>> From the Cube Studios in Palo Alto, in Boston
bringing you data-driven insights from the Cube in ETR.
This is "Breaking Analysis" with Dave Vellante.
>> As we watch a historic election unfold before our eyes
we look back at the early days of the millennium
with the memorable presidential race of 2000.
That decade of course was defined by 9/11
which permanently reshaped our thinking.
And we exited that decade at the tail end
of a massive financial crisis only to enter the 2010s
with the hope and the momentum of fiscal stimulus
a flat globe, job growth, and very importantly
the ascendancy of the cloud.
Cloud computing unquestionably powered the innovation engine
over the last 10 years and the pandemic marks a new era
where adoption of cloud data and AI have been accelerated
by at least two to three years.
And that's what's going to shape the future
of the technology industry
and frankly all businesses and organizations.
Hello everyone. And welcome to this week's episode
of the Cube Insights powered by ETR.
In this "Breaking Analysis", we're going to update you
on our latest cloud market share
and dig in to some fresh October survey data
from our partners over at ETR.
Let me start just with a brief summary
of the latest action that's going on in cloud.
Now quite interestingly, each of the big three cloud players
they showed nearly identical year on year growth rates
in Q3, as they did in Q2.
Now we're going to dig into that in a moment
but our data suggests that these three companies combined
will account for more than $75 billion in infrastructure
as a service and platform as a service revenue in 2020
and they're potentially on track to hit a hundred billion
in 2021.
Customer survey data indicates
that CIO's top two infrastructure priorities
remain security and cloud migration.
Now that said, as we previously reported the cloud
it's not immune to the pandemic.
The remote worker pivot,
well, it's a positive for cloud.
Hasn't completely eradicated certain headwinds.
Now what I mean here is that
because the cloud vendors are now so large
they're somewhat exposed to the softness
in the overall IT spending climate
and also industries that have been hit hardest
by the pandemic.
Now, would the cloud growth have been better
if the pandemic didn't hit?
We'll never know for sure, but our data suggests, no.
COVID has definitely been a benefactor to cloud.
In our view, cloud will remain at the center
of technological innovation for the foreseeable future.
The economics of cloud are becoming so compelling
that we think the power of the big cloud companies
will only increase this decade.
Now, importantly, we're talking
about the costs of running hyper distributed systems.
We're not commenting here on what they charge customers.
That's a different story.
We believe the cost structure for the hyperscalers
is superior to alternative approaches
and we believe this advantage will only accelerate
over the next several years.
We also believe that competition
is going to continue to drive competitive pricing
and innovation.
All right, let's look at our latest market share numbers
for the big three.
This chart shows our estimates of AWS Azure
and the Google Cloud Platform.
Now viewers of this program know
that these are IaaS and PasS figures.
And you also know that AWS is the only company
that provides clean numbers on that sector
whereas Azure and GCP are estimates that we make
based on tidbits of guidance that the companies give us
and survey data that we capture
and other modeling that we do.
Now as we've said, we'll end this year
it's about $75 billion in revenue
or maybe even a little bit more.
Note that for these three, note that we've slightly restated
some of our earlier estimates for Azure
to reconcile some differences that we had
between constant currency and actual growth.
We try to keep things in constant currency where possible,
sorry for that. But sometimes that happens.
Azure, according to our estimates, as we reported last week
is now 18% of Microsoft's overall revenue number.
We had it at 19% that last week, but when I dug in,
we made some adjustments so we toned it down a bit.
AWS represents a much smaller percentage, of course
of Amazon's revenues at about 12%, but it represents 56%
of Amazon's profits.
GCP on the other hand accounts
for less than 5% of Google's overall revenue
which as we stated a few weeks ago
needs more attention from Google.
Well, look at the growth great for these three platforms
and their respective size of their IaaS and PaaS businesses.
You know, all this talk about repatriation i.e.
that what you mean by that is people go to the cloud
but they're unhappy, or the bill is too high
it's too expensive. So then they come back on prem.
Well, you just don't see that in the numbers.
So you got to be careful
when vendor tries to sell you on that trend.
I know by it, except for selective situations.
Now let's bring in some of the ETR data
and compare the spending momentum for each of the big three.
You've seen these wheel graphs before.
They show the breakdown of net score for AWS
Microsoft, and Google.
Now, one note.
these figures represent these three
companies overall within the ETR technology taxonomy.
So for example, they don't include Amazon's retail business
of course, but they do include
for example, Microsoft's entire tech portfolio
not just the cloud.
The green portion of the wheel represents
increases in spending via new adoptions
and increased spending whereas the red sections show
decreases via lower spending and defections.
Net score, which I've highlighted in the orange
is calculated by subtracting the two reds
from the two greens.
In other words, adoptions and increase
minus decrease and replacements.
The takeaway here is these are all pretty strong
with AWS leading the pack.
Microsoft is exceptionally strong
as we pointed out last week, because they're so huge
and they still have net scores comparable to AWS,
which is a pure play.
GCP is a laggard and is showing softness in the data
despite a sanguine outlook that we had back in 2019
based on survey data.
I don't know, perhaps Google smaller presence
muted their customers' ability
to take advantage of the platform.
I mean, the thinking there is the customers
maybe needed to pivot to the cloud so quickly
and AWS and Azure were the incumbents.
And that was maybe the most expedient path
hence the higher increases in the spend more category.
But you did you see GCP?
They had 13% new adoptions, which is pretty good.
So we'll keep looking at that regardless.
Again, these are not pure play cloud comparisons
but they give a good indication of spending momentum.
I'd also note that all three show very low defections.
Well, each is showing solid increases in new adoptions,
especially Google, as I mentioned.
So that's kind of interesting to see
but again, Google much, much smaller. You would expect that.
Now I want to turn our attention
to one of the hottest areas in cloud
which is serverless, and this is a pure play comparison.
So serverless, let me start there,
it's a strange term because it's not really accurate
but it stuck.
Serverless computing is a model
where the cloud platform dynamically delivers services
as the application requires.
So, you don't have to configure the compute
and the containers, for example,
rather, when an application needs resources
it goes and gets them and you only pay
for when the services are actually invoked and in use.
So it's really good for workloads
that spin up and spin down very frequently.
It kind of reminds me in concept anyway
of the componentry that we saw in the days of SOA,
if you remember that, Services Oriented Architecture.
But now this is cloud, it's cloud native.
It's a whole new world.
And it's increasingly a popular model
and as we'll show in a moment
there's a lot of spending momentum in this area.
But before we do that, I want to share some comments made
by Andy Jassy a while back about serverless.
Take a listen.
>> That's a good question.
And you know, I really, the comment I made was really
about directionally what Amazon would do.
You know, in the very earliest days of AWS
Jeff used to say a lot, "If I were starting Amazon today
I'd have built in on top of AWS."
We didn't have all the capability in all the functionality
at that very moment, but he knew what was coming
and he saw what people were still able to accomplish
even with where the services were at that point.
I think the same thing is true here with Lambda
which is, I think of Amazon were starting today
it's a given they would build it on the cloud.
And I think with a lot of the applications
that comprise Amazon's consumer business
we would build those on our serverless capabilities now.
>> Now Lambda of course, Jesse was a friend of Lambda
that's Amazon's serverless offering.
And if you think about Amazon's retail business
and take, for example, the frequent spin up and spin down
of resources for something like Black Monday
serverless would be a much more cost-effective approach.
Same for a managed data warehouse service, for example
where, you know, you don't want to pay for the compute
if it's idle.
The app just calls for the compute when it's needed.
So this is a very popular model
and it's got increased momentum today
and you see that in this slide.
It shows the net score breakdown for a serverless for Azure
AWS's Lambda, which is again, is their serverless offering
and Google Cloud Functions.
Again, you're shipping functions to the application.
That's why it's called Functions.
Look at the net scores.
Azure functions nearly at 70%, AWS at 65%
Google, again lagging.
And that's a bit of a concern
because this is a really, really hot space.
All right.
Let's move on and look at the competitive landscape
as we like to do often and update you on that.
This X-Y graph, it's one of our favorites
and it shows net score or spending momentum
on the vertical axis and market share on the horizontal.
Market share is a measure of pervasiveness
in the dataset.
In the upper right, you also see a table
that ranks each vendor by net score
and it includes the shared.
In other words the number of mentions in this sector
for each vendor.
Now you can see up top in the middle
I've selected on the cloud computing category.
So this represents only the cloud businesses
for each of these players.
There's a little bit of nuance here
and that we've selected on Microsoft Azure.
There's a category in the ETR taxonomy for that.
And we're comparing that with AWS overall.
So there are things in the AWS overall number
that fit into the other parts of the taxonomy,
like maybe AI, collaboration, et cetera
whereas Azure and GCP are just the cloud segments.
So, I know it's a bit strange because AWS is all cloud
but don't get caught up in the taxonomical nuance.
The point is it's good to be Azure and AWS.
That's shown there when you look at the upper right
of the chart here, they stand out and they stand alone
in cloud leadership.
Google Cloud is, they got a nice elevated levels
but they're much, much smaller.
They don't have the presence in the market.
Now look at that hybrid cloud zone emerging.
We've talked about this sometimes in the past
and I want to call it VMware cloud on AWS
Red Hat OpenShift and VMware cloud itself
like VMware cloud foundation and their other cloud services.
All of these appear to be gaining traction.
And you can see the number of occurrences
in the upper right, that shared end that I talked about.
We're starting to see real numbers that are meaningful
in this space.
VMware cloud and AWS, for example
has a net score of 53% with 116 accounts
within that total respondent sample that you see there
in the middle left of 1,438.
That's how many CIOs and technology buyers responded
to the ETR survey in October.
Look at OpenShift at 45% net score
and that's with the 82 accounts.
Now OpenShift is in beta
with what looked to be some really strong offerings on AWS.
And you can see for context,
I've added Dell EMC's cloud offerings
HPE's cloud offerings, and the Oracle cloud
and IBM cloud and also Rackspace.
Dell are actually pretty strong with a net score of 20%
and 185 shared accounts, much, much higher
than Dell overall, which is kind of in the red zone.
Oracle, IBM, you see those Rackspace, you know
we're going to be in not killing it.
Rackspace is kind of in the big negative,
so that's a concern.
But anyway, we'd like for these guys, we'd like to see
the data match the marketing rhetoric
for the guys that are in the red.
And look, Alibaba is starting to show up in the survey.
There's only 26 shared ends
but we thought we'd put it in there.
There's three key points.
Again, AWS and Microsoft keep on trucking.
Google needs to do better.
Hybrid is becoming real and that bodes well for multi-cloud
and the legacy on-prem guys. They got a lot of work to do.
They're under a lot of pressure.
The pivot to cloud is not been easy for them.
And it's still a case where they're,
I've talked about this a lot.
There are declines in their on premises offerings.
They're not being offset by the new stuff
the cloud momentum.
All right. I want to close out by sharing
some of the conversations and thoughts that we've had
in the community around SaaS and its impact on cloud.
We really have been focusing on IaaS and PaaS
of the SaaS layer, obviously up the stack.
So let me first share that there's a lot of talk around
and it has been for years about AWS.
They're slowing growth rates
and whether or not they'll have to enter the SaaS market
to expand their total available market.
And I've said consistently
while I never say never about AWS, I don't think so.
At least not yet.
This chart plots the big three cloud players
Note, AWS has a bigger piece of this pie
now that I've turned off the cloud computing filter
and I know more nuances, but the data wanks
will find, you know, see this and they'll ask me about it.
And this is all of AWS's portfolio.
And again, it's only the Microsoft Azure portfolio.
So you see AWS now overtakes Azure on the x-axis
i.e. market share.
Now, we've plotted some of the major SaaS vendors
and you can see service now in Salesforce, both very large.
And they have really strong spending momentum
and service now's you know, pushing a $100 billion
in the market value.
They've surpassed Workday quite some time ago.
Workday's got less presence but they've got
really, really solid net score.
And I got to say I'm impressed with SAP,
despite some of the earnings challenges
that they've been having.
They're right up there with Splunk and Tableau.
Splunk has softened in recent surveys
and I've also plotted in their NetSuite and Oracle Fusion
which are just okay.
And that is, I think for now, anyway
AWS is going to position as the best place
and the most friendly and highest quality cloud
in which to run your SaaS.
For example, Workday runs on AWS.
AWS's Salesforce is preferred infrastructure platform.
So my premise here is, just like retail companies
might not want to run on AWS
a number of SAS companies that compete with Microsoft
they might think twice about running on Azure.
So AWS would be better off for now
trying to attract those SaaS players
and drive their services and sticking to infrastructure
and in the PaaS layer.
Snowflake is actually kind of interesting
and I've added them for context
because their net score is always kind of a bellwether.
It's really off the charts.
And they're an ISV running on the cloud.
They're different from some of the other SaaS players
in that Snowflake is a database. Okay.
And most of Snowflake's business runs on AWS
and AWS competes with Snowflake, with Redshift,
but AWS has the best cloud and drives a lot of business
for Snowflake and vice versa. So it's kind of interesting.
Snowflake to Redshift
and I know this is a much smaller example
is kind of like Netflix to Amazon Prime Video.
To compete, they both thrive.
So I think AWS is going to continue to grow
by attracting SaaS players as the preferred platform.
And they'll also attract developers
and try to disrupt SaaS players
like ServiceNow, which runs on its own cloud.
I remember years ago, David Flora
and I said that ServicenNow was, it was awesome.
But at some point it's infrastructure cost structure
is going to be less competitive than those companies
that are running on hyperscale clouds
certainly the hyperscale clouds themselves.
And ServiceNow, they have this multi-instance architecture
which just can't easily port over to the cloud
but it can charge a lot, which it does.
Now at some point, some sharp developers
are going to look at all this and say,
"Whoa, see that ServiceNow, I can build this for less,"
and they'll attack ServiceNow.
And their seat based license model
maybe with the consumption pricing model
and a platform that's perhaps or a set of services
that are perhaps less expensive.
You're seeing this to a certain degree with like elastic
inside the application performance management space.
So there's some things to watch there.
But there are those who firmly believe
that AWS will and must enter the SaaS space directly.
We talked last week
about how beneficial Microsoft's application business is
for Azure and what a flywheel that is.
But for me, I think we're not there yet.
Let's give it some time.
I think maybe four to five years
before AWS may even start to think
about filling some of the space up the stack.
Now maybe they'll find some unique opportunities to do that
for instance, at the edge, but I think that's way off.
Okay. So bottom line, it's good to be in tech these days.
It's even better to be in the cloud
and it's best if you're AWS and Microsoft.
And I don't see that changing for awhile.
Now, remember these episodes are all available
as podcasts, wherever you listen.
I publish each week on wikibond.com and siliconangle.com.
You can get in touch with me through email.
It's David.vellante@siliconangle.com.
Feel free to DM me on Twitter @dVellante.
I post on LinkedIn. Love your comments there.
Thank you. And don't forget to check out ETR plus
for all the survey action.
Thanks for watching this episode
of the Cube Insights powered by ETR.
This is Dave Velllante.
Stay safe, stay sane, and we'll see you next time.
(mellow music)