I think it's still hard, I think we're doing it a hell of a lot better than we ever have, but it's still, it's an open research area. How do you do that? And especially, there's unique attributes towards deep learning, like, most of the data is read only to a certain degree. When data changes there's some consistency checks that could be done, but really, for my experiment that's running right now, it doesn't really matter that it's changed. So there's a lot of nuances specific to deep learning that I would like exploited if I could, and that's some of the interactions that we're working on to kind of alleviate those pains. >> I was at a CDO conference in Boston last October, and Indra Pal was there and he presented this enterprise data architecture, and there were probably about three or four hundred CDOs, chief data officers, in the room, to sort of explain that. Can you, sort of summarize what that is, and how it relates to sort of what you do on a day to day basis, and how customers are using it? >> Yeah, for sure, so the architecture is kind of like the backbone and rules that kind of govern how we work with the data, right? So, the realities are, there's no sort of blueprint out there. What works at Google, or works at Microsoft, what works at Amazon, that's very unique to what they're doing. Now, IBM has a very unique offering as well. We have so many, we're a composition of many, many different businesses put together. And now, with the Chief Data Office that's come to light across many organizations like you said, at the conference, three to 400 people, the requirements are different across the orders. So, bringing the data together is kind of one of the big attributes of it, decreasing the number of silos, making a monolithic kind of reliable, accessible entity that various business units can trust, and that it's governed behind the scenes to make sure that it's adhering to everyone's policies, that their own specific business unit has deemed to be their policy. We have to adhere to that, or the data won't come. And the beauty of the data is, we've moved into this cognitive era, data is valuable but only if we can link it. If the data is there, but there's no linkages there, what do I do with it? I can't really draw new insights. I can't draw, all those hundreds of enterprise use cases, I can't build new value in them, because I don't have any more data. It's all about linking the data, and then looking for alternative data sources, or additional data sources, and bringing that data together, and then looking at the new insights that come from it. So, in a nutshell, we're doing that internally at IBM to help our transformation. But at the same time creating a blueprint that we're making accessible to CDOs around the world, and our enterprise customers around the world, so they can follow us on this new adventure. New adventure being, you know, two years old, but. >> Yeah, sure, but it seems like, if you're going to apply AI, you've got to have your data house in order to do that. So this sounds like a logical first step, is that right? >> Absolutely, 100%. And, the realities are, there's a lot of people that are kicking the tires and trying to figure out the right way to do that, and it's a big investment. Drawing out large sums of money to kind of build this hypothetical better area for data, you need to have a reference design, and once you have that you can actually approach the C-level suite and say, "Hey, this is what we've seen, this is the potential, "and we have an architecture now, "and they've already gone down all the hard paths, "so now we don't have to go down as many hard paths." So, it's incredibly empowering for them to have that reference design and learning from our mistakes. >> Already proven internally now, bringing it to our enterprise alliance. >> Well, and so we heard Jenny this morning talk about incumbent disruptors, so I'm kind of curious as to what, any learnings you have there? It's early days, I realize that, but when you think about, the discussions, are banks going to lose control of the payment systems? Are retail stores going to go away? Is owning and driving your own vehicle going to be the exception, not the norm? Et cetera, et cetera, et cetera, you know, big questions, how far can we take machine intelligence? Have you seen your clients begin to apply this in their businesses, incumbents, we saw three examples today, good examples, I thought. I don't think it's widespread yet, but what are you guys seeing? What are you learning, and how are you applying that to clients? >> Yeah, so, I mean certainly for us, from these new AI workloads, we have a number of clients and a number of different types of solutions. Whether it's in genomics, or it's AI deep learning in analyzing financial data, you know, a variety of different types of use cases where we do see clients leveraging the capabilities, like spectrum scale, ESS, and other flash system solutions, to address some of those problems. We're seeing it now. Autonomous driving as well, right, to analyze data. >> How about a little road map, to end this segment? Where do you want to take this initiative? What should we be looking for as observers from the outside looking in? >> Well, I think drawing from the endeavors that we have within the CDO, what we want to do is take some of those ideas and look at some of the derivative products that we can take out of there, and how do we kind of move those in to products? Because we want to make it as simple as possible for the enterprise customer. Because although, you see these big scale companies, and all the wonderful things that they're doing, what we've had the feedback from, which is similar to our own experiences, is that those use cases aren't directly applicable for most of the enterprise customers. Some of them are, right, some of the stuff in vision and brand targeting and speech recognition and all that type of stuff are, but at the same time the majority and the 90% area are not. So we have to be able to bring down sorry, just the echoes, very distracting. >> It gets loud here sometimes, big party going on. >> Exactly, so, we have to be able to bring that technology to them in a simpler form so they can make it more accessible to their internal data scientists, and get better outcomes for themselves. And we find that they're on a wide spectrum. Some of them are quite advanced. It doesn't mean just because you have a big name you're quite advanced, some of the smaller players have a smaller name, but quite advanced, right? So, there's a wide array, so we want to make that accessible to these various enterprises. So I think that's what you can expect, you know, the reference architecture for the cognitive enterprise data architecture, and you can expect to see some of the products from those internal use cases come out to some of our offerings, like, maybe IGC or information analyzer, things like that, or maybe the Watson studio, things like that. You'll see it trickle out there. >> Okay, alright Bina, we'll give you the final word. You guys, business is good, four straight quarters of growth, you've got some tailwinds, currency is actually a tailwind for a change. Customers seem to be happy here, final word. >> Yeah, no, we've got great momentum, and I think 2018 we've got a great set of roadmap items, and new capabilities coming out, so, we feel like we've got a real strong set of future for our IBM storage here. >> Great, well, Bina, Steve, thanks for coming on theCUBE. We appreciate your time. >> Thank you. >> Nice meeting you. >> Alright, keep it right there everybody. We'll be back with our next guest right after this. This is day two, IBM Think 2018. You're watching theCUBE. (techno jingle)

>>Welcome back everyone. This is our final wrap-up of the Amazon web services. Reinvent conferences is SiliconANGLE and Wiki bonds. The cube is our flagship program. We go out to the events, extract the signal from the noise. I'm John furry or the founders to look an angle. And of course I'm joining my cohost partner in crime. Dave Volante, co-founder with you bond.org. Um, really exciting event, Dave, I got to say, this is our wrap up. Let's put a bow on this show. Let's put the bumper sticker on the car and let's see what, uh, what was this document? What happened day one enterprise day to infrastructure day three ties it all together with Kinesis. Amazon is doing two things. That's very, very rare in tech history, and that is a disrupting and innovating at the same time. The magic it's the magic formula. And to me, it's really two tactical executions, one ball moving the ball yard by yard first and 10, do it again to use the football analogy, moving the chains, moving the ball down the field, kind of a running game, ground game, whatever a call it. >>And then the big yardage passing play with Kinesis, I think really brings their success of an integrated stack. And I believe they're going to be the iPhone like model for the cloud they're they're light years ahead of everybody else on public cloud. Uh, they're winning the developers. And again, we just heard from Dr. Matt would kind of reiterating what we were saying in our previous segment about the diversity of the successes. It's not a one trick pony. They got diversity from startups to large enterprises to NASA. So Dave, I mean, I mean, who is going to take on Amazon, who is going to challenge Amazon? That's the question that we want to know right now. It's not looking good right now. They're got a commanding lead in the cloud space and it'd be really interesting to watch how the Kinesis, the enterprise movement, uh, with VDI announcement and workspaces and all the enhancements in the, in the performance is going to shift the sand in the industry. And you're already seeing Cisco down 12% VMware stocks down. I mean, game-changing, the sands are shifting. What's your >>Well, I think we're seeing history in the making here, John. I mean, I think last year at reinvent com leading up to we reinvent, we realized that this event was going to be big and not just the event. The event is a metaphor for the shift that's occurring in the industry. We're talking about a trillion plus dollar marketplace that Amazon is disrupting and believe it or not, they're tiny, even though there are three or 4 billion, they're tiny, it's a trillion dollar Tam that is absolutely getting flipped on its head. And what do we mean by that? Every premise about the it business is changing. We talk about a lot. Amazon has ch has turned the data center into an API. It's a very powerful concept. I think you're right on. It's the, it's the iPhone of the enterprise. Yes. That's. They're not like hall monitors checking about every application in the app store. >>That's not the point. The point is it's a consistent environment that is controlled by Amazon, very tightly controlled and it works. You know what you're getting, and it's innovating at a, at a breakneck speed. It's antithetical to everything we know about it. So, you know, you've been asking people all week what the bumper sticker is on the show. I can't wait to go back and see some of those, but I mean, this is the trend and the trend is your friend, or it might be your enemy. So when you say who's going to be able to compete with Amazon, I think Martin of eucalyptus set a set of best historically in economics. There's always people that will rent and there's always people that will buy. And the, the old guard is Amazon calls them is not going to take this lying down, but the old guard has to replicate an Amazon's model. How does it do that? It's got to create an open entry into its system. That's equivalent in terms of simplicity and power to the Amazon API. Number one, number two is it's got to be able to demonstrate to the developer community that you can inter-operate across those platforms in a way that you can get critical mass, the same way that you can with Amazon. And that's going to be the, the massive battle that's going to take place in the cloud Wars. >>I mean, I think one of the things that's interesting is that the word lock-in was something that we were talking on day one, especially in the enterprise, that's a word that gets kicked around. And you know, my feeling has always been lock-in is not necessarily a bad thing if it's, if you can, if you can have switching costs that aren't super high locking means, switching costs are so high that you can switch. I can switch from my iPhone to Android anytime I want. But the problem is that iPhone is a better product. It's integrated with the apps and I can buy all the same apps. So that's a very key thing. And I think the switching costs here are a lot higher and I, there are Amazon >>On the record. Amazon is the mother of all lock-ins. I mean, this is a beautiful business model and here's, what's so great about it is the customers. You heard them this week say if you took AWS away from me, I would burst out into tears. So Amazon's, I think brilliant challenge here is to how do they keep innovating? They're doing that, but how do they keep lowering prices? So people don't want to leave. So that that's, that's what I see as the disruptive piece. It, >>Well, being in this business all these years were, you know, a little bit older than some of the young guns were on the cube to me lock-in is moving right? You see, um, in the old days, huge capital outlays for, uh, for equipment, you had maintenance, all this stuff was locking. Now the lock-in shifting to OPEX and agility. So what's happening is Amazon is basically commoditizing the old way of how people would spend and shifting the lock-in to the op X side of the equation. I call it the heroin addiction where, Hey, it's so low cost and the agility is the lock-in. So the functionality of agility guarantees the lock. And I think that's what Amazon's betting the ranch on is that when can go to time to market, to value quicker, that is inherently a lock-in, that's a quote, user experience to use my iPhone example. >>If I'm going to have a good experience making money as an enterprise, that's good. That's good. Lock-in right. So it's all a relative term in that the lock-in has been around. I mean, they call it differentiation, but at the end of the day, I think Amazon's got a good, good play there. But like I said, I don't think Amazon has cracked the it nut yet. I think they're going to have some it penetration. And this is top of the first ending, as we were saying, the enterprise, it nut enterprise, it is not, has not. The nut has not been cracked. What >>Do you need to see to be convinced? Well, >>I just think the stack is going to be the, the same paradigm of having an integrated staff. I just want to see different levels of services because the table stakes for the enterprise are different. There's certain compliance issues and you know, they're checking the boxes right now. This is the ground game I was referring to earlier. Amazon is going to start checking the boxes. Oh, VDI, we got workspaces, I got this. I'm going to check the boxes. Ultimately the list is just too long to win everyone. Right? So I think, you know, so it's going to be an opportunity. I think OpenStack has a great hope. I think VMware and IBM and HP are big players. And I think OpenStack needs to step up its game and have a big player, pop down a billion dollars with like IBM David Linux and saying, look at OpenStack, we're behind it. And rally the troops. And that's all >>Sorry, go back to the lock-in comments because this is critical because to me, the definition of lock-in is it's, it's, it's less economically attractive to leave than it is to stay. And that's what Amazon is doing. They're making it, making it more economically attractive to stay than they are to leave. Here's why that's so important. The more people that they pull, and this is why Carlisle and back said, you know, we can't lose to the bookseller. And you said that because they know the old guard knows that if people go to Amazon, they're not going to leave. Cause it's going to be less attractive for them to leave than it is to stay. So there's a huge battle over that trillion dollar Tam. So the key is John that OpenStack and IBM and VMware and Oracle and all the others have to make it economically attractive to not go into Amazon. And that is the battle. >>One of the things that's very clear, Dave, that's coming out of the show for me. My bumper sticker is dev ops wins. And I think what that mean by that is, is that, and we refer to the cloud being in the top of the first inning, meaning really everything else was spring training. He used the baseball metaphor in the sense that this is all that this is all activation of a paradigm shift. That is so game-changing the dev ops concept of software developers. Writing code that trickles into a fully integrated stack is really amazing, right? This really replaces the pain of provisioning hardware cost of it, cost of the infrastructure. That stuff is that that is the real value of the crowd. So if you take the dev ops concepts, which to me is already a winner and put that into the enterprise market, that's going to be cloud ops. >>So to me, I think the opportunity right now for anyone who wants to with Amazon in my opinion, is to go out there and say, look it, you got to win the software developers, look at what a Mongo DB has done. We had Elliot the co-founder on, they made it good goodness for the developer. Whoever can do that for the enterprise will win. And I don't think that there's a direct one-to-one mapping of what dev ops is. It is in the Amazon world. And what dev ops is in the enterprise. I think that's more cloud ops because the guys that are provisioning EMC drives dealing with IBM and red hat a little bit slower, I would say in terms of deployment, they used to the big slow cycles. Dev ops guys are pushing code a little bit more, you know, nimble startup, clean sheet of paper, you know, Uber, Airbnb, those younger generations, but this is a generational shift and it's happening and it's all on the software. So to me, I think dev ops speaks to, >>I wanna, I wanna, uh, keep this thread going. So, so what's the playbook to, for the old guard to compete, you're saying you gotta, uh, attract developers, but that's not enough. You need a cloud platform, right? So take, for example, VMware, VMware announces, you know, hybrid cloud infrastructure as a service it's early days, they need a cloud platform. So what else do you need to compete? You need developers. You need, >>You gotta have, you gotta have trust and security, right? So here's the thing. Developers care about success of creativity for the solutions. And what Amazon's demonstrate is the time to value is the key thing. You hear people, whether they're startups or big company get to some value, double down on success, figure out how to be agile succeed. Fast, move on with the problem right now is that developers are like deer in the headlights. They go where the action is, right? And it's always been that way. I think OpenStack to me is an opportunity or whatever platform that is. Someone's got to get a big anchor tenant in that platform needs to step up and be the galvanizing force and create some solidarity around that approach for it. That is an opportunity for VMware. I think Pat Gelsinger is probably best positioned to do that. Pivotal is a, is a genius, but I think ultimately they might be biting off more than they can chew. So I worry about, you know, their car not being fast enough right now in, in the game. So, you know, worry about pivotal there. But I think VMware probably is a better position there. So they need, they need, they need infrastructure. They need this middleware, which is database queuing notifications. A lot of that, a lot of the stuff you see Amazon doing at the top of the stack managed services. So that's streaming data and all the goodness on them, >>Developers, you got to have a cloud platform at scale, you gotta have trust and security. I would add to that. You got to do things that Amazon's not going to do. So for instance, we heard all week, Amazon doesn't want to do one-offs. They don't like to do customization, whatever they do. They want everybody to benefit from that enterprise enterprises want customization. We've talked about this, John. That's why, for instance, you, you find that some of the customers won't go into Amazon, not because the security is bad, it's just different. And Amazon's not going to change the security profile. They're not going to change the policy. So enterprise, uh, players, the old guard, so to speak must continue to do custom stuff. One-off that Amazon won't do, but here's the bet that Amazon's making Amazon's that its ecosystem will over time be able to do those one-offs for the customer and put a buffer in between the Amazon platform and the customer. So that's, that's really interesting. >>Yeah. I would also add to that, that the main differentiation where Amazon and other potential people to compete with Amazon is scale, scale matters. Scale gives leverage. Amazon has proven that, and they're trying to use that leverage now to catapult into other markets for market expansion. So that's one thing. So, so, so the, so for the enterprise in particular, one area we watch heavily, I see two major trends. I see a cloud service that's similar to Amazon. It smells like an integrated stack, but it just has different feature sets tailored for the enterprise. That's more of that's the hybrid cloud clearly hybrid cloud is a winner. Amazon is not using that term hybrid cloud. And he's a hybrid ID, which is basically a head fake. It really means hybrid cloud. So that's hybrid cloud. The second thing is I think you're going to see data centers be Amazon in a box. >>So that's why I like io.com because io.com has essentially built pods and containers and essentially is cloud in a box. And I think shipping data centers is the future. And I think what I like about IO and here's why I'm interested in double clicking on that company is that they're basically shipping data centers. You've got Goldman Sachs, big companies. So IO IO has got, got that going on. And then you've got hybrid cloud. And then the third thing that's really relevant is that you started to see the vertical integration Dave of, of services. Look at CSC, CSC bought service mesh. We had, uh, this guy Jeff on earlier with, uh, that company is doing all the user experience they're offering full end-to-end full-stack developers for essentially web apps. Okay. That is a shift to what I call the dev ops world. Those two things. You're going to see these industries where it's ISV and integrators are kind of vertically integrated. They're going to actually build their own stuff. And that's going to be the, I think the innovation on the channel side. So the channel is up for grabs. Everything's being disrupted >>Battlefield. We've got developers, we've got cloud scale, we've got trust and security. We've got customization. And I'm going to add another one, which is the ecosystem, which is essentially your, you know, in part in your channel, but got to have a strong ecosystem, want to pick up this discussion with you and getting the hook. >>So the Dave wants to of what's the bumper sticker for the show. Give me the Dave Volante bumper sticker. You. We heard everyone said a story here. Um, >>What AWS, the, the trend is your friend, >>My bumper sticker. I'm going to throw a hashtag in there. The hashtag next generation computer revolution to me, this is the next generation computer revolution, total transformative hashtag next generation computer revolution. I think Amazon's leading the charge and I think they're going to shift the sands and everyone else is going to have to adjust. And that's good for everyone, Dave and the market wins a ruin murky on Hortonworks tweeted. Hey, we'd love it. Market expansion, rising tide floats all boats. And I think that's all >>Ultimately ultimately billion dollar Tam Gianna. I'm thrilled to a >>Part of covering that with the cube. I want to thank everyone for watching. Thanks. This is the day three wrap up this acute exclusive coverage from Amazon web services. Want to thank the crew here? All the guys back at the ranch. Kristen, Nicole art Lindsay, Mark Hopkins. Andrew, we got mic. We got Alex. Good job, Jeff Fricks do, uh, everyone. Jeff Kelly. We have the analysts. Come on. We've got this show covered, Dave. I think we fished this pond out. So look for us next to HP. Discover will be there. And, uh, December the week of the 10th or 11th and 12th, we'll be doing the OpenStack summit as well. Look for that. When that gets announced, um, my maybe doing the node node summit in December, we got also the spark summit and MIT event in January. The security event would be at Berkeley. We're going to all these great events tubes out of control. We've got storage, big data now cloud, we look for a lot of research. You can see a lot of cloud coverage coming out on the research. So I looked for that over the next few months, I will get bon.org. Thank you for watching. Well, that's a wrap day three exclusive coverage. This is the cube. I'm John fryer with Dave Volante here in Las Vegas until next time take care.

prepare for the extraction point we've been briefed on all the important stories and events in the world of emerging information now it's time to extract the data and turn it into action live from the silicon angle studios in the heart of Silicon Valley this is extraction point with John furrier okay we're live back in the palo alto studios i'm john furrier for the extraction point we extract the signal from the noise and my special guest today i'm excited to have here is Paul Martino who is the founder of aggregate knowledge and also storied entrepreneur in Silicon Valley who now lives in Philly with his family comes out here Paul is known for among other things being a great entrepreneur tech geek loves tech loves to build build startups started one of the first social networks with Mark Pincus called tribe started his own company funded by Kleiner Perkins with his partner Chris law called aggregate knowledge which is booming and doing great and now more famous for being the first round investor in zynga company that is exploding with revenue as Kleiner Perkins said is the of all their portfolio comes in the history more than Google's made more money faster than anybody Paul Martino welcome to the extraction point great to see you John as always awesome to see you first I got to start with your now I forgot to mention that you're actually running a venture firm so in addition to being famous with Zynga you're running bullpen capital so first give the folks out there an update and first confirm or deny you were in the first round of Zynga or not yes the the first round of Zynga there were several institutional investors and several individual investors Morocco me Reid Hoffman were individual investors Avalon Union Square accelerator ventures and foundry where the institutional investors in that first round Peter was Peter Thiel yeah Peter was also an individual investor in the first round so that's officially the first round investors of Zynga we have clarified that and that is now hot on the books but now you're you've been successfully founded aggregate knowledge you know have a CEO running that what's the update with aggregate knowledge yeah so great guy runs that company as a guy you need to meet and have on this show Dave jakubowski aggregate knowledge really went in a direction where all of the focus was on providing data and analytics to the major ad agencies and John John Nelson who started organic one of the first agencies is now the CEO of Omnicom digital joined the board and I said look we got to get a guy who's an ad heavy in here and jakubowski was previously the GM of microsoft adcenter and had a senior position at specific media and we brought him in and he's just been kickin butt our greek knowledge has really really made a significant significant contribution in the area of data and analytics for these major agencies and he was very able to bring in a crew of people know exactly how to run that business so you're a big fan of big data then mm-hmm oh yeah we just had a big special yesterday on Big Data mentioned about it so that's cool we're going to get into a lobbyist I was just kind of get the small talk out of the way here your current role is the founder of bullpen capital right so bullpen to me I'm a baseball not I love baseball bullpen means you go the bullpen for relief right yep thank God close the game out hopefully or mid-innings relief so tell us about what bullpen is it's a special fund as I know from reading talk to you to target an expansion of this new seed and explosive new funding environment Bryce plain force right I'll tell you how we got the name at the end too so here's what happened I've been investing with a lot of the so-called super angels and that's kind of a misnomer because they really are actually in some cases actual small venture firms to I've been investing with a lot of them since they got off the ground Josh Kopelman from first round is one of the first investors in aggregate knowledge mike maples was an early advisor to the company I've known Jeff claw be a who run soft tech since he was at Reuters and with the late 90s and so I've worked with these guys done a lot of investing and we were me and my buddies Duncan Davidson rich Melman were sitting around over summer of 09 doing a little bit data analysis right another big data assignment we realized that as more and more these seed funds got created they were creating an inventory of companies that weren't quite ready to go to the traditional venture guy but we're also difficult to bridge from just the seed guys because the see guys at that time didn't have really big funds so wait a minute you've got some really good companies here is to clarify the for the folks out there seed funds don't traditionally have follow-on big funds like a VC firm right that's what you're referring to yeah they tend not to have as bigger reserve so if a big fun writes you a five-million-dollar check and you stub your toe you can probably get some more money to get through the hardships but a lot of the the new super angel funds or smaller funds and you get a five hundred thousand dollar check and if you need another five hundred thousand dollars it can frequently be very difficult because they make so many investments with smaller reserves yeah and so you've got dave McClure clavey a maples first round capital true ventures made the first round truevision more traditional VC then say dave McClure and mike maples and claw VA they're out doing some really good work out their funding really good company spending a lot of time I know I've seen them working their butt off yeah they need some air support right they need some cover the little bullpen is that that's you come in and say hey for your stars they're going to rise up yep and so that's exactly right so what happens is here's what the analysis we did turned out of their portfolio thirty percent of their portfolios in aggregate quickly are really exciting companies you know and they quickly go up to a venture auction and the guys and sandhill rotor excited about it about twenty percent of their deals you know that they don't like too much it's kind of just floating there yeah that you know the entrepreneur wasn't a fit that team didn't execute that left fifty percent of their deals in the middle which they kind of were too early to tell as Mike maple sometimes says they were in an extended learning and discovery phase they hadn't quite figured out what their models yeah and this de pivoting stuff's going on right now the Marcus changes turbulence so these guys are right and so you look you look at some examples and you go well wait a minute for every zynga that goes up into the right immediately go look at the stories of chegg and modcloth and etsy and quite frankly the in-between round on twitter and for everyone Zynga that you find that just hits it out of the park the right way there were four to five companies that went through that hard intermediate round that it was difficult in the environment where you have only a potentially thinly capitalized seed fund in front of you go get through that difficult point I said guys you need a bull pen and way we came up with the name is I'm involved in a deal with Chad Durbin who used to pitch for the Phillies and now as a relief pitcher for the cleveland indians and he was in our office and we were talking about this idea and Chad said yeah it's kind of like you're building a bullpen for the seed guys I'm like that's exactly right that's the name we got to go with and so fortunately I was involved in in this company called showcase you which is actually cool cited suppose for recruiting for college scholarships for a collegiate athletes right you're a high school student you throw 80 miles an hour left hand it and you're in 10th grade how do you figure out where the right scholarships are so Durbin and some of the Phillies where the original investors in this company called showcase you it's actually a cool company as the combine work out online basically fries for the high school kids and because the high school kids sometimes are in tough geographies to get to you're in you're in a small rural area in Nebraska how do they find out that you're the guy who can throw 89 miles an hour great so I mean this VC market so basically you're referring to with bullpen right now is an innie and you've been in our sprayer so you live through classic you know classic financing your last company financed by kleiner perkins and a tribe i forget who financed tribe yet Mayfield was the lead investor may feel again another traditional VC firm all tier 1 VCS although may feel people are you now is slipped a little bit that's some of their key partners who have slipped away but they've all moved on what you're really referring to is there's a new dynamic of entrepreneurship going on now we're now there are some break outcomes that just need a little bit more time to mature in the old model they just be kind of closed down the VC guy would be on the Bora has just a pain in the ass and you know really not growing and do another round it's they get kind of lazy in a way if they got 10 10 boards are on so with the super angels and the fact that does take a lot of cash to start a company you've got more deals getting done so the the Y Combinator the Dave McClure's and chef claw va's in the mike maples and sometimes SiliconANGLE labs which we're doing here is telling you about right we're funding companies the more [ __ ] is funded a better will you come in as you keep them alive longer just wreck the pivot possibly that's right and so what happens is right now the venture industry is being disrupted the same way the venture industry has funded companies that have rupted other industries they are being disrupted in the exact same way and the disruption happened from below as always happens it started in seed stage now in order for the disruption to go all the way through there need to be companies that come after seed stage investors that have the same philosophy and mentality pro entrepreneur easy terms operating people who get their hands dirty to get deals done you need that in the B stage and in the sea stage and here's what our prediction is John our prediction is a few years from now there'll be a company that comes after bullpen that does series c and series d financing or mezzanine financing but the same philosophy is bullpen and then DST s at the end of that chain and you can imagine building companies that go all the way to liquidity that you got money from maples first bullpen second this unnamed company third and you went quasi-public with DST and you've bypassed the entire venture scheme entirely and the entire institutional public markets complete liquidity wealth creation companies creating jobs I mean this is new paradigm I mean this isn't amazing I mean this is a potentially amazing point in the history of us finance the idea that you could go two billion dollar outcomes by passing not only the public markets on the back side but the traditional venture ecosystem on the front side I mean that is a disruption if ever there was one amen I mean hi and with you a hundred percent the other some people who will argue regulation is if market forces first of all I'm a big believer in market forces so I think what you're doing is clearly identifying an opportunity that dynamics are all lying lining up entrepreneurs are validating it and so but the questions are regulations I mean first of all I'm anti-regulation but as you start to get to that liquidity and some are arguing I even wrote a blog post about saying hey you know basically Facebook's public merry go buddy what do you say to those guys this is the change in the history of this financial asustor we want the government regulating this yeah so my co-founder of both i started bullpen with two really good guys Duncan Davison who was the founder covad was advantage point for years asking them to buy government regulation would go bad i mean what happened then because of the I lack warsi like Wars but only that the some extent covet doesn't exist unless the telco 1994 happens through in some ways a creation of the government to good point it's social right but but think about it the arbitrariness of government as opposed to a well-thought-out centralized plan so anyway so Duncan sometimes uses that phrase you know he talks a lot about the way in which the government you know that the worst thing you can ever hear is I'm with the government I'm here to help right i mean that's about the way it goes but his point around the the the new quasi public markets is money we'll find a way yeah and when sarbanes-oxley happens and it's tough to go public and you're a CEO like Pincus who's running one of the great all-time companies in Silicon Valley at Zynga he says you know going public is not an entrance is not an exit it's an entrance that's that's this quote what why would I why do I need that headache I mean I was just talking with Charles beeler who sold for the hell dorado he sold to compel in one of his investments to dell for over a billion dollars and and 3 para nother firm he wasn't on that one that was sold to HP during storage wars he's talking about the lawsuits literally this shakedown of immediately filed lawsuits you know you could have got more money so this is this public markets brutal no doubt no doubt i think what you're doing is a revolution I'm all excited about this new environment again anything with his liquidity wealth creation with the engine of innovation can be powered that's fantastic look back the startups okay get back to where you're playing yeah the history of Silicon Valley was built on the notion of value add some have said over the past 10 years venture capital has not been truly value add and some were arguing value subtract and then just money so what you're talking about here is getting in and helping me stay alive what's the value added side of the equation mean I know that a lot of these folks like like like ourselves here it's looking angle McClure Xavier and maples and true ventures they roll their sleeves up first round capital right before we can only provide so much it kind of expands right you guys are filling in the capital market side right how are you guys helping out on the value add because a lot of those companies may be the next Twitter right you've got a bridge to finance that's right allow them to do the pivot or get the creative energy to grow and they hit that market if they hit that hit it going vertical you got it kind of sometimes nurture it you guys have a strategy for that talk about the so let me let me give you my perspective on that so I think 10 years ago when you're starting a company the name of the venture firm was more important than potentially the partner on your board ten years later the name of the firm matters much less and it's the name of the partner and it's the operating experience that that partner partner brought to bear and you go talk to the 24 year old entrepreneur verse the 34 year old entrepreneur the 24 entrepreneur 24 year old entrepreneur wants a guy like you or a guy like me on his board he wants have been there done that started a company was a CEO exited it got fired hired people fired other people scar tissue scars knowledge experience exactly and if a good friend of mine who's in the traditional business I'll leave his name out of it he sometimes says the following phrase the era of the gentleman VC is over and what he means by the era of the gentleman VC is over is you know if your background is you were a junior associate who came in with a finance degree in an MBA and it never started a company you're not going to get picked by the entrepreneur anymore in 10 years from now almost everyone in the business is going to have a resume that looks more like a Cristal Paul Martino a mark pincus that you name all the people who we've started our companies with if there's a lot more hochberg with track record certainly with with the kind of big companies in the valley just in our generation yet started with netscape google paypal right now i want to see facebook is and then now's inga either the ecosystem is just entered intertwined I mean for every failure that spawns more success right so that's right that's a Silicon Valley way yeah well a tribe was tribe was a perfect example of a successful failure tribe was not a successful outcome but it was in many ways a very successful way to actually pioneer what became social networking you know investments got made into Facebook as a result of that Zynga in aggregate knowledge were both the outcrops of what was learned to some extent the original business case of Zynga was remarkably simple there is a ton of time being spent on social networks and after you get done finding your buddies and looking at photos what do you do and Pincus is original vision to some extent was let's have games to play and that insight doesn't happen that way unless you don't do tribe and go into the trenches and get the scars on your back and your in your your second venture of our adventure right at the tribe was aggregate knowledge was similar concept people are connected I mean you got to be excited though I mean you know you were involved in tribes very early on all the stuff that you dealt with activity streams newsfeed connections the social science you know the one that one of the nicest pieces of validation of this recently was over in q4 of 2010 seven of the patents that me Chris law Elliot low and Brian Waller wrote got issued now they're all owned by Cisco Cisco bought tribe in the end they bought the assets in the and the patent filings but there are patent filings that go back to 2002 on the corner stones and hallmarks of what social networking really is that we wrote back then that have now issued order granted or sitting in the cisco portfolio and well that's kind of like a consolation prize and that there wasn't a big outcome for tribe it is very validating to see that those original claims on really cutting-edge stuff have been had been issued and I'm excited about that you should be proud i'm proud to know your great guy you have great integrity you're going to do well as a venture capitalist i think you people will trust you and you're fair and there's two types of people in this world people who help people people who screw people so you know you really on one side of the other you're you're not in between you're truly on the on the good side I really enjoy you know having chatting with you but let's talk about entrepreneurship from that perspective about patents you know I'm try was an outcome that we all can relate to the peplum with Facebook of what Zuckerberg and and those guys are doing over there that's entrepreneurship so talk to the entrepreneurs out there yeah hey you know what you do some good work it all comes back to you talk about the the Karma of entrepreneurship a failure is not a bad thing it's kind of a punch line these days I'll failures are stepping stone to the next thing but talk about your experience and lets you and i talk about how to deal with faith for those first-time entrepreneurs out there in their 20s what just give them a sense of how to approach their venture and if it fails or succeeds what advice would you give them yeah well like winning and losing is important part of the game I mean certain companies are going to be successful in certain ones art and if you go and start ten unsuccessful companies maybe this isn't exactly the business for you but that said how you the game is important as well and if you're a high integrity guy who gets good investors and you make quality decisions and let's say the market wasn't a fit you're going to get the money the second time because people said you know I work with that guy that guy really did a good job you know they never got it quite right but this is a guy learn the right lessons so when I'm coaching a first-time CEO and i'm the CEO coach of a couple guys now you know i'm looking for someone who's sitting there going hey i not only want to do this to win and be successful but i want to learn i I want to do this better than no one no one walks in and says I learn from my failure I hope I'm successful I mean you let it go and say hey I'm gonna be successful I want to win failure is not an option but failure happens right i mean you know it's bad breaks that mean but but here is the key less I tell this to all of the entrepreneurs I work with you will not be successful if you're making mistakes that were made by those before you if you make novel mistakes you're in good company right and so only ever make a novel mistake I made a good example this is one claw and I started Chris law and I started aggregate knowledge aggregate knowledge was the original business model was around recommendations and there were dead bodies in front of us there was net perceptions there was fire fly and she was in the office this morning with Yazdi one of the founders of [ __ ] cast with it man yeah so predictive analytics residi what did we do we went out and we I flew out and met John riedle University of Minnesota who was the founder of net perceptions I dug up yes d i got these guys on my advisory board and while aggregate knowledge was not successful in the recommendation business and pivoted into the data management thing we made novel mistakes we did not repeat the mistakes of met perceptions and firefly and so i think that's an important important lesson to an entrepreneur if you're going into an area that has dead bodies in front of you you better research them you better know who they are you better know what happened and you better make sure that if you screw it up you at least screw it up in a way which none of us could have predicted yeah that's the only way you're going to get a hall pass on that well let's talk about talk about some of the hot Renisha of activity saw so you're in that sector where you're feeding the seed the super angels in the first rounds early stage guys and it's a good fit what about some of the philosophies on like the firms out there there's of this to this two philosophies I just taught us to an entrepreneur here you met on the way out a street speaker text and there at seven you know under a million dollars in financing hmm series a yeah and then you got in the news yesterday color 41 million dollars building to win magnin flipboard a hundred million dollars i got this is these guys that we know i mean there are yep our generation and a little bit around the same time and certainly they have pedigree so remember the old days the arms race mentality right when the sector at all costs right that's kind of what's going on here i mean some of the command that kind of money there's actually an auction going on what do you make of that I mean bubble is an arms race so so rich Melman inside a bullpen de tu fascinating analysis he looked at the full portfolio of 28 took about 20 of the best super angels by the way the super angles are all different some are micro vc summer buying options etc so so first off super angel is a weird word but it's everybody from Union Square and foundry on one side first round and flooding but any take the top 20 or so of these guys and look at their portfolios what's amazing about their portfolios is the unlike 10 and 20 years ago in prior tech bubbles there are not 20 companies doing the same thing when you categorize them yeah ten percent are in ad tech ten percent our direct-to-consumer consider but like forty percent are one-offs that is this is I think one of the first times in the history of venture that forty percent of the deal flow is a one-off unique business idea that there aren't 30 guys going to do and I think that the importance of that to what happens in this next stage of the tech boom we don't know what that means yet because back in the day well we need to just we're venture firm we need to disk drive company okay so your venture firm you've got your disk drive companies and I'll 20 venture friend knows if drive out and created the herd mentality everyone talks about with venture yep mean I was an opponent on a talk on here in the cube and I don't think I actually put in a blog post but I called the era of entrepreneurship like with open sores and low cost of entry with cloud computing and now mobility the manure of innovation where you know in the manure that's being out in the mark place mushrooms are growing out of it right and these you don't know what's going to be all look the same in a way so how do you tell the good ones from the bad ones so it's hard right so you have a lot of one you have a lot more activity hence angel list hence the super in rice so so the economics and the deal flow are all there the question is how do you get them from being just a one-off looked good on paper flame out the reality yeah well look in my opinion seed stage investing is about investing in people and I think when big firms trying to seed stage investing there's an impedance mismatch a lot of times because they want more evidence they want to know did the market work to the management then this is this is an early stage venture and am I going to want to go in a foxhole with this person and in many ways the good super angels are instinctive investors who are betting on people that they want to be in the foxhole with and yeah did they do it before do they know how to hire people is the market reasonably interesting but guess what they're probably gonna pivot three times so wait a minute at the end of the day you got to invest in people later stage venture is not you can look at discounted cash flows you can look at mezzanine financing you can do traditional measures but if you're going to invest in two people who have a prototype and need five hundred thousand dollars you're investing in people at that point what do you think about the OC angel is I'm a big fan of and recently was added thanks to maybe out there but even though i'm not i don't really co-invest with anyone else other than myself maybe you guys would bullpen but but if that's a phenomenon you don't have angel list which is opening up doors for deal flow companies are getting funded navales getting yeah a ton of activity nivea doing great job with venture hacks i get y combinator which I called the community college of startups they bring in like they open the door and I mean that an actually good way don't mean that negatively I mean they're giving access to entrepreneurs that never had access to the market right and now you have Paul Graham kind of giving the halo effect or thrown the holy water on certain stars and they get magically funded but yesterday at an event and they're they're packed right I've heard from VC saying I'm not invited because I didn't wasn't part of the original investment class so it seems that Y comma day is getting full yeah so do you see that you agree is there will be an over lo y combinator you know kind of like I've TED Conference has you know Ted they'll be you know y combinator Boston little franchises will be like barcamp for sure I mean look and look at techstars they franchise they'd I was over there with Dave Tisch in New York there's TechStars New York after those TechStars older in techstars seattle there is no doubt in my mind that right now there is an over investment in the seed stage meaning that there is a little bit of a seed bubble going on that's not necessarily bad though because in terms of raw dollars there's not a bubble yet Rory who's over at rafi it smells like a bubble it looks like a bubble but when you look at the mechanic when you look at the actual total dollars it's not a bubble rory who has a hinge recent Horowitz been said that that it's a boom not a bubble yeah so don't be confused it looks like bubbles and booms kind of look together the same right I actually I'm not quite sure I had the exact data right but here's the quick summary if you take a look at venture capital investment as a percent of GDP historically it's been something like point one percent of GDP in the bubble back in 99 it went to one percent something like it went 10x higher right now we're still at point one percent but since it's very much centered around the seed stage investing you see this frothiness in the sea but until that number goes from point 1 percent of GDP back up to one percent there's no real bubble because the tonnage of money hasn't come in yet and so so it's starting but this is what a tech boom feels like the early stages are excitement and lots of ideas and lots of flowers blooming and then the big money comes in because John I'll bet you're your brother and your sister and your mom haven't invested in a tech startup back in 99 video there's no public market that supports seven in a way that's a good and bad star basement yeah there's no fraud going on and most of the companies that are out there whether their lifestyle business or seed or bullpen funded are actually generating income the entrepreneur he has any earlier Mike was saying that he could a business deal so people are kind of like saw the old bubble and said shoot I don't want to do that again I gotta have at least revenue right and so companies didn't seem to start out with cash so you know that because you invested it but you know Pincus was getting some cash flow in the door from day one that's right that company was company was profitable the first day it started basically so talk about you know so I'm with Paul Martino by the way with bullpen capital entrepreneur wrote the patents on social networking which he sold the cisco when they sold the company now with bullpen capital huge dynamic you're a company out there this is exactly the positive dynamic you want to see because mainly you know dave mcclure jeff clavier mike maples have been kind of getting their butts handed to them in the press about super angels not having the juice to kind of go anywhere and it's been kind of a negative press there so you know this is the kind of void that's been filled by you guys to show the market that look at this there's a road map here so even though that the McClure's and clubs don't have big funds that there's a path to follow on financing so that the vc's can't shut them down and i've heard some pc say that so a lot of traditional venture guys would like to say that you know this little disruption we nipped it in the butt and it stopped after the seed stage but that's not the history of disruptions the history of disruptions are they start from the bottom then they get ecosystem support and then they grow and they disrupt the incumbents and I think we're halfway there so so the Angel gate thing that Arrington reported on was interesting because you know essentially what happened there it was a lot of him fighting Ron Conway I was not happy you can't be happy about competition I mean this is competition that increases prices right so you know in the short term prices have been inflated on valuations true or false that's true but but but I think I think the whole way angel gate was reported was absurd the most Pro entrepreneurial venture people perhaps in the history of the business are the guys who were supposedly at those tables I mean mike maples Jeff claw VA josh cop and Ron Conway fired his guy that was there I I understand suppose again suppose a key are right these are the most Pro entrepreneurial venture guys in the history of the business so I think that turned into something that it never was yeah well I mean that's the thing you know good for content producers who want page views I got to create some drama and you know as you know SiliconANGLE doesn't have any banner ads on our site quick plug for us we are motivated by content not page views so thanks for coming in today no but seriously I mean there's a there's a black cloud over the super angels has been since Angel gate I've heard privately from VCS that super angels it's been kind of a scuttlebutt they're misaligned just rumors I completely overblown and you know their business model threatens the incumbents and you know someone needed someone needed a piece of fodder to start a you know start a techcrunch discussion right there's no doubt that the market is need in need of a new ecosystem for the early stage because individual angels traditionally were wealthy individuals but now you have people with more experience like yourselves and entrepreneurs from google and facebook etc coming out and doing some things okay so next topic more on a personal kind of professional note k last final question is I know you got to run appreciate your time you're a technologist a lot of folks don't know that you're hardcore computer science guy and our model southern angles computer science meet social science right in your wheelhouse so with that just kind of final parting question what gets you excited technically right now I mean I'll see you have roots in both comps I and social Iran Zynga's early investor roster you got a bullpen capital you're looking at a lot of deals outside of that you as a computer scientist geek mm-hmm what gets you jazz what do you see in the horizon that's not yet on the mega trend roster that kind of you can't put your finger on it truly we might really get a good feeling well so I think you'll be disappointed with this answer because I think it's now cross the chasm to start being one of those mega trends it's called consumerization of enterprise and that's now the buzz word for it but what is it really mean and why do I think it's for real look you've got cool self-service applications for everything you can go do home banking by logging into a portal you can go to an ATM you can go do these things but you know go bring a new laptop into your big stodgy fortune 500 company and you know it's like getting a rectal exam right you know we got to install this we got to give you this private key yet that's TSA it writes like going through TSA exact idea that IT inside of big fortune 500 companies is going to stop being this gatekeeper to new technology I think look how long do you think it'll be until pick your favorite fortune 500 company the IT people know how to deal with the ipad 2 but how many people bought an ipad 2 into the off already everyone and so this to me is going to be the big next deck the next decade are going to be self service offerings for the enterprise getting around a very frustrating gatekeepers inside of you know the IT department etc and that's going to lead to an awesome boom of everything from security to auditing to compliance etc that's the convergence question Paul Martino my friend entrepreneur great guy venture capitals now on the good side helping the seed Super Angel micro VCS great to have you consumerization of IT that hits the cloud mobile social it's everything so that I was buzzword compliant on that great job great to have you know you're busy got to have you in again thanks so much for time that's a wrap thank you very much great thank you John