 Welcome back everyone to theCUBE's live coverage, day one wrap up, I'm John Furrier, Dave Vellante with Jerry Chen, special guest who's been with us every year on theCUBE since inception, certainly every eight of us reinvent nine years straight. Jerry Chen, great to see you for our guests, analysts, wrap up, VC, general partner, Greylock, partners. Good to see you. John, Dave, it's great to see you guys. Thanks for having me again. It wouldn't be a re-event without the three of us sitting here and we missed last year, right? It was a COVID, so we had to make up a lot of time. So we still have virtual one, but it's virtual stuff. What's the same as in-person, like we are? Not the same. Not the same thing, so it's good to see you guys again in-person, unless it's six feet apart, so thanks. 7,000 people here showing that the event's still relevant. Some people would kill for those numbers. It's a bad year for Amazon, down from 60,000. So, ecosystem's booming. Okay, let's get to it. Day one in the books, new CEO, new sheriff in town, his name's Adam Slefsky, you're of take. Well, Adam's new, but he's old, right? You know, something new is something old, something blue, right? So, Adam was early Amazon, so he had that founding DNA, left CEO of Tableau acquired by Salesforce, came back a few months ago. So I think it was a great move, because one, he's got the history and culture under Jassy, so he's definitely the Bezos Jassy tree of leadership, but yet he's been outside the bubble, right? So he actually knows what it means to run a company, not on the Amazon platform. So I think Adam's a great choice to lead AWS where we're calling like maybe Act Two, right? Act One, the first X years with Jassy, and maybe this is the second act under Adam. Yeah, and he's got, and Andy was very technical, hung around all the techies, James Hamilton, DeSanto, all the engineering, built that core primitives. Now, as they say, this cloud next gen's here, Act Two, it's about applications, infrastructure as code is in place, interesting area, where's the growth come from? So look, the ecosystem has got to build the super cloud, or as you say, castles on the cloud, which you coined, but you brought this up years ago, that the modes and the value has to be in there somewhere. Do you want to revise that prediction now that you see what's coming from Celebsque? Okay, well, so let's refresh, greilite.com slash castles, it's work that like we did, but a lot of thought leadership from the two of you have informed my thinking castles in the cloud how to compete against Amazon in the cloud. So you argue Act One, the start of phase, the first X years of Amazon was from 2008 to 2021, the first X years, building the platform, digging the modes. So what do you have? You have castles of the platform business, the kinds of scale, which means decreasing marginal costs and natural network effects. So once the modes in place, and you have huge market share, what do you do for Act Two? Now the modes are in place, you can start exploiting the modes for I think Adam talked about in your article, horizontal and verticals, right? Horizontal solutions of the stack, like Amazon Connect, CRM solutions, right? Horizontal apps, maybe the app layer, and verticals, industrials, financials, healthcare, et cetera. So I think Jassy did the foundation of the castle and now we're seeing what Adam and his generation would do for Act Two. So there's almost like an Act 1A, because if you take the four hyperscalers, they're about maybe to do 120 billion this year, out of, I don't know, pick a number, it's many hundreds of billions, at least in infrastructure. And those four hyperscales grow into 35% collectively. So there's some growth there, but I feel like there's got to be deeper business integration. It's not just about IT transformation, it's about deeper. So that's maybe where this connect-like stuff comes, but are there enough of those? I didn't hear a lot of that this morning, I heard a little bit ML, AI into Connect, but where's the next connect? They've got to do dozens of those in order to go deeper. Either Dave, dozens of those connects or more of those primates, the ML announcements today. So you look at what Twilio did by buying segment, right? Deconstruct a CRM to compete against Adam Slepsky, his old acquirer, salesor.com. The ball segment, so Twilio now has, communicates like texting, messaging, email, but all the data come from segment. With consumption-based pricing. With consumption-based pricing. So that's an example of what the second act of cloud looks like. It may not look like full SaaS apps like salesor.com, but these primitives, both horizontally, vertically, because again, what does Amazon have as an asset that other guys don't, install-based developers? Developers aren't going to necessarily build or consume SaaS apps, but they're going to consume things like these APIs and primitives. And so you look around what does cloud act to look like. It may not be VMs or containers. It may be APIs like Stripe and Belling, Twilio and Messaging, right? Concepts like that. So we'll see what the next act of cloud looks like and they announced a bunch of stuff today, serverless for the data analytics, right? So serverless is this move towards not consuming raw compute and storage, but APIs. What about competition? Microsoft is nipping at the heels of AWS. Don't put them out of business earlier today. I said, quote, I'll just, let me rephrase. I said, if Amazon goes unchecked, they'll annihilate Microsoft's ecosystem. Because if you're an ISV, why wouldn't you want to run on the best platform? Speeds and feeds matter when you have these shifts of software developers. They run on both. So, you know, I mean, you thought about the 80s, if you were at database, you wanted the best processor. So I think this Annapurna vertical integrated stacks are interesting because if my app runs better and I have a platform prefabricated or purpose-built platform to be there with for me, I'm going to build a great SaaS app. If it runs faster and it costs less, I'm going to flop the Amazon. That's just, that's my prediction. So I think better changes, right? And so I think if you're Amazon, you say cheaper, better, faster, and they're investing in chips, the proprietary silicon to run better, faster, they're machine learning training trips. But if you're Azure or Google, you got to redefine what better is. And as a startup investor, we're always trying to do category definition, right? Like, here's a category by spin. So now if you're Azure or Google, there are things you can say they're better and Google argue their chips, their TensorFlow better. Azure say our regions, our security, our enterprise readiness is better. And so all of a sudden the criteria, what's better changes. So from faster and cheaper to maybe better compliance, better visibility, better manageability, different colors, I don't know, right? You have to change the game because if you play the same game on Amazon's turf, to your point, John, it's game over because they have a kind of scale. But I think Azure and Google and other clouds, the super clouds or sub clouds are changing the game, what it means to compete. And so I think what's going on, just two more seconds, from decentralized cloud, be it Web3 and crypto, there's a whole other can of worms, to edge compute what Cloudflare did with R2 and storage, they're trying to change the name of the game. Well, that's right. If you go frontal against Amazon, you're going to get decimated. You got to move the goalposts for better. And I think that's a good way to look at it today. What does better mean? So that's the question that's on the table. What does that look like? And I think that's an unknown, that's coming. Okay, back to the startups, category definition. That's an awesome term. That to me is a key thing. How do you look at what a category is on your sub, on your castles of the cloud you brought up, how many categories of? 33 markets and a bunch of sub markets, yeah. Explain that concept. So we did castles of clouds where my team looked at all the services off right Azure, Google and Amazon. We downloaded the services and recategorized them to like 30 plus markets and a bunch of sub markets. Because the reason why is, is apples to apples. You know, Amazon, Google, Azure all have databases, but they might call them different things. And so I think first things first is, let's give developers and customers kind of apples to apples comparisons. So I think those are known markets. The key in investing in the cloud or investing in general is, you're either investing in budget replacement, replacing a known market, cheaper, better database to your point, or a net new market, right? Which is always tricky. So I think the biggest threat to a lot of the startups and incumbents, the biggest threat by the startups and incumbents is either one, do you see something cheaper, better in a current market or find a net new market that they haven't thought about yet? And if you can win that net new market before the rest, then that's what we call the blue ocean strategy. Is that essentially what Snowflake has done? It started with cheaper, better and now they're building the data cloud? I think it's evolution, correct. So they said cheaper, better and the castle cloud talked about the actually built deep IP. So they went in a known category, data warehouses, right? You had Teradata, Redshift, Snowflake, cheaper, better, faster. And now let's say, okay, once you have the customers, let's change the name of the game and create a data cloud. And it's TBD whether or not Snowflake can win data cloud. Like we talked about a rock set when my investments, that's actually moved the goalpost saying, oh, data cloud is nice, real-time data is where it's at. And Snowflake and those guys can play in real-time data. No, they're not in a position to play in real-time data. I mean, that's right. So again, so that's an example of a startup moving the goalposts on what previously was a startup that moved the goalposts on in the company. And when you think about edge, it's going to be real-time AI inferencing at the edge and you're right. Snowflake's not set up well at all for that. So competition-wise, how do people compete because this is what Databricks did the same exact thing. I have Ali on the record going back years. Wow, we love Amazon, we're only on Amazon. Now he's talking multi-clouds. So once you get there, you kind of change your tune because you got some scale, but then you got new potential entrants coming in like rock set. Correct. And if you add up the market caps of just those two companies, Databricks and Snowflake, it's much larger than the database market. So we're defining new markets now. I think those market caps, especially Snowflake, there's a public market, Databricks still private, is optimism that there's a second or third act in the database space left to be unlocked. And if you look at what's going on in that space, these roll-time analytics or roll-time apps, for sure there's optimism there. But to John's point, you earn the right to play the next act, but it's tricky because startups disrupt the incumbents, they become incumbents, and they're also victims of their own success. So there's technical debt, there's also business model debt. So you're victims of your own business model, victims of your own success, and so what got you here may not get you to the next phase. And so I think for Amazon, that's a question. For Databricks and Snowflake, that's a question, is what got them here, can they play to the next act? And look, Apple did it, multiple acts, almost not. I mean, I think it's whether you take shortcuts or not. If you have debt, you make a little bit of a shortcut bet. Okay, that's cool. But ultimately what you're getting at here is beach head thinking. Get a beach head, get in the market, and then sequence through a different position. Classic competitive strategy 101. That's hard to do, because you want to win the beach head and take a little technical debt and business model debt, cheat a little bit, and then is it not fortified yet? So beach head to expansion is the question. That's every board meeting, John and Dave, that we're in, right, it's called, you need a narrow enough wedge to land. And it is like, I don't want the tip of the spear, I want the poison of the tip of the spear. You want, especially in this proud market, a super focused wedge to land. And the problem is, as a founder, as an investor, you're always thinking about the global max, right? Like the ultimate platform winner, but you don't get the right to play the late innings if you don't make out the early innings. And so narrow beach head, sharp wedge, but you got to land in a place of real estate with adjacent tan, adjacent markets, right? Like Uber, black cars, taxis, food, whatever, right? Snowflake, data warehouse, data cloud. And so I think the key with all startups is, you'll hit some ceiling of market size, is there a second ramp? So it's the art is when to scale and how fast to scale. Right, picking when, how fast, and which bets to place, it was tough. And so the best companies are always thinking about their second or third act while the first act's still going. Yeah, and leveraging cloud to refactor, I think that's the key to Snowflake was, they had the wedge with data warehouse, and they saw the position, but refactored in the cloud with services that they knew Teradata wouldn't use. Correct. And they're in. From there, it's just competitive IP, crank, go to market. And then you have the other unnatural things, you have channel, you have install base of customers, right? And then you start selling more stuff to the same channel to the same customers. That's what Amazon's doing all the incumbents do that. Amazon's got 300 services now, launching more this week. So now they have channel distribution, right? Every credit card for all the developers, and they have install base of customers. And so they would just lost new things and serve the customers. So the startups had to disrupt them somehow. Well, it's always great to chat with Jerry. Every year we discover and we riff and we identify in real time new stuff. But we were talking about this whole vertical horizontal scale and kind of castles early on years ago. And now it's happened. You were right. Congratulations, that's a great thesis. There's real advantages to build on a cloud. You can build a business there. That's your thesis. And by the way, these markets are changing. So if you're smart, you can actually compete. I think you can compete. And to Dave's early point, yeah, they adapt, right? And so what's the Darwin thing? It's not the strongest, but the most adaptable. So both Amazon's adapt and the startups are the most adaptable will win. Where are you? You guys might have talked about this. Where do you stand on the cost of goods sold issue? Oh, I think everything's true, right? I think you can save money at some scale to repatriate your cloud. But again, Wall Street rewards growth versus COGS, right? So I think if you had a choice between a dollar of growth versus a dollar of reducing COGS, people choose growth right now. That may not only be the case, but at some point, if you're a company at some scale and the dollars of growth is slowing down, you definitely have to reduce the dollars in cost. And so you start optimizing cloud costs. And that could be going to Amazon, Azure, Google, reducing costs. Or you have no visibility on new net, new opportunities. So growth is about new opportunities. If you're repatriating things, there's no growth. It's not either or COGS or growth, right? They're both valued differently, so you can do both. And so I don't think it's what's your priorities? You can't do everything at once. So if I'm a founder or CO, or in this case, investor, I said, hey, Dave and John, if you said I can either save you 25 basis points in gross margin, or I can increase another 10% top line this year, I'm going to say increase the top line. We'll deal with the gross margin later. Not that it's not important, but right now, the early phase is growth. All right, Jerry Chen, great to see you. Great to have you on CreateCube alumni. Great guest analysts. Thanks for breaking it down. Cube coverage here in Las Vegas for re-invent. Back in person, of course it's a virtual event. It's got a hybrid event for Amazon as well as the Cube. I'm John Furrier, watching the leader in worldwide tech coverage. Thanks for watching.