 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Despite all the talk about repatriation, hybrid and multi-cloud opportunities in cloud as an increasingly expensive option for customers, the data continues to show the importance of public cloud to the digital economy. Moreover, the two leaders, AWS and Azure, are showing signs of accelerated momentum that point to those two giants pulling away from the pack in the years ahead, with each firm showing broad-based momentum across their respective product lines. It's unclear if anything other than government intervention or self-inflicted wounds will slow these two companies down this decade. Despite their commanding lead, a winning strategy for companies that don't run their own cloud continues to be innovating on top of their massive CapEx investments. The most notable example here being Snowflake. Hello, everyone. Welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we provide our quarterly market share update for the big four hyperscale cloud providers, and we'll share some new ETR data from their most recent survey, and we'll drill into some of the reasons for the momentum of these two companies and drill further into the database and data warehouse sector to see what, if anything, has changed in that space. First, let's look at some of the noteworthy comments from AWS and Microsoft in their recent earnings updates. We heard from Amazon the following. AWS has seen a re-acceleration of revenue growth as customers have expanded their commitment to the cloud and selected AWS as their cloud partner. Notably, AWS revenues increased 39% in Q3 2021. That's a thousand basis point increase in growth relative to Q3 2020. That's an astounding milestone for a company that we expect to surpass $60 billion in revenue this year. Further, AWS touted the adoption of its custom silicon and specifically its Graviton 2 processors. AWS is fond of emphasizing Graviton's 40% price performance improvements relative to x86 processors, something we've reported on quite extensively. AWS is investing in custom silicon, encouraging ISVs to port their code to the platform so that customers will experience little or no code changes when they migrate. Again, we believe this is a secret weapon for AWS as its cost structure will continue to improve at a rate faster than competitors that don't have the resources or the skills or the stomach to develop such capabilities. Microsoft, for its part, also saw astoundingly good growth of 48% this past quarter for Azure. This is a company that we forecast will approach $40 billion in IS and Paz public cloud revenue this year. Microsoft's CEO Satya Nadella on its earnings call emphasized the changing nature of cloud expanding in a distributed fashion to the edge. He referenced Azure as the world's computer building on his statements last year that Microsoft is building out a powerful, ubiquitous, intelligent, sensing and predictive cloud. Yes, folks, it does feel like we're entering the so-called metaverse, doesn't it? Okay, to underscore the momentum of these two companies, let's take a look at the ETR breakdown of NetScore, which measures spending momentum. This chart will be familiar to our listeners. It shows the breakdown of NetScore for AWS with the lime green showing new adoptions. That's 11%. The forest green is spending more than 6% relative to the first half of this year. That's a very robust 53%. The gray is flat spending. That's 30% on a very, very large base and the pink is spending declines of minus 6% or worse. That's 4% and the bright red is defections, i.e. those leaving AWS, that's 1%. That's virtually non-existent. You subtract the reds from the greens and you get a NetScore of 59. Remember, anything over 40 we consider to be elevated. Let's look at that same data for Microsoft. Again, you have some new ads, that lime green, that 7%, the forest green is that 46% of customers spending more, which is an incredible figure for a company with revenues that will in the near term surpass $200 billion. And the red is in the low single digits. Buffered by its enormous PC software profits over the years, Microsoft has powered through its Windows dogma and transitioned into a cloud powerhouse. Let's now share some of our latest numbers for the big four hyperscale players, AWS, Azure, Alibaba and Google. Here we show data for these companies from 2018 and our estimates for 2021. This data includes our final figures for AWS, Azure and GCP for Q3 with Alibaba yet to report. Remember, only AWS and Alibaba report IS revenue cleanly with Microsoft and Google, they give us little bread crumb nuggets that allow us to triangulate with our survey data and other intelligence. But it's our attempt to do an apples to apples comparison for those four companies using AWS and it's reporting as a baseline. In Q3, AWS reported more than $16 billion in revenue. We estimate Azure at 10 billion, Alibaba, we expect to come in at just under 3 billion and GCP at 2.5 billion for the quarter. With three quarters of data in with the exception of Alibaba, we're forecasting AWS to capture 51% of the big four revenue, the hyperscale revenue. And really, we believe these are the only four hyperscalers. AWS will surpass 60 billion with Azure just under 40 billion Alibaba approaching 11 billion and Google coming in just under 10 billion for the year is our expectation. We forecast these four will account for $120 billion this year. That's a 41% increase over 2020 and the same collective growth rate as 2020 relative to 2019. We expect Azure to be 63% of the size of AWS revenue. So it is gaining share. Both of those companies that however saw accelerated growth this past quarter with Alibaba and GCP's growth rates decelerating relative to last year. Now let's take a closer look at those growth rates. This chart shows the quarterly growth rates each of the four going back to the beginning of 2019. Both GCP and Alibaba are showing dramatic declines in growth rates, whereas this past quarter Azure saw accelerated growth and AWS has now seen an increased rate of growth for the past two quarters. In fact, AWS's growth is about where it was in 2019 when it was around half of its current revenue size. And in 2019 growth was decelerating through the quarters as you can see where today that trend is reversed. It's quite amazing. All right, let's take a look at the broader cloud landscape and bring back some ETR data. This chart that we're showing here it shows net score or spending momentum on the vertical axis and market share or presence in the data set on the horizontal axis. Note that red dotted line, anything above that we consider elevated and impressive. As when we've previously shared this data AWS and Microsoft Azure are up and to the right. Now remember, this chart is not just counting IS and PAS as we showed you earlier. It's however the customer's views, whatever they think cloud is. And so they're likely including Microsoft SAS in this picture, which is why Microsoft shows larger than AWS despite what we showed you earlier. Nonetheless, these two are well ahead of the pack and the growth rates indicate that they're pulling away. But we've added some of the other players, most notably VMware cloud on AWS. It's showing momentum as is VMware cloud, which is VMware cloud foundation and other on-prem cloud offerings. Even though it's below the red line for the on-prem piece, it's very respectable. The VMware cloud on AWS has been consistently up above that red line has popped beneath it in some quarters, but it's very, very strong. As is, you know, Red Hat OpenShift, it's a little bit below the line, but it is respectable. We've superimposed this, by the way, is Red Hat OpenShift in the ETR platform is under the container orchestration taxonomy, but we like to put it in next to the cloud players for context. That's how Red Hat sort of thinks about this as well. They think about OpenShift as cloud. And then you can see the other players. Alibaba's got a small sample in the ETR dataset, just does not enough presence in China, but Dell and HPE have started to show up in the cloud taxonomy. So buyers are associating their private clouds with cloud. So Dell's Apex, HPE's GreenLake. So that's a positive. And you can see Oracle, which of course has OCI, Oracle Cloud Infrastructure, and then IBM with its public cloud. So it's a positive that these on-prem players are showing up in this data, but the reality is the hyperscalers are growing collectively at 40% annually. And the on-prem players are growing in the low single digits. So and if you carve out the IaaS business of AWS and Azure, they're larger than most of the on-premises infrastructure players. And all the on-prem players are moving toward it as a service model, as I just alluded to. So undoubtedly hybrid, multi-cloud edge are going to present opportunities for the likes of Dell, HPE, Cisco, VMware, IBM Red Hat, et cetera. But they also present opportunities for the public cloud players who have vibrant ecosystems and marketplaces, much more diverse and deep than the traditional vendors. You know, we have a clearer picture of Microsoft's sort of hybrid and edge strategy because the company has such an enormous legacy business. It really had to think about that much more deeply. It wasn't a blank sheet of paper like AWS. It's going to be interesting at reinvent this year if new CEO Adam Salipski will talk about this and it will be good to hear how he's thinking about the next decade and how AWS thinks about hybrid and edge, I guarantee that with their developer affinity and custom silicon capabilities, they're thinking about it differently than traditional enterprise players. And as we've stressed in this segment, they have across the board momentum. Now to quantify that, let's take a look at AWS's portfolio and the spending momentum within its product segments. This chart shows AWS's net scores or spending momentum in the areas where AWS participates in the ETR taxonomy. Again, note that red line, anything above 40% is considered an elevated watermark. We're showing data from last October, this past July and the latest October 21 survey, that yellow line or bar. What's notable is the yellow versus the gray bars up across the board for the most part, other than chime, and by the way, other than chime, everything is above the 40% mark as well. Now we've highlighted database because we feel it's one of the most strategic sectors in a real battleground, so we want to drill into that a bit. Here's our familiar XY graph showing net score on the Y axis. Remember, that's again, spending momentum in market share or pervasiveness in the survey on the horizontal axis. This data, by the way, includes on-prem and cloud database data warehouse, so keep that in mind. Let's start with one of our favorite topics, Snowflake. We've reported again and again and again that we've never seen anything like this. The company's net score has moderated ever so slightly this quarter, but it's still just below 80%, very highly elevated, well above that 40% mark. And Snowflake's presence continues to grow as it gains share in the market. Snowflake is growing revenue in the triple digits. It's an insane pace, hence its current $115 billion market cap as of this episode. Now that said, all three US-based cloud players, there are above the 40% line with AWS and Microsoft having significant presence on the horizontal axis. You see Cockroach labs, Redis, Couchbase, they're all elevated or highly elevated. Couchbase just went public this summer, so that may help with its presence. MongoDB, they're killing it. They have a $37 billion market cap as of this episode and the stock has been on a tear. You see MariaDB was also in the mix. And then of course you have Oracle, the database leader. Look, they continue to invest in making the Oracle database and other software like MySQL, the best solution for mission critical workloads and they're investing in their cloud. But you can see overall, they just don't have the momentum from a spending standpoint that the others do because the declines in their legacy business and they've been around a long time. They're just, those declines are not fully offset by the growth in cloud database and cloud migration. But look, Oracle's a financial powerhouse with a $250 billion plus market cap and the stock has done very well this past year, up over 60%. Cloudera is going private. So it can hide the pain of the transitions that it's undergoing between the legacy install bases of Cloudera and Hortonworks. It's just a tough situation. When the companies came together, Cloudera essentially had a dead end, each of those respective platforms and migrate their customers to a more modern stack as part of its cloud strategy, ironic that its name is Cloudera. You know, that's always a difficult thing to do. So as a private company, Cloudera can maybe get off that 90-day shot clock and buy some time to invest without getting hammered by the street. And you know, Teradata consistently has not shown up well in the ETR dataset. It's transitioned to cloud and CrossCloud still hasn't shown momentum in the surveys. So look, right now it's looking like the rich get richer. So just to quantify that a little bit, let's line up some of the database players and look a little bit more closely at net score. This chart shows the spending momentum or lack thereof with the net score or spending velocity granularity that we described before. Remember, green is spending more, red is spending less, bright red is leaving the platform, bright green is adding the platform. You take red, subtract the red from the green and that gives you net score. Snowflake, as we said, tops the list. You can see the granularity there. You can compare the performance in a little different view to understand how these scores are derived. Look, the ideal profile is a solid lime green, a big forest green, a not too large gray and ideally little or no bright red, aka defections. And you can see the green funnel and the gray increasing prominence as the vendor momentum declines. Interestingly, with the exception of cloud era and teradata, defections are all in the single digits or non-existent in the case of snowflake, red is no red at all, but small sample, couch base has no defections and very little defection for the giant Microsoft, incredibly impressive. This speaks to how hard it is to migrate off of a database no matter how disgruntled you are. The more common scenario is to isolate the database and build new functionality on the modern platforms. Okay, so what to watch out for? Well, re-invent is coming up next month or this month. It's the first time someone other than Andy Jassy will be keynoting as CEO. 15 years of cloud, this is the 10th re-invent which is always a market for the direction of the industry. I've said many times that the last decade was largely about IT transformation powered by the cloud. I believe we're entering a new era of business transformation where the cloud is going to play a significant role. But the cloud is evolving from a set of remote services out there in the cloud to an omnipresent platform on top of which many customers and technology companies can innovate. And virtually every industry will be impacted by cloud, however it evolves in the coming decade. The question will be how fast can you go and how will players like AWS and Microsoft and many others that are building on top of these platforms make it easier for you to go fast. That's what I'll be watching for at re-invent and beyond. Okay, that's a wrap for today. Remember these episodes, they're all available as podcasts wherever you listen. All you got to do is search breaking analysis podcast. Check out ETR's website at ETR.plus. We also publish a full report every week on wikibon.com and siliconangle.com. You can get in touch with me, David.Valante at siliconangle.com. You can DM me at dvalante or comment on our LinkedIn post. This is Dave Valante for theCUBE Insights, powered by ETR. Have a great week everybody. Stay safe, be well, and we'll see you next time. We'll see you at re-invent.