from the cube studios in Palo Alto in Boston bringing you data-driven insights from the cube and ETR this is breaking analysis with Dave vellante over the past decade cloudflare has built a Global Network that has the potential to become the fourth us-based hyperscale class cloud in our view the company is building a durable Revenue model with hooks into many important markets these include the more mature DDOS protection space to other growth sectors such as zero trust a serverless platform for application development and an increasing number of services such as database and object storage and other network services in essence cloudflare could be thought of as a giant distributed supercomputer that can connect multiple clouds and act as a highly efficient scheduling engine at scale its disruptive DNA is increasingly attracting novel startups and established Global firms alike looking for Reliable secure high performance low latency and more cost-effective alternatives to AWS and Legacy infrastructure Solutions hello and welcome to this week's wikibon Cube insights powered by ETR in this breaking analysis we initiate our deeper coverage of cloudflare we'll briefly explain our take on the company and its unique business model we'll then share some peer comparisons with both the financial snapshot and some fresh ETR survey data finally we'll share some examples of how we think cloudflare could be a disruptive force with a super cloud-like offering that in many respects is what multi-cloud should have been cloudflare has been on our peripheral radar Ben Thompson and many others have written about their disruptive business model and recently a breaking analysis follower who will remain anonymous emailed with some excellent insights on cloudflare that prompted us to initiate more detailed coverage let's first take a look at how cloudflare seize the world in terms of its view of a modern stack this is a graphic from cloudflare that shows a simple three-layer Stack comprising Storage and compute the lower level and application layer and the network and their key message is basically that the big four hyperscalers have replaced the on-prem leaders apps have been satisfied and that mess of network that you see and Security in the upper left can now be handled all by cloudflare and the stack can be rented via Opex versus requiring heavy capex investment so okay somewhat of a simplified view is those companies on the the left are you know not standing still and we're going to come back to that but cloudflare has done something quite amazing I mean it's been a while since we've invoked Russ hanneman of Silicon Valley Fame on breaking analysis but remember when he was in a meeting one of his first meetings if not the first with Richard Hendricks it was the whiz kid on the show Silicon Valley and hanneman said something like if you had a blank check and you could build anything in the world what would it be and Richard's answer was basically a new internet and that led to Pied Piper this peer-to-peer Network powered by decentralized devices and and iPhones and this amazing compression algorithm that enabled high-speed data movement and low latency uh up to no low latency access across the network well in a way that's what cloudflare has built its founding premise reimagined how the internet should be built with a consistent set of server infrastructure where each server had lots of cores lots of dram lots of cash fast ssds and plenty of network connectivity and bandwidth and well this picture makes it look like a bunch of dots and points of presence on a map which of course it is there's a software layer that enables cloudflare to efficiently allocate resources across this Global Network the company claims that it's Network utilization is in the 70 percent range and it has used its build out to enter the technology space from the bottoms up offering for example free tiers of services to users with multiple entry points on different services and selling then more services over time to a customer which of course drives up its average contract value and its lifetime value at the same time the company continues to innovate and add new services at a very rapid cloud-like Pace you can think of cloudflare's initial Market entry as like a lightweight Cisco as a service the company's CFO actually he uses that term he calls it that which really must tick off Cisco who of course has a massive portfolio and a dominant Market position now because it owns the network cloudflare is a marginal cost of adding new Services is very small and goes towards zero so it's able to get software like economics at scale despite all this infrastructure that's building out so it doesn't have to constantly face the increasing infrastructure tax snowflake for example doesn't own its own network infrastructure as it grows it relies on AWS or Azure gcp and and while it gives the company obvious advantages it doesn't have to build out its own network it also requires them to constantly pay the tax and negotiate with hyperscalers for better rental rates now as previously mentioned Cloud Fair cloudflare claims that its utilization is very high probably higher than the hyperscalers who can spin up servers that they can charge for underutilized customer capacity cloudflare also has excellent Network traffic data that it can use to its Advantage with its Analytics the company has been rapidly innovating Beyond its original Core Business adding as I said before serverless zero trust offerings it has announced a database it calls its database D1 that's pretty creative and it's announced an object store called R2 that is S3 minus one both from the alphabet and the numeric I.E minus the egress cost saying no egress cost that's their big claim to fame and they've made a lot of marketing noise around about that and of course they've promised in our a D2 database which of course is R2D2 RR they've launched a developer platform cloudflare can be thought of kind of like first of all a modern CDN they've got a simpler security model that's how they compete for example with z-scaler that brings uh they also bring VPN sd-wan and DDOS protection services that are that are part of the network and they're less expensive than AWS that's kind of their sort of go to market and messaging and value proposition and they're positioning themselves as a neutral Network that can connect across multiple clouds now to be clear unlike AWS in particular cloudflare is not well suited to lift and shift your traditional apps like for instance sap Hana you're not going to run that in on cloudflare's platform rather the company started by making websites more secure and faster and it flew under the radar and much in the same way that clay Christensen described the disruption in the steel industry if you've seen that where new entrants picked off the low margin rebar business then moved up the stack we've used that analogy in the semiconductor business with arm and and even China cloudflare is running a similar playbook in the cloud and in the network so in the early part of the last decade as aws's ascendancy was becoming more clear many of us started thinking about how and where firms could compete and add value as AWS is becoming so dominant so for instance take an industry Focus you could do things like data sharing with snowflake eventually you know uh popularized you could build on top of clouds again snowflake is doing that as are others you could build private clouds and of course connect to hybrid clouds but not many had the wherewithal and or the hutzpah to build out a Global Network that could serve as a connecting platform for cloud services cloudflare has traction in the market as it adds new services like zero trust and object store or database its Tam continues to grow here's a quick snapshot of cloudflare's financials relative to Z scalar which is both a competitor and a customer fastly which is a smaller CDN and Akamai a more mature CDN slash Edge platform cloudflare and fastly both reported earnings this past week Cloud Fair Cloud flare surpassed a billion dollar Revenue run rate but they gave tepid guidance and the stock got absolutely crushed today which is Friday but the company's business model is sound it's growing close to 50 annually it has sas-like gross margins in the mid to high 70s and it's it it's got a very strong balance sheet and a 13x revenue run rate multiple in fact it's Financial snapshot is quite close to that of z-scaler which is kind of interesting which zinc sailor of course doesn't own its own network that's a pure play software company fastly is much smaller and growing more slowly than cloudflare hence its lower multiple well Akamai as you can see is a more mature company but it's got a nice business now on its earnings call this week cloudflare announced that its head of sales was stepping down and the company has brought in a new leader to take the firm to five billion dollars in sales I think actually its current sales leader felt like hey you know my work is done here bring on somebody else to take it to the next level the company is promising to be free cash flow positive by the end of the year and is working hard toward its long-term financial model or so working towards sorry it's a long-term financial model with gross margin Targets in the mid 70s it's targeting 20 non-gaap operating margins so so solid you know very solid not like completely off the charts but you know very good and to our knowledge it has not committed to a long-term growth rate but at that sort of operating profit level you would like to see growth be consistently at least in the 20 range so they could at least be a rule of 40 company or perhaps even even five even higher if they're going to continue to command a premium valuation okay let's take a look at the ETR data ETR is very positive on cloudflare and has recently published a report on the company like many companies cloudflare is seeing an across the board slowdown in spending velocity we've reported on this quite extensively using the ETR data to quantify the degree to that Slowdown and on the data set with ETR we see that many customers they're shifting their spend to Flat spend you know plus or minus let's say you know single digits you know two three percent or even zero or in the market we're seeing a shift from paid to free tiers remember cloudflare offers a lot of free services as you're seeing customers maybe turn off the pay for a while and going with the freebie but we're also seeing some larger customers in the data and the fortune 1000 specifically they're actually spending more which was confirmed on cloudflare's earnings call they did say everything across the board was softer but they did also indicate that some of their larger customers are actually growing faster than their smaller customers and their churn is very very low here's a two-dimensional graphic we'd like to share this view a lot it's got Net score or spending momentum on the vertical axis and overlap or pervasiveness in the survey on the horizontal axis and this cut isolates three segments in the etrs taxonomy that cloudflare plays in Cloud security and networking now the table inserted in that upper left there shows the raw data which informs the position of each company in the dots with Net score in the ends listed in that rightmost column the red dotted line indicates a highly elevated Net score and finally we posted the breakdown those colors in the bottom right of cloudflare's Net score the lime green that's new adoptions the forest green is we're spending more six percent or more the gray is flat plus or minus uh five percent and you can see that the majority of customers you can see that's the majority of the customers that gray area the pink is we're spending Less in other words down six percent or worse and the bright red is churn which is minimal one percent very good indicator for for cloudflare what you do to get etr's proprietary Net score and they've done this for many many quarters so we have that time series data you subtract the Reds from the greens and that's Net score cloudflare is at 39 just under that magic red line now note that cloudflare and zscaler are right on top of each other Cisco has a dominant position on the x-axis that cloudflare and others are eyeing AWS is also dominant but note that its Net score is well above the red dotted line it's incredible Palo Alto networks is also very impressive it's got both a strong presence on the horizontal axis and it's got a Net score that's pretty comparable to cloudflare and z-scaler to much smaller companies Akamai is actually well positioned for a reasonably mature company and you can see fastly ATT Juniper and F5 have far less spending momentum on their platforms than does cloudflare but at least they are in positive Net score territory so what's going to be really interesting to see is whether cloudflare can continue to hold this momentum or even accelerate it as we've seen with some other clouds as it scales its Network and keeps adding more and more services cloudflare has a couple of potential strategic vectors that we want to talk about and it'll be going to be interesting to see how that plays out Now One path is to compete more directly as a Cloud Player offering secure access Edge services like firewall as a service and zero Trust Services like data loss prevention email security from its area one acquisition and other zero trust offerings as well as Network Services like routing and network connectivity this is The Sweet Spot of the company load balancing many others and then add in things like Object Store and database Services more Edge services in the future it might be telecom like services such as Network switching for offices so that's one route and cloudflare is clearly on that path more services more cohorts at innovating and and growing the company and bringing in more Revenue increasing acvs and and increasing long-term value and keeping retention high now the other Vector is what we're just going to refer to as super cloud as an enabler of cross-cloud infrastructure this is new value uh relative to the former Vector that we were just talking about now the title of this episode is what multi-cloud should have been meaning cloudflare could be the control plane providing a consistent experience across clouds one that is fast and secure at global scale now to give you Insight on this let's take a look at some of the comments made by Matthew Prince the CEO and co-founder of cloudflare cloudflare put its R2 Object Store into public beta this past May and I believe it's storing around a petabyte of data today I think that's what they said in their call here's what Prince said about that quote we are talking to very large companies about moving more and more of their stored objects to where we can store that with R2 and one of the benefits is not only can we help them save money on the egress fees but it allows them to then use those object stores or objects across any of the different Cloud platforms they're that they're using so by being that neutral third party we can let people adopt a little bit of Amazon a little bit of Microsoft a little bit of Google a little bit of SAS vendors and share that data across all those different places so what's interesting about this in the super cloud context is it suggests that customers could take the best of each Cloud to power their digital businesses I might like AWS for in redshift for my analytic database or I love Google's machine learning Microsoft's collaboration and I'd like a consistent way to connect those resources but of course he's strongly hinting and has made many public statements that aws's egress fees are a blocker to that vision now at a recent investor event Matthew Prince added some color to this concept when he talked about one metric of success being how much R2 capacity was consumed and how much they sold but perhaps a more interesting Benchmark is highlighted by the following statement that he made he said a completely different measure of success for R2 is Andy jassy says I'm sick and tired of these guys meaning cloudflare taking our objects away we're dropping our egress fees to zero I would be so excited because we've then unlocked the ability to be the network that interconnects the cloud together now of course it would be Adam solipski who would be saying that or maybe Andy Jesse you know still watching over AWS and I think it's highly unlikely that that's going to happen anytime soon and that of course but but in theory gets us closer to the super cloud value proposition and to further drive that point home and we're paraphrasing a little bit his comments here he said something the effect of quote customers need one consistent control plane across clouds and we are the neutral Network that can be consistent no matter which Cloud you're using interesting right that Prince sees the world that's similar to if not nearly identical to the concepts that the cube Community has been putting forth around supercloud now this vision is a ways off let's be real Prince even suggested that his initial vision of an application running across multiple clouds you know that's like super cloud Nirvana isn't what customers are doing today that's that's really hard to do and perhaps you know it's never going to happen but there's a little doubt that cloudflare could be and is positioning itself as that cross-cloud control plane it has the network economics and the business model levers to pull it's got an edge up on the competition at the edge pun intended cloudflare is the definition of Edge and it's distributed platform it's decentralized platform is much better suited for Edge workloads than these giant data centers that are you know set up to to try and handle that today the the hyperscalers are building out you know their Edge networks things like outposts you know going out to the edge and other local zones Etc now cloudflare is increasingly competitive to the hyperscalers and those traditional Stacks that it depositioned on an earlier slide that we showed but you know the likes of AWS and Dell and hpe and Cisco and those others they're not sitting in their hands they have a huge huge customer install bases and they are definitely a moving Target they're investing and they're building out their own Super clouds with really robust stacks as well let's face it it's going to take a decade or more for Enterprises to adopt a developer platform or a new database Cloud plus cloudflare's capabilities when compared to incumbent stacks and the hyperscalers is much less robust in these areas and even in storage you know despite all the great conversation that R2 generated and the buzz you take a specialist like Wasabi they're more mature they're more functional and they're way cheaper even than cloudflare so you know it's not a fake a complete that cloudflare is going to win in those markets but we love the disruption and if cloudflare wants to be the fourth us-based hyperscaler or join the the big four as the as the fifth if we put Alibaba in the mix it's got a lot of work to do in the ecosystem by its own admission as much to learn and is part of the value by the way that it sees in its area one acquisition it's email security company that it bought but even in that case much of the emphasis has been on reseller channels compare that to the AWS ecosystem which is not only a channel play but is as much an innovation flywheel filling gaps where companies like snowflake Thrive side by side with aws's data stores as well all the on-prem stacks are building hybrid connections to AWS and other clouds as a means of providing consistent experiences across clouds indeed many of them see what they call cross-cloud services or what we call super cloud hyper cloud or whatever you know Mega Cloud you want to call it we use super cloud they are really eyeing that opportunity so very few companies frankly are not going after that space but we're going to close with this cloudflare is one of those companies that's in a position to wake up each morning and ask who can we disrupt today and very few companies are in a position to disrupt the hyperscalers to the degree that cloudflare is and that my friends is going to be fascinating to watch unfold all right let's call it a wrap I want to thank Alex Meyerson who's on production and manages the podcast as well as Ken schiffman who's our newest addition to the Boston Studio Kristen Martin and Cheryl Knight help us get the word out on social media and in our newsletters and Rob Hof is our editor-in-chief over at silicon angle thank you to all remember all these episodes are available as podcasts wherever you listen all you're going to do is search breaking analysis podcasts I publish each week on wikibon.com and siliconangle.com you can email me at david.velante at siliconangle.com or DM me at divalante if you comment on my LinkedIn posts and please do check out etr.ai they got the best survey data in the Enterprise Tech business this is Dave vellante for the cube insights powered by ETR thank you very much for watching and we'll see you next time on breaking analysis

(upbeat music) >> Welcome back, everyone, to theCUBE's live coverage, day one wrap-up. I'm John Furrier, with Dave Vellante. We have Jerry Chen, special guest who's been with us every year on theCUBE since inception. Certainly every AWS re:Invent, nine years straight. Jerry Chen, great to see you for our guest analyst's wrap up VC general partner, Greylock partners, good to see you. >> John, Dave, it's great to see you guys. Thanks for having me again. It wouldn't be re:Invent without the three of us sitting here and we missed last year, right, because of COVID. So we have to make up for lost time. >> John: We did a virtual one- >> Dave: we did virtual stuff= >> John: wasn't the same as in-person. >> Dave: Definitely not the same. >> Jerry: Not the same thing. So, it's good to see you guys again in person, and less than 6 feet apart. >> Cheers, yeah. >> And 7,000 people here, showing that the event's still relevant. >> Jerry: Yeah. >> Some people would kill for those numbers, it's a bad year for Amazon, down from 60,000. >> Jerry: Yeah. >> So, ecosystem's booming. Okay, let's get to it. Day one in the books, new CEO, new sheriff in town, his name's Adam Selipsky. Your take? >> Well, Adam's new, but he's old, right? Something, you know, like something new, something old, something blue, right? It's so, Adam was early Amazon, so he had that founding DNA. Left, you know, CEO of Tableau, acquired by Salesforce, came back few months ago. So I think it was a great move, because one, he's got the history and culture under Jassy, so he's definitely the Bezos Jassy tree of leadership, but yet he's been outside the bubble. Right? So he actually knows what it means to run a company not on the Amazon platform. So, I think Adam's a great choice to lead AWS for what we call it, like maybe act two, right? Act one, the first X years with Jassy, and maybe this is the second act under Adam. >> Yeah. And he's got- and he was very technical, hung around all the techies, James Hamilton, DeSantis, all the engineers, built that core primitives. Now, as they say, this cloud next gen's here, act two, it's about applications. >> Jerry: Yeah. >> Infrastructure as code is in place. Interesting area. Where's the growth come from? So, look, you know, the ecosystem has got to build these super clouds, or as you say, Castles on the Cloud, which you coined, but you brought this up years ago, that the moats and the value has to be in there somewhere. Do you want to revise that prediction now that you see what's coming from Selipsky? >> Okay, well, so let's refresh. Greylock.com/castles has worked out, like we did, but a lot of thought leadership and the two of you, have informed my thinking at Castles in the Cloud, how to compete against Amazon in the cloud. So you'd argue act one, the startup phase, the first, you know, X years at Amazon was from 2008 to, you know, 2021, the first X years, building the platform, digging the moats. Right? So what did you have? You have castle the platform business, economies of scale, which means decreasing marginal costs and natural network effects. So once the moat's in place and you had huge market share, what do you for act two, right? Now the moats are in place, you can start exploring the moats for I think, Adam talked about in your article, horizontal and verticals, right? Horizontal solutions up the stack, like Amazon Connect, CRM solutions, right? Horizontal apps, maybe the app layer, and verticals, industrials, financials, healthcare, et cetera. So, I think Jassy did a foundation of the castle and now we're seeing, you know, what Adam and his generation would do for act two. >> So he's, so there's almost like an act one A, because if you take the four hyperscalers, they're about, maybe do 120 billion this year, out of, I don't know, pick a number, it's many hundreds of billions, at least in infrastructure. >> Jerry: Correct. >> And those four hyperscalers growing at 35% collectively, right? So there's some growth there, but I feel like there's got to be deeper business integration, right? It's not just about IT transformation, it's about deeper- So that's maybe where this Connect like stuff comes, but are there enough of those? You know, I didn't, I haven't, I didn't hear a lot of that this morning. I heard a little bit, ML- >> Jerry: Sure. >> AI into Connect, but where's the next Connect, right? They've got to do dozens of those in order to go deeper. >> Either, Dave, dozens of those Connects or more of those premise, so the ML announcement was today. So you look at what Twilio did by buying Segment, right? Deconstruct a CRM to compete against Adam Selipsky's old acquire of Salesforce.com. They bought Segment, so Twilio now has communicates, like texting, messaging, email, but all the data come from Segment. >> Dave: With consumption-based pricing. >> With consumption-based pricing. So, right? So that's an example of kind of what the second act of cloud looks like. It may not look like full SaaS apps like Salesforce.com, but these primitives, both horizontally vertically, because again, what does Amazon have as an asset that other guys don't? Install based developers. Developers aren't going to necessarily build or consume SaaS apps, but they're going to consume things like these API's and primitives. And so you look around, what's cloud act two look like? It may not be VM's or containers. It may be API's like Stripe and Billing, Twilio messaging, right? Concepts like that. So, we'll see what the next act at cloud looks like. And they announced a bunch of stuff today, serverless for the data analytics, right? So serverless is this move towards not consuming raw compute and storage, but APIs. >> What about competition? Microsoft is nipping at the heels of AWS. >> Dave: John put them out of business earlier today. [John and Dave Laugh] >> No, I said, quote, I'll just- let me rephrase. I said, if Amazon goes unchecked- >> Jerry: Sure. >> They'll annihilate Microsoft's ecosystem. Because if you're an ISV, why wouldn't you want to run on the best platform? >> Jerry: Sure. >> Speeds and feeds matter when you have these shifts of software development. >> Jerry: You want them both. >> So, you know, I mean, you thought about the 80's, if you were at database, you wanted the best processor. So I think this Annapurna vertical integrated stacks are interesting because if my app runs better and I have a platform, prefabricated or purpose-built platform, to be there for me, I'm going to build a great SaaS app. If it runs faster and it cost less, I'm going to flop to Amazon. That's just, that's my prediction. >> So I think better changes, right? And so I think if you're Amazon, you say cheaper, better, faster, and they're investing in chips, proprietary silicon to run better, faster, their machine learning training chips, but if you're Azure or Google, you got to redefine what better is. And as a startup investor, we're always trying to do category definition, right? Like here's a category by spin. So now, if you're Azure or Google, there are things you can say that are better, and Google argued their chips, their TensorFlow, are better. Azure say our regions, our security, our enterprise readiness is better. And so all of a sudden, the criteria "what's better" changes. So from faster and cheaper to maybe better compliance, better visibility, better manageability, different colors, I don't know, right? You have to change the game , because if you play the same game on Amazon's turf, to your point, John, it- it's game over because they have economies of scale. But I think Azure and Google and other clouds, the superclouds, or subclouds are changing the game, what it means to compete. And so I think what's going on, just two more seconds, from decentralized cloud, being Web 3 and crypto, that's a whole 'nother can of worms, to Edge compute, what Cloudflare are doing with R2 and storage, they're trying to change the name of the game. >> Well, that's right. If you go frontal against Amazon, you're got to get decimated. You got to move the goalposts for better. And I think that's a good way to look at it, Dave. What does better mean? So that's the question that's on the table. What does that look like? And I think that's an unknown, that's coming. Okay, back to the start-ups. Category definition. That's an awesome term. That to me is a key thing. How do you look at what a category is on your sub- on your Castles of the Cloud, you brought up how many categories of- >> Jerry: 33 markets and a bunch of submarkets, yeah. >> Yeah. Explain that concept. >> So, we did Castle in the Clouds where my team looked at all the services offered at Azure, Google, and Amazon. We downloaded the services and recategorized them to like, 30 plus markets and a bunch of submarkets. Because, the reason why is apples to apples, you know, Amazon, Google, Azure all have databases, but they might call them different things. And so I think first things first is, let's give developers and customers kind of apples to apples comparisons. So I think those are known markets. The key in investing in the cloud, or investing in general, is you're either investing in budget replacement, replacing a known market, cheaper, better database, to your point, or a net new market, right? Which is always tricky. So I think the biggest threat to a lot of the startups and incumbents, the biggest threat by startups and incumbents, is either one, do something cheaper, better in a current market, or find a net new market that they haven't thought about yet. And if you can win that net new market before the rest, then that's unbelievable. We call it the, you know, the blue ocean strategy, >> Dave: Is that essentially what Snowflake has done, started with cheaper, better, and now they're building the data cloud? >> Jerry: I think there's- it's evolution, correct. So they said cheaper, better. And the Castle in the Cloud, we talked about, they actually built deep IP. So they went a known category, data warehouses, right? You had Teradata, Redshift, Snowflake cheaper, better, faster. And now let's say, okay, once you have the customers, let's change the name of the game and create a data cloud. And it's TBD whether or not Snowflake can win data cloud. Like we talked about Rockset, one of my investments that's actually move the goalpost saying, oh, data cloud is nice, but real time data is where it's at, and Snowflake and those guys can't play in real time. >> Dave: No, they're not in a position to play in real time data. >> Jerry: Right. >> Dave: I mean, that's right. >> So again, so that's an example of a startup moving the goalpost on what previously was a startup that moved the goalpost on an incumbent. >> Dave: And when you think about Edge, it's going to be real-time AI inferencing at the Edge, and you're right, Snowflake's not set up well at all for that. >> John: So competition wise, how do the people compete? Because this is what Databricks did the same exact thing. I have Ali on the record going back years, "Well, we love Amazon. We're only on Amazon." Now he's talking multicloud. >> So, you know, once you get there, you kind of change your tune cause you've got some scale, but then you got new potential entrants coming in, like Rockset. >> Jerry: Correct. >> So. >> Dave: But then, and if you add up the market caps of just those two companies, Databricks and Snowflake, it's much larger than the database market. So this, we're defining new markets now. >> Jerry: I think there's market cap, especially Snowflake that's in the public market, Databricks is still private, is optimism that there's a second or third act in the database space left to be unlocked. And you look at what's going on in that space, these real-time analytics or real-time apps, for sure there's optimism there. But, but to John's point, you're right, like you earn the right to play the next act, but it's tricky because startups disrupt incumbents and become incumbents, and they're also victims their own success, right? So you're- there's technical debt, there's also business model debt. So you're victims of your own business model, victims of your own success. And so what got you here may not get you to the next phase. And so I think for Amazon, that's a question. For Databricks and Snowflake, that's a question, is what got them here? Can they play to the next act? And look, Apple did it, multiple acts. >> John: Well, I mean, I think I- [Crosstalk] >> John: I think it's whether you take shortcuts or not, if you have debt, you make it a little bit of a shortcut bet. >> Jerry: Yeah. >> Okay. That's cool. But ultimately what you're getting at here is beachhead thinking. Get a beachhead- >> Jerry: Correct. >> Get in the market, and then sequence to a different position. Classic competitive strategy, 101. That's hard to do because you want to win the beachhead- >> I know. >> John: And take a little technical debt and business model debt, cheat a little bit, and then, is it not fortified yet? So beachhead to expansion is the question. >> Jerry: That's every board meeting, John and Dave, that we're in, right? It's called you need a narrow enough wedge to land. And it is like, I don't want the tip of the spear, I want the poison on the tip of a spear, right? [Dave and John Laugh] >> You want, especially in this cloud market, a super focused wedge to land. And the problem is, as a founder, as investor, you're always thinking about the global max, right? Like the ultimate platform winner, but you don't get the right to play the early- the late innings if you don't make it out of the early innings. And so narrow beachhead, sharp wedge, but you got to land in a space, a place of real estate with adjacent tan, adjacent markets, right? Like Uber, black cars, taxi's, food, whatever, right? Snowflake, data warehouse, data cloud. And so I think the key with all startups is you'll hit some ceiling of market size. Is there a second ramp? >> Dave: So it's- the art is when to scale and how fast to scale. >> Right. Picking when, how fast, in which- which best place, it was tough. And so, the best companies are always thinking about their second or third act while the first act's still going. >> John: Yeah. And leveraging cloud to refactor, I think that's the key to Snowflake, was they had the wedge with data warehouse, they saw the position, but refactored and in the cloud with services that they knew Teradata wouldn't use. >> Jerry: Correct. >> And they're in. From there, it's just competitive IP, crank, go to market. >> And then you have the other unnatural things. You have channel, you have installed base of customers, right? And then you start selling more stuff to the same channel, to the same customers. That's what Amazon's doing. All the incumbent's do that. Amazon's got, you know, 300 services now, launching more this week, so now they have channel distribution, right? Every credit card for all the developers, and they have installed base of customers. And so they will just launch new things and serve the customers. So the startups had to disrupt them somehow. >> Well, it's always great to chat with Jerry. Every year we discover and we riff and we identify, in real time, new stuff. We were talking about this whole vertical, horizontal scale and kind of castles early on, years ago. And now it's happened. You were right. Congratulations. That's a great thesis. There's real advantages to build on a cloud. You can get the- you can build a business there. >> Jerry: Right. >> John: That's your thesis. And by the way, these markets are changing. So if you're smart, you can actually compete. >> Jerry: I think you beat, and to Dave's earlier point, you have to adapt, right? And so what's the Darwin thing, it's not the strongest, but the most adaptable. So both- Amazon's adapt and the startups who are the most adaptable will win. >> Dave: Where are you, you guys might've talked about this, where do you stand on the cost of goods sold issue? >> Jerry: Oh, I think everything's true, right? I think you can save money at some scale to repatriate your cloud, but again, Wall Street rewards growth versus COGS, right? So I think you've got a choice between a dollar of growth versus a dollar reducing COGS, people choose growth right now. That may not always be the case, but at some point, if you're a company at some scale and the dollars of growth is slowing down, you definitely have to reduce the dollars in cost. And so you start optimizing cloud costs, and that could be going to Amazon, Azure, or Google, reducing COGS. >> Dave: Negotiate, yeah. >> John: Or, you have no visibility on new net new opportunities. So growth is about new opportunities. >> Correct. >> If you repatriating things, there's no growth. >> Jerry: It's not either, or- >> That's my opinion. >> Jerry: COGS or growth, right? But they're both valid, definitely, so you can do both. And so I don't think- it's what's your priorities, you can't do everything at once. So if I'm a founder or CEO or in this case investor, and I said, "Hey, Dave, and John, if you said I can either save you 25 basis points in gross margin, or I can increase another 10% top line this year", I'm going to say increase the top line, we'll deal with the gross margin later. Not that it's not important, but right now the early phase- >> Priorities. >> Jerry: It's growth. >> Yeah. All right, Jerry Chen, great to see you. Great to have you on, great CUBE alumni, great guest analyst. Thanks for breaking it down. CUBE coverage here in Las Vegas for re:Invent, back in person. Of course, it's a virtual event, we've got a hybrid event for Amazon, as well as theCUBE. I'm John Furrier, you're watching the leader in worldwide tech coverage. Thanks for watching. (Gentle music)

>> Announcer: From San Francisco, it's theCUBE, covering Accenture Tech Vision 2020. Brought to you by Accenture. >> Hey, welcome back, everybody. Jeff Frick here from theCUBE. We are high atop San Francisco at the Accenture Innovation Hub, 33rd floor of the Salesforce Tower. It's a beautiful night, but we're here for a very special occasion. It's the Tech Vision 2020 reveal, and we are happy to have the guy that runs the whole thing, he's going to reveal on stage a little bit later, but we got him in advance. He's Paul Daugherty, the chief technology and innovation officer for Accenture. Paul, great to see you as always. >> Great to see you, Jeff, too. It is a beautiful evening here, looking out over the Bay. >> If only we could turn the cameras around, but, sorry, we can't do that. >> Yeah. >> All right, so you've been at this now, the Tech Vision's been going on for 20 years, we heard earlier today. >> Yeah. >> You've been involved for almost a decade. How has this thing evolved over that time? >> Yeah, you know, we've been doing the Vision for 20 years, and what we've been trying to do is forecast what's happening with business and technology in a way that's actionable for executives. There's lots of trend forecasts and lists and things, but if you just see a list of cloud, or-- >> Jeff: Mobile's going to be really big. (laughs) >> AI, mobile, it doesn't really help you. We're trying to talk a little bit about the impact on business, impact to the world, and the decisions that you need to make. What's changed over that period of time is just the breadth of the impact that technology's having on people, so we focus a lot of our Visions on the impact on humans, on individuals, what's happening with technology, what the impact on business, we can talk about that a little bit more, but business is certainly not the back office of companies anymore. It's not just the back office and front office, either. In business, it's instrumental in the fabric of how every part of the company operates, their strategy, their operations, their products and services, et cetera, and that's really the trajectory we've seen. As technology advances, we have this accelerating exponential increase in technology, the implications for executives and the stakes just get higher and higher. >> It's weird, there are so many layers to this. One of the things we've talked about a lot is trust, and you guys talk about trust a lot. But what strikes me as kind of this dichotomy is on one hand, do I trust the companies, right? Do I trust Mark Zuckerberg with my data, to pick on him, he gets picked on all the time. That might be a question, but do I trust that Facebook is going to work? Absolutely. And so, our reliance on the technology, our confidence in the technology, our just baseline assumption that this stuff is going to work, is crazy high, up to and including people taking naps in their Teslas, (laughs) which are not autonomous vehicles! >> Not an advisable practice. >> Not autonomous vehicles! So it's this weird kind of split where it's definitely part of our lives, but it seems like kind of the consciousness is coming up as kind of the second order. What does this really mean to me? What does this mean to my data? What are people actually doing with this stuff? And am I making a good value exchange? >> Well, that's the, we talk in the Vision this year about value versus values, and the question you're asking is getting right at that, the crux between value and values. You know, businesses have been using technology to drive value for a long time. That's how applying different types of technology to enterprise, whether it be back to the mainframe days or ERP packages, cloud computing, et cetera, artificial intelligence. So value is what they were talking about in the Vision. How do you drive value using the technology? And one thing we found is there's a big gap. Only 10% of organizations are really getting full value in the way they're applying technology, and those that are are getting twice the revenue growth as companies that aren't, so that's one big gap in value. And this values point is really getting to be important, which is, as technology can be deployed in ways that are more pervasive and impact our experience, they're tracking our health details-- >> Right, right. >> They know where we are, they know what we're doing, they're anticipating what we might do next. How does that impact the values? And how are the values of companies important in other ways? The values you have around sustainability and other things are increasingly important to new generations of consumers and consumers who are thinking in new ways. This value versus values is teeing up what we call a tech-clash, which isn't a tech-lash, just, again, seeing people reacting against tech companies, as you said earlier, it's a tech-clash, which is the values that consumer citizens and people want sometimes clashing with the value of the models that companies have been using to deliver their products and services. >> Right. Well, it seems like it's kind of the "What are you optimizing for?" game, and it seems like it was such an extreme optimization towards profitability and shareholder value, and less, necessarily, employees, less, necessarily, customers, and certainly less in terms of the social impact. So that definitely seems to be changing, but is it changing fast enough? Are people really grasping it? >> Well, I think the data's mixed on that. I think there's a lot of mixed data on "What do people really want?" So people say they want more privacy, they say they want access and control of their data, but they still use a lot of the services that it may be inconsistent with the values that they talk about, and the values that come out in surveys. So, but that's changing. So consumers are getting more educated about how they want their data to be used. But the other thing that's happening is that companies are realizing that it's really a battle for experience. Experience is what, creating broader experiences, better experiences for consumers is what the battleground is. A great experience, whether you're a travel company or a bank or a manufacturing company, or whatever you might be, creating the experience requires data, and to get the data from an individual or another company, it takes trust. So this virtuous circle of experience, data, and trust is something that companies are realizing is essential to their competitive advantage going forward. We say trust is the currency of the digital and post-digital world that we're moving into. >> Right, it's just how explicit is that trust, or how explicit does it need to be? And as you said, that's unclear. People can complain on one hand, but continue to use the services, so it seems to be a little bit kind of squishy. >> It's a sliding scale. It's really a value exchange, and you have to think about it. What's the value exchange and the value that an individual consumer places on their privacy versus free access to a service? That's what's being worked out right now. >> Right, so I'm going to get your take on another thing, which is exponential curves, and you've mentioned time and time again, the pace of change is only accelerating. Well, you've been saying that, probably, for (laughs) 20 years. (Paul laughs) So the curve's just getting steeper. How do you see that kind of playing out over time? Will we eventually catch up? Is it just presumed that this is kind of the new normal? Or how is this going to shake out? 'Cause people aren't great at exponential curves. It's just not really in our DNA. >> Yeah, but I think that's the world we're operating in now, and I think the exponential potential is going to continue. We don't see a slowdown in the exponential growth rates of technology. So artificial intelligence, we're at the early days. Cloud computing, only about 20% enterprise adoption, a lot more to go. New adoptions are on the horizon, things like central bank digital currencies that we've done some research and done some work on recently. Quantum computing and quantum cryptography for networking, et cetera. So the pace of innovation is going to accelerate, and the challenge for organizations is rationalizing that and deciding how to incorporate that into their business, change their business, and change the way that they're leveraging their workforce and change the way that they're interacting with customers. And that's why what we're trying to address in the Vision is provide a little bit of that road map into how you digest it down. Now, there's also technology foundations of this. We talk about something at Accenture called living systems. Living systems is a new way of looking at the architecture of how you build your technology, because you don't have static systems anymore. Your systems have to be living and biological, adapting to the new technology, adapting to the business, adapting to new data over time. So this concept of living systems is going to be really important to organizations' success going forward. >> But the interesting thing is, one of the topics is "AI and Me," and traditional AI was very kind of purpose-built. For instance, Google Photos, can you find the cat? Can I find the kids at the beach? But you're talking about models where the AI can evolve and not necessarily be quite so data-centric around a specific application, but much more evolutionary and adaptable, based on how things change. >> Yeah, I think that's the future of AI that we see. There's been a lot of success in applying AI today, and a lot of it's been based on supervised learning, deep learning techniques that require massive amounts of data. Solving problems like machine vision requires massive amounts of data to do it right. And that'll continue. There'll continue to be problem sets that need large data. But what we're also seeing is a lot of innovation and AI techniques around small data. And we actually did some research recently, and we talk about this a little bit in our Vision, around the future being maybe smaller data sets and more structured data and intelligence around structured data, common-sense AI, and things that allow us to make breakthroughs in different ways. And that's, we used to look at "AI and Me," which is the trend around the workforce and how the workforce changes. It's those kinds of adaptations that we think are going to be really important. >> So another one is robotics, "Robots in the Wild." And you made an interesting comment-- >> Paul: Not "Robots Gone Wild," "Robots in the Wild," "Robots in the Wild." >> Well, maybe they'll go wild once they're in the wild. You never know. Once they get autonomy. Not a lot of autonomy, that's probably why. But it's kind of interesting, 'cause you talk about robots being designed to help people do a better job, as opposed to carving out a specific function for the robot to do without a person, and it seems like that's a much easier route to go, to set up a discrete thing that we can carve out and program the robot to do. Probably early days of manufacturing and doing spot welding in cars, et cetera. >> Right. >> So is it a lot harder to have the robot operate with its human partner, if you will, but are the benefits worth it? How do you kind of see that shaking out, versus, "Ah, I can carve out one more function"? >> Yeah, I think it's going to be a mix. I think there'll be, we see a lot of application of the robots paired with people in different ways, cobots in manufacturing being a great example, and something that's really taking off in manufacturing environments, but also, you have robots of different forms that serve human needs. There's a lot of interesting things going on in healthcare right now. How can you support autistic children or adults better using human-like robots and agents that can interact in different ways? A lot of interesting things around Alzheimer's and dealing with cognitive impairment and such using robots and robotics. So I think the future isn't, there's a lot of robots in the wild in the form of C-3POs and R2-D2s and those types of robots, and we'll see some of those. And those are being used widely in business today, even, in different contexts, but I think the interesting advance will be looking at robots that complement and augment and serve human needs more effectively. >> Right, right, and do people do a good enough job of getting some of the case studies? Like, you just walked through kind of the better use cases, the more humane use cases, the kind of cool medical breakthroughs, versus just continued optimization of getting me my Starbucks coupon when I walk by out front? (Paul laughs) >> Yeah, I'm not sure. >> Doesn't seem like I get the pub, like they just don't get the pub, I don't think. >> Yeah, yeah, yeah, maybe not. A little mixology is another (Jeff laughs) inflection that robots are getting good at. But I think that's what we're trying to do, is through the effort we do with the Vision, as well as our Tech for Good work and other things, is look at how we amplify and highlight some of the great work that is happening in those areas. >> So, you've been doing it for a decade. What struck you this year as being a little bit different, a little bit unexpected, not necessarily something you may have anticipated? >> I think the thing that is maybe a tipping point that I see in this Vision that I didn't anticipate is this idea that every company's really becoming a technology company. We said eight years ago, "Every business "will be a digital business," and that was, while ridiculed by some at the time, that really came true, and every business and every industry really is becoming digital or has already become digital. But I think we might've gotten it slightly wrong. Digital was kind of a step, but every company is deploying technology in the way they serve their customers, in the way they build their products and services. Every product and service is becoming technology-enabled. The ecosystem of technology providers is critical to companies in every industry. So every company's really becoming a technology company. Maybe every company needs to be as good as a digital native company at developing products and services, operating them. So I think that this idea of every company becoming a technology company, every CEO becoming a technology CEO, technology leader, is something that I think will differentiate companies going forward as well. >> Well, really, good work, you, Michael, and the team. It's fun to come here ever year, because you guys do a little twist. Like you said, it's not "Cloud's going to be really big, "mobile's going to be really big," but a little bit more thoughtful, a little bit more deep, a little bit longer kind of thought cycles on these trends. >> Yeah, and I think the, if you read through the Vision, we're trying to present a complete story, too, so it's, as you know, "We, the post-digital people." But if you look at innovation, "The I in Experience" is about serving your customers differently. "The Dilemma of Smart Machines" and "Robots in the Wild" is about your new products and services and the post-digital environment powered by technology. "AI and Me" is about the new workforce, and "Innovation DNA" is about driving continuous innovation in your organization, your culture, as you develop your business into the future. So it really is providing a complete narrative on what we think the future looks like for executives. >> Right, good, still more utopian than dystopian, I like it. >> More utopia than dystopia, but you got to steer around the roadblocks. (Jeff chuckles) >> All right, Paul, well, thanks again, and good luck tonight with the big presentation. >> Thanks, Jeff. >> All right, he's Paul, I'm Jeff. You're watching theCUBE. We're at the Accenture innovation reveal 2020, when we're going to know everything with the benefit of hindsight. Thanks for watching, (laughs) we'll see you next time. (upbeat pop music)

(upbeat techno music) >> And welcome back everybody, Jeff Frick here with theCUBE. We're having a CUBE Conversation in our Palo Alto Studios. We're excited to have our next guest, who is an ABIE award winner from the Grace Hopper Celebration. Would've been competing in early October, we tried to get her on then, schedules didn't mesh so it took us a few months, but we're really excited to have our next guest. She's Mercedes Soria, she is a VP of Software Engineering for Knightscope. Mercedes, welcome. >> Thank you, thank you, I am so happy to be here. >> Absolutely, so, congratulations again on your award of leadership and part of the winnings of that is you got to keynote in front of 18,000 people. So A, What was your impression of Grace Hopper and B, how did you like keynoting in front of 18,000 folks? >> Yes, how was Grace Hopper, it was a huge community of women in technology. I was so excited to be there, everybody was just looking up to women, everybody was trying to help each other. How do you go forward in your career, and I was really focused on STEM careers, which is one of my passions. So I was so glad to be there. And how it was to keynote in front of 18,000 people, so I hadn't done that before, so I can check it off my bucket list, that was one thing. And it was amazing, there were so many women who just clapped and they just kept supporting it and I had to stop several times while I was giving the speech, so it was once in a lifetime opportunity that I'm very grateful for. >> It's an amazing accomplishment, again, congratulations, and it's amazing show, if you haven't been to Grace Hopper, you have to sign up, how fast you say it sold out? >> Mercedes: 25 minutes. >> 25 minutes, oh. Go to anitaborg. or anitab.org now, that's right, they changed the URL, yeah, I'll have to check it out. So let's jump in about Knightscope. So for the people who aren't familiar, go the website, knightscope.com, a bunch of really cool fun stuff, tell us about what Knightscope's all about. >> So Knightscope is a company that is trying to cut the crime cost to the US in half. So most people don't know that the US spends about one trillion dollars a year just to deal with crime in the US, so our goal at Knightscope is to cut that in half with the use of new technologies like artificial intelligence, machine learning, and robotics. A group is software plus hardware plus humans, so we take the good things that humans do, which is make strategic decisions, the good things that machines do, which is do the monotonous work and store data for a very long time, and we combine those to try to help with crime. >> Right, so that's a nice explanation. The short answer is, if you go to the website, it's all rolled up into these cool robots that look like C-3PO, and I'm wondering if there's a little man inside there, but we'll get into that later. But I think it's a really interesting concept because you are bringing together many of the hot topics in technology right now, so one of'em just with robotics. You got these robots of various shapes and sizes, but as you said, really, it's the synergy of the robots with the people that give kind of a one plus one makes three effect. How is it, where are those points of intersection, and how does the robot help the human do a better job, and how does the human help the robot do a better job? >> So the robot helps the human because, in this case, security guards have to walk around the same places all day long, right, they have their route, they do that all day long and they get very, very bored, and they get to the point where they don't care anymore and they just scan a badge and then that is the job, right? So that's what the robots do, which is, they don't mind going around the same area all day long, recording data, recording video. That's where the synergy is. Now what the robots, at this point, can do is make a decision in terms of, okay, I have this five things, should I make an alarm to my supervisor and say a guard needs to come. The robot only provides information, so all of that information that we provide is so the human can make a decision on what to do next. >> And does it feed into, I mean obviously these are big security systems that already exist inside these big buildings and these big facilities. Does your robot tie back into those facilities, is it a different layer on top of it, how does it work with the existing security infrastructure that's already in place? >> So the existing security infrastructure is a bit separate at this time. There is a project that we're working on in terms to integrate because there's so many security systems out there, for a start up like us, we need to be very smart in terms of where we spend our resources. So we got to do studies and figure out which were the better senders, the better companies that we need to partner with to do that. But at this point, it's a separate tool, so you open it and all the gear you need is a current browser, you can open it from anywhere in the world, and your security people can look at all the data the machine has collected. >> Right, so the other interesting piece that you're tying together via these machines is really this combination of AI and ML, artificial intelligence, machine learning, but also your background is in user interface, so it can't just be happening in the background because these machines need to do their job, executing through and with people, on the UI side and the security guards and the security infrastructure behind them. So as you've introduced more AI and machine learning into the software components that you can drive the UI, how is that changing the world, how is the UI world changing because now you've got so much more data and so much more kind of compute behind that before it even gets to the actual user that's interfacing with it? >> Yeah so the UI's a little more rich these days, it used to be a webpage and HTML and JavaScript page, and that's all it did, right, but now we have a lot more information that we can provide. For example, we have machine learning algorithms that detect if there's people in an image, so I don't only tell you this is my video, but I also give you a picture of the person that I just saw, and then I tell you, hey, this is what I saw. It makes your experience a lot more incursive. >> Right, and another potential integration point, right obviously with photos in the security system for IDs and passes and all those things. >> Yeah, even face detection at some point as well is very important for us. >> Now you have four different models, why do you have so many models, what's the use cases that would drive you to have four different models? Hard to support four models instead of one as a startup. >> Yeah so our customers have very different needs. Crime doesn't happen just in a shopping mall, crime happens at PG&E offices, it happens at the mall, it happens at different locations, it could be outside, it could be inside, it could be in a hospital, it can be in a parking lot, so what we tried to do was to cover all of those potential places where crime will be. So with that we have four products; we have the K5, which is our first product. It goes into ADA compliant environments like hospitals and data centers, it's a big robot and mainly used for things like a parking lot to detect license plates, to make sure that it's monitoring all the outside. Our second product is the K3 which is a smaller machine, and what it does is mainly goes inside, it can go through a door and it can do things like monitoring who's at the office at night, raising an alert if there was a fire, stuff that happens inside. We have the K7 which goes to outside places where you have things like speed bumps, you have different kind of terrain, gravel or other type. And then the K1 which is our static model that what we're working on that for the future is to have concealed weapon detection at that point, which is something that is very useful for places that have, like for hospitals, when somebody comes in, they want to be able to know if these people are armed. >> Right, I'm just curious if you can share where customers have seen the most impact, the most benefit by using one of your robots. What specific behaviors have just been a game changer when they put in the Knightscope robot? >> Yeah, so I can't tell you the actual customer, that is something >> No, no, that's okay. >> That we can't say, but I would tell you one example. We have, for example, a hospital and this place is open 24/7, obviously the emergency room, and when they will have, it's down in LA, so they will have at least one break-in every week at the parking lot. So we put our machines there and the past seven months that they have been there, they got zero, they got no break-ins. And the nurses now feel safer going to their cars, people feel safer going there at night, so that is one example. We also had an example of a shopping mall where there was a guy who was basically exposing himself and nobody could catch him because he would drive, as soon as he saw a security guard, he would drive out. So we were able to catch that person as well. There are some people to steal merchandise, so they came, they stole something, they left, and the very next day, they come back and they try to sell this back to the mall people, so by seeing who these people are then determining that they came back to the mall, we were able to apprehend them as criminals. >> Right, on the first example, on the parking lot example, does the robot have active deterrents that it can do, can it sound alarms, light lights, to make people feel safer in a parking lot, that's very different than just monitoring things? >> Yeah so what the robot does is, it has a sound that it's all day it's playing that sound, there's a lot of lights, the lights change color based on what's happening around the robot. Another thing that we have that helps a lot of people feel safe, we have a push-to-talk functionality, so if you were feeling something was wrong at night, you can push that button and you can directly talk to the people at the security operation center. They can walk you through what to do, they can follow you while you go to your car, there's different functionality that we have that helps people feel that they're safe outside. >> Right, and on the shoplifting one, it's interesting 'cause lots of stores have cameras, right, that's not a new thing. So what did your system do differently that the regular camera that they had in there before probably would've filmed the person but didn't necessarily wasn't firing off the alert, recognizing they were back again, did somebody go in and manually type in this particular person's a shoplifter. How did you guys take it to a much different level than just kind of a static security cam? >> So the main thing that you should keep in mind for static cameras is there's always black spots, blind spots, there's no way that they can see everything, and mainly you have cameras inside of the shops, you don't have them outside, so what we did is, we not only saw that we not only got the video of the person inside of the shop, but we saw them when they came outside, we saw them when they were moving, all of this is recorded in video and that we can then match them and see the people who were. Another thing that we do that cameras don't do is we can detect your mobile devices, anything that has that's looking for a network, we can identify that device, and that is always for you and that is always for that device, so we can match those devices when they come in. >> You shouldn't have waited this long but one of the most interesting things about the company and what you guys do, and it's highlighted by what you just said, is the way you go to market. People are not buying these robots, right, you offer the robots as a service, so really interesting model and really brings up interesting things like you said where you can do all kinds of software upgrades, you can do hardware upgrades, you can do all types of changes to the actual unit that the customer just benefits, it's a classic SAS model. So how did you get to that stage and how do people like having, now, kind of a simple monthly payment with all the upgrades and constant, I would imagine, a lot of upgrades coming pretty consistently? Pretty interesting way to go to market, how's that received in the market? >> It's very well, people really accepted, especially when it's new technology. We decided from the beginning that we wanted to be, to own the whole technology stack, and even the robot itself because we knew there would be a lot of upgrades, we knew there would be changes and we wanted to serve our customers in the very best way that was possible. So to help people adopt new technology, we help them with how do they perceive it on a daily basis. If you come to somebody and says they want you to buy a hundred thousand dollar robot, uh, you don't know what that's going to be, but if you said, I charge you ten dollars an hour and give you a robot, that not only changes software every other week, it changes hardware every six months, and you have whatever robot will fit your needs the best. People are really accepting of that model, to the point that all the companies are jumping into the same thing. >> It's really interesting because then it begs where you guys will develop as a company, you know, are you are robotics company, are you a software company, are you a software monitoring company, do you become really a security AI company that pulls from lots of different data and lots of different sources? It really opens up a broad range of opportunities for you guys in which you want to go or where you find your most expertise or where the market takes you. Pretty exciting way to go to market. >> Yeah so what we decided to was we wanted to be the Apple of security guards, so what Apple does is they have their software, their hardware, they own all of it, and therefore they have a very loyal following. We want to be that for security guards, so we own the whole environment, we make changes when we wanted to, and then we go to market that way. >> Okay, that's a great story and again it's knightscope.com, they're fun pictures for one, but it's a great story. But before I let you go, Telly would not be happy if I didn't take a few minutes to talk about your journey. How did you get here, VP of Software Engineering? You know, software's eating the world, it's a great place to be, you've got a solutions based system, but really it's a bunch of metal wrapped up with software inside. So how did you get here, and I wonder if you can share a little bit of your journey to become VP of Software Engineering? >> Yeah so I'm an immigrant, I'm not from the US. I was born South America, and when you're in South America and somebody tells you, hey there's an opportunity for you to go study in the US, you take that opportunity. So I came to the US to study for college, I had a Bachelors in Computer Science and then a Masters in Computer Science. >> Where did you go to school? >> I went to Middle Tennessee State University, and like I said, when somebody tells you, you're going to the US, you don't ask questions, you just go. >> So who made you that offer, how did that come about? >> My university in Ecuador, where I was from, they had an agreement with the university in Tennesee. So they would send students back and forth in an exchange program. >> So you're a good student, they identified you as having great potential and you got picked for that program? >> So 5,000 people apply for 20 spots when I applied. >> Wow. >> So 20 of us came, and out of the 20, the only two people who are staying in the US, my sister and I, we're twins, I have a twin sister. >> 'Cause you ask your sister for support, maybe? Twin sister. >> If I really, it probably had a lot to do with it. And then with technology, I found my way into Knightscope, and Knightscope is a really good company for women in technology specifically, and that is some of the work that I pushed myself to do. Our women in technology numbers are about 25% to 28% of the company which is a huge number for Silicon Valley. So we hire women, we try to mentor them, I myself take time to spend time with them, and then help them get a career that they're excited about. >> And when did you discover your affinity for computer science? It's always a great debate as to when is the best time, or when is the optimal time, or the most popular time for young girls and eventually young women to get involved in STEM? What was your experience? >> So I live with my uncle in Ecuador and my mother, so I always knew I wanted to do something structured, and at the beginning, he was an architect, so I thought I would be an architect, but then I started reading some science fiction books and the closest thing for me to science fiction, making that a reality, was a career in computer science and technology. So that's how I started, and that has led me to, now, Knightscope, and we're doing the most advanced technology that is out there, we're out there with artificial intelligence, we have machine learning, all of the technologies that are out there, robotics, we are using them to put them to use for the greater good. Our job is to keep America safe, and we all are working towards that goal. >> But I think you just want to make something fun that looked like C-3PO. >> It's more like R2-D2 actually, and if you want to see more, go to knightscope.com. >> Okay, and final question. So you're advice, more general advice, to older girls or young women, in terms of what they should do if they want to get into this or why they should consider a career in STEM if they haven't already. >> A career in STEM is very, very rewarding. You're going to be doing sometimes things that nobody else has done ever before. You're out there in front of everything that's happening with technology, and it's actually exciting. When you find other women that do what you want to do, look at people's backgrounds, look at what they've done, look what they're trying to accomplish, and then, make sure that you get into their lives and they'll help you through it. There's a lot of women who would be happy to help out and one of those is me, I'd be glad to help people out. >> Well, Mercedes, thank you so much, again, for spending some time. Congratulations on the award and comin' in and tellin' us your story and educating us more on Knightscope. >> Thank you, and if anybody wants to know, knightscope.com, they can find all about our technology. >> Alright, she's Mercedes, I'm Jeff Frick, we've been having a CUBE conversation in Palo Alto, thanks for watching, we'll catch you next time. (light techno music)

(mellow music) >> Announcer: Live, from New Orleans, it's theCUBE, covering Veeam ON, 2017, brought to you by Veeam. >> We're back at the big easy, this is theCUBE, the leader in live tech coverage Dave Valente with Stu Miniman, Jason Buffington, long time CUBE guest and lead analyst at ESG, Jason, great to see you again. >> Thanks for having me >> @JBuff you're welcome, it's always a pleasure. You are an icon in this business. Ratmeyer today on theCUBE brought you up, said my friend, Jason Buffington, made an observation about the industry, and it's great to see you again. >> Thank you. >> So, you got some good play in the keynotes this morning, you guys just recently did a study that you spearheaded, talking about the availability gap, tell us about that research. >> So, 24 countries, a little under 1100 enterprises. So all organizations, over 1000 employees, and what we wanted to look at was how often are you down, how much does it cost when you're down, what are the differences between what the business expects of you, versus what you can actually deliver. Right, and by the way, that's the definition of the gap. Right, so the business expects that we cannot tolerate more than 30 minutes of downtime, and yet your fail over window is two hours. You have the availability gap. If the business says I cannot tolerate more than an hour of data loss, but you only backup once per night, you have a protection gap, right. So, looking at those gaps between the business expectations, and what IT can deliver, via whatever tools they're using, it was an unbiased panel, is what we went off and quantified. There were some really interesting numbers in there. >> Were you able to go to the same firm and ask of business people and IT people at the same firm? >> No, in this case what we did is we looked for IT decision makers who were familiar with the data protection processes they were using, and as well as being able to speak to business issues. So kind of look for the director IT, VP IT, someone who already has the business grade conversation. Probably the person who is being held accountable by the business units when IT fails to deliver. >> Do you think that, we've had a bunch of conversations with the practitioners today about what's the business conversation like, "well we go to the business" "and say how much data are you willing to lose." "Well none!" and then they go back and say >> There's a price for that >> There's a price for that, right. And most are not doing charge backs, some are doing show backs, so it's up to IT to say okay, look, we know they can't afford it. We can't afford it, so this is the level of service that we're going to give them. Do you think that's where the availability gap exists? Or is it because people have the wrong architecture, the wrong processes? >> I think it's more the former than the latter. I did a breakout session on this report earlier today. There was a great question in Q & A, why is it backup is still broken? Why is it no one can fix these gaps? And, what I offered them was that there's a lot of folks that just underestimate backup. They think of it as a cost center. They think it's always broken. Well, backup is not broken, the problem is if we were all still using Windows server 2003 physical boxes and exchange and sequel were still on pram and file was just that, we'd have solved backup ten years ago, right. But every time that you modernize production, it forces a modernization of protection. If you do it reactively, it's because you put in this brand new shiny flex pod or v-block or whatever, and figured out oh that legacy backup doesn't work. If you do it proactively, then you're catching up with things. But the problem is if you underestimate the importance of that, you get these gaps, right? So, what I counseled to the room that I was in was the first thing you have to do is you have to stop talking about data protection, even availability as an IT problem. It is a business impact cause, period. Right, so the first thing you want to do is you want to get all the tech out of the conversation. So, I offer a formula up, I published a book back in 2010, and there's a free chapter. I'll get it to you, so you can put in online, but I basically breakdown the cost of downtime into four values. There's the cost of lost data, there's the cost of lost productivity, right. So there's time down and time you have to repeat. And you can equate those to R2 and RPO. But a parentheses around those and times what's the human cost plus the profitability cost. And that's overly simple, but the point is if you know how long you're down, if you know how much data you will have lost, multiply that times how many butts and seats are sitting idle and how much did the inside sales department not sell that hour, right. That tells you cost of outage. And then all you have to do at that point, and there's no tack in that, right. It's just what is your RPO in real, what's your RTO in real, how much do your humans cost, how much does your department lose? If you have those four things, you know how much the problem is. Then, all you have to do is just go back to your system log and say how many times did that happen this year. If you do that, you've turned an IT problem into a business problem. Anytime I get a hold of C-level executives, the first thing I talk to them about availability is downtime is not in your budget, right. The idea of doing nothing costs you money. That's not in your budget and I guarantee of you did a data protection and availability solution, that will cost you less to your bottom line than the downtime that's unplanned that you have not budgeted for. >> Jason, Ratmere in the keynote this morning talked about the last ten years and they launched a new logo, talked a lot about cloud and physical and the next 10 years. What's your take on the message? Veeam just changed the leadership up a little bit. Are they in a transitional phase? Where are they positioned for kind of that next wave? >> So, the whole market's kind of in a transitional phase. So, I've been in data protection for 28 years. The only thing I've done since before getting out of school. Every time that we've had a major IT platform shift, the leaders in data protection have not made that jump, right. I started when we were doing mid-range, going to netware and over to Windows. >> That was what Ratmeyer was saying today. I didn't want to steal your thunder, so I'm glad you've brought this up. He noted that you had observed this, so carry on. >> Yeah so in times passed, we went went from physical to virtual servers, those leaders didn't make the jump and Veeam did, right. Veeam kind of took the crown on that for this whole last run. Our platform is shifting again, right. Now the difference this time around is and by the way the reason that most people don't make the jump is because whatever made you great from a technology perspective the last time around, doesn't apply to the new platform, right. So, NLMs didn't apply to Windows, agents didn't apply to hosts. We're now moving into cloud, but it's not a cloud, right. Some folks want IS, some want SAS. Neither of those use the same approaches that Veeam's secret sauce for host-based protection will carry for. So, the industry is in kind of a flux, and the other thing which is different this time around is when I was helping people move on to Windows NT, the presumption was we we're going to shutdown all the netware when we were done, right. For most of us, as we move into virtual machines, the presumption was we'd get rid of the metal on the way out. In this case though, cloud is not necessarily the end state, the end state is hybrid. Some data will be on pram, most of that data will be virtualized, some of it will still be physical. Right, the data that's in the cloud. Some of it will just be cloud stores, some of it will be the IS hosted VM, some of it will be SAS. But that's not because it's a prolonged transition, it's because we shouldn't be talking about migration, we should be talking about agility, where some data starts in the cloud and comes home. Other data starts on pram and moves, or from cloud to cloud. Because of that multi-cloud hybrid architecture, if that's the new end state for what IT is going to be delivering on, then the rules change. There is no secret sauce that carries from the last generation over. Certainly, Veeam's going to continue to be thought of as the virtualization data protection solution. But, if you think about they've added agents for physical, they've added cloud-based support on the back end. They announced more support for Office 365 and SAS. They're not a virtualization only play anymore. So, the market is going to have to take a reset, where everybody is unified, the difference is you've got the legacy folks that are unified and trying to catch up on virtualization features. And you've got Veeam, who is unified, where their virtualization is their strong suit, and cloud hosted and physical are the catch ups. So they're flying in opposite directions. >> So, you're saying that Veeam's secret sauce doesn't and virtualization doesn't necessarily carry over, however, they're making moves that will allow them to bridge, is that right? >> Absolutely, so unlike everyone else, who is in that virtualization wave, who solved the end protection and then happily got sold for their IP and you don't know those brands anymore. In this case, Veeam has continually looked at what else do people need, let's go do that. So, 4 or 5 years ago they added snapshot support, which wasn't necessary, but added more scenarios. Then, they added tape, who adds tape in 2015? Right, but they did because they recognized that people needed tape out, and since then they've added cloud, a couple different versions of cloud. This week they announced continuous data protection. Now, I'm glad no one from SNIA is around, cause they have a very prescriptive definition of what CDP is supposed to look like, and this isn't exactly that, so it's really more like KCDP, Kind of CDP, kind of thing. But, they continue to arrow the edges. They added physical support, those agents walls will allow them for IS hosted. They're not unified anymore, and that forward motion, but the moment they've got coming off of the first strategy, that's what's going to keep them moving forward for the next ten years. >> What makes is not KCDP, and makes it pure CDP? Just an infinite granularity or? >> Well, if you ask SNIA folks, they would tell you it's not just about infinite granularity on the protection, it's also infinite recoverability on the way back. So every single microsecond, so-- >> Stu: That's CRR isn't it? >> Yeah, think more like sequel does with every given transaction, could we go back to a given point. >> You need a data base to be involved, to actually get there. >> Yeah, but again, what I think is interesting is it's not just about backup, so in the availability report we talked about the gap between how little downtime that an organization can tolerate, versus just backup can't meet that goal. You can't recover fast enough if the only thing you're going to do is restore from backup. So, being able to integrate snapshots, being able to have replication, which shrinks down that data loss window considerably, that's how you meet the rest of the story, that backup alone can't do. And kudos to Veeam for doing it. >> Jason, how should we think about some of these emerging players who are actually in Veeam's ecosystem? Like Rubric or Cohesity, or Datos. Datos is not here, These sort of new, emerging, they don't want to call themselves backup players, they want to call themselves data protection or availability. How should we think about those emerging players? >> So, I have a category in a slide. I put them all in the category that I lovingly call the disrupters, right, because it forces you to reconsider the conversation. If you kind of step back and I could put Veeam and some of the other legacy unified enterprise class data protection products in one category, and what all of them are saying is let's take the backups that you know and trust us with. We're going to add indexing, we're going to add orchestration, we're going to help you do more with your data along the way. The end result is what the industry is calling copy data management. What else can you do with that data, which is otherwise dormant, sitting away in a store. What the disrupter category would tell you, is instead of starting with backup, and trying to evolve it forward, start with new storage. Think of the things you could do with a new paradigm for storage. >> So, the storage that would automatically know where the footprints are, that would automatically back you up along the way, that would automatically allow for copy data management type scenarios. So, again, it's two ways to get there. There's the backup first approach, and building on who you trust, then, there's the, if you want to start over again, have I got a deal for you. And that's going to be really interesting. For the rest of 2017 and 2018, the whole space of copy data management, copy data virtualization, copy data fill in the blank, that whole idea of good, better, best. Good, keep all your data as long as you need. Better, and get rid of it a moment longer. Then best, what else can you do with it. Analytics, testing, reporting, et cetera. That'll be an interesting market to watch, and one that now that Veeam is broad enough, will start to play in now as the year moves forward. >> Jason, like us, you go to a lot of these conferences. You've been to the Veeam on trail, which was our first one here. For the audience it's not here. What differentiates this show from some of the other ones you go to. What excites you about the community, the show itself, anything surrounding it? >> Sure, Veeam has a wonderful sense of community that most of the other vendors have just not been able to capitalize on. You know, there's certainly, there are many many thousands of IT professionals that have made their career out of this storage platform, or that backup software platform, et cetera. And, they're all good for support. Veeam has somehow cracked that code like Microsoft MVPs. The difference between a post-sale's we'll help you if you want, to a pre-sale's advocates. They literally have a green army walking around on this floor, who is delighted to tell anybody who will listen how Veeam saved their bacon, gave them back their weekend, et cetera. That energy of community, that's what's different about not only Veeam ON, it's also what's different about like a Veeam party at Vmworld or a Microsoft event. That culture and community, they've tapped something special there, and it shows in their results. >> Alright, we've got to wrap there, but I'll give you the last word, any upcoming research we should be paying attention to, or you want to promote a little bit? >> Sure, my blog within ESG is technicaloptimist.com. I do primary research on a whole bunch of things. Next ones coming out are on data protection modernization. So, why are people staying put or changing. If so, why or why not, and then what features matter most. So that's the next one that'll come out for me, and then over the summer I'm going to look at appliances as form factor, there's a lot of those to look at this week. What the affect of the DVA and the VM are having in the market, and then also more on the availability study. What we did for Veeam was so interesting ESG is going to go and take a few other angles and look at it some more. >> Awesome, great research agenda you've got upcoming. We will be looking for that, so, Jason, thanks very much, it was a pleasure to see you. >> Thanks for having me. >> You're welcome, alright, keep it right there buddy. We'll be back, with our next guest at theCUBE. We're live from Veeam ON, 2017 in New Orleans, We'll be right back. (upbeat music)