 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. You know, we've often said that the next 10 years in cloud computing won't be like the last 10. Cloud has firmly planted its footprint on the other side of the chasm with the momentum of the entire multi-trillion dollar tech business behind it. Both sellers and buyers are leaning in by adopting cloud technologies and many are building their own value layers on top of cloud. In the coming years, we expect innovation will continue to coalesce around the three big U.S. clouds plus Alibaba and APAC. With the ecosystem building value on top of the hardware software tooling provided by the hyperscalers. Now importantly, we don't see this as a race to the bottom. Rather, our expectation is that the large public cloud players will continue to take cost out of their platforms through innovation, automation and integration while other cloud providers and the ecosystem including traditional companies that buy IT mine opportunities in their respective markets. As Matt Baker of Dell is fond of saying this is not a zero sum game. Welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we'll update you on our latest projections in the cloud market. We'll share some new ETR survey data with some surprising nuggets and drill into the important cloud database landscape. First, we want to take a look at what people are talking about in cloud and what's been in the recent news. With the exception of Alibaba, all the large cloud players have reported earnings. Google continues to focus on growth at the expense of its profitability. Google reported that its cloud business which includes applications like Google Workspace grew 45% to five and a half billion dollars but it had an operating loss of 890 billion. Now, since Thomas Kurian joined Google to run its cloud business, Google has increased headcount in its cloud business from $25,000, 25,000 people. Now it's up to 40,000 in an effort to catch up to the two leaders. But playing catch up is expensive. Now to put this into perspective, let's go back to AWS's revenue in Q1 2018 when the company did 5.4 billion. So almost exactly the same size as Google's current total cloud business. And AWS is growing faster at the time at 49%. Don't forget, Google includes in its cloud numbers a big chunk of high margin software. AWS at the time had an operating profit of 1.4 billion that quarter, around 26% of its revenues. So it was a highly profitable business and it's not as profitable as Cisco's overall business which again is a great business. This is what happens when you're number three and didn't get your head out of your ads fast enough. Now in fairness, Google still gets high marks on the quality of its technology. According to Corey Quinn of the Duckbill Group, Amazon and Google cloud are what he called neck and neck with regard to reliability with Microsoft Azure trailing because of significant disruptions in the past. Now these comments were made last week in a Bloomberg article despite some recent high profile outages on AWS. Not surprisingly, a Microsoft spokesperson said that the company's cloud offers industry leading reliability and that it gives customers payment credits after some outages. Thank you. Turning to Microsoft and cloud news, Microsoft's overall cloud business surpassed 22 billion in the December quarter, up 32% year on year. Like Google, Microsoft includes application software and SaaS offerings in its cloud numbers and gives little nuggets of guidance on its Azure infrastructure as a service business. By the way, we estimate that Azure comprises about 45% of Microsoft's overall cloud business which we think hit a $40 billion run rate last quarter. Microsoft guided in its earning call that recent declines in the Azure growth rates will reverse in Q1 and that implies sequential growth for Azure. Now finally it was announced that the FTC not the DOJ will review Microsoft's announced $75 billion acquisition of Activision Blizzard. It appears FTC chair, Lena Khan wants to take this one on herself. She of course has been very outspoken about the power of big tech companies and in recent CNBC interviews suggested that the US government's actions were a meaningful contributor back then to curbing Microsoft's power in the 90s. I personally found that dubious, just ask Netscape, WordPerfect, Novell, Lotus and SPC the maker of Harvard presentation graphics how effective the government was in curbing Microsoft power. Generally my take is that the US government has had a dismal record regulating tech companies most notably IBM and Microsoft and it was market forces, company hubris, complacency and self-inflicted wounds not government intervention. These were far more effective than the government. Now, of course, if companies are breaking the law they should be punished, but the US government hasn't been very productive in its actions and the unintended consequences of regulation could be detrimental to the US competitiveness in the race with China, but I digress. Lastly in the news, Amazon announced earnings Thursday and the company's value increased by $191 billion on Friday, that's a record valuation gain for US stocks, AWS, Amazon's profit engine grew 40% year on year for the quarter. It closed the year at $62 billion in revenue and at a $71 billion revenue run rate. AWS is now larger than IBM, which without Kindrel is at a $67 billion run rate. Just for context, IBM's revenue in 2011 was $107 billion. Now, there's a conversation going on in the media and social that in order to continue this growth and compete with Microsoft, that AWS has to get into the SaaS business and offer applications. We don't think that's the right strategy for Amazon in the near future. Rather, we see them enabling developers to compete in that business. Finally, Amazon disclosed that 48 of its top 50 customers are using Graviton II instances. Why is this important? Because AWS is well ahead of the competition in custom silicon chips and is on a price performance curve that is far better than alternatives, especially those based on x86. This is one of the reasons why we think this business is not a race to the bottom. AWS is being followed by Google, Microsoft and Alibaba in terms of developing custom silicon and will continue to drive down their internal cost structures and deliver price performance equal to or better than the historical Moore's law curves. So that's the recent news for the big US cloud providers. Let's now take a look at how the year ended for the big four hyperscalers and look ahead to next year. Here's a table. We've shown this view before. It shows the revenue estimates for worldwide IS and PAS generated by AWS, Microsoft, Alibaba and Google. Now, remember, Amazon and Alibaba, they share clean IS figures whereas Microsoft and Alphabet only give us these nuggets that we have to interpret and we correlate those tidbits with other data that we gather. We're one of the few outlets that actually attempts to make these apples to apples comparisons. There's a company called Synergy Research is another firm that does this but I really can't map to their numbers. Their GCP figures look far too high and Azure appears somewhat overestimated and they do include other stuff like hosted private cloud services but it's another data point that you can use. Okay, back to the table. We've slightly adjusted our GCP figures down based on interpreting some of Alphabet's statements and other survey data. Only Alibaba has yet to announce earnings so we'll stick to a 2021 market size of about $120 billion. That's a 41% growth rate relative to 2020 and we expect that figure to increase by 38% to $166 billion in 2022. Now, we'll discuss this a bit later but these four companies have created an opportunity for the ecosystem to build what we're calling super clouds on top of this infrastructure and we're seeing it happen. It was increasingly obvious that AWS reinvent last year and we feel it will pick up momentum in the coming months and years. A little bit more on that later. Now, here's a graphical view of the quarterly revenue shares for these four companies. Notice that AWS has reversed its share erosion and is trending up slightly. AWS has accelerated its growth rate four quarters in a row now. It accounted for 52% of the big four hyperscalar revenue last year and that figure was nearly 54% in the fourth quarter. Azure finished the year with 32% of the hyperscale revenue in 2021 which dropped to 30% in Q4. And you can see GCP and Alibaba there neck and neck fighting for the bronze medal. By the way, in our recent 2022 predictions post we said Google cloud platform would surpass Alibaba this year given the recent trimming of our numbers. Google's got some work to do for that prediction to be correct. Okay, just to put a bow on the Wikibon market data let's look at the quarterly growth rates and you'll see the compression trends there. This data tracks quarterly revenue growth rates back to Q1 2019. And you can see the steady downward trajectory and the reversal that AWS experienced in Q1 of last year. Now remember, Microsoft guided for sequential growth in Azure so that orange line should trend back up and given GCP's much smaller and big go-to-market investments that we talked about we'd like to see an acceleration there as well. Think about AWS is just remarkable that it's able to accelerate growth at a 71 billion dollar run rate business. And Alibaba is a bit more opaque and likely still reeling from the crackdown of the Chinese government. We're admittedly not as close to the China market but we'll continue to watch from afar as that steep decline in growth rate is somewhat of a concern. Okay, let's get into the survey data from ETR and to do so we're going to take some time series views on some of the select cloud platforms that are showing spending momentum in the ETR dataset. You know, ETR uses a metric we talked about this a lot called net score to measure that spending velocity of products and services. Net score basically asks customers are you spending more, less or the same on a platform and a vendor and then it subtracts the lesses from the mores and that yields a net score. This chart shows net score for five cloud platforms going back to January 2020. Note in the table that the table we've inserted inside that chart shows the net score and shared end. The latter metric indicates the number of mentions in the dataset and all the platforms we've listed here show strong presence in the survey. That red dotted line at 40% that indicates spending is at an elevated level. And you can see Azure and AWS and VMware cloud on AWS as well as GCP are all nicely elevated and bounding off their October figures indicating continued cloud momentum overall. But the big surprise in these figures is the steady climb and the steep bounce up from Oracle which came in just under the 40% mark. Now, one quarter is not necessarily a trend but going back to January 2020 the Oracle peaks keep getting higher and higher. So we definitely want to keep watching this. Now, here's a look at some of the other cloud platforms in the ETR survey. The chart here shows the same time series and we've now brought in some of the big hybrid players notably VMware cloud which is VCF and other on-prem solutions, Red Hat OpenStack which as we've reported in the past is still popular in telcos who want to build their own cloud. We're also starting to see HPE with GreenLake and Dell with Apex show up more and IBM which years ago acquired SoftLayer which was really essentially a bare metal hosting company and over the years IBM cobbled together its own public cloud. IBM is now racing after hybrid cloud using Red Hat OpenShift as the linchpin to that strategy. Now what this data tells us, first of all these platforms they don't have the same presence in the dataset as do the previous players. VMware is the one possible exception but other than VMware these players don't have the spending velocity shown in the previous chart and most are below the red line. HPE and Dell are interesting and notable in that they're transitioning their early private cloud businesses to HPE GreenLake and Dell Apex respectively and finally after years of kind of staring at their respective navels in cloud and milking their legacy on-prem models they're finally building out cloud-like infrastructure for their customers. They're leaning into cloud and marketing it in a more sensible and attractive fashion for customers. So we would expect these figures are going to bounce around for a little while for those two as they settle into a groove and we'll watch that closely. Now IBM is in the process of a complete do-over. Arvind Krishna inherited three generations of leadership with a professional services mindset. Now in the post Gershner error both Sam Palmasano and Ginni Rametti held on far too long to IBM's service heritage and protected the past from the future. They missed the cloud opportunity and they forced the acquisition of Red Hat to position the company for the hybrid cloud. Rametti tried to shrink to grow but never got there. Krishna is moving faster and with the kindral spin is promising mid-single digit growth, which would be a welcome change. IBM's got a lot of work to do and we would expect its net score figures as well to bounce around as customers transition to the future. All right, let's take a look at all these different players in context. These are all the clouds that we just talked about in a two-dimensional view. The vertical axis is net score or spending momentum and the horizontal axis is market share or presence or pervasiveness in the data set. A couple of call-outs that we'd like to make here. First, the data confirms what we've been saying, what everybody's been saying, AWS and Microsoft stand alone with a huge presence. Many tens of billions of dollars in revenue, yet they are both well above the 40% line and show spending momentum and they're well ahead of GCP on both dimensions. Second, VMware, while much smaller, is showing legitimate momentum, which correlates to its public statements. Alibaba in this survey really doesn't have enough sample to make hardcore conclusions. You can see HPE and Dell and IBM, similarly they got a little bit more presence in the data set, but they clearly have some work to do. What you're seeing there is they're transitioning their legacy install bases. Oracle's the big surprise. Look what Oracle was in the January survey and how they've shot up recently. Now, we'll see if this holds up. Let's pause it, some possibilities as to why. It really starts with the fact that Oracle is the king of mission critical apps. Now, if you haven't seen the video on Twitter, you have to check it out, it's hilarious. We're not going to run the video here, but the link will be in our post, but I'll give you the short version. Some really creative person, they overlaid a data migration narrative on top of this one tooth guy who speaks in Spanish gibberish. But the setup is he's a PM, he's a project manager at a bank. And AWS came into the bank, this is of course all hypothetical, and said, we can move all your apps to the cloud in 12 months. And the guy says, but wait, we're running mission critical apps on Exadata. And AWS says there's nothing special about Exadata and he starts howling and slapping his knee and laughing and giggling and talking about the 23 year old senior engineer who says we're going to do this with microservices. And he can tell he was 23 because he was willing to expensive sneakers and what a nightmare they encountered, migrating their environment. Very, very, very funny video. And anyone who's ever gone through a major migration of mission critical systems, this is going to hit home. It's funny, not funny. The point is it's really painful to move off of Oracle and Oracle for all its haters and its faults is really the best environment for mission critical systems and customers know it. So what's happening is Oracle's building out the best cloud for Oracle database. And it has a lot of really profitable customers running on-prem that the company is migrating to Oracle Cloud Infrastructure, OCI. It's the safer bet than ripping it and putting it into somebody else's cloud that doesn't have all the specialized hardware and Oracle knowledge. Because you can get the same integrated Exadata hardware and software to run your database in the Oracle Cloud. It's frankly an easier and much more logical migration path for a lot of customers and that's possibly what's happening here. Not to mention Oracle jacks up the license price and nearly doubles the license price if you run on other clouds. So not only is Oracle investing to optimize its cloud infrastructure. It spends money on R&D. We've always talked about that. Really focused on mission critical applications but it's making it more cost effective by penalizing customers that run Oracle elsewhere. So this possibly explains why when the Gartner Magic Quadrant for cloud databases comes out it's got Oracle so well positioned. You can see it there for yourself. Oracle's position is right there with AWS and Microsoft and ahead of Google. On the right hand side is Gartner's critical capabilities ratings for DBMS and Oracle leads in virtually all of the categories Gartner Track. For operational DBMS so it's kind of a narrow view. It's like the red stack sweet spot. Now this graph it shows traditional transactions but Gartner has Oracle ahead of all vendors in stream processing, operational intelligence, real time augmented transactions. Now you know Gartner they're like old main framers and I say that lovingly. So maybe they're a bit biased and they might be missing some of the emerging opportunities that for example like Snowflake is pioneering but it's hard to deny that Oracle for its business is making the right moves in cloud by optimizing for the red stack. There's little question in our view when it comes to mission critical we think Gartner's analysis is correct. However, there's this other really exciting landscape emerging in cloud data and we don't want it to be a blind spot. Snowflake calls it the data cloud. Jamak Degani calls it data mesh. Others are using the term data fabric. Data bricks calls it data lake house. So does Oracle by the way. And look the terminology is going to evolve and most of the action that's happening is in the cloud quite frankly and this chart shows a select group of database and data warehouse companies and we filtered the data for AWS Azure and GCP customers accounts. So how are these accounts or companies that we're showing how these vendors were showing doing in AWS Azure and GCP accounts and to make the cut you had to have a minimum of 50 mentions in the ETR survey. So unfortunately, data bricks didn't make it just not enough presence in the data set quite yet. But just to give you a sense Snowflake is represented in this cut with 131 accounts, AWS 240, Google 108, Microsoft 407. Huge, Mongo 117, Cloudera 52 just made the cut IBM 92 and Oracle 208. Again, these are shared accounts filtered by customers running AWS Azure or GCP. The chart shows a net score. Lime green is new ads, forest green is spending more, gray is flat spending, the pink is spending less and the bright red is defection. Again, you subtract the red from the green and you get net score. And you can see that Snowflake as we reported last week is tops in the data set with a net score in the 80s and virtually no red. And even by the way, single digit flat spend AWS, Google and Microsoft are all prominent in the data set as is Mongo and Snowflake as I just mentioned and they're all elevated over the 40% mark. Cloudera, yeah, what could we say? Once they were a high flyer, they're really not in the news anymore with anything compelling other than they just took the company private. So maybe they can reemerge at some point with a stronger story, I hope so. Because as you can see, they actually have some new additions and spending momentum in the green. Just a lot of customers holding steady and a bit too much red, but they're in the positive territory at least with a plus 17%. Unlike IBM and Oracle, and this is the flip side of the coin. IBM, they're knee deep, really chest deep in the middle of a major transformation. We've said before, Arvind Krishna's strategy and vision is at least achievable, prune the portfolio i.e. spin out kindrel, sell Watson health, hold serve with the mainframe and deal with those product cycles, shift the mix to software and use Red Hat to win the day in hybrid. Red Hat is working for IBM's growing well into the double digits. Unfortunately, it's not showing up in this chart with little database momentum in AWS Azure and GCP accounts. Zero new ads, not enough acceleration and spending, a big gray middle in nearly a quarter of the base in the red. IBM's data and AI business only grew 3% this last quarter. And the word database wasn't even mentioned once on IBM's earnings call. This has to be a concern, as you can see how important database is to AWS, Microsoft, Google, and the momentum it's giving companies like Snowflake and Mongo and others, which brings us to Oracle with a net score of minus 12. So how do you square the momentum in Oracle cloud spending and the strong ratings and database from Gartner with this picture? Good question. And I would say the following. First, look at the profile. People aren't adding Oracle new. A large portion of the base, 25% is reducing spend by 6% or worse. And there's a decent percentage of the base migrating off Oracle with a big fat middle that's flat. And this accounts for the poor net score overall. But what ETR doesn't track is how much is being spent. Rather, it's an account base model and Oracle is heavily weighted toward big spenders running mission critical applications and databases. Oracle's non-gap operating margins are comparable to IBM's gross margins on a percentage basis. So a very profitable company with a big license and maintenance install base. And Oracle has focused its R&D investments into cloud, ERP, database, automation. They've got vertical SaaS and they've got this integrated hardware and software story and this drives differentiation for the company. But as you can see in this chart, it has a legacy install base that is constantly trying to minimize its license costs. Okay, here's a little bit of different view on the same data. We expand the picture with the two dimensions of net score on the Y axis and market share or pervasiveness on the horizontal axis. And the table insert is how the data gets plotted, Y and X respectively. Not much to add here other than to say the picture continues to look strong for those companies above the 40% line that are focused and they're focused and have figured out a clear cloud strategy and aren't necessarily dealing with a big install base. The exception, of course, is Microsoft. And the ones below the line definitely have parts of their portfolio which have solid momentum but they're fighting the inertia of a large install base that moves very slowly. Again, Microsoft had the advantage of really Azure and migrating those customers very quickly. Okay, so let's wrap it up. Starting with the big three cloud players. AWS is accelerating and innovating. Great example is custom silicon with Nitro and Graviton and other chips that will help the company address concerns related to the race to the bottom. It's not a race to zero. AWS, we believe, will let its developers go after the SaaS business and for the most part, AWS will offer solutions that address large vertical markets. Think call centers. The edge remains a wild card for AWS and all the cloud players really, AWS believes that in the fullness of time all workloads will run in the public cloud. Now it's hard for us to imagine the Tesla autonomous vehicles running in the public cloud but maybe AWS will redefine what it means by its cloud. Microsoft, well, they're everywhere and they're expanding further now into gaming and the metaverse. When he became CEO in 2014, many people said that Satya should ditch Xbox, just as an aside. The joke among many Oracle employees at the time was that Saffra Katz would buy her kids and her nieces and her nephews and her kids' friends and everybody. Xbox gained consoles for the holidays because Microsoft lost money for everyone that they shipped. Well, Nadella has stuck with it and he sees an opportunity to expand through online gaming communities. One of his first deals as CEO is Minecraft. Now the acquisition of Activision will make Microsoft the world's number three gaming company by revenue behind only 10 cent and Sony. All this will be powered by Azure and drive more compute, storage, AI and tooling. Now Google for its part is battling to stay relevant in the conversation. Luckily, it can afford the massive losses it endures in cloud because the company's advertising business is so profitable. Don't expect as many have speculated that Google is going to bail on cloud. That would be a huge mistake as the market is more than large enough for three players, which of course brings us to the rest of the pack. Cloud ecosystems generally in AWS specifically are exploding. The idea of super cloud, that is a layer of value that spans multiple clouds, hides the underlying complexity and brings new value that the cloud players aren't delivering. That's starting to bubble to the top and legacy players are staying close to their customers and fighting to keep them spending. And it's working Dell, HPE, Cisco and smaller, predominantly on-prem players like Pure Storage, they continue to do pretty well. They're just not as sexy as the big cloud players. The real interesting activity it's really happening in the ecosystem of companies and firms within industries that are transforming to create their own digital businesses. Virtually all of them are running a portion of their offerings on the public cloud, but often connecting to on-premises workloads and data. Think Goldman Sachs. Making that work and creating a great experience across all environments is a big opportunity and we're seeing it form right before our eyes. Don't miss it. Okay, that's it for now. Thanks to my colleague, Stephanie Chan who helped research this week's topics. Remember these episodes are all available as podcasts wherever you listen, just search Breaking Analysis Podcast. Check out ETR's website at etr.ai and also we publish a full report every week on wikibon.com and siliconangle.com. You can get in touch with me, email me at david.volante at siliconangle.com. You can DM me at dvolante or comment on my LinkedIn post. This is Dave Volante for theCUBE Insights, powered by ETR. Have a great week, stay safe, be well and we'll see you next time.