 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. By our estimates, AWS will generate around $9 billion in storage revenue this year. And it's now the second largest supplier of enterprise storage behind Dell. We believe AWS storage revenue will hit 11 billion in 2022 and continue to outpace on-prem storage growth by more than 1,000 basis points for the next three to four years. At its third annual Storage Day event, AWS signaled a continued drive to think differently about data storage and transform the way customers migrate, manage, and add value to their data over the next decade. Hello and welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we'll give you a brief overview of what we learned at AWS Storage Day, share our assessment of the big announcement of the day, deal with NetApp to run on tap natively in the cloud as a managed service, and we'll share some new data on how we see the market evolving with AWS executive perspectives on its strategy, how it thinks about hybrid and where it fits into the emerging data mesh conversation. Let's start with a snapshot of the announcements made at Storage Day. Now, as with most AWS events, this one had a number of announcements and introduced them at a pace that was predictably fast and oftentimes hard to follow. Here's a quick list of most of them with some comments on each. The big, big news is the announcement with NetApp. NetApp and AWS have engineered a solution which ports the rich NetApp stack onto AWS and will be delivered as a fully managed service. This is a big deal because previously customers either had, they had to make a trade-off. They had to have a settle for a cloud-based file service with less functionality than you could get with NetApp on-prem, or it had to lose the agility and elasticity of the cloud and the whole pay-by-the-drink model. Now customers can get access to a fully functional NetApp stack with services like data reduction, snaps, clones, the full multi-protocol support, replication, all the services ONTAP delivers in the cloud as a managed service through the AWS console. Our estimate is that 80% of the data on-prem is stored in file format. And that's not the revenue, but that's the data. And we all know about S3 object storage, but the biggest market from a capacity standpoint is file storage. You know, this announcement reminds us quite a bit of the VMware cloud on AWS deal, but applied to storage. NetApp's Anthony Lai told me, Dave, this is bigger, and we're going to come back to that in a moment. AWS announced S3, multi-region access points. It's a service that optimizes storage performance and it takes into account latency, network congestion and the location of data copies to deliver data via the best route to ensure our best performance. This is something we've talked about for quite some time, using metadata to optimize that access. AWS also announced improvements to S3 tiering where it will no longer charge for small objects of less than 128K. So for example, customers won't be charged for most metadata and other smaller objects. Remember, AWS years ago hired a bunch of EMC engineers and those guys built a lot of tiering functionality into their boxes and we'll come back to that later in this episode. AWS also announced backup and monitoring tools to ensure backups are in compliance with regulations and corporate edicts. This frankly is table stakes and was overdue in my view. AWS also made a number of other announcements that have been well covered in the press around block storage and simplified data migration tools. So we'll leave that to your perusal through other outlets. I want to come back to the big picture in the market dynamics. Now as we've reported in previous breaking analysis segments AWS's storage revenue is on a path to $10 billion. We reported this last year. This chart puts the market in context. It shows our estimates for worldwide enterprise storage revenue in the calendar year 2021. This data is meant to include all storage revenue including primary, secondary and archival storage and related maintenance services. Dell is the leader in this $60 billion market with AWS now hot on its tail with 15% of the market in terms of the way we've cut it. Now in the pre-cloud days, customers would tell us our storage strategy is the following. We buy EMC for block and NetApp for file, keeping it simple. While remnants of this past habit continue, the market is definitely changing as you can see here. The company's highlighted in red represent the growing hyperscalar presence and you can see in the pie on the right, they now account for around 25% of the market and they're growing much, much faster than the on-prem vendors well over that thousand basis points when you combine them all. A couple of other things to note in the data. We're excluding Kindrel from IBM's figures that's IBM's spin out but including our estimates of storage software for example, Spectrums Protect that is sold as part of the IBM cloud but not reported in IBM's income statement. By the way, pre-Kindrel spin, IBM storage business we believe would approach the size of NetApp's business. Now in the yellow, we've highlighted the portion of hyper-converged that comprises storage. This includes VMware, Nutanix, Cisco and others. VMware and Nutanix are the largest HCI players but in total the storage piece of that market is less than two billion. So the way to look at this market is changing. Traditional on-prem is vying for budgets with cloud storage services which are rapidly gaining presence in the market and we're seeing the on-prem piece evolve of course into as a service models with HPE's GreenLake, Dell's Apex and other on-prem cloud like models. Now let's come back to the NetApp AWS deal. NetApp as we know is the gold standard for file services. They've been the market leader for a long, long time and other than Pure which is considerably smaller NetApp is the one company that consistently was able to beat EMC in the market. EMC developed its NAS business and developed out of its own NAS stack and it bought Isilon to compete with NetApp with Isilon's excellent global file system but generally NetApp remains the best file storage company today. Now emerging disruptors like Cumulo, Vast, Weka they would take issue with this statement and rightly so as they have really promising technology but NetApp remains the king of the file hill. You can't debate that. Now NetApp however has had some serious headwinds as the largest independent storage player as seen in this ETR chart. The data shows a nine year view of NetApp's presence in the ETR survey. Presence is referred to by ETR as market share. It's not traditional market share. It measures the pervasiveness of responses in the ETR survey over a thousand customers each quarter. So the percentage of mentions essentially that NetApp is getting and you can see well NetApp remains a leader. It has had a difficult time expanding its TAM and it's become frankly less relevant in the grand scheme and the grand eyes of IT buyers. The company hit headwinds when it began migrating its base to on tap eight and was late riding a number of new waves including flash but generally it has recovered from those headwinds and it's really now focused on the cloud opportunity as evidenced by this deal with AWS. Now as I said earlier, NetApp EVP Anthony Lai told me that this deal is bigger than VMware cloud and AWS. Like me, you may be wondering how can that be? VMware is the leader in the data center and has half a million customers. Its deal with AWS has been a tremendous success as seen in this ETR chart. The data here shows spending momentum or net score from when VMware cloud and AWS was picked up in the ETR surveys with a meaningful N which today is approaching 100 responses in the survey. The yellow line is there for context. It's VMware's overall business. So IT buyers who responded VMware versus specifically VMware cloud on AWS. So you see VMware overall has a huge presence in the survey more than 600 N. The red line is VMware cloud on AWS. And that red dotted line, you see that? That's my magic 40% mark. Anything above that line we consider elevated net score. We're spending velocity. And while we saw some deceleration earlier this year in that line, that top line for VMware cloud on AWS, VMware cloud on AWS has been consistently showing well in the survey, well above that 40% line. So could this NetApp deal be bigger than VMware cloud on AWS? Well, probably not in our view, but we like the strategy of NetApp going cloud native on AWS. And AWS is commitment to deliver this as a managed service. Now where it could get interesting is across clouds. In other words, if NetApp can take a page out of snowflake and build an abstraction layer that hides the underlying complexity of not only the AWS cloud, but also GCP and Azure where you log into the NetApp cloud, NetApp data cloud, if you will, just go ahead and steal it from snowflake. And then NetApp optimizes your on-prem, your AWS, your Azure, and or your GCP file storage. We see that as a winning strategy that could dramatically expand NetApp's team. Politically it may not sit well with AWS, but so what? NetApp has to go multi-cloud to expand that tan. When the VMware deal was announced, many people felt it was a one-way street where all the benefit would eventually accrue to AWS. In reality, this has certainly been a near-term winner for AWS and VMware. And of course, importantly, VMware and AWS join customers. Now longer term, it's going to clearly be a win for AWS because it gets access to VMware's customer base, but we also think it will serve VMware well because it gives the company a clear and concise cloud strategy, especially if it can go across clouds and eventually get to the edge. So with this NetApp AWS deal, will it be as big? Probably not in our view, but it is big. NetApp in our view just leapfrogged the competition because of the deep engineering commitment AWS has made. This isn't a marketplace deal. It's a native managed service, and we think that's pretty huge. Okay, we're going to close with a few thoughts on AWS's storage strategy and some other thoughts on hybrid. Talk about capturing mission critical workloads and where AWS fits in the overall data mesh conversation, which is one of our favorite topics. First, let's talk about AWS's storage strategy overall. As with other services, AWS's approach is to give builders access to tools at a very granular level. That means it doesn't mean a lot of APIs and access to primitives that are essentially building blocks. Well, this may require greater developer skills. It also allows AWS to get the market quickly and add functionality faster than the competition. Enterprises, however, they will pay up for solutions. So this leaves some nice white space for partners and also competitors and especially the on-prem folks. But let's hear from an AWS executive. I spoke to Mylan Thompson-Bukovec and AWS VP on theCUBE and asked her to describe AWS's storage strategy. Here's what she said, play the clip. We are dynamically and constantly evolving our AWS storage services based on what the application and the customer want. That is fundamentally what we do every day. We talked a little bit about those deployments that are happening right now, Dave. That is something, that idea of constant dynamic evolution just can't be replicated by on-premises where you buy a box and it sits in your data center for three or more years. And what's unique about us among the cloud services is again that perspective of the 15 years where we are building applications in ways that are unique because we have more customers and we have more customers doing more things. So, I've said this before, it's all about speed of innovation, Dave. Time and change, wait for no one. And if you're a business and you're trying to transform your business and base it on a set of technologies that change rapidly, you have to use AWS services. Let's, I mean, if you look at some of the launches that we talk about today and you think about S3's multi-region access points, that's a fundamental change for customers that want to store copies of their data in any number of different regions and get a 60% performance improvement by leveraging the technology that we've built up over time. Leveraging the ability for us to route, to intelligently route a request across our network. That and FSX for NetApp ONTAP, nobody else has these capabilities today and it's because we are at the forefront of talking to different customers and that dynamic evolution of storage, that's the core of our strategy. So as you hear and can see by my land's statements, how these guys think outside the box mentality. At the end of the day, customers want rock solid storage that's dirt cheap and lightning fast. They always have and they always will. But what I'm hearing from AWS is they think about delivering these capabilities in the broader context of an application or a business. I think deeper business integration. Not the traditional suppliers don't think about that as well, but the services mentality, the cloud services mentality is different than dropping off a box at a loading dock, turning it over to a professional services organization and then moving on to the next deal. Now I also had a chance to speak with Wayne Duso. He's another AWS VP in the storage group. Wayne Duso is a long time tech athlete for years he was responsible for building storage arrays at EMC. AWS, as I said, hired a bunch of EMCs years ago and those guys did a lot of tiered storage. So I asked Wayne, what's the difference in mentality when you're building boxes versus cloud services? Here's what he said. You have physical constraints. You have to worry about the physical resources on that device for the life of that device which is years. Think about what changes in three or five years. Think about the last two years alone and what's changed. Can you imagine having been constrained by only having boxes available to you during this last two years versus having the cloud and being able to expand or contract based on your business needs? That would be really tough, right? And it has been tough. And that's why we've seen customers for every industry accelerate their use of the cloud during these last two years. So I get that. So what's your mindset when you're building storage services and data services? So each of the services that we have, in object, block, file, movement services, data services, each of them provides very specific customer value and each are deeply integrated with the rest of AWS so that when you need object services, you start using them. The integrations come along with you. When you're using traditional block, we talked about EBS, IO2 Block Express. When you're using file, just the example alone today with ONTAP, you get to use what you need when you need it in the way that you're used to using it without any concerns. So the big difference is no constraints in the box but lots of opportunities to blend in with other services. Now, all that said, there are cases where the box is going to win because of locality and physics and latency issues. Particularly where latency is king. That's where a box is going to be advantageous and we'll come back to that in a bit. Okay, but what about hybrid? How does AWS think about hybrid and on-prem? Here's my take and then let's hear from Milan again. The cloud is expanding. It's moving out to the edge and AWS looks at the data center as just another edge node and it's bringing its infrastructure as code mentality to that edge and of course to data centers. So if AWS is truly customer-centric, which we believe it is, it will naturally have to accommodate on-prem use cases and it is doing just that. Here's how Milan Thompson Bukovac explained how AWS is thinking about hybrid. Roll the clip. For us, David always comes back to what the customer is asking for and we were talking to customers and they were talking about their edge and what they wanted to do with it. We said, how are we gonna help? And so if I just take S3 for Outposts as an example or EBS on Outposts, you know, we have customers like Morningstar and Morningstar wants Outposts because they are using it as a step in their journey to being on the cloud. If you take a customer like first Adu Dhabi Bank, they're using Outposts because they need data residency for their compliance requirements and then we have other customers that are using Outposts to help like Dish Networks as an example to place the storage as close as account to the applications for low latency. All of those are customer-driven requirements for their architecture. For us, Dave, we think in the fullness of time, every customer and all applications are gonna be on the cloud because it makes sense and those businesses need that speed of innovation. But when we build things like our announcement today of FXX for NetApp on tap, we build them because customers asked us to help them with their journey to the cloud just like we built S3 and EBS for Outposts for the same reason. So look, this is a case where the box or the appliance wins. Latency matters as we said and AWS gets that. This is where Matt Baker of Dell is right. It's not a zero-sum game. This is especially accurate as it pertains to the cloud versus on-prem discussion. But a budget dollar is a budget dollar and a dollar can't go to two places. So the battle will come down to who has the best solution, the best relationships and who can deliver the most rock solid storage at the lowest cost and highest performance. Let's take a look at mission critical workloads for a second. We're seeing AWS go after these. It's doing it in database, it's doing it with block storage. We're talking about Oracle SAP, Microsoft SQL Server, DB2, that kind of stuff, high volume OLTP transactions, mission critical work. Now there's no doubt that AWS is picking up a lot of low hanging fruit with business critical workloads, but the really hard to move work isn't going without a fight. Frankly, it's not going that fast. AWS has made some improvements to block storage to remove some of the challenges related. But generally, we see this as a very long road ahead for AWS and other cloud suppliers. Oracle is the king of mission critical work along with IBM mainframes. And those infrastructures, generally it's not easy to move to the cloud. It's too risky, it's too expensive and the business case oftentimes isn't there because very frequently you have to freeze applications to do so. What generally what people are doing is they're building an abstraction layer over that, putting that abstraction layer maybe in the cloud, building new apps that can connect to the backend and into the cloud. But that backend is largely cemented and fossilized. Look, it's all in the definition. No doubt there's plenty of mission critical work that is going to move, but it just really depends on how you define it. Even AWS struggles to move its most critical transaction systems off of Oracle. But we'll continue to keep an open mind there. It's just that today we define the most mission critical workloads as we define them. We don't see a lot of movement to the hyperskill clouds. And we're going to close with some thoughts on data mesh. So one of our favorite topics, we've written extensively about this and interviewed and are collaborating with Jamak Degani who has coined the term. And we've announced a media collaboration with the data mesh community and believe it's a strong direction for the industry. So we wanted to understand how AWS thinks about data mesh and where it fits in the conversation. Here's what Mylan had to say about that. Play the clip. We have customers today that are taking the data mesh architectures and implementing them with AWS services. And Dave, I want to go back to the start of Amazon. When Amazon first began, we grew because the Amazon technologies were built in microservices. Fundamentally, a data mesh is about separation or abstraction of what individual components do. And so if I look at data mesh, really you're talking about two things. You're talking about separating the data storage and the characteristics of data from the data services that interact and operate on that storage. And with data mesh, it's all about making sure that the businesses, the decentralized business model can work with that data. Now, our AWS customers are putting their storage in a centralized place because it's easier to track. It's easier to view compliance and it's easier to predict growth and control costs. But we started with building blocks and we deliberately built our storage services separate from our data services. So we have data services like Lake Formation and Glue. We have a number of these data services that our customers are using to build that customized data mesh on top of that centralized storage. So really, it's about at the end of the day speed. It's about innovation. It's about making sure that you can decentralize and separate your data services from your storage so businesses can go faster. So it's very true that AWS has customers that are implementing data mesh, data mesh. Data mesh, data mesh can be a data mess if you don't do it right. JP Morgan Chase is a firm that is doing that. We've covered that. They've got a great video out there. Check out the breaking analysis archive. You'll see that. Hello, Fresh has also initiated a data mesh architecture in the cloud and several others are starting to pop up. I think the point is the issues and challenges around data mesh are more organizational and process related and less focused on the technology platform. Look, data by its very nature is decentralized. So when Mylan talks about customers building on centralized storage, that's a logical view of the storage but not necessarily physically centralized. It may be in a hybrid device. It may be a copy that lives outside of that same physical location. This is an important point as JP Morgan Chase pointed out. The data mesh must accommodate data products and services that are in the cloud and also on-prem. It's got to be inclusive. The data mesh looks at the data store as a node on the data mesh. It shouldn't be confined by the technology whether it's a data warehouse, a data hub, a data mart, or an S3 bucket. So I would say this. While people think of the cloud as a centralized walled garden and in many respects it is, that very same cloud is expanding into a massively distributed architecture. And that fits with the data mesh architectural model. As I say, the big challenges of data mesh are less technical and more cultural. And we're super excited to see how data mesh plays out over time. And we're really excited to be part of the community and a media partner of the data mesh community. Okay, that's it for now. Remember, I publish each week on wikibon.com and siliconangle.com in these episodes. They're all available as podcasts. All you got to do is search for breaking analysis podcast. You can always connect on Twitter. I'm at D-Valente or email me at David.Valente at siliconangle.com. Appreciate the comments you guys make on LinkedIn and don't forget to check out ETR.plus for all the survey action. This is Dave Vellante for theCUBE Insights, powered by ETR. Be well and we'll see you next time.