Their discussion covers:
- What Gary is most excited about for this year’s event
- The latest announcements from .conf23, including the strategic partnership with Microsoft, Splunk Edge Hub, and Splunk AI
- What Gary has learned at the helm of Splunk as CEO since taking on the role
- What the opportunities for growth are as enterprises seek to build digital resilience
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Patrick Moorhead: Hi, this is Pat Moorhead and we are live in Las Vegas at Splunk .conf2023. You can probably hear the excitement around us. Dan, we are back in Vegas, buddy, at a tech show.
Daniel Newman: Yeah. Considering all that we’ve been through over the past few years, I’m still having fun getting on the road and it’s great to be here at the Venetian Palazzo. This is probably one of my favorites when we go to Vegas places to do an event. And .conf is always a really exciting one, so it’s good to be here. It’s good to have the Six Five on the road, Pat. And it’s good to start off today with a really special guest.
Patrick Moorhead: It is. And that special guest is CEO of Splunk. Gary, how are you?
Gary Steele: I am great. It is great to be here in Vegas with you guys. Thanks for coming. Appreciate it.
Patrick Moorhead: Absolutely. I mean, four-day event, which is pretty awesome. And I watched your keynote, that the excitement was there, folks were engaged, your clients, fellow Splunkers, looks like there was a ton of excitement. And most importantly, a lot of announcements that you made.
Gary Steele: Yeah, no, we made some exciting announcements and I think that’s what really carried the day. That’s what people were really pumped about. Yeah.
Daniel Newman: Yeah. It’s always great to cover the location, Pat. And then we should probably mention it’s hot here. This is part of an aging contingent of things we talk about.
Patrick Moorhead: I don’t know, Dan. Gary and I both have coats on. I didn’t…
Daniel Newman: Well, at least you have a vest. Look, it can be 117 outside. I’m still going to wear this vest and people need to know that about me.
Patrick Moorhead: They do now if they didn’t.
Daniel Newman: But it is great, Gary, to have you here. A year ago, you and I sat down for the first time. And we’ll talk about that a little bit later. But first and foremost, you know, year to year, now you’re in the second year. What’s the vibe? How are you feeling about .conf this year? Did it get off to a good start for you?
Gary Steele: Yeah, no .conf has been great. We had over 6,000 attendees. We had thousands more watching the livestream. And I think the feedback’s just been really good. And if you look across the different venues and the things that are going on here, there’s just been tremendous enthusiasm. So I feel really good about it. And I think it speaks to the increase in pace of innovation for Splunk. And I think that’s one thing customers are super excited about and it reflects in the announcements that we made.
Patrick Moorhead: Thanks. Gary, you’ve been at the helm 15 months and it’s been a lot of fun to watch. As you know, a lot of analyst firms have different research methodologies. And my firm, we focus a lot on the senior management under the premise and the belief that hey, what they’re doing sets the bar for everybody else.
And what I’ve seen, which I love, because I’m a product person too, is you’re cranking out some incredible products with some great experiences for your customers. And here at the show, not a surprise. You made some pretty big announcements out there. Can you give us some of the highlights of what you announced here?
Gary Steele: You bet, you bet. Happy to. The first big announcement was a strategic partnership with Microsoft, whereby effectively immediately customers can buy Splunk through the Azure marketplace leveraging their Azure credits. But more importantly, we’re cooperating with Microsoft to bring Splunk cloud natively to Azure. And that’ll happen over the next year. So we think this is really impactful across our customer base and the feedback’s been phenomenal.
Second big announcement is Splunk Edge Hub. It’s a hardware device actually that enables us to get information out of OT environments. Think shop floor, factory floor, machine rooms, et cetera. It comes with a bunch of sensors and speaks to the protocols of that environment that allows you to bring that information directly into Splunk to make decisions, etc.
And then finally Splunk AI, which is some new capabilities along with some updates across existing product lines to really anchor the AI capabilities that we’re delivering for our customers. And here at the show, we also rolled out where we see AI impacting the broader product line, which we’re super excited about.
Patrick Moorhead: For sure.
Gary Steele: Three big announcements.
Daniel Newman: Yeah, so I think this gives me an opportunity to double click.
Gary Steele: Sure.
Daniel Newman: First of all, I love the nomenclature, Splunk AI, I’ve got Futurum AI. We’re thinking the same. That’s first of all very important. But secondly, ML and AI is really not new to you.
Gary Steele: It’s not.
Daniel Newman: This company has been digging in big. And I mean for the last several years as I followed, it tended to use the vernacular of ML a little more. And obviously, we’re seeing the market wants AI. The market wants the AI story, they want to understand how it’s monetized, the content. And you’ve been doing this. And so, you said you presented how it sits, it’s a horizontal capability that goes. Can you just share a little more about how AI and how you see it proliferating and adding value to Splunk and its customers?
Gary Steele: You bet, you bet. So as an example, as part of the Splunk AI announcement, we have SPL assistant. SPL is the language that people use to interact with Splunk. And so, having an assistant that basically allows a user to use natural language to ultimately generate that. And then it provides advice and next steps along the way. That’s been really well received. It lowers the bar for what it takes to actually engage with Splunk and get good outcomes.
And then, we also announced anomaly detection. This is really leveraging broadly machine learning, which we’ve been doing for a long time as you referenced, Daniel. And that’s had broad impact as well. Now, where we see the continued investment is really thinking about how do we improve the lives of the person that uses Splunk every single day? And how do we help them get better outcomes? Whether it’s on the security side or on the observability side, we want to build an AI across how people do their jobs. And I think that was really well received here.
Patrick Moorhead: I’m a big fan of the hybrid multi-cloud. In fact, I didn’t call it that 10 years ago, but I was not in the norm. I love the public cloud. The innovation is amazing, but also, the reality that most of that data is still on-prem. And you’re providing hybrid multi-cloud solutions as well.
And your Azure announcement was yet another announcement that fit into that. I’m curious how you balance the needs between those who want it on-prem and they want to stay there for a while. Those who are all public cloud only. And then, those customers who want to do both.
Gary Steele: Yeah. I think in reality in our world, everybody’s doing both in some form or fashion.
Patrick Moorhead: I’ve never met with a large enterprise that didn’t have at least two IAS providers. And then you add on sites.
Gary Steele: Right. And so, it’s just the reality because we traditionally sell to the global 2000 in those large complex environments. They have multiple cloud providers and they still have big footprints in their own data centers. And so, for us what was really critical is one, reaffirm our commitment to those customers that want that on-prem experience.
Patrick Moorhead: You did that on stage.
Gary Steele: We did it on stage.
Patrick Moorhead: You were very clear in your keynote.
Gary Steele: Yes, I was very clear.
Patrick Moorhead: That’s important. That’s good.
Daniel Newman: You stopped and you did a look in the camera moment here.
Gary Steele: No, we hadn’t been clear in the past, honestly. And I think it was really important to help people understand that the investment they’d made in Splunk on-prem, they could continue to make that investment. We would continue to innovate and deliver and provide features.
That was important. We also think at the same time that there’s tremendous value in getting to the cloud. And the reason for that is customers then don’t spend time managing Splunk. They are focused on getting outcomes from Splunk.
And so, the value is there but it’s a project and people can decide when they want to pursue that project. And then, making this all work seamlessly across these environments is the critical thing.
Patrick Moorhead: That is the angle.
Gary Steele: And it’s been the challenge and we think it will be a strong differentiator for the company.
Patrick Moorhead: Excellent.
Daniel Newman: Yeah, it’s really interesting, as I followed the journey prior to your arrival and then, of course, through your arrival, the company was really making two big pivots. It was pivoting to cloud and then it was pivoting to recurring, meaning your models were.
Gary Steele: Business model, financial models fundamentally changed.
Daniel Newman: The model was changing. And obviously, those things were, there was an interdependence because cloud model and AR models tend to coincide. And that had been a big… The trajectory was there and you’ve just really done a great job of pushing that forward, which is really important to the street. And it’s also important to companies on how they want to consume these kinds of technologies. The first time when we sat down, you were really brand new last year at .conf.
Gary Steele: Brand new. That’s right. That’s right.
Daniel Newman: Now you’re probably, as you know, a lot can be done in a year, a lot can be done in a year. You’re a year in now. What is some of the learnings that you’ve really been able to conjure during this period of time as you communicate, Hey, I’m 15 months in, here’s what I’m thinking about.
Gary Steele: Yeah. A number of things. I think in my first year I had a number of objectives. One is to get the company focused on balance between growth and profitability. And if you look at our earnings announcements, we’ve been delivering on that. And if you just, even simple things. Like in Q1 when we reported earnings, OpEx was down 1% year over year. We’ve been holding OpEx while the top line ARR grew 16%. This nice balance between how do we drive efficiency but continue to drive top line growth?
I think the focus on product and our customers, as you started out the whole segment, our customers passionately care about product and innovation. And so what was critical for me was let’s increase that path of innovation and deliver more capabilities to drive outcomes for our customers because it’ll be meaningful and that’ll be a strong contributor to growth. And here at .conf I think people feel that momentum and they’re seeing it in product capabilities being delivered that add value to how they get their jobs done.
It’s been a multi-headed assignment in terms of the mission I’ve been on. One is really to drive the right balance between growth and profitability. But at the same time do the right thing for customers and customer experience by increasing the path of innovation.
Patrick Moorhead: Yeah. Splunk is in high growth areas about… I mean they’re more than buzzwords for you.
Gary Steele: Completely.
Patrick Moorhead: It’s all about data security and you talk about it as resiliency. We talked about AI a little bit and expanding that footprint to what we call the far edge, even with devices. By the way, that was a shocker right there. And cool because we have a devices track in the company. And this is exactly as what people are looking for is these cloud companies are getting actually out of that game. Super exciting. But I want to do the double click on, maybe you can give some specifics around growth in data resiliency here in the future. What are you doing to drive that growth?
Gary Steele: Yeah. Growth in our business will come from this continued path of innovation, driving opportunities where customers can engage with Splunk to get more outcomes. Witness Edge Up. It’s not about the device, it’s about how do we help them get data from environments they traditionally haven’t ever gotten data from.
Patrick Moorhead: Well, you had to do that because others weren’t. And otherwise, they had to cobble these together themselves. I’m very familiar with those.
Gary Steele: And very difficult to get it done. And so, that’s just a simple example, is it moves us into more use cases.
Daniel Newman: For sure.
Gary Steele: Solving more problems for our customers. At the same time, we’ve talked about this on earnings calls, we’re continuing to invest in international markets. If you look historically at the company, we’re two thirds domestic, one third international. And where could that go over time?
And that investment really is making sure that we have salespeople present in market, boots on the ground, in markets where we think there’s opportunity. And places, like in APAC, we’ve had a relatively small footprint in Japan. Across EMEA, we’ve had a relatively small footprint in the Middle East.
There’s plenty of opportunity outside the US to continue to grow. And so, it’s this combination of extensions of our go to market strategy with continued innovations that drives more use case opportunity with the platform itself.
Daniel Newman: I appreciate that. And there’s definitely a, we grow together philosophy that I’m sensing from some of the interactions, seeing how the customers, partners are reacting to the key to the new products, Gary. Because something like an edge data case, edge is exponential. If you’re in consumption solution, getting the data center right, there’s a kind of capacity. Of course, AI data centers are going to create some scale there. But the edge is the fastest proliferation of data on the planet. And so, your ability to capture content revenue off the edge creates a whole new revenue stream.
Gary Steele: For sure.
Daniel Newman: Those out there doing their calculus trying to fill in their spreadsheet and say, “What’s the opportunity, the TAM?” The TAM becomes exponentially larger.
Gary Steele: Yeah. And I think that part of the excitement and enthusiasm for the work we’re doing on the edge is with this edge hub capability, we’re doing it through our partner channel. We’re using the knowledge and expertise of our partners to use their strength in navigating that world of OT, which is its own world to a certain degree.
We will obviously get leverage from the relationships that we have with CISOs who want exposure and visibility. What the heck is happening in those environments because they haven’t been able to see it before. And so, we’re very excited about this. It will take some time, but we think it’ll be a strong contributor to growth.
Patrick Moorhead: It’s going to be a huge area of growth. And gosh, a decade ago, we did this research study that we had, there were 260 Brownfield data interfaces out there. The physical connectivity. Okay. Because what you’re trying to do is if you’re trying to get data off a 100-year-old boiler, was probably added in the ’70s and it’s a wire and not really able to get the data that you need.
This, we call it Web 4.0 because we always have to have these crazy names for something, will be one of the largest opportunities for the next decade. It is going to take a lot of time to get there. I feel like the standards are finally there.
For the most part, on the end point we’ve agreed that having security embedded in the deepest edge is a good thing. There was a debate that, hey, should I add this 50 cent at a cost? And we’re all agreement that it’s there but that will truly transform areas that haven’t been transformed. Like the manufacturing line, like warehouses, transportation.
Big growth, really excited to see you get even deeper into this space. I mean people were ETLing the data out. It was kind of ugly. Sometimes they had the right sensor on there but it was a smorgasbord of confusion.
Gary Steele: No, and I think one of the things that was very exciting is we’ve been in early access for a long time. And through that period we had some of the most amazing use cases. We were installed gates in an airport. If you think about a gate is actually an OT device. We were installed on the factory floor in a candy manufacturing company. We were installed in server rooms. Just the proliferation of ideas that people had because again, it’s this problem, how do you get data back and be able to make decisions around it?
Daniel Newman: Love it. And it’s also, of course, figuring out, you can’t say data has higher value in one place than another without actually inspecting that data. And that’s the big challenge too, is people want to say, “Oh, data center data is more valuable.” But it’s really not always the case. And you need to figure that out because if you’re in manufacturing keeping systems running, there’s so many different things. And obviously, Splunk is trying to address all of them. And Gary, we could probably hammer through this for another half an hour. It’s your event. I’m sure there’s lots of hands to shake, people to chat to. I want to thank you so much for joining us here.
Gary Steele: No, it’s been great and I appreciate you guys coming down to warm Vegas and seeing us.
Patrick Moorhead: Thanks for having us. We both came from Texas so it’s not too far of a weather jump.
Gary Steele: But 118 is a little warm.
Daniel Newman: It’s warm.
Patrick Moorhead: It is.
Daniel Newman: We’re going to melt our way out of here later on. All right, everybody, there you have it. That was Gary Steele, CEO of Splunk, joining us here at the Six Five on the road at .conf 2023 in Las Vegas. Hit that subscribe button. Join us for all the content here at .conf. Lots of great conversations. Watch them all. We appreciate you tuning in. We’ll see you all later.