 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. SaaS companies have been some of the strongest performers in this COVID era. They finally took a bit of a breather this month, but they remain generally well positioned for the next several years with their predictable models and cloud platforms. Meanwhile, the demise of on-prem legacy players from COVID shock seems to have been overstated, in part because of the return of the laptop and in the case of Oracle, what some see as a cloud play. Then there's Bitcoin, which is seeing public companies use their balance sheet liquidity to invest in the cryptocurrency. Wow, what does that all mean? I don't leave that for another day. Hello everyone and welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we'll pick out some of the more recent themes from this month and share our thoughts in some major enterprise software players, the future of on-prem, a review of our take on cloud and what cloud will look like in the 2020s. Wow, it's true. Trees really don't grow to the moon. As predicted, the stock market has been a little bit crazy this month. February saw some leading SaaS names like Workday, Salesforce and ServiceNow take a bit of a breather in the second half of the month. Workday and Salesforce announced earnings on the 25th. Workday had its first billion dollar subscription revenue quarter at 16% revenue growth, a revenue and earnings beat, and of course the stock closed down Friday, more than 2%. Salesforce had a nearly $6 billion revenue quarter, 20% growth, a revenue and earnings beat, and the day after it announced earnings, the stock was down more than 6%. The market is worried about rising interest rates and maybe concerned that inflation fears are gonna kill the stimulus bill. And so any whiff of caution by company management is met with dampened enthusiasm. Meanwhile, it's looking like some of the big on-prem legacy firms, notably Dell, HPQ and HPE, are making it through COVID and might even come out on the other side stronger. Maybe. Dell handily beat expectations on the 25th on the strength of 17% growth in its client business. That's PCs. That's the gift that keeps on giving. HPQ had a strong beat as well and we're anticipating a solid quarter from HPE next week on March 2nd. And then there's Oracle. Barons had a big article on February 19th entitled, Oracle is turning into a cloud giant and why its stock is a buy. It moved the market and many investors rotated out of growth stocks into Oracle. Others who had owned Oracle for a while scooped up some profits. Is Oracle a cloud giant? We'll discuss that in a moment. And then there's all this Bitcoin mania. Our interest there is much more beyond the price fluctuations. Rather, we're interested in the innovations in crypto. Look, we're gonna table this for another day but it's an interesting side note of this February madness. Let's take a closer look at the February chill for SaaS companies. Here's a chart showing the relative performance of some of the big SaaS names in the latter half of this month. Now, despite the strong earnings for Workday and Salesforce, you can see the market's negative response on the 26th. Snowflake in service now, they had Epic runs last year and they've been softening although on Friday morning, service now shot down quickly on the open on sympathy with Workday in service now. And then investors came back in. Very weird action in the market these days. Again, not surprising. And look at the reaction investors had to the Barron's article on the 19th. They anointed Oracle as a cloud giant. Kudos to the Oracle PR team for that one. Now, let's take a look at these companies and put them in context. Even though they're not direct competitors, it's instructive to model some of the top enterprise software players in positions and line them up against each other. This chart here shows two dimensions from the ETR data. On the vertical axis is net score or customer spending momentum. And the horizontal axis is market share or pervasiveness in the survey. The table in set shows the net score measurement and the shared end. That's the metric that plots the dots. In both cases, bigger is better. Note that red dotted line there is the 40% line. 40% to us is the magic number. Anything above that line is considered elevated. So we have service now and Salesforce. They're up to the right. They're both big companies. They have significant market presence amongst the CIOs and both have elevated spending velocity in the 50% range. And I've said for years, these two companies are on a collision course and I stand by that. It started happening and Bill McDermott, new CEO, he's going to accelerate that in our view. We put a cloud around snowflake tongue and cheek because they are literally in the clouds on this chart. They stand alone with a solid market presence that continues to grow and an off the charts net score of 83.3%. Now, for context, you can see Oracle Fusion, NetSuite and Tileo. In addition, we put Slack and Koopa on the graphic, two names that have been on the radar lately and SAP, which continues to show a decent spending momentum despite its challenges. All right, let me make a few comments on some of these companies. Snowflake, we've talked about a lot. I said earlier that they're IPO, that if you really wanted to own it and couldn't wait for a better price, which I thought you'd get. By the way, you did, but then if you really wanted to own it on day one, hold your nose and buy it and then wait a few years. So, good luck and I think it'll turn out okay for you. Now, the data really continues to show strong demand for snowflake. There's no signs of them slowing down. So they announced earnings on March 3rd. We're going to have more data there. So we would expect confirmation of our analysis, but you never know. Now, workday, here's our take. In our view, the market is catching up to workday. They had about a three-year lead, at least in human capital management and the cloud and that whole model and they had the best product. It was really simple and it was quite disruptive, but now you got Oracle, ADP, Seridian, they're catching up. Workday's expansion into financial management has been much more challenging and as it gets bigger, things get tougher. It's still though an enduring name. Salesforce, we see a bit differently. Salesforce is so big now, it's really hard for it to move the needle and so it's been on an acquisition binge and to grow, that's likely going to continue. It could work well for the company. I mean, similar to the way in which Oracle consolidated software names and picked up a lot of customers, Salesforce, it's a great name and we think it's going to continue to grow. ServiceNow is interesting. It's entering a new chapter under CEO Bill McDermott, new CEO. He wants to double the company's revenue and I think he's got a reasonable chance at that through a combination of great go-to-market and expanding the platform and in McDermott style doing acquisitions. SAP's market value tripled under his watch and he knows the customers and he's a magnet for attracting talent. Now ServiceNow is not without its challenges. Its customers often complain that ServiceNow's pricing is really high and it's becoming the Oracle of service management but as McDermott aims more at SAP and Oracle customers, they create a nice umbrella for ServiceNow to work with. Now technically, we think ServiceNow has other challenges around its multi-instance. We call it if you can't fix it, feature it architecture. That may present some issues down the road at scale. We don't have time to go into that in detail but suffice it to say that ServiceNow runs on its own cloud so it's not running on a hyperscale cloud. Good news is it doesn't have to pay through that. The bad news is it's got to manage all that infrastructure and it's basically be a cloud supplier but it doesn't do multi-tenant which means fundamentally it has a more expensive cost structure. Okay, let's turn our attention to what's happening on-prem with some of the big legacy names. Here's the same XY chart with some of the big names that have a presence on-prem. First, you can see VMware and Cisco, Oracle, Dell, IBM and HP. Look at them on the horizontal scale. They've got a large market share of presence in the ETR dataset. Unlike the larger SaaS companies however, none is above that magic 40% net score line. Pure, Dell's laptop business, Red Hat OpenShift, they're above the line with Nutanix just about there at the line. The other major laptop players, Lenovo and HP PQ showing momentum from the whole remote work trend. And for context, we put in NetApp so you can get a sense of where they're at. Pure beat its earnings last week but only grew 2% last quarter. Now remember, the ETR survey, this is a forward-looking survey so this potentially bodes well for the companies that are above that 40% line. Okay, so most, sorry, of the companies on this chart, only IBM and Oracle, those two own a public cloud. They will dig further into that in a moment but virtually every name shown here, even Oracle has a mandate to redefine cloud. Meaning it has to put forth in our view a North Star vision and execute on it that will unify the experience between on-prem, hybrid cloud, public clouds, cross clouds and the edge. Now I say even Oracle because in my view, Oracle is in a stronger position than the others because of its more coherent software architecture. Now the other companies on this chart, they have to architect a platform that abstracts the underlying complexity of clouds, leverage cloud native tooling in the respective public clouds, connect on-prem infrastructure and build a layer that stretches out and accommodates edge workloads. I think Oracle will follow suit and is actually ahead of most in a narrower context, i.e. hybrid, but it doesn't have to race toward this vision, it can sit back as it often does, watch everyone else fumble around and make mistakes and then Oracle will keep investing in R&D, watch the market, make its own experimental mistakes and then enter the market and act like we invented it. Now Cisco will come at this from a strong networking and security perspective and it has a nice story on programmable infrastructure with Cisco DevNet, but unfortunately, it does not own VMware as does Dell. But Dell is in the middle of a fairly remarkable journey and it'll be interesting to see what happens with the VMware spin out in the cozy commercial relationship that Dell is structuring with VMware. As you know, and as we've reported, Dell has used VMware's cash for a lot of this restructuring and so we'll see as it exits the current phase and enters a new phase how it will be able to pursue that vision. It's going to be, whatever it does, it's going to be much different than that vertically integrated Oracle approach, which of course brings me to IBM. Potentially, Red Hat with OpenShift is the most powerful card in the deck right now. OpenShift, I mean, it's open, it's everywhere. It has momentum as we showed and I like their position. My concern is IBM. IBM is still unwinding and restructuring its business and it's taking a long time. As we've seen with its outsourcing business and now the Watson Health assets, Arvin is continuing that downsizing trend that we saw under Ginny, shedding non-strategic businesses that don't fit. Arvin has a lot to deal with. And I want to point out that this idea of an abstraction layer across clouds is not trivial. First, all these companies have to stop being so defensive about the public cloud. To a large extent, VMware and Red Hat have found a happy place. But in my view, they all should be thanking AWS, Azure and Google for building out this great global distributed system that they can leverage and build on top of. Second, this is going to be expensive. And Cisco, Dell VMware, IBM, they're all really stretched thin from an R&D perspective. They have a lot of mouths to feed across the portfolio. So is HPE stretched thin and it doesn't have the R&D budget that less than $2 billion annually. So my concern is that we're going to have lots of complexity across these abstraction layers by vendor. Now maybe the good news for companies, this may be good news for companies like Hashi or specialists with a vision to do this within a domain like a Clumio or a Vast data. But this is big and they are small. So it's going to take the better part of a decade to play out. Now let's take a quick look at the cloud players. OMG, when I saw that article in Barons last weekend, my mouth dropped, what a headline. And it had this illustration of a stout Larry Ellison rising above the clouds. Here's a picture of the ETR data for the cloud players. It's the same X, Y blotting on net score and market share. If you follow this program, you know we believe there are four and only four hyperscale cloud players with the resources to compete and differentiate as horizontal infrastructure players, which really is how we view the origination of modern cloud computing. AWS created it with S3 and EC2 in 2006. Those four are AWS and Azure, which have a large lead over the pack, Google Cloud and Alibaba. And you can see we've circled the on-prem pack, which comprises Oracle and IBM along with Dell VMware, and we snuck Google just stuck them at the edge of that circle because to differentiate, they're cozying up to companies with strong enterprise sales teams and Google's, they're smart, they're patient, and so we by no means count them out. They're spending like mad and they have a lot of cash, they've done some really interesting open source things with containers, and so no doubt they're a player, but they are behind. Now in that on-prem pack, IBM and Oracle, they actually own their own public clouds. IBM, they acquired SoftLayer, which was a bare-metal hosting company at the time to get IBM into the game. They retooled the platform over several years. Now, here's the thing, try and unpack IBM's cloud business looking at its financial and earnings reports. It's just a mess. I hope Arvind cuts the nonsense and actually develops and reports a set of metrics that are meaningful to cloud observers and IBM observers because the way IBM reports its cloud business today is opaque and it's nonsense. It's frankly embarrassing to the company. It needs to end sooner rather than later. It's fundamentally meaningless to any observers. Now, observers of cloud, if you care about the big chunk of whatever, then maybe it has meaning. Now, Oracle for its part, they announced the public cloud years ago. Its version of 1.0 cloud was crap and the company, they hired a bunch of really smart cloud engineers and they spent a lot of money to fix that. Now, neither IBM nor Oracle have the CAPEX resources of the big four, not even close. Yep, they'll build out data centers and yes, they'll have a play, but they're different and that's okay. Now, in the Barron's article on Oracle, the author was quite positive on Oracle noting that, quote, on a recent earnings call, CEO, Safra Katz said that Oracle Cloud Infrastructure revenue was up 139% for the quarter. So, we have really no sense or stake in the ground as to up from what. Anyway, noting further, the author said, quote, Alas, Oracle doesn't break out OCI sales and comps can be messy. Indeed, Oracle is hiding the ball on OCI. That's because if they did break it out, which by the way, they used to report IAS revenue explicitly, but if they did break it out, they would only be highlighting that they are a minor player in IAS. Further, the article continues, quote, Katz says that hers is the only tech company that has both a global cloud and a full set of enterprise applications, unquote. Bingo, there it is. That's why Oracle is in a better position than many of or most of the on-prem players listed in this chart. By the way, I would argue that Microsoft has a pretty impressive set of enterprise applications in a fairly global cloud. But what Saffra is talking about is applications that support the world's most mission critical work. And when it comes to that, Oracle is number one. Don't fool yourself and get caught up in the Oracle lock-in and high-pricing narrative thinking that they're going to get crushed. They're not. Oracle is the best in the mission critical workload game. There is no one better, period. But guys, come on. The big four last year grew 41% and accounted for $86 billion in IAS revenue, aka real cloud revenue. And they're going to surpass $115 billion this year combined. Real cloud companies don't grow in the single digits today. So talk to me when we reach equilibrium on that front. Okay, so let's wrap by looking at what does a cloud company look like in the 2020s? Now, I'm not saying that the rest of the pack shouldn't redefine cloud, they should. But I hope we can all agree by now that modern day cloud computing was defined in business terms by AWS. They are number one in cloud computing, make no mistake. However, AWS is bringing the cloud into the wheelhouse of the on-prem players. Cleverly saying that it's bringing AWS to the edge and it looks at the data centers, just another edge node, it's great positioning. But that is not trivial, just look at outposts and how AWS has had to evolve its pricing strategy in terms. Can't just turn it off like you can the public cloud. I have an entire rant on all the as-of-service transformations, it's really interesting to watch as AWS goes out and the on-prem players come in and go hybrid. A lot of thought on what's happening there, both in terms of SaaS, which I think is an outdated pricing model and the infrastructure as a service players that are really getting into this game would love to do a session on that sometime. There's some real disruption I think coming. At any rate, AWS competitors should absolutely try to redefine cloud. By AWS moving to the edge, it's opened up the door to that possibility. Microsoft is obviously in the best position I think by far here. They've earned the right and I'll never accuse them of cloudwashing. Google, they got some work to do in this regard, but they probably have the largest physical cloud infrastructure in the world. As I've said, they just need to pull their heads out of their ads and quadruple down on cloud. But this idea of abstracting away the underlying complexity of the cloud, leveraging cloud native capabilities and building on top of the shoulders of the cloud giants, such as David Floyer has expressed in this chart. Moving from stateless to stateful integrating across clouds, advancing automation, not only through the stack, but across domains and ultimately using metadata to govern where workloads should live or be moved, be disintegrated and recombined with low latency and be highly secured. I look at this, I think about this and I say, one, is this technically feasible? And smart techies tell me yes, so I keep trying to dig here for signs and I definitely see some movement in this direction. And two, I don't think any one vendor is going to do this themselves. It's not going to be owned by one company. I think what's going to happen is you'll get successes within layers of the stack. I mean, think about Snowflake's data cloud. We're going to see that for storage, see it for backup, data management, security, maybe security within different domains. You see it endpoint and identity access management. Maybe that comes together as cloud security. You see it in applications, but without clear standards, it's going to be a challenge. And with respect to my friends at Snowflake, we might even see it in database sometime, LOL. But look, you all have a lot of work to do. And to my CIO friends, you know the drill much better than I. Technology is going to keep relentlessly coming at you and you can deal with that. It's the people and the change management in the culture. Those are your bigger challenges, but don't screw up the tech. Okay, thanks for watching. Remember, these episodes are all available as podcasts wherever you listen. Just search Breaking Analysis Podcast and please subscribe to the series. We appreciate that. Check out ETR's website at ETR.plus, sorry, ETR.plus. We also publish a full report every week on wikibon.com and siliconangle.com. You can email me at david.volante at siliconangle.com or DM me on Twitter at dvolante, that's at dvolante. Or comment, excuse me, on my LinkedIn post. This is Dave Volante for theCUBE Insights, powered by ETR. Stay safe, be well, get the jab if you have an opportunity and we'll see you next time.