>> From theCUBE Studios in Palo Alto and Boston,
bringing you data-driven insights from theCUBE and ETR,
this is Breaking Analysis with Dave Vellante.
>> Despite a mixed bag of earnings reports
from tech companies, negative GDP growth this past quarter,
and rising inflation,
the cloud continues its relentless expandtion
on the IT landscape.
AWS, Microsoft, and Alphabet of all reported earnings,
and when you include Alibaba Cloud in the mix,
the Big 4 hyperscalers are on track
to generate 167 billion in revenue this year
based on our projections.
But as we said many times on theCUBE,
the definition of cloud is expanding
and hybrid environments are becoming the norm
at major organizations.
We're seeing the largest enterprise tech companies
focus on solving for hybrid,
and every public cloud company now
has a strategy to bring their environments
closer to where customers workloads live,
at data centers, and at the edge.
Hello, and welcome to this week's Wikibon CUBE Insights
powered by ETR.
In this Breaking Analysis will update you
on our latest cloud projections and outlook.
We'll share some fresh ETR data
and commentary on what's happening
in the hybrid zone of cloud.
Let's start with the market data
for the Big 4 hyperscalers.
In this chart, we share our Big 4 cloud share
for IaaS and PaaS for 2020, 2021,
and the first quarter of 2022,
and our estimate for 2022 full year and growth.
Remember, only AWS and Alibaba
report relatively clean IaaS and PaaS figures,
whereas Microsoft and Google,
they bundled their cloud infrastructure in
with their SaaS numbers.
We both firms, however, they do give guidance
and we use survey data and other tidbits
to create an apples to apples comparison,
and that's what we show here.
For the quarter, the Big 4 approach
to 37 billion in revenue as a group.
Azure's growth rate is reported by Microsoft
but the absolute revenue is not.
Azure growth accelerated sequentially by 49%
to just over 13 billion in the quarter by our estimates
while AWS's growth moderated, sequentially,
but revenue still hit 18.4 billion.
Azure, by our estimates, now is more than 2/3 the size
of AWS's cloud business.
Google and Alibaba are fighting for the bronze medal,
but well behind the two leaders.
Microsoft's Azure acceleration is quite remarkable
for such a large revenue base, but it's not unprecedented
as we've seen this pattern before with AWS.
Nonetheless, the fact that Azure is growing at the same rate
as GCP is quite impressive.
Now, a couple of other tidbits of information.
Amazon, its stock is getting hammered today
because of inflation and slowing growth rates
at the top line.
But AWS continues to beat Wall Street's expectations.
A look at Amazon's operating income this quarter
tells the story.
Amazon overall had operating income of -3.66 billion
and AWS's operating income with 6.5 billion.
AWS's operating margin grew sequentially
from nearly 30% last quarter to 35.3%.
That's an astoundingly profitable figure.
This is comparable to insanely profitable companies
like Oracle and Microsoft.
These are software companies
with software marginal economics.
Is that level of sustainable?
Probably not for AWS, but it's eye opening, nonetheless.
ETR survey data shows why these companies
are doing so well with customers.
This chart shows the net score granularity
for the Big 4 cloud players.
Net score, remember, measures spending momentum
by asking customers, are you adopting new?
That's the lime green.
Increasing spend by 6% or more, that's the forest green.
Flats spend is the gray.
Spending dropping by 6% or worse is the light pink.
And the red is decommissioning the platform.
Subtract the reds from the greens and you get a net score
which is shown on the right.
Anything, by the way, over 40% we consider highly elevated.
Now some key points here.
Microsoft includes its entire business in this chart,
we are including, ETR is including
Microsoft's entire business, not just its cloud.
Its Azure-only net score is 67%, higher than even AWS's,
and that's huge.
Google Cloud, on the other hand,
while still elevated is well behind the two leaders.
Alibaba's data sample in the ETR survey is small
and China has had its foot on the neck
of Big Tech for a while
so we can't read too much into a net score of 26.
But notice the replacements in red across the boards
single digits for all and low single digits
for the two giants,
1% for Amazon and Azure.
Very impressive.
Now the other really telling reality check
is CapEx spending on cloud.
CapEx spend tends to be a pretty good indicator of scale.
And Charles Fitzgerald who runs the Platformonomics blog
spends a fair amount of his time on this topic
and we borrowed this chart from a recent post he did,
and then we put in some estimates of our own.
It shows CapEx spend over time for five cloud companies,
the Big 3 US firms that we just talked about,
plus IBM and Oracle.
And it's always astounding to me to go back
to the pre-cloud era and look at IBM.
They were in a great position prior to 2006
to really dominate this notion of as a service
and the transition to what is now known as cloud.
But they really couldn't get their head
out of professional services and their outsourcing business.
There was some conflicts there as well.
And so, you know, IBM you see is that dark blue
or black line and spent significantly more
than the others way back when, not anymore.
Charles is kind of a snark.
He loves to make fun of our super cloud concept
even though I'm confident it's evolving and is real.
But his point above in this chart is right on,
the Big 3 US players spend far more on CapEx
than IBM and Oracle.
He states that Oracle's uptick in CapEx spend
puts them past IBM, but the two of them are battling
to distance themselves and differentiate from the X-axis.
Funny guy, Charles.
In its recent earnings report,
Amazon stated that around 40%
of its CapEx goes to infrastructure
and most of that goes to AWS.
It expects CapEx to grow this year
and around 50% will go toward infrastructure.
So we've superimposed our rough estimate of where AWS lands
when you subtract out all of Amazon's warehouses for retail.
And once again, Microsoft is notable
because unlike Amazon, it doesn't have a zillion warehouses
to ship products to consumers.
And while Google spending is massive,
it's mostly on servers to power its ad network.
But there's no question that GCP can leverage
that infrastructure and the tech behind it, and it does.
And by the way, so can everyone else, by the way,
leverage all this CapEx spend.
We're going to come back to that
and talk about super cloud in a moment.
Okay, let's close by looking
at the ever-expanding cloud landscape.
This chart shows a two-dimensional view
of the ETR data for cloud computing.
On the vertical-axis is net score or spending momentum,
and in the horizontal-axis
is pervasiveness in the data set.
It's like market share within the survey, if you will.
The chart insert shows the data
for how the dots are plotted on each axis.
The red dotted line at 40%,
remember, indicates a highly elevated position
with net score and significant spending momentum.
And the green arrows show the movement
for some companies relative to three months ago.
Okay, so Microsoft and AWS, they're kind of circled way up
in the right-hand corner, very impressive.
Just to reduce the clutter,
we're not showing AWS Lambda here
and some other highly elevated services
which would push up, ticked up AWS's net score
but it's still really, really good.
As is azure, they're both moving solidly to the right
relative to last quarters survey.
So gaining presence in the data set
and presumably in the market as well.
Google is, as we've said, well behind
and has much work to do.
It was announced this past week
that the head of sales at Google Cloud, Rob Enslin,
is leaving to join UiPath,
so some interesting news there.
We've highlighted the hybrid zone.
Now to the theme of this Breaking Analysis,
the ever-expanding cloud,
AWS announced that it's completed the launch
of 16 local zones in the US
and there are 32 more coming across 26 countries.
Local zones basically bring cloud infrastructure
to regions where there's a lot of IT
that isn't going to move.
And for proximity and latency reasons,
they have to move closer, move the cloud closer,
the cloud operating model if you will,
closer to the customers.
And there's that CapEx build out showing its head again.
Now the reason this hybrid zone becomes interesting
is you're seeing the large enterprise players
finally go after the hybrid cloud in Earnest.
It's almost like the AWS outposts announcement in 2018
was a wake up call to infrastructure players
like Dell, HPE, and IBM.
It took a while, but Oracle is kind of skipping
to its own tune, but they're in that hybrid zone as well.
IBM had a really good quarter
and the Red Hat acquisition seems to be working
to support its hybrid cloud strategy.
Now VMware several years ago
clean up its fuzzy cloud strategy
and partnered up with AWS and everyone else.
And you see VMware Cloud on AWS doing well
as is VMware Cloud, its on-prem offering.
Even though it's somewhat lower on the X-axis,
based on that green arrow was showing
relative to last quarter.
It's moving to the right with a greater presence
in the data set so that we see that as a positive sign.
Now, Dell and HP are interesting.
Both companies are going hard after as a service
with APEX and GreenLake, respectively.
HPE, based on the survey data from ETR,
seems to have a lead in spending momentum
while Dell has a larger presence in the market,
naturally, as a much bigger company.
HPE is climbing up on the X-axis,
as is Dell, although, not as quickly.
And the point we come back to often
is the definition of cloud is in the eye of the customer.
AWS can say, "No, no that's not cloud."
And the on-prem crowd can say, "Ooh, we have cloud too."
It really doesn't matter.
What matters is what the customer thinks
and which platforms they choose to invest.
And I'll close by circling back to the idea of super cloud.
You are seeing it evolve
and you're going to hear more and more about it.
Yeah, maybe not the term, many don't like it.
We're going to continue to use it as a metaphor
for a layer that leverages the CapEx build,
the gift that the hyperscalers are providing the industry.
This is a real opportunity for the likes of Dell, HPE,
IBM, Cisco, and dozens of other companies providing compute
and storage infrastructure, networking, security, database,
and other parts of the stack.
By hiding the underlying complexity of the cloud,
dealing with all the API and primitive muck,
creating singular experience across on-prem,
across clouds, and out to the edge
is a definite need from customers.
This is a new battle that's shaping up
and it's going to be expensive to build
and it require an ecosystem cooperating
across this API economy, as some like to call it.
It's going to have to do that to make it a reality.
Now there's a definite, as I say, customer need
for this common experience,
and in our view, we're seeing it manifest in pockets today
and in strategies and in R&D projects,
both within startups and established players.
Okay, that's it for today.
Thanks to Stephanie Chan
who helps research Breaking Analysis topics.
Alex Myerson is on production
and he also manages the Breaking Analysis podcast.
Kristen and Martin and Cheryl Knight
get the word out on social.
Thanks to all, including Rob Hof,
our editor in chief at SiliconANGLE.
Remember these episodes are all available as podcast
wherever you listen.
All you got to do is search Breaking Analysis podcast.
Check out ETR website at etr.ai.
We publish a full report every week on wikibon.com
and siliconangle.com.
You can email me directly
at david.vellante@siliconangle.com, or DM me @dvellante
or comment on our LinkedIn posts.
This is Dave Vellante for theCUBE Insights powered by ETR.
Have a great week, stay safe, be well
and we'll see you next time.
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