(cheerful music) >> Live from San Francisco. It's theCUBE. Covering IBM Think 2019. Brought to you by IBM. >> Welcome to theCUBE, I'm Lisa Martin. We are at day one of IBM Think 2019, I'm with Dave Vellante. Hey Dave! Hey Lisa, good to see you. The new improved Moscone. >> Exactly, and Stu Miniman, yeah. >> Shiny. >> Yeah, this is the new, it is shiny, The carpets smells new. This is the second annual IBM Think, gentleman where there's this conglomeration of five to six previous events. Doesn't really kick off yet today. I think Partner World starts today but here we are in San Francisco. Moscone North, I think south, and west they have here expecting about 25,000 people. No news yet today, Dave, so let's kind of talk about where IBM is right now with the early part of Q1 of 2019. Red Hat acquisition just approved by shareholders last month. What are your thoughts on the status of Big Blue? >> Well, I think you're right, Lisa, that the Red Hat news is the big news for IBM. We're now entering the next chapter but if you look back for the last five years IBM had to go out and pay two billion dollars for a soft layer to get into the cloud business. That was precipitated by the big, high profile loss of the CIA deal against Amazon. So that was a wake up call for IBM. So they got into the public cloud game. So that's the good news. The bad news is the public cloud's not easy when you're going up against the likes of Google and Microsoft and of course, Amazon. But the linchpin of IBM's cloud strategy is it's SAS portfolio. Over the last 20 years Steve Mills and his organization built a very large software business which they now have migrated into their cloud and so they've got that advantage much like Oracle. They're not a big, dominant cloud infrastructure as a service player but they have a platform where they can put things like Cognitive Solutions and Watson and offer those SAS services to clients. So you'll check on that but when you'll peel through the numbers IBM beat it's numbers last quarter. Stock was up. You know, when it announced the Red Hat acquisition the stock actually got crushed because when you spend 34 billion dollars on a company, you know the shareholders don't necessarily love that but we'll talk about the merits of that move. But they beat in the fourth quarter. They beat on the strength of services. So IBM remains largely a services company, about 60% plus of it's revenues comes from services. It's a somewhat lower margin business, even though IBM margins have been ticking up. As I say, you go back the last five, six years IBM Genesys did Mike's it's microelectronics business, which was a, you know, lost business. It got rid of it's x86 business which is a x86 server business, which is a low margin business. So again, like Oracle, it's focusing on high margin software and services and now we enter the era, Stu, of hybrid cloud with the Red Hat acquisition. A lot of money to pay, but it gets IBM into the next generation of multi cloud. >> Yeah, Dave, the knock I've had against IBM is in many ways they always try to be all things to all people and of course we know you can be good at some things but, you know, it's really tough to be great at everything. And, you know, you talked about cloud, Dave, you know, the SoftLayer acquisition to kind of get into public cloud but, you know, IBM is not one of the big players in public cloud. It's easy. It's Amazon and then followed by you know, Azure, Google, and let's talk Alibaba if we're talking globally. In a multi cloud world IBM has a strong play. As you said, they've got a lot of application assets, they have public cloud, they partner with a lot of the different cloud players out there and with Red Hat they get a key asset to be able to play across all of these multi cloud environments whether we're talking public cloud, private cloud, across all these environments. IBM's been pushing hard into the Kubernetes space, doing a lot with Istio. You know, where they play there, in Red Hat is a key piece of this puzzle. Red Hat running at about three billion dollars of revenue and paying 34 billion dollars but, you know, this is a linchpin as to say how does IBM stay relevant in this cloud world going forward? It's really a you know, a key moment for IBM as to what this means. A lot of discussion as to you know, it's not just the revenue piece but what will Red Hat do to the culture of IBM? IBM has a strong history in open source but you know, you got to, you have a large bench of Red Hat's strong executive team. We're going to see some of them here at the show. We're even going to have one Red Hat executive on our program here and so what will happen once this deal finally closes, which is expected later this year, probably October if you read, you know everything right. But what will it look like as to how will, you know, relatively small Red Hat impact the larger IBM going forward? >> Well, I think it's a big lever, right? I mean we were, Lisa, we were at Cisco Live in Barcelona last week kind of laying out the horses on the track for this multi cloud. Cisco doesn't own it's own public cloud. VMware and Dell don't own it's own public cloud. They both tried to get into the public cloud in the early days and IBM does own it's own public cloud as does Oracle but they're also going hard after this notion of multi cloud as is Cisco, as is VMware. So it sort of sets up the sort of Cisco, IBM Red Hat, VMware, Dell, sort of competing to get after that multi cloud revenue and then HPE fits in there somewhere. We can talk about that. >> So I saw a stat the other day that said in 2018, 80% of companies moved data or apps from public cloud. Reasons being security, control, cost, performance. So to some of the things I've read, Dave, that you've covered recently, if IBM isn't able to really go head to head against the Azures and the AWS, what is their differentiator in this new, hybrid multi cloud world? Is it being able to bring AI, Watson, Cognitive Solutions, better than their competitors in that space that you just mentioned? >> Yeah, IBM does complicate it. You know and cloud and hybrid cloud is complicated and so that's IBM's wheelhouse. And so it tends not to do commodity. So if it's complicated and sophisticated and requires a lot of services and a lot of business processing happening and things like that, IBM tends to excel. So, you know, if you do the SWOT analysis it's big opportunity is to be that multi-cloud provider for it's largest customers. And the larger customers are running, you know, transaction systems on mainframe. They're running cognitive systems on things like power. They've got a giant portfolio, at IBM that is, and they can cobble things together with their services and solve problems and that's kind of how IBM approaches the marketplace. Much different than say, Stu, Cisco or VMware. >> Yeah, Dave, you're absolutely right. You know one of the things I look at is you know, in this multi-cloud space we've see the SI's that are very important there. Companies like Accenture and KPMG and the like. IBM partners with them but IBM also has a large services business. So, you know who's going to be able to help customers get in there and figure out this rather complicated environment. So we are definitely one of the things I want to dig into this week is understand where IBM is at the Cisco Show, Dave. We've talked about their messaging was the bridge to you know what's possible. You know meet the customers where they are, show them how to reach into the future and from Cisco's standpoint, it's strong partnerships with AWS and Google at the forefront. So IBM has just one of the broadest portfolios in the industry. They absolutely play in every single piece but you know customers need good consulting as to Okay, what's going to be the fit for my business. How do I modernize, how do I go forward? And IBM's been down this trip for a number of years. >> Well the in the legacy of Ginni Rometty, in my opinion is going to be determined by the pace at which it can integrate Red Hat and use Red Hat as a lever. Ginni Rometty, when she was doing the roadshow with Jim Whitehurst kept saying it's not a backend loaded deal, and the reason it's not a backend loaded deal is because IBM is a 20 plus billion dollar outsourcing business and they're going to plug Red Hat right into that business to modernize applications. So there's a captive revenue source for IBM. In my view they have to really move fast, faster than typically IBM moves. We've been hearing about strategic initiatives and cloud, and Watson and it's been moving too slow in my opinion. The Red Hat acquisition has to move very very quickly. It's got to move at the speed of cloud and that's going to determine in my opinion-- >> So, actually, so a couple of weeks after the acquisition Red Hat had brought in an analyst to hear what was going on, and while the discussion is Red Hat will stay a distinct brand, there's going to be no lay offs were >> Yeah absolutely. >> Going to keep them separate, what they will get is IBM can really help them scale so >> Yep. Red Hat is getting into some new environments, you know that whole services organization, Red Hat doesn't have that. So IBM absolutely can plug in there and we think really accelerate, the old goal for Red Hat was okay how do we get from that three billion dollars to five billion dollars in the next couple of years. IBM thinks that they can accelerate that even faster. >> And Lisa I think the good news is IBM has always had an affinity toward open source. IBM was really the first, really to make a big investment you know they poured a billion dollars into Linux as a means of competing with Microsoft back in the day, and so they've got open source chops. So for those large IBM customers that might not want to go it alone on open source and you know Red Hat's kind of the cool kid on the block. But at the same time, you know there's some risks there. Now IBM can take that big blue blanket wrap it around it's largest customers and say okay, we've got you covered in open source, we've got the Red Hat asset, and we've got the services organization to help you modernize your application portfolio. >> One of the things too that Stu, you brought up a couple minutes ago is culture. And so looking at what, Red Hat estimates that it's got about eight million developers world wide using their technologies and this is an area that IBM had historically not been really focused on. What are some of the things that you're expecting to hear this week or see this week with respect to the developer community embracing IMB? >> Yeah and Lisa it's not like IBM hasn't been trying to get into the developer community. I remember back at some of the previous shows Edge and Pulse and the like, they would have you know Dev at and try to do a nice little piece of it but it really didn't gain as much traction as you might like. Compare and contrast that with cisco, we've been watching over the last five years the DevNet community. They've got over half a million developers on that platform. So you know, developer engagement usually requires that ground level activity where I've seen good work from IBM has been getting into that cloud native space. So absolutely seen them at the Kubernetes shows working in the container space very heavily and of course that's an area that Red Hat exceeds. So the Linux developers are absolutely there. Now you mentioned how many developers Red Hat has and in that multi cloud, cloud native space, you know Red Hat one of the leaders if not kind of the leader in that space and therefore it should help super charge what IBM is doing, give them some credibility. I'd love to see how many developers we see at this show, you know, you've been to this show Dave and you've been to this show before, it looked more enterprisey to me from the outside-- >> Well, I'm glad you brought up developers because that is the lynch pin of the Red Hat acquisition. If you look at the companies that actually have in the cloud that have a strong developer affinity obviously Microsoft does and always had AWS clearly does Google has you know it's developer community. Stu you mentioned Sisco. Sisco came at it from a networking standpoint and opened up it's network for infrastructure's code. One of the few legacy hardware companies that's done a good job there. VMware, you know not so much. Right? Not really a big developer world and IBM has tried as you pointed out. When they announced Bluemix but that really didn't take off in the developer world. Now with Red Hat IBM, it's your point eight million developers. That is a huge asset for IBM and one that as I said before it absolutely has to leverage and leverage fast. >> And what are you expectations in terms of any sort of industry deeper penetration? There's been some big cloud deals, cloud wins that IBM has made is recent history. One of them being really big in the energy sector. Are you guys kind of expecting to see any sort of industry deeper penetration as a result of what the Red Hat Acquisition will bring? >> Well thats IBM's strength. Stu you pointed out before, it's Accenture, you know Ernie Young, to a lesser extend maybe KPNG but those big SI's and IBM. When IBM bought PWC Gerstner transformed the company and it became a global leader with deep deep industry expertise. That is IBM's you know, savior frankly over these past many many years. So it can compete with virtually anybody on that front and so yes absolutely every industry is being transformed because of digital transformation. IBM understands this as well as anybody. It's a boon for services, it's a good margin business and so that's their competitive advantage. >> Yeah I mean it ties back into their services. I think back when I lived on the vendor side I learned a lot of the industry off of watching IBM. I see how many companies are talking about smarter cities. IBM had you know a long history of working In those environment's. Energy, industrial, IBM is very good at digging into the needed requirements of specific industries and driving that forward. >> So we're going to be here for four days as we mentioned, today is day one. We're going to be talking a lot about this hybrid multi-cloud world. But some of the double clicks we're going to do is talking about data protection, modern data protection, you know a lot of the statistics say that there's eighty percent of the worlds data isn't searchable yet. We all hear every event we do guys, data is the new oil. If companies can actually harness that, extract insights faster than their competition. Create new business models, new services, new products. What are your expectations about how, I hear a lot get your data AI ready. As a marketer I go, what does that mean? What are your thoughts Stu on, and we're sitting in a lot of signage here. How is IBM going to help companies get AI, Data rather AI ready and what does that actually mean? >> So IBM really educated a lot of the world and the broader world as to what some of this AI is. I mean I know we all watched many years ago when Watson was on Jeopardy and we kind of hit through the past the peak and have been trying to sort out okay well how can IBM monetize this? They're taking Watson and getting it into healthcare, they're getting it into all these other environments. So IBM is well known in the AI space. Really well known in the data space but there's a lot of competition and we're still relatively early in the sorting how this new machine learning and AI are going to fit in there. You know we spent a lot of time looking at things like RPA was kind of the gateway drug of AI if you will robotic process automation. And I'm not sure where IBM fit's into that environment. So once again IBM has always had a broad portfolio they do a lot of acquisitions in the space. So you know how can they take all those pieces, pull them together, get after the multicloud world, enable developers to be able to really leverage data even more that's possible and as you said you know more than eighty percent of data today isn't used, you know from an infrastructure stand point I'm looking at how do things like edge computing all get pulled into this environment and lot of questions still. >> IBM is going after hard problems like I said before. You don't expect IBM to be doing things like ad serving with Alexa. You know that's not IBM's game, they're not going to appropriate to sell ad's they're going to take really hard complex problems and charge a lot of money for big services engagements to transform companies. That's their game and that's a data game for sure. >> It's a data game and one of the pieces too that I'm excited to learn about this week is what they're doing about security. We all know you can throw a ton of technology at security and infrastructure but there's the people piece. So we're going to be having a lot of conversations about that as well. Alright guys looking forward to a full week with you and with John joining us at IBM Think I'm Lisa Martin for Dave Vellante and Stu Miniman. You're watching theCUBE live day one IBM Think 2019. Stick around we'll be right back with our next guest. (energetic electronic music)

>> Narrator: Live from Las Vegas, it's The Cube, covering IBM Think 2018. Brought to you by IBM. >> Hello everyone, welcome to the third day of live coverage here at IBM Think in Las Vegas. This is The Cube, our flagship program, we go out to the events, and extract a civil noise of the leader in live technology coverage. I'm John Furrier, with my co-host Dave Vellante. Our seventh, eighth year covering a bunch of IBM shows. With all now six of them rolled into one IBM Think, this is their big tent event, day three, keynotes just finished, it's blockchain day here at IBM, and as we said, on the opening, on Tuesday, this is like, the innovation sandwich. In the middle is the meat, is data, and then the bread is blockchain and AI. And really that is the architecture of IBM's future strategy, foundationally set up by cloud computing and a variety of other applications and whatnot, but really the future is about data, with blockchain and AI surrounding it. Today's blockchain day, your thoughts on the keynote? Keynote speeches? >> Mm-hm. >> IBM, blockchain, certainly we've seen a lot of advertising on TV. Your thoughts and reaction to the keynote. >> Yeah, and I like your innovation sandwich, I just want to add, that the substrate of all this is cloud. It's critical, if you're going to get network effects, you've got to have the cloud. Today, yeah, was blockchain day, we heard from Marie Wieck, who's the general manager of IBM blockchain. IBM has a tendency, as you know, John, to identify a hot trend, especially some in Open Source, they did this with Linux, they did this with Spark, and they kind of, elbow their way in, you know, maybe that's a pejorative, but they do that, and they say, "Here's some code, here's some resources." They spend money on it, and they give credibility to that Open Source effort. The Hyperledger project is the one they targeted here. It's the fastest growing project in the history of the Linux Foundation. IBM contributed lines of code, people, they've got 15 hundred blockchain experts on this, and they're going all in on blockchain. Which I think, John, is really positive for the blockchain, and even the crypto community, because it brings the credibility of a, you know, a Fortune 100 company to that world. They've announced the blockchain starter kit. All this stuff is available on the IBM cloud. They announced today PWC as an audit partner, which again, brings credibility to the table. Although, I think as you and I know, and we're going to have some guests on later today, there's some other tech emerging, that is going to maybe complement that. >> Yeah. >> And we heard from David Katz, who is the CEO of Plastic Bank, this is the company that's essentially creating currency out of plastic. Allowing disadvantaged people to turn collecting plastic into money. And, at the same time, help save the planet. >> I mean, this is a great example of blockchain as an enabling technology. New ways to do business. As you know, we've been hot on blockchain for the audience watching, you know, we've been covering big data, and AI, that's in our wheelhouse, do all those shows and events, cover that territory with our journalism, and TV and research. But blockchain is an adjacency to storage and infrastructure, and also decentralized applications. The fundamental thing that we're seeing, and we talked to Brian-- Brian Behlendorf, who's with the Hyperledger project, at the Open Source Summit, the Apache Foundation, which IBM is a big sponsor of, IBM needs to do well here. Because they're, again, innovations is essentially betting on blockchain. But it's not just the developers at Open Source, the business users are the ones that are going to create the value, and what I mean by that is, if you look at the blockchain world, and crypto currency and decentralized applications, that's essentially the three components to this market. The blockchain is the infrastructure, ledger, storage of data, et cetera, you know over simplified, but the cryptocurrency runs protocols and infrastructure that power that, and then the application's going to sit on top. We've reported and observed that the secret of success in this new world, is nailing the business logic, and the business model, efficiencies that take advantage of the underlying technology. And that the risk factors in making that success happen, is that business model, not the technology. Although the technology is super important, the technology can be switched out a reduced risk. So the real risk in blockchain and cryptocurrency, and decentralized applications is nailing the business model disruption. This is different than the old way of tech, which was the risk was technology selection. This is a big deal, IBM needs to up their game on that piece of it. I've heard a lot of tech, I've got some nice use cases, but on the outreach basis, they got to go to the business users, and say, "This is an opportunity to leverage the data, "leverage the software and AI with watts and other things." And then leverage the underlying technology, software defined storage, software systems that move to the blockchain, in a decentralized and distributed way. Distributed and decentralized is the future of infrastructure, this is the secret of success, this is where the winners are establishing the clear line of sight. >> Well, one of the things that you're hearing at this conference, Ginny set this up yesterday, was incumbent disrupters, and we were just, kind of, having fun at the open yesterday, but I think it's really smart for IBM. You know me, John, I'm a big fan of saying most of your business is going to come from your existing customers, and if you're chasing all this new business, and start ups, and developers, you're not going to be as productive as if you go to your core. And I think that you're seeing this. IBM back to the core, and they're bringing blockchain to that core as a way to disrupt existing business models, defend against disrupters. So you're absolutely right, companies need to look for inefficiencies where there's a third party taking a toll, and then attack it hard with blockchain. I actually think-- well no, so IBM is really talking business. How do we bring blockchain to the business? They're not really talking about what we talk about a lot, this crypto economy and this whole other mission driven initiative. >> Well, but I mean, if they want to talk business, they got to talk token economics. That's where the business model efficiencies will be rendered on the app side, and the money side. The killer wrap in blockchain and crypto is money. Okay, and marketplaces. IBM got to great marketplace, but it's not just about the developers, that's an organic one stakeholder. The stakeholders that matter is the business guys and the developers coming together. That is absolutely fundamental. If they don't understand that, that's going to be hard to be successful. You can't just throw money at developer programs and say, "Oh, when we win the developers, we win the day." Cloud was, kind of, that playbook, but this world is so fast, and accelerating in it's value creation, that the business users are fundamental in actually grokking what the capabilities are, and putting that into motion quickly, and the proof points is pilots converting to production. That's going to come from the business units. That's where the intellectual property is, is looking at the technology innovations that are possible on the business logic. Business logic is the new IP, this is where the action is, and I haven't heard IBM talk at all about token economics, they kind of talk about it, but that really is the business impact. >> Well, I mean, you sort of heard that today from Plastic Bank, although they didn't talk about a token, they didn't talk about coins, they did talk about monetizing plastic, but in using blockchain to do that, I assume there's tokens behind that, but maybe not. Maybe it's just Fiat currency. It's unclear to me, but I think you're right, the killer app is money. >> Look at it, this is simple. The equation in crypto, and not blockchain, is value creators create value, and they can capture the value. Capturing the value is where the money is, the creating the value is where the technology can happen. So you got to nail both of those as areas. And money is the killer app, so that's going to come from the business side, so the real benefit of decentralization is offering the value capture equation to look different and be different. That's token economics. That's where the action's going to be. So, it really is, it's not mutually exclusive, they're both things. >> Well I think that what you're hearing, so value comes from two places in the simplest form, increased revenue, cut costs. I'm hearing a lot from IBM of cut costs, now again, the Plastic Bank this morning was a really interesting example, I'm glad IBM uses it, but the vast majority of things you're hearing from IBM, like the IBM Maersk relationship, et cetera, are about cutting costs, taking out inefficiencies. >> Well, I mean, the bank thing is easy to look at in your mind, but it's any supply chain. The ICO market that's at a massive bubble right now, is because the supply chain of funding start ups and growth, used to come from private equity and venture capital, that is being disrupted because it certainly hyped up, but that's a supply chain. Any supply chain activities, set of activities, that make up a supply chain, can and will be disrupted by blockchain, crypto, and token economics. >> Yeah, so let's talk about that. Because again, you're not hearing a lot of that from IBM. But I think we have a perspective there. You know, the 1.0 was the wild west, a bunch of developers, blockchain developers, theory developers, doing stuff, building up protocols, making a lot of money. And disintermediating the VCs, right? The new form of raising capital. The VCs are now all in, right? We saw this in Bahamas, you saw this in Puerto Rico, at the two conferences, at four conferences that we covered. So explain that? >> Well, that's just one application, the VCs and these guys are inefficient in some way, but what's happening with crypto currency about access to capital. Now there's a lot of capital being thrown out there. That's mainly because of the hype and the bubble aspect of it, but the real disruption is access to capital, that value chain, value activities are being disrupted and being more efficient. That's a global phenomenon, and that's happening in financing of start ups. Anything with a supply chain, whether it's moving food from point A to point B, is what IBM also highlights as well, anything that's structural incumbent is at risk. And so, this is where, I mean IBM has a ton of supply chain business. They've been doing this for generations in the computer industry. They connect systems together, and create value with using technology. So this is not going to be-- this is a great opportunity for IBM. Again, if they can convert that business value into the blockchain with the value capture, the create capture model, they can run the table. >> But I want to come back to innovation equation. And part of that innovation equation is being able to raise capital. And last I checked, which was last month, about 6.5 billion had been raised in crypto investments. >> And 60% of the projects failed. >> For sure, okay. But failure-- Silicon Valley, fail fest, it's probably up to 10 billion now, much more is being raised through crypto in startups in blockchain than there is in VC. The VCs realized this, and they want a piece of the action, but we're seeing private equity, we're seeing hedge funds, we're seeing crypto billionaires. >> The path of least resistance for the entrepreneur is where the action is. They go right to the new money opportunity. Because they can raise more money. >> So, here's the question. You take Fiocoin, for example, smart guys, trying to go after S3 with peer to peer storage, they raised 250 million dollars in 30 minutes, okay? Is it too much too fast? >> Yes, I think so, but it's what the market's giving. I mean, Fiocoin doesn't even have a product. They're on a roadmap. That's essentially a series A financing. >> Dave: That's a series C. >> Well, no, in terms of the evolution of the startup, it's a seed financing as a series C or D or F financing. >> Yeah, 250 million. >> I mean, it's insane. >> David Scott told us that he needed 85 to start Three Par. I mean that's a storage company 10 years ago, 20 years ago. >> Yeah. >> What a change. At 250 million. >> Look, it's a bubble. But the reality is that it's a bubble that's not going to pop and destroy the sector, it's just a proof point that the efficiency of funding is going to be disrupted. It is being disrupted. >> No, we'll see if it's going to destroy this sector or not. This could, you know-- Warren Buffet says it's going to end badly, others are believers. >> I'm long on blockchain, obviously you know that. I'm pretty biased, but anywhere there's inefficiencies, there's an opportunity for entrepreneurs and business leaders to put new business logic in place to capture that value. That's where the action will be. That's the innovation. And if IBM's innovation sandwich could work, you got a blockchain AI, data in the middle, everyone's going to be full and hungry and eat up everyone's lunch. So, Dave, that's the blockchain day. I'm John Furrier, with Dave Vellante, day three wall to wall coverage here at IBM Think in Las Vegas. More live coverage after this short break. (futuristic music)

>> Narrator: Live, from Las Vegas, it's The Cube, covering IBM Think 2018. Brought to you by IBM. >> Hello, everyone and welcome back to our day two of coverage here in Las Vegas, where IBM Think 2018's The Cube's three days of wall-to-wall coverage day two. Yesterday, we had kick-off, kind of partner day. Today's really the kick-off of the event. CEO of IBM up on stage for the keynote. I'm John Furrier with Dave Vellante. Dave, we're doing seven years or so plus all these six shows coming down to one for IBM Think. It's a packed house; you can't even get through the hallways. Looks like they need to go to Sands Convention Center. >> Dave: (laughs) or Moscone. >> Or Moscone, or somewhere bigger, they need a bigger boat, but the keynote kicked off, Ginni Rometty was up there. Interesting, putting smart to work, quantam, blockchain, AI data and she kind of laid out the cloud strategy, you know, using data in public cloud and private. It's clear where they're going with the cloud. Your analysis of the keynote, what's your thoughts? >> Well, first of all, John, as viewers know, I mean, I'm a big fan if Ginni Rometty. I think she's been overly criticized, but I think she's a great presenter. When I compare Ginni's presentation skills with some of the other CEOs in the industry, I think she's far superior. She connects with the audience, she looks great, she's really cogent, she's well prepared, so, I really like her as a presenter and as an executive, and, you know, another women in tech, you know we love that. Yes, you're right, putting smarter to work was her theme. She's talkin' about 30 to 40,000 people at the event. There's too many people to count I guess. You can't really figure that out, and, so, it's big, it's packed. She also did a theater in the round which was different. I noticed last year ServiceNow did that. I really like that style, so that was kind of an interesting thing. Ginni talked about three exponential growth areas. So, I'll lay 'em out and then, we can talk about it. She said they come every 25 years. The first was Moore's law, and we all know what that is, and the second was Metcalfe's law, the value of the network increases exponentially if the nodes in network increase, and then, the third, which is upon us now, is data plus AI. Her supposition was that is going to usher in a next era of incremental growth, because you're going to out-learn the competition, and she used this term of incumbent disruptors, and I heard that and went okay, hold on, (Dave laughs) 'cause I don't see it that way. >> Yeah. >> I don't see the incumbents as the disruptors. So, that was my first reaction, and then, she brought up three customers, Verizon, and I'm like, "Verizon? "A big telco is a disruptor, come on! "They're gettin' a disruptor by over the top.", but the CEO came on, Lowell McAdam, talkin' about 5G, so we'll talk about that, and then, Maersk, IBM has a joint venture with Maersk, so, Michael White came up, he's the CEO of that. Now, Maersk is using blockchain, and Maersk we all know is the container company and they're attacking inefficiencies with blockchain, so I thought that was actually a really good example, and then, Royal Bank of Canada, RBC, came up. You know, banking, to me, is an industry that has not been disrupted yet, and, so, I, again, was initially negative toward this idea of incumbent disruptors, 'cause I don't think the incumbents are disruptors, and we'll talk about why I think that, but I thought IBM did a pretty good job of showing how incumbents can actually take AI and blockchain and, at least, defend against the disruptors. >> I mean, it's clear to me that she's obviously playing to the crowd with the digital debt transformation. I mean, we talk about these traditional companies, they need to transform, and she brings up Moore's law and Metcalfe's law kind of to take a view of the past, but to look forward, she's kind of saying, "Lookit, Moore's law make things smaller, faster, "cheaper, doubling every six months." That's just on the, I mean, this applies to IoT, quantum makes everything else. Metcalfe's law I think is very relevant, 'cause if you look at blockchains about decentralized internet, you're talkin' about decentralized applications, that's where blockchain will play the major enablement there, that's about network effects, so you bring network effects in with Metcalfe's law, Moore's law on the equipments on the hardware side, I like that, so, that worked for me. The disruptors, I think it's more of overplaying her hand on that, because I just haven't seen any evidence of any incumbents truly disrupting themselves. So, maybe you can talk with Microsoft, IBM's trying to transform, but at the end of the day, they got to look back and learn from the internet era. If you don't jump on these next waves, you could be driftwood, right? So, you got to surf the new waves, and I think that's what I heard her say is IBM is putting data at the center of the value proposition using AI as a front end for that, make it smarter, and then, using blockchain as an infrastructure and protocol level opportunity to take the IBM software and data plane and wrap 'em together. So, if you look at it, you got data at the center, blockchain on one side, and AI on the other, it's the innovation sandwich. That, for me, works for me, now, let's unpack that. How real is it, and that's going to be what we're going to talk about, and I think that's a good strategy. All the elements are in play. >> Well, I think the other piece of that sandwich, maybe it's the dressing on top, is the cloud, 'cause you have to have scale and network effects in order to achieve that innovation. I just want to mention, she talked about three other things that you are going to do as a customer. You're going to, one, leverage digital platforms, you're going to, two, embed learning in, virtually, every process that you do, and, three, you're going to empower humans. So, she put forth this idea of augmented intelligence, and, as I predicted yesterday, she, unlike Larry Olsen, she doesn't come right out and slam her competition, she does it in a classy way. She said, quote, "IBM is not "in conflict with your business." In other words, we're not taking your data and then, remonetizing it at the back end. That's a big deal, IBM makes a lot of noise about that. So, it's really augmenting humans, not in conflict with your business, and bringing advanced security to things like blockchain, >> Yeah. >> and cloud, and AI. >> I like her term security to the core, I like that, but that kind of gives the impression that's core to all things, but if you look at the megatrends that are impacting the incumbents and the people trying to do digital transformation, as well as the new startups, Dave, that are trying to get a new position in the landscape is clear. You got blockchain, you got decentralized apps, you got AI, but the data's critical, and she mentioned some cool things I like with the cloud which was she's saying, "Lookit, we'll make "the data a really big thing for you. "If you want it in public cloud, "you can have it in private cloud." So, she's looking at cloud as much more of a hybrid approach on private, kind of hinting at the GDPR problem that we know's out there. So, if you want to move your data around, that's a critical asset. Also, if you look at what's going on in the news today, these days, is Facebook is getting slammed because how they were hacked with the election, and other weaponization of data, this is a big deal for companies, and I think if IBM can play that card to leverage the data and have the confidence of the companies that they serve to say, "Lookit, data's got to be owned by you, "but has to be managed in a way that's dynamic, "whether it's a GDPR or some other regulatory issue.", and, believe me, blockchain's going to have some. So, you know, they could come out and get in the front of this new wave, and I think that's a good play. So, it wasn't just a recycled cloud show, it wasn't just AI Watson, I like how she put it together. >> So, just touching on a thing, you mentioned Facebook. So she talked about Moore's law ushering in this era of back office productivity. She didn't mention Wintel; I think it's still, probably, too painful for IBM to think about that. Metcalfe's law, she said ushered in, sort of, the Facebook era. I think that's fair, the network effect of Facebook, and then, she said, "Hopefully, you know, "they'll call this Watson's law." I don't know if that's going to happen, but that notion of, >> Wishful thinking. >> hey, hey, you got to be power of positive thinking, but that notion of exponential learning. I want to talk about cloud for a minute. You and I had some interesting debates yesterday in our open about cloud. Oracle announced its earnings yesterday, cloud growth 30%. I see Oracle and IBM as very similar in their cloud strategies; both companies would vehemently disagree with that, >> Yeah. >> but I think they are very similar in that sense. The street didn't like it, because Oracle cloud only grew at 30%, stock's down, okay, great, but, to me, IBM and Oracle are similar in that they're basically cloudifying their business. They're allowing their clients to onboard customers to the cloud, putting their applications portfolios, their SAS products, their middleware into the cloud, IBM putting mainframe class stuff in the cloud, they're putting power into the cloud, storage into the cloud, pretty much everything into the cloud if you want it. Now, that's not easy to do >> Yeah. >> if you've got, you know, legacy businesses, obviously, AWS has a blank sheet of paper, that was kind of your point yesterday, >> Yeah, yeah. >> but I like the differentiation that I see from the companies like IBM and Oracle, and there really aren't many others like that. >> Yeah. I mean, my point yesterday was the definition of cloud has been totally mangled, right? Like, it's different, if you're Amazon, they have a slew of services, they have more services than anyone else on the planet, and they have more people using those services, so, by that standard, Amazon is clearly kicking everyone's butt, but that's just their perspective. If you look at IBM, their services are applications, same with Oracle. So, if you look at what IBM's doing is they're taking the same approach. Services and applications are going to be IBM's view of the cloud, but IBM's taking a multicloud approach, and I think that's different, and, when you put the data as the central component of the architecture, you're basically saying, "I'm going to look "at the cloud as more of a commodity layer. "I'll let the customers decide which cloud to use.", and that's a better strategy, now, it's hard to do multicloud, so maybe they're buying some time, but I think that's a good, solid strategy to take if they're not going to be trying to push their own cloud as 100%, because not all customers will sole source cloud unless there's functionality that that cloud does. For instance, Amazon is winning the public sector business like it's nobody's business, because they have the only cloud that has the ability to do classified and non-classified cloud. Nobody else has it, so, from a log speck standpoint, they're winning everything and from the DOD, CIA, and government. What IBM has to do is go into customer requirement saying, "We're the only company that can provide this." That's a unique opportunity for IBM. I think that's a winning approach rather than going on a frontal arms race of services with Amazon, and that's what all the big guys are doing. Microsoft, Oracle, IBM are not taking on Amazon directly, because they're going to have to match feature for feature, and then, Amazon wins that game every time. >> So, I want to go back to something Sam Palmisano said when he was CEO of IBM in 2012 on his way out. HP was the hot company, Hurd was running the company, and he was asked, "Do you worry about HP?" He said, "I don't worry about HP, "'cause they don't invest in R&D. "I worry about Oracle, 'cause they invest in R&D.", and, again, what I like about Oracle and IBM, they both invest in R&D, IBM even, you know, core stuff around blockchain, certainly quantum computing and the like. So, I think that is a very positive dynamic for both of those companies. >> Well, I mean, IBM's R&D is a secret weapon, I think, for them; they don't overplay that much. They do talk about it, but we look at what blockchain potentially could be, and I think, you know, IBM's certainly doing the messaging on blockchain. It still has a bunch of ads on T.V., and they're trying to make that a kind of a global brand, but blockchain speaks to a new infrastructure, right? It's not just distributed computing, it's decentralized computing, and we were saying on the Cube and we've been reporting there is a new wave of software developers coming on the market that are going to be writing decentralized applications for token economics. The notion of tokens isn't about ICOs and those scams, although there's a lot of those going on. The notion of token economics fit with a mobile cloud decentralized architecture whether it's IoT, or end users, or applications, token economics is going to change the impact in efficiencies up and down the stat. So, to me, the developer community that's rushing into the market on the decentralized applications will be a major opportunity, but you got to nail the blockchain and that tech is just a moving train from a protocol standpoint to an infrastructure. So, to me, I like what IBM's doing with blockchain. I think that's going to be an opportunity to move the ball down the field. >> So, the exponential innovation formula, in my view of the next ten years, is going to, and you nailed it, going to combine data with artificial intelligence, or machine intelligence, and cloud economics, and there is a set of digital services emerging. >> Well, cloud and token economics, both, it's two. >> But, so, yes, but, so, and that's part of it, but there's a set of digital services emerging in this fabric, and they're not bespoke services, they're part of this integrated fabric. The extent to which people leverage those services, those digital services, to create new business models is going to determine success or failure. Data, at the core, is critical. >> Yeah, yeah. >> I think you're right on on that, but what I like is that IBM is trying to solve some hard problems with AI. >> I mean, lookit, I was tweeting yesterday all day on some highlights from my Puerto Rico trip on the cryptocurrency events we've been covering, and one thing that we reported was the killer app for blockchain and cryptocurrency and decentralized apps is money. Money is the killer app, and we see that with the hype cycle with the ICOs, but, if you look at what IBM's doing with the supply chain side of their business, perfect storm for supply chain innovation. Blockchain is about money, marketplaces, and nailing inefficient incumbents. So, if the incumbents want to be disruptive, they're going to have to disrupt themselves by removing inefficiencies out of the system. >> Well, and the Maersk example was a good one where there's inefficiencies, you know, 20% of the cost of moving containers is admin stuff. Sometimes the admin costs exceed the shipping costs. So, that was a good example, but, again, I see blockchain as one component in this fabric, in this puzzle. >> Day two, Cube here, kicking off wall-to-wall coverage. Three days of live broadcast talking to the thought leaders. Extracting the signal from the noise, the Cube, the number one leader in live tech coverage. Go to cube.net to check out all the footage and siliconangle.com to check out all of our articles. We're reporting and the team reporting all week, and that analysis of Ginni's keynote, well done, Dave. More coverage after this short break. (techno beat) >> Narrator: Robert Herjavec.

>> Narrator: Live from Las Vegas, it's theCUBE. Covering IBM Think 2018, brought to you by IBM. >> Welcome to theCUBE, we are live at the inaugural IBM Think 2018. I'm Lisa Martin joined by John Furrier and Dave Vellante. Guys this is first day of three days of coverage from theCUBE but this is a combination of six different IBM events from the past. Tell me a little bit about your perspective about what you think that means or they're projecting to have about 40,000 plus people here. Big change. >> Yeah, I mean, this is, we've been covering IBM how many years? Was since 2011 we've been to? Pretty much every single event they've had. They had IOD, information on demand on and on and on but really. >> Impact, pulse edge. >> All coming together. I mean this is IBM looking at the market saying, it's better to run a big tent event as a kind of coming together, a global celebration global information gathering a global sales partnership ecosystem development, and I think it's finally IBM's taking a play out of what others have done. Sales Force does it, Oracle's done it, Amazon does it with reinvent, they pull all their resources into one event. Now here's the problem, IBM is massively huge so, you know the cube goes to all those events now it's 5x the demand for cube content, 5x the demand for keynotes so, they're here at the Mandalay Bay, they're probably going to have to, need to a bigger job next year. But it's a good move for IBM and I love the fake logo, I love the Think branding. That's a throwback to the old Tom Watson generation which the roots of IBM were all about, just think, solve problems and really market the best solutions to customers. To me, if they can bring back those old IBM ethos and the roots and really get back into the cloud game which they've been falling behind on but their last earnings were up Dave. So they've had a nice little break of the negative streak, but AI is a tailwind for them, IOT is a tailwind, blockchain is potentially an enabler down the road, I mean Dave your thoughts on just that the business aspect of that. >> Well, so first on Think they have consolidated six shows they used to have really deep dives into things like infrastructure or analytics, et cetera. Now, they've said okay, let's make the big ched, as John was saying. What's interesting is every one of those drill down events Lisa you had big themes whether it was cognitive or cloud or digital transformation so, I think it's a smart move. Michele Paluso, Bob Lord came in, said, hey, we're going to change things up a little bit and we're going to play in the big leagues with, as John said, Sales Force, et cetera. You're right John, IBM sort of finally after Jenny Rimetti came on in 2012 and had some number of the trade press reports and number of quarters of revenue declining. >> It was double digit like 17 consecutive quarters. >> But remember IBM we've said it for years IBM's got to shrink to grow and in the growth they eat down one percent growth in constant currency. Currency is finally now a tailwind for IBM. It's a $79 billion company, a lot smaller, remember, IBM used to be well over a $100 billion company. And its got a $140, a $150 billion market cap. So it's trading at about 2x, almost 2x revenue and it's because IBM has an eclectic mix they've got mainframe, they've got other hardware. They got rid of their x86 business which was a low margin business. They've got services, which is a great business for them, huge cash flow. You get a $120 billion services backlog right now. So amazing potential future earnings but service is a lower margin business. IBM has this huge software business, you know 10s of billions of dollars in software which is a very high margin business. So put it all together and IBM's trying to get back to a 50% gross margin model. They're throwing off a lot of cash. They threw off $13 billion in free cash flow last year. Interestingly, about 80% of that went back to shareholders in the form of share purchase and the like. And that's how IBM, sort of, kept the stock price up and continues, and now we'll see what happens next year they're being very conservative about growth, so tepid growth. Huge advantage from the tax reform. IBM is one of these companies that is going to benefit in a big way from tax reform, gives it a lot of flexibility. >> And I would also, if I was advising IBM, I'm not, but if I was advising Michele Paluso I'd basically, look at, you're too big to have one big show. I would do one big business show, like Think, then also have a separate event on technical. Because one of the things we look at their schedule here it's business and AI, cloud and data, modern infrastructure, security and resilience. That alone could stack the deck for three, four days of business conversations business transformation, digital transformation, future transformation with blockchain among other things, power of the data and IOT. That's a full packed set of content. IBM's got a huge R&D organization Dave, they have a huge services organization and technology's the enabler for them to get those margins up and I think they should have a separate technical Think. Now. we're going to ask them directly with try to get Michele Paluso on but. >> I want to make some comments about the Jenny Rametti tenure because I first met her around 2007, 2008, when she was running strategy actually. She had run a large business for Palmasano so this is a while before she took over in 2012. And she was running strategy and then she came on in 2012. At that time IBM had no cloud really clear cloud strategy. They were talking cloud but they didn't have any cloud, public cloud options so they had to go out and pay two billion dollars for software. And then they put in Blue Mix, John you're hearing some changes on Blue Mix so we're going to talk about that. But she's had to architect a massive transition. But when you look at IBM's core business cloud is really one of the new drivers. So, $17 billion business. But the drivers' profitability are mainframe, storage, services, a lot of the same without a large cloud business which they've taken a lot of different components and pushed it through the cloud and done with Blue Mix what they did with Websphere, their middleware piece. Kind of what Oracle tried to do and has done with Fusion but a different strategy. All done sort of in the cloud. Now, the big question is okay is that going to drive growth for IBM in the next 10 years? The other big question is, what about Watson? You hear a lot about Watson. They don't really clearly breakout, okay this is how much business we do with Watson and Wall Street has been clamoring to see that, so. >> Well I mean to me cloud is the big story I think their opportunity is data. That's where Watson kind of ties in. They have a huge client base, the digital transformation style, I think they're going to do really well there. But the at the end of the day the cloud story has always been weak for IBM in the sense of, comparing it to what Amazon web services has been doing. So you know I really want to see how they're differentiating their cloud story because they have to. They cannot compete with Amazon head to head. Google's differentiating, Microsoft's differentiating. IBM needs to be in the same league as Microsoft and Amazon. They got to beat Google out for that third spot. To me if I was marching giving marching orders as a theme, said, we got to be in the top three cloud providers, and define it in a way that adds values to customers, and they're not in that top three today. That is a huge story. That's going to keep dragging them down on the Wall Street numbers, in my opinion, unless they do something different. >> Well, I got to counter that because the big difference between IBM cloud and Amazon cloud is IBM's got a giant software portfolio. IBM's as a service software portfolio's many 10s of billions of dollars. So they have a ratable revenue model and a very, very, software's, 85%, zero marginal cost business. Amazon doesn't have that yet and they may they're going up the stack. But that's huge. The other piece to watch is IBM calls strategic imperatives, which is cloud and security and IOT and the new stuff basically which is now just under 50% of the revenue model. But that's where companies like IBM and Oracle differentiate from Amazon is they have the deep software. Now the challenge for IBM is their software is very bespoke. Their software business is very, very fragmented. They've been trying to bring it together through middleware for what, John, four or five years? When did they announce Blue Mix? We were there. >> It seems like five years ago, I mean yeah, maybe even six. >> Dave: Yeah. >> Blue Mix was a great approach I think soft layer might have been, to me at least, the one I think the thing that held Blue Mix back. Just soft layer, to me, just it's just infrastructure didn't really kind of make it blend in the Blue Mix the way I thought it would and hoped it would. We'll see what they say this week. >> Yeah but that was the right move. The two billion dollar acquisition of soft layer, had they not done that, they would be like Dell EMC, no cloud. They'd be Dell EMC with a huge software business on prim software business. >> Well Dave the market share numbers on cloud, I mean shows, IBM not making it so like, to me, that story has to be >> I disagree with that I disagree. So you got the big three, right? And then you got Oracle and IBM. There sort of a distant, I don't know what order I guess IBM would be a little ahead of Oracle but you got one, two, three and then distant four and five, excluding Alibaba and the China cloud which is huge. But IBM is-- >> In China, not the U.S. though. >> In China, but IBM's strategy to me is the right one. Drive software revenue as, Oracle as well because that's the ace in the hole relative to the infrastructure clouds. They don't want to compete head to head in infrastructures and service. That would be a disaster. >> I mean look at, I'm tracking the cloud heavily you know that so, I look at IBM a little bit differently than you. My view is simple. In the cloud game right now they're not making it. However, we know that everyone's defining cloud differently. I mean Microsoft throws Azure in there the software included. Amazon doesn't. Oracle does so again that's just-- >> Dave: It's a $17 billion business. >> Hold on, hold on that's just mangling the numbers. >> And granted they may be >> So, so they. puts some hosting in there. >> They have to have to have it's not about the cloud story it's about the cloud value. IBM has a lot of piece parts that they can actually put together for a cloud package. Infrastructure instead of software services. Blue Mix tried to do that. So I think, they, if they can look at cloud in a way that's helps IBM, that gives them a way to move the goal post the way to change the game to me that's what I'm looking for. Because IBM should not be out of the cloud business. If they don't go down-- >> But they're not out of the cloud business, it's a $17 billion cloud business, how can you say they're out of the cloud business? That's an insane >> I'm not saying that they're. insertion to make. >> I'm not saying they're out of the cloud business but look what happened to VM ware, they were in the cloud business and-- >> Yeah but VM ware was BS, we all know that. They had fake cloud, at least IBM's got a real cloud built upon softlayer and yes they transformed a hosting business in bare metal cloud into what is ultimately come the IBM cloud where they're now rebranding. It takes a long time. This is kind of the point I was making about about Jenny earlier. There's it's a little messy. Seeing that sausage made. But at least they have strategy around that. They're in the cloud game. Dell EMC isn't in the cloud game. HPE isn't in the cloud game. I'm talking public cloud. These were companies that both VM ware all three of those companies announced they were going into the cloud, they're out. At least IBM, Oracle, obviously the big three are in it. That's my contention. >> So let's talk it. Do you disagree? >> No, of course they're in the cloud game. They're tracking the market share numbers but again they're not winning in the cloud Dave, okay? So like in relative to other players. >> Dave: Alright so let's define winning. >> Well, I mean >> Define winning. it depends on how you look at the marketplace. So, right now, by quote, today's standard, there are the top three are Amazon, Microsoft some say Google, Oracle and IBM would be below that. That's defined by a bunch of stuff so IBM counts it I mean Microsoft counts it differently than Amazon. I look at cloud as simply this. How many sets of services do you have? And how many people are using those services? So it's kind of two dimensions of access there. Plus the breadth of services and how many people are using those breadth of services so it's kind of like a quadrant not a magic quadrant but like Amazon blows away everybody okay so that's like, they're so far ahead. IBM, if they try to compete that way, my point was that I was trying to make was if you compete on trying to match Amazon you're not going to win. Google's already tapped out of the cloud by that standard. They're going in all in on cloud scale, sensor flow, AI targeting the developer community. They're not out of the cloud game. They're taking a different path. That's not their cloud story. That's their cloud plan. They're executing it. Oracle, it's just, everything's cloud. They'll count anything that moves is cloud right? So that's Oracle. Microsoft throws 365 in there to bump their numbers up but what do they have? Azure and it's doing well by quote Wall Street. But some people criticize the technology with Microsoft. So, it's kind of a rat race. It's fundamentally at the infrastructure it's the number of services and who's using those services and then above say the Kubernetes line if you will, it's what applications are driving value. So if you separate applications from under the Kubernetes line orchestration, then you got two different pictures. You can't blend them in. That's my contention that the blending of apps revenue and infrastructure revenue really makes it a real messy way to squint through who's winning. >> So let's define leadership, although that was good, good analysis. I'll give you, I'll add some color to that. To me you've got to be in the cloud game because in order to succeed in the digital economy you got to have cloud economics. You got to have you got to have the ability to to do analytics and data you got to have AI and you got to have cloud economics. What does that mean? You got to have, you know, an API platform. You got to have zero marginal costs. You got to have network effects is scaled and you got to be able to track startups. Okay, so those are the sort of components that I look at as a cloud momentum. The question I have for IBM is if the strategic imperatives are now almost 50% of the business and their higher margin and you're achieving those cloud economics why are gross margins under pressure? Right? They should be showing gross margin momentum and that's something to look at. >> Well, I mean-- >> Alright guys. >> Because cloud should drive huge gross margins. >> Hold on I got to add one more point because this fundamentally frames it. If you look at cloud and what DevOps has done where you can actually have programmable infrastructure that's changed the game. Would you think DevOps has changed the game? >> Changing? >> Yeah, changing. Yeah, sure. >> The notion of programming It certainly has for the cloud native guys, absolutely. >> So the ability to program the infrastructure takes away the infrastructure being the dependency of what applications can do. >> Dave: Agreed. >> Okay, okay, great. So now that the infrastructure's programmable the apps kind of are running the show. The successful people that are using the cloud today are the ones that nailed the business model logic. So that's what the application does it's due diligence. Whoever can come up with the applications and nail the business model that's where the switching costs are extremely high that's where the risk is. The risk is no longer in the plumbing because the plumbing, switching costs of the plumbing are a lot lower because there's a lot more technology and sets the services you can provision in and out of that so you're starting to see the entire strategy chain where it's the applications that'll be driving the value and that's where the mistakes if made there that's where the cloud game ends. >> And machine intelligence is going to drive that value and that's where Watson versus you know the consumer guys and IBM Jenny, I guarantee tomorrow will make the point that we're not trying to collect your data and sell you ads. You will make that point. >> Whoever. >> I guess unless you go to the weather company's website. >> Whoever can build the application, it builds value. The business logic is now the new devops because everything else is programmable. That's my contention. >> Dave: Alright. >> Alright guys wow. As you can tell lots of passion for all things cloud, AI and now you're going to hear all of it today on theCUBE. This is day one of three days of coverage as John mentioned. We've so many great guests on over the next few days and hopefully a few more with our pop-up CUBE. Keep watching, I'm Lisa Martin with John Furrier and Dave Vallante. We're going to be back with our first guest after a short break. (funky digital music)

>> Live from San Francisco, it's theCUBE! Covering IBM Think 2019! Brought to you by IBM. >> We're back at IBM Think 2019 Dave Vellante with Stu Miniman and Lisa Martin is also here. John Furey will be up tomorrow. We're here at Moscone North. Stop by and see us. Raj Nagaratnam is here. He's a distinguished engineer, CTO and director of cloud security for IBM hybrid cloud. Raj good to see you again and thanks for coming on. >> Good to see you. Yeah absolutely. >> So you're in all the hot places. Security, cloud, hybrid cloud. A lot going on in your world. >> Absolutely! Lots going on. I mean I think we see a lot of enterprises moving to cloud and like IBM says there's a lot more to move, right. Just 20% is out there. But security is top of mind so you're right it's a sweet spot. >> What is cloud to people? You know. Because you guys define as sort of a what I would say a cloud experience, not a place, but sort of how you operate. But what do customers think of when they think of cloud and hybrid cloud? >> Definitely. So in terms of our customers from them anything that they can consume as a service is a cloud. So it's from a sass perspective. We do have IBM and others have sass properties. But in this context of discussion, my area of focus is as enterprises build applications, it could be enterprise applications, it could be their consumer facing applications. So as they look at that landscape, how do they take advantage of cloud and cloud platform where they can build it on maybe on premise with a private cloud or they can take advantage of a set of services and seamlessly integrate into a public cloud or a multicloud. So ultimately toward their applications how they leverage the benefit. >> Security was always a big concern especially in the early days of cloud. You mentioned that we're in the next phase of the journey. We've hit the 20%. The low-hanging fruit so to speak. But even then early on especially, security was a major, major concern. Won't those concerns heighten as you start moving more mission-critical workloads into the cloud? >> They do, they do. Like you said rightfully, over the last couple of years, I mean definitely early on because even if you go back like two decades back, when web came along and people need to expose what they had in their data centers as a web application, it was a journey. Now we have crossed that point where everything becomes web application. So that's kind of the journey for cloud that's taking place where it was a concern, it continues to be a concern, but not so much. There are risks there are controls that people have put in place to come over the risk and the trust providers like IBM and others because we do a lot more controls in place, and we have an army. If you look at how we host many customer applications and help them, then it's better than many times what a particular company can do just for their application. So from that viewpoint, security concern is kind of they've gotten over it but viewpoint in chapter two, it becomes a lot more. So how do enterprises, enterprise risk, the data becomes kind of the core part. >> Raj, I think you're hitting it dead on. Five years ago it was like oh wait I'm not sure if I'll do cloud because security. Now I understand. Cloud is an opportunity for me to change security but absolutely security is such a huge concern you know at least in the companies we talked to today, nobody feels safe. It's not a question of if but when you're going to be attacked and how you're going to deal with this. So give us a little bit. How do we make sure that enterprises, you know, can live in today's security climate and not be totally paranoid all the time? >> That's right. Security is not a binary thing, right? It's not like you're secure or un-secure. Is it secure enough from a risk perspective, right? So when you look at data, say are you dealing with sensitive data, private data or mission-critical data and how do you protect it? And are you taking the right steps. Like you rightfully said cloud is an opportunity to do security right. Many times in the past, app teams will build apps and throw it over the wall for the security team to secure it. That has changed. We need to put security up front as part of the entire process. As we think about it as Dev and Ops now it is more important to be security risk part of it where you have DevSecOps so that right from as you design it, build applications and build and operate, so that application teams have equal responsibility and accountability as you operate cloud. Not just hey I'm going to throw it away, and I get a security team to do it. So that collaborative model between a line of business and an application team on one end and the security team and operations team on another end, kind of a classic IT, come together and cloud makes it possible. >> What's the role of the line of business in that equation, Raj? Is it sort of to set the risk profile, the value of the data? Talk about that a little bit. >> Yeah. Line of business thinks about, obviously from their perceptive what data they deal with, what business they are in. It may be retail banking on one end or it could be payment processing on another end. So they are looking at how fast they need to reach the data or bring the applications to the cloud for the consumers to reach a digital transformation that they are going through, right? So on one end they are going through digital transformation. On the other end, the security team, from a typical security officer perspective, sets policies. If there are sudden regulations that you need to follow, what kind of data can be put in cloud or if you put it, what kind of controls and protection you need. So the policy from a security and risk perspective comes from the security team. Line of business looks at it and says this is what we need to do faster to go to market, expand your business. And now they need to look at and say how do we bring these things together? What risk? Am I willing to take the risk? Or what controls and security capabilities I need to protect my app and data with to mitigate the risk? So that's the model that they are in discussions about. >> Raj, one of the areas we've talked to IBM a lot about is what's happening in the container space, what's happening in Kubernetes. What role is IBM helping to the industry as a whole and IBM's products specifically to be more secure in that space? >> So it is about helping customers build secure applications and deploy it. It is a responsibility model. From that perspective, you brought a very important point. When you look at Cloud-Native and Kubernetes as an example, it provides (mumbles) opportunity. So the way we are build our (mumbles) service, we have built security in. More importantly, also we are providing security services. So let me simplify this, right? From a elevated perceptive, when you deploy an application, you need to think about how do you manage access to your application? Oh, that may be (mumbles) to an attack so how do you protect against network trash? We have a capability called cloud internet services to protect against it. Okay you are letting the good guys in now how do you know who it is? So you need to authenticate the person, right? So if we have a service called Lap ID that integrate seamlessly because developers don't need to care about the security, the (mumbles) technology details. We make it simple so developers focus on business logic. So that's about manage access. Next things is the application now need to protect the data. So how do you protect data of an application? So you may put in a Cloud-Native data base or a object store, right? In the new models these things evolve. And the first things companies try to do is you need to protect, encrypt them. As some people would say, encryption is for amateurs, key management is for professions. So ultimately it comes down to how do you manage your keys? And ultimately customers want more control of they keys so what we have, in the industry what we tell them is bring your own key, right? So customer controls they key even the encryption happens in the cloud. So we provide the capability with our key protect service so all our data bases are already integrated. Our object store is integrated. Our virtual servers are integrated, right? So these capabilities, this way whenever you encrypt the data it's provided. But given IBM's history, we understand like risk and financial teams go together. We are introducing a new paradigm. We are announcing this week. It's just not bring your keys. Keep your own keys. This way it's not only about how do you control the key, but in cryptography land, the keys get managed and protected by a HSM, a Hardware Security Module. We give the entire module that they can control. The HSM can be controlled by the customer along with the key. This is a shift because now customers can gain more confidence with that, so this service is called Hyper Protect Crypto service that we are bringing to market. Built on IBM's top level security capabilities. If you can imagine banks running on our mainframe and security being kind of the, whenever you talk in movies you look at security people say oh it's mainframe. They didn't hack but they get in to this system. That's a level of security. The top level of security we have. We are bringing that to cloud to make the data secure. And another thing that we are working on and announcing this week is it's not about whether the data is in the database or it's in cryptic form. It's also when it's processed an application in memory. Imagine you have a payment service, a credit card payment, and some one logs into the system and dumps the memory, Voila you get the credit card, right? Now we can protect it. With working with Intel, we are partnered with and launching a capability where when the data goes into memory, we can protect it. So end-to-end we are looking at manage access, protect data, and now you can't protect what you don't see, so we provide visibility. Who has accessed my services through access logs? Are there threats? So we are infusing machine learning and AI to detect malicious behavior on network. So bringing it to a single dashboard called security advisor, looking this piece. So manage access, protect data, gain visibility. More importantly, all of this in the context of developers, developer focus, developer experience, so that in a single click in an automated way, they can protect their apps. That's our goal. That's where our customers what to go. And we are addressing that with these capabilities. It's a journey. >> Yeah so I wanted to ask you how customers, what's best practice for scaling and automating all this and I think you've touched upon several things. It's design security in. Don't bolt it on. DevSecOps for example. It's scaling the key management and automating that key management. Those are at least a couple of the components that I've heard. Maybe you could, you know, follow through and add some color to that. >> Definitely. So when you look at the DevSecOps, right? So from a developer perspective, as they build automation tool, it goes through a pipeline. You have to take an application in order to deploy it. Let's take (mumbles) as an example. In the past or in a traditional IT world, that may be (mumbles) in the system so you need to patch them. Then there becomes tension between an IT operations team saying oh I need to patch these things, whereas a security team saying no, no I got to patch it. In the new world, why patch it? Why don't they spin up a new container that's now the most protected one. As you find availabilities, pin up a new image and spawn it on, right? In that context as you look at a developer integrating these things. So how do I deploy an application for manage access? You can integrate with out internet services so that any attack can be protected. You deploy it in a way. You can integrate your services where with identity can be authenticated. So those kind of build into the application. And then as you put this through the pipe, variabilities are being scanned. You can set your policy to say if you have a lot of variabilites, don't deploy protection. That's part of your DevOps policy that you can set. And then as you work with your security team, you can say hey guys you can manage the keys but tell me which data base and which key to use. So the management may be the security guy's responsibility. Application team looks at is saying which data base which key, let me configure it. So that moves towards what if a policy management configuration problem. So it's about DevTools integrating security into the design and into the develop and automation end-to-end that brings a collaborative culture because it's not a technology problem. It's a cultural problem. Organizational challenge that these kind of capabilities help customers. >> Why IBM? Give us the commercial. >> (laughs) Well IBM it's a trusted provider from a costumer's prospective. We know enterprises. For all these years, for lots, many, many decades, we have run enterprise systems, banking, most critical data, workloads. And with our expertise that's technology on one end. So when you look at IBM cloud built in. IBM security. World-leading enterprise security set of capabilities from IBM security, you have one plus one equal to three. Not to mention our expertise. We know our services capabilities, (mumbles), helping customers understand complainants, how to work with security or even manage security services. So that brings technology, expertise and capabilities with years worth of experience that we bring to the table. >> Stu I would say IBM does hard well, and security's hard so Raj thanks so much for coming on theCUBE and sharing with us some of the progress that IBM's making. Congratulations. >> Absolutely. Thank you very much. >> Alright you're welcome. Keep it right there, buddy. Stu and I will be back with Lisa Martin. We're here at IBM Think day one of theCUBE. Right back right after this short break. (electronic theme music)