VMware's (VMW) CEO Raghu Raghuram on Credit Suisse 25th Annual Technology Conference - Transcript

VMware, Inc. (NYSE:VMW) Credit Suisse 25th Annual Technology Conference December 1, 2021 2:25 PM ET

Company Participants

Raghu Raghuram – Chief Executive Officer

Conference Call Participants

Phil Winslow – Credit Suisse

Phil Winslow

Good afternoon everyone or actually, I guess, it's good mid-day everyone. Very excited to have VMware joining us, a company that I have been a fan for a long time, big fan of the new Chief Executive Officer as well. Mr. Raghu, thank you for coming down to Arizona.

Raghu Raghuram

Thanks. Likewise, always been a big fan of your coverage and great to be here.

Phil Winslow

Yes, that's great. And so before we get going and Paul Ziots [indiscernible] if I didn't read the forward-looking statements, I don't want to get on Paul's bad side. I'm not going to do it as well as him. I'm going to try. Statements made in these discussions, which are going to be, which are not statements of historical fact are forward-looking statements based upon current expectations. Actual results could differ materially from those expected due to a number of factors, including those referenced in VMware's most recent SEC filings Forms 10-Q, 10-K and 8-K. So is that as good as Paul?

Raghu Raghuram

Yes, ten out of ten.

Phil Winslow

Okay. And so, actually, let's talk about actually one of the most recent event, the spinoff from Dell. I guess – help walk us through that sort of the first chapter of VMware post-spin. What are you most excited about as you look forward to the future?

Raghu Raghuram

Yes, I mean, it's like you just alluded to a super exciting event for all the employees and the company of course. And what I'm personally most excited about it's the best of both worlds situation for us. On the one hand, we continue our phenomenal relationship with Dell. We have formulas that in the commercial agreements. On the other hand, our positioning for phase three of our journey as a company is as this ubiquitous multi-cloud platform company, which means we want to be the Switzerland of the industry. We want to partner with everybody really well. And being a standalone company sets us up very nicely for that and we can partner deeply with the cloud providers. We can partner deeply with the infrastructure providers, other software and services companies. So that is super exciting. And then the third thing of course is over time it allows us to be flexible with our capital structure, use our equity to make strategic acquisitions. So…

Phil Winslow

They're a little limited by that with some ratios that were required as well in the past. Now, obviously, as you just mentioned, there's a very dynamic here, a different dynamic here as post-spin. What are the biggest points that the financial community and the audience here should really keep in mind as we think about the future that called post-spin versus pre-spin VMware?

Raghu Raghuram

Sorry.

Phil Winslow

No issues.

Raghu Raghuram

Yes, it's a less pre-spin versus post-spin and more where are we going as a company, right. And as I said, when I was appointed to the role, we see a tremendous opportunity in the next phase of computing, which I'm calling multi-cloud computing, others call it distributed computing. The idea that customers, they are going to deploy their applications on multiple public clouds in the data center. They are going to build out the edge. And in places like Europe, there is a lot of sovereign clouds coming up, right. There's this massive explosion of computing capacity and because there's a massive explosion, the number of new applications coming on board due to AI and new user needs and so on and so forth.

And we want to be the platform that ties all of it together from a ubiquitous place where you can run applications, manage them, connect them, secure them. That is the giant opportunity over the next decade and we are very, very well positioned. So that's the first and the markers for that or what investors should be watching for. The second is in order to do that well, we have to transform our business model to be not purely license alone, but a license plus subscription and SaaS. And that is the second transition that we are trying to do. So these are the two things that investors should be looking forward to.

Phil Winslow

Got it. Now, obviously, VMware, you have 300,000 customers. And so, I think, you can tap into I'd say the recent CIO and really just broader conversations with customers. What are the key themes that you hear in these conversations about what customers are looking for? And then also just how VMware is positioned to take advantage of this?

Raghu Raghuram

Yes, definitely. I mean, so the macro industry term for it is still digital transformation, right. That is the transformation of most of these enterprises into becoming digital businesses. The first phase for that was cloud. The next phase of that is blurring the difference between, distinction between digital and physical.

Phil Winslow

Yes.

Raghu Raghuram

So, we see a significant cloud investment and acceleration of cloud.

Phil Winslow

Yes.

Raghu Raghuram

Like I said before, 75% of our customers are using two clouds or more. Right? We see them continuing to build out their private cloud. And we see them continue to build out the etch. So that's the first set of priorities that we see, digital transformation and cloud. Closely behind it is security, right.

So those are the things that we are focused on as a company. And of course, given that even who knows how long this pandemic will last, but even post-pandemic, most companies say a majority of their employees are going to work from home.

Phil Winslow

Yes.

Raghu Raghuram

Remote work is a third area that customers want to spend money on to revamp their infrastructure. So those are the priorities that we see.

Phil Winslow

That’s great. Now I want to focus in, on one of the comments made there of multi-cloud because I actually think there has been no sort of biggest work change. It’s like over the past multiple years in multi, not just as simply hybrid cloud. So, as we think about an enterprise operationalizing multi-cloud what are the core pain points for enterprises that VMware is trying to help with?

Raghu Raghuram

Yes. So, let me give you some examples, right. So, when we talked about it in one of our earnings calls this year, we got a global tire manufacturer. So, they've got 70 logistics depots around the world. Okay. They've got their corporate data centers and they're using Azure. So, they want to be able to build and operate modern applications in a consistent way across all of those. Right?

Phil Winslow

Yes.

Raghu Raghuram

And they have chosen to run these applications on Kubernetes, which is the modern standard for infrastructure, for modern applications.

Phil Winslow

Yes.

Raghu Raghuram

So not only do they have to deploy all of these things everywhere, they have to be able to manage these applications, make sure that they are all up to date, they are secure, they are all connected, et cetera, et cetera. So that is a classic problem that customers come to us for. That is one example of a multicloud problem.

Phil Winslow

Yes.

Raghu Raghuram

Because you don't want to be dealing with all of these in silos.

Phil Winslow

Yes.

Raghu Raghuram

Let me give you another example, we talked about the same customer or another customer that wants to build these new applications and their developers they don't have enough developer capacity in our time to dedicate a whole new team, to do a set of applications one way on AWS, and other way on Azure, a third way on-premise, the fourth way on the etch. They want to have a consistent way of building these applications. And our Tanzu portfolio does that, right?

Phil Winslow

Yes.

Raghu Raghuram

Our management portfolio, once you build it, then how do you manage these applications? Again, you don't want to have five management teams, you want to have one management team. You don't want to have five security teams, you want to have one security team.

Phil Winslow

Yes.

Raghu Raghuram

You don't have to have five networking teams, you want to have one, right? So, these are the problems that the customers talk about when they talk about multicloud. And these are the ones that we are very well suited to solve, because these are the core technology teams, we have in VMware for the last decade or two decades.

Phil Winslow

Yes, interesting. Now let's double click on multi-cloud a little bit. When you think about the competition in this space and with Tanzu, maybe just break it down it down for us. Who are you going up against? Because honestly, Tanzu, we've talked about as one thing, but it's really a portfolio of different technologies.

Raghu Raghuram

Yes. So, with the Tanzu the closest equivalent, I would say, is Red Hat with OpenShift.

Phil Winslow

Yes.

Raghu Raghuram

All right. However, the reason I'm saying closest is it's not quite there, right. They don't do the breadth of management technologies, and the networking technologies and the security technologies, because that's not been their traditional business, right. So when you think about multi-cloud overall, we have different companies where customers can go to for alternatives, but if you want to tie all of them together and make all of them work together, we are fairly unique in that regard.

Phil Winslow

Yes, interesting. Now the one of the things you just brought up is storage networking. I think, as a workload, it needs compute storage and networking.

Raghu Raghuram

Yes, yes.

Phil Winslow

And so the what do you think about find data centers vStack, it’s obviously vSphere, NSX, vSAN. How portable or how much value-add is actually having that as vStack in a Kubernetes world?

Raghu Raghuram

Yes. There is tremendous value, right. So if you think about our – what we call as our SDDC stack, which is the compute storage network, that is what is sitting underneath the Kubernetes layer. So when customers build running applications on Kubernetes, they still need to be able to store the data somewhere, encrypt the data, connected all together, make sure the east of the security between these containers is good. All of that is what SDDC provides.

And we do that on-premise. And in our last quarter, we saw some good growth there, double-digit growth. We do that in the cloud, and this is where our partnerships with the cloud vendors come into play. And we do it with all the public clouds and actually with AWS, with Azure, with Google, Ali Cloud, IBM, Oracle. And so customers have a choice of where they want to run it, but they will have a consistent infrastructure attributes.

So if you’re running a mission critical application, right, then you want to make sure that the performance of their application, the resiliency of their application, the security of their application, the tooling around it are things that you can truly trust in a mission critical environment. And so all of that applies now to transit to Kubernetes on top of SDDC. So that’s really the benefit.

Phil Winslow

Great. Let’s talk about stick with the Kubernetes name, because Tanzu on vSphere with the original project specific branding, for those of you remember, native Kubernetes support inside of vSphere. We’ve talked about this a little bit. We talked about beforehand and effect of VMware. So containers and VMs, will you walk us through the strategy there?

Raghu Raghuram

Yes. So our application – modern application strategy is twofold, right. On the one hand, we want to be as customers deploy their modern applications anywhere. We want to be the control plane and help developers build those modern applications and control them wherever they are. And that specifically, because the VMware environment is still going to be home for a lot of modern applications.

We want to make the VMware environment truly differentiated for modern applications. The way we do that is by embedding Kubernetes right into the infrastructure. So you can have one platform for containers and VMs, one platform for traditional applications and modern applications. And you don’t have the bifurcation and balkanization of your IT teams. And because we have been able to build it into the layer, we have been able to re-architect the core hypervisors. To the point, that all of the efficiency benefits that the hypervisor provided is now being provided to modern applications.

Phil Winslow

Yes.

Raghu Raghuram

In fact, the third-party published a paper recently that showed customers can get 6 times the density when they run a collection of applications built as containers on top of a VMware Tanzu – sorry, VMware Kubernetes environment. Then bare metal.

Phil Winslow

Yes.

Raghu Raghuram

Okay. Think about that bare metal, without even anything else on there. So that shows the power of an architected approach and a unifying approach.

Phil Winslow

Got it. Now let’s go to the management level with Tanzu, what’s the driving factor of why customers choose Tanzu over, let’s say, Azure Arc or a Google Anthos, the cloud packs from IBM Red Hat or even Amazon EKS.

Raghu Raghuram

Yeah. So Azure Arc and Anthos are good solutions for customers that are primarily belonging to that cloud customer. So if you’re a Microsoft customer, now you’re using Azure, right. And you’ve got some applications, Kubernetes applications on premise. Then you can use Azure Arc to connect all of that together, right, similarly with the Google for Anthos, right. But if you said, look, I don’t want to use Google identity. I want to use my own identity. I don’t want – I want to use my own security, et cetera, et cetera. That model does not work well, right.

It’s not because they are bad products. It is because they are designed for that use case. We are the only true multi-cloud provider that’s point number one. And point number two, one of the primary places where modernization is happening is where the traditional applications are happening. And that is on top of vSphere. And our Tanzu platform is native to vSphere as well, right. So those are the two big advantages.

Phil Winslow

So let’s take us through the ends. I think we had all Dan, so we got VMs, so called cloud ready workloads and containers cloud native workloads. So we’ve got the end there. We’ve got compute and networking and storage. We’ve got on-premise and Azure and AWS and Alibaba and GCP and I forgetting the….

Raghu Raghuram

Oracle.

Phil Winslow

Oracle, thank you.

Raghu Raghuram

Yes. Please don’t forget, Oracle.

Phil Winslow

Okay. [indiscernible] I’m going to get a call from Ken Bond. And it’s like, I forgot them. But like I joked about beforehand, like I think of VMware as the end company that you can get all these things, it’s not an or question.

Raghu Raghuram

So, I mean, that is fundamentally, you hit upon a very important point. Any reasonable enterprise is going to be an ad company, because they don’t have the ability to rip and replace and do cut overs of anything, right. So there’ll always be multiple generations of technology that are going to be in use there. And most enterprises are not changing technology for technology sake. So they say, okay, this set of things I want to do is in this way, that sort of thing, this one, they won’t do it another way. That is why our heterogeneity and as long as there is heterogeneity, there’s going to be VMware.

Phil Winslow

Yes, exactly. That’s why we’re a fan. And so let’s talk about some numbers here we’ve talked high level strategy. One of the things that jumped out at us is last quarter was licensed revenue. I mean, exceptionally strong, I think it was growing at the highest rate in three years. So the question there is core compute in SDDC product bookings have both been very strong in the past a couple of quarters. Is that partially once drove that license out-performance this quarter and what are just the higher level trends that are driving this?

Raghu Raghuram

Yeah. So the answer to the second part of the question is that’s what drove the outperformance in Q3. So – but stepping back again, customers are continuing to – in Q3, for example, our large deals we had 23 deals over $10 million compared to 16 the year before. So that is a data point that says customers are starting to transform the data center again, right. So we see that benefiting us, obviously, they did benefit us in Q3, and I think it’ll benefit us going forward as well. The other part of it is SDDC is also being used in the edge and SDDC is being used in the cloud. And so we are seeing the benefit of those things as well.

Phil Winslow

Interesting. Now let’s talk about also NSX and vSAN, I mean, both of these have been home run technologies, home products for the company. What – how do you think about just the – what, well, I guess what are you hearing from customers about why they adopting these? How do they fit in sort of the broader context within VMware?

Raghu Raghuram

Yes. So the reason NSX initially got introduced into the data center is because it is very simple and very practical. Customers did not want – developers did not want to go to the networking team to hook up private connections between their applications, right? And so we had the technology that became the basis of what a software defined networking. Then the next reason why people adopted networking was – software based networking, was it turned out it’s a better way to do segmentation in the data center.

These days, we have grown the stack up even further to do all sites of – all sorts of security, east-west security, advanced threat protection, IBS, IPS, et cetera, and load balancing. So these days when you’ve got ransomware attacks on sorts of security considerations, securing the traffic that’s flowing between applications is arguably more important than securing the traffic that’s going from the outside of the data center into the data center, right?

So in security parlance, we call it east-west traffic, which is north-south. And I’d say that’s a phenomenal job at protecting east-west traffic. That’s why people are deploying it and load balancing. And there is the extension into the cloud. Almost every customer has a bunch of applications in the cloud, a bunch of applications on-premise. Now, how do you have consistent policy? How do you make sure the firewall rules are all automatically set up so on and so forth? And those are really the reasons why networking is growing.

Phil Winslow

Yes. We’ve talked about this on many call backs. I called the leader lines and PowerPoint. It’s like, make sure the firewall is the same, it’s like, you might move the object, but everything stays with it.

Raghu Raghuram

I mean, it’s all said and done even today, when we go out and talk to customers about what are your problems in multi-cloud, networking comes to the top.

Phil Winslow

Yes. No, that is a significant pain point. Now let’s flip to your subscription and SaaS. Obviously, you’ve talked about a significant growth in the coming years back in the Analyst Day and then you talked about again on the Q3 call. What are the biggest drivers of the pace of subscription and SaaS conversions? And how can you help accelerate this at your customers?

Raghu Raghuram

Yes. So the first is I would say we have a pretty healthy ARR and we have been talking about ARR and some of that – and all of that is going to carry over next year into revenue. But if you think about our subscription and SaaS products, we think about it in three buckets. Bucket one is a set of products that are pure-subscription and SaaS. So these are our SaaS offerings like we got on AWS, right, the cloud offering, or it could be Tanzu, right? And those are getting bigger. And to a point where from a scale point of view, it’ll have a pretty positive there. Higher growth rates will have a positive impact on our overall revenue growth rate.

The second is a set of products that were previously unlicensed, but in the last year to year and a half, we made them available as subscription. And our Horizon virtual desktop product and our cloud management product are two of those products that are available that way. And they have been in market for a year and customers like to buy them as SaaS and subscription. And we see that scaling next year as well.

And then the third is the core SDDC products that you’ve been asking about. They are today only as license. We are progressively making them subscription and SaaS starting with vSphere at the end of this fiscal year and as that becomes a material that will also add to the growth. So all three parts of our SaaS and subscription growth engine will be stronger next year and then compare – as well as the base that we are carrying through next year.

Phil Winslow

All right. Let’s lean on that subject. Because a Project Arctic that looked like a very promising example that exited literally we were just talking back to that core portfolio available in subscription and SaaS forum. I mean, call it less like a SaaSification of the portfolio, whatever the initial customer conversations been like about Project Arctic, and I guess, what are you pitching as sort of the value proposition?

Raghu Raghuram

Yes. So the conversations have been quite promising, it’s very early days obviously. The conversations have been promising. The value proposition is fairly it comes down to three things. One is even on-premise, right, customers did not eventually want to be in the business of managing the nuts and bolts of managing infrastructure, right? So, we can take that off their plate, number one, with the Project Arctic by delivering, by doing the management from the cloud.

The second is, security and disaster recovery, right? The resiliency of the environment automatically protecting them from ransomware attacks or if there were ransomware attacks automatically being able to recover it. And then doing DR 75% of vSphere customers do not have a DR strategy right. Now, if you say, look, Project Arctic will make that dramatically easier. That’s a massive value proposition.

And then the third is hybrid, the hybridity. That is a word, right? Because most of these customers want to eventually be using the cloud and to make that as seamless as possible. So those are the three things that customers find attractive. And those are the three things we are trying to deliver with the Project Arctic. And that is just the starting point. Obviously we’ll increase the functionality as time goes on. But we’ll then attach storage to it as well. So it becomes hyperconverge.

Phil Winslow

Exactly.

Raghu Raghuram

And then we are doing the same thing with networking. And so eventually you’ll see the full stack they’re going away.

Phil Winslow

The full side SaaSification, multi-cloud while they get back to the end theme, back to the end theme. Let’s start with products here and go back to back to [indiscernible] from a moment early. Can you touch on just the build out of the portfolio, but in particular, the recent roll outs, like community edition I know you talked about it a little bit on the Q3 call, Application Platform, Service Mesh advanced edition, where are you seeing the most attraction? How do you think about some of these newer packages?

Raghu Raghuram

Yes, so we have with Tanzu, we have taken a strategy that’s very modular. So, when this is as selling to developers and platform operators is a new motion for us. And developers and platform operators like to consume capability in bite-size chunks, right? So initially we just provided the Tanzu layer, sorry the Kubernetes layer. And then the ability to do management on it. Then we added networking to it with a Service Mesh. Then we added container protection, et cetera. What we are doing now is being able to sell all of it together and something that we call Tanzu Kubernetes operations. In other words, if you are a customer running a lot of modern applications, regardless of which cloud or on-premise right, here is a set of offerings, they all SaaS base, right? Our subscription base that will enable you to do the complete day two operations around that.

And so we just completed that, I mean achieved the critical mass of core functionality the second half of this year. So, we are looking forward to expanding that portfolio from a market adoption point of view next year. Community edition provides a subset of that. Okay? So the developers can get used to that very quickly. And community edition has been received very well by the customer for the developer base, we have added a market for less than four weeks. We have had over 10,000 downloads and lots of developers adopting it and commenting on GitHub and other places like that. So we are very, very encouraged by the early start of community.

The next one beyond that is helping developers accelerate the path to production. So from the time the write code to the time, it shows up on that obligation that you and I can use. There is a number of steps. How do you accelerate that, that is Tanzu application platform and that is in beta today, right? And we expect that to become live next year. And then the Tanzu portfolio will have a developer element to it and an operator element to it. And we will have a pretty good portfolio there.

Phil Winslow

Great. Let's switch gears a little bit to a Carbon Black, I think has been a little over two years ago, they acquired Carbon Black. It's really they help the idea that I mentioned before of intrinsic security. Can you talk us through some of the recent integrations and how your approach to Garvin faculties let's say differentiates from others in the XDR market?

Raghu Raghuram

Yeah, so the integration has gone well, Carbon Black, when we acquired them, had two products, one was an on-premise product and other was a cloud product that was just coming about. So a lot of the initial emphasis was on maturing and growing the cloud product functionality. And we have talked about in our earnings calls about the growth of our Carbon Black Cloud, which is very healthy. Now going forward, the next phase is integrating it with and expanding it to fulfill the vision of intrinsic security. So we've expanded it to workloads so that any vSphere workload automatically can benefit from the Carbon Black Cloud for vulnerability protection and so on and so forth.

Any container, we acquired a container company and then we expanded it to containers. And recently I made an organizational change, I've had, I bought the networking and security teams closer together. So we are now doing integration of network security and network signals into Carbon Black Cloud. And so now by next year, we will have a fairly unique offering where we can literally have signals from your home devices, from your SASE network to your data center network, to the end point that you're using on your device, to the applications in the data center, to the applications in the cloud, whether they're containers or VMs or whatever.

Signals from all of those being pulled together into the Carbon Black Cloud and machine learning and all sorts of data pipelines being applied to it so that we can proactively detect security incidents and then obviously automatically remediate. So that is the full vision of XDR that we are bringing to market. We are super excited by it. It is very differentiated, because there are probably things that only VMware could do. For example, there is no other vendor that can protect the 85 million workloads that are running in the data centers like we can.

There is no other vendor that can take the signals that are flowing between network elements, like we can. So we are super excited by it. But that is the integration that's where we are.

Phil Winslow

Interesting. Let's switch gears a little bit and going back to Dell, you made the comment that you signed kind of formal partnership agreement with them, but let's just talk about your partner ecosystem strategy, just in general. What does it look like sort of post spin and what are the biggest areas of focus and investment for you?

Raghu Raghuram

Yeah, so we have always had a broad ecosystem of partners, right. It's literally everybody under the sun. In the private cloud, especially our primary partner has been down, right. And we are increasingly doing business with other infrastructure providers there, right? About the areas of partnerships that we are excited by is deepening our partnerships with the cloud providers, deepening our partnerships with their size or you saw the announcement that we made with Kyndryl recently. Deepening our partnerships with the device and the operating system manufacturers and the end-user computing side, right. Those are the big names that I can think about, and last but not the least with the open source ISV Ecosystem and with the likes of the confluence of the MongoDB and those kinds of companies. So those are the ways we look at the partner ecosystem.

Phil Winslow

Okay. I'm going to ask some more questions that I'm going to pause for a moment. So if you have a question, raise your hand but want to talk about the channel too. So your partnering channel kind of natural progression. Peer go-to-market joint solutions, technical collaboration, et cetera what do you see as the biggest focuses once again, sort of post spend to help improve your speed and collaboration with the channel?

Raghu Raghuram

Yes. So historically a lot of our channel partners where partner that were that sold infrastructure AKA hardware, right, along with our software. What we've been doing is we are cultivating a new class of channel partners that are doing a lot of work on the cloud; number one. We are also cultivating channel partners that are becoming managed service providers, folks that want to deliver higher level services on top of our platform. And the good news is a lot of our existing channel partners like the procedures and the CDWs of the world are building up those lines in businesses. So that is happening at the same time I'm bringing the pure specialists that are very cloud savvy and subscription savvy into the partnership fold.

Phil Winslow

Interesting. All right. Let me pause for a moment to see if there are any more questions or any questions in the audience. And then I actually – actually where I can keep going at a very big list here.

Question-and-Answer Session

Q - Unidentified Analyst

[Question Inaudible]

Raghu Raghuram

Yes. I would say the regulated industries in general move at a more cautious pace. And not just because of regulation, a lot of them have significant on-premise state and there are so many controls that have to get recreated in the cloud, et cetera, et cetera. So in general, as a category, I would talk about regulated industries and they are the ones, in fact, that planned to be multi-hybrid cloud for a long, long, long time to come. There are other industries that are capital intensive, like Telco, right? While they're doing a lot on the cloud, they're doing a lot on their – in their network and on premise as well, so we see that.

And then in other geographies, especially in Europe, we’ve seen the rise of sovereign clouds. So the clouds that are covered by in-country laws. And so that’s another variant. It’s not quite the public cloud, but it’s a different type of cloud. So those are some of the things we are seeing. Then lastly, the edge is a new area of application development. So it’s a highly distributed environment that we see.

Phil Winslow

Yes, go ahead.

Unidentified Analyst

[Question Inaudible]

Phil Winslow

How was Pivotal fit in?

Raghu Raghuram

How was Pivotal fit in? Yes. So we acquired Pivotal a couple of years ago. And what we have done is we have combined the Pivotal assets and the team with other efforts that we had around Kubernetes and modern applications and created this group that we call Tanzu. So the Tanzu portfolio represents the evolution of Pivotal. We still maintain the original Pivotal product, and we have lots of very important customers on it. And we continue to innovate and grow the product and make sure that those customers are happy, right.

At the same time that product was done before things like Kubernetes came along before these large customers were using the cloud in a big way. So the center of focus for the old Pivotal products was on-prem. So what we are doing is we’re taking the same ideas and the same team, and we are bringing those value propositions that turned out to be so useful there to the line of businesses and creating versions of it in the cloud and on Kubernetes. So that’s really how we are taking forward the Pivotal franchise.

Phil Winslow

Okay, great. And the last couple minutes here, I’ve got a couple more questions here. First, obviously, we’ve talked a lot about strategy and product. But let’s talk about go-to-market. Obviously, the – even talked about how are you architecting the sales force, I guess just kind of going forward because the portfolio is now broader at VMware that’s been since I’ve known the company, frankly, so that’s a long time. And especially as you’ve talked about the SaaSification and SaaSifying, the broader portfolio, where are you focused? What are the strategies?

Raghu Raghuram

Yes, no, that’s a great question. So let me talk about the core sales force, and then I can touch upon the channel, the size. Our core sales force is divided roughly into two blocks, right? One is the core sellers that have the direct account relationships with the global accounts, enterprise accounts, commercial accounts, those are the categories. And then we have product specialists, so we have a networking sales force and end-user computing sales force, cloud sales force, a modern application sales force. So we continue to grow both. And the product specialists are the ones that are leading the charge with respect to the cloud and the modern application and the SaaS initiatives. And they’ve come along further along. Their incentives are more tilted towards SaaS and subscription for example and consumption. For example, the Salesforce that especially Salesforce that works with AWS is a paid part of their compensation is on the consumption of the AWS, just like any other cloud provider, the core Salesforce, largely sped on the total amount of business that we do with the core account, right.

And going forward, that will be more nuanced and we'll be balancing our need for them to do both subscription in SaaS business and license business. So there'll be more balanced going forward, but today they're largely paid overall number. And the other places, that as we are doing the transition is the SEs and the customer success. So, we created a dedicated customer success organization to drive the consumption of the product, which in turn translates into revenue. We are doing the same things with the channel and with the size as well. So it's a, it's a multi-year transition, but it's going really well for us.

Phil Winslow

Awesome. All right. Last question for me is just sort of wrapping up here. What are the key messages that you would like the audience to take away from today? Because we've touched on a lot of things.

Raghu Raghuram

Yes. So I mean the first thing I would say on this is a statement independent of VMware, right? The world is truly, I mean, enterprise computing it's for the next decade, going to be significantly distributed, right? Applications are going to be everywhere in the edge, in the data center, in multiple clouds in places you and I don't think of. The second is the amount of new application growth over the next five years is completely dwarfing amount of new applications that were built in the last couple of decades or more. Right.

So therefore the question to ask is how our enterprise is going to deal with all this explosion of compute capacity of the need for having new applications as they turn themselves into digital businesses, right? We provide the ubiquitous platforms that help them to run these things, regardless of which environment they want to run at all, manage it, connected and secure it. That is our secular value proposition in order to do that, we are transforming ourselves into a subscription and SaaS company. So that really is a journey that we're on. And that's what I would say investors should take away.

Phil Winslow

Awesome.

Raghu Raghuram

All right.

Phil Winslow

Thank you very much. 40 minutes went fast.

Raghu Raghuram

All right.

Phil Winslow

Thank you, my friend.

Raghu Raghuram

Thank you so much.

Phil Winslow

Appreciated. Thank you.