 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. There are four A players in the IS-slash-pass hyperscale cloud services space. AWS, Azure, Alibaba and Alphabet. Pretty clever, huh? In our view, these four have the resources, the momentum and stamina to outperform all others. Virtually indefinitely. Now combined, we believe these companies will generate more than $115 billion in 2021 IS and PAS revenue. That is a substantial chunk of market opportunity that is growing as a whole in the mid 30% range in 2021. Welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we are initiating coverage of Alibaba for our IS and PAS market segments and we'll update you on the latest hyperscale cloud market data and survey data from ETR. Big week in hyperscale cloud land, Amazon and Alphabet reported earnings and AWS CEO Andy Jassy was promoted to lead Amazon overall. I interviewed John Furrier on theCUBE this week. John has a close relationship with Jassy and a unique perspective on these developments. And we simulcast the interview on Clubhouse and then hosted a two hour Clubhouse room that brought together all kinds of great perspectives on the topic. And then we took the conversation to Twitter. Now in that discussion, we were just riffing on our updated cloud estimates and our numbers. And here's this tweet that inspired the addition of Alibaba. Now this gentleman is a tech journalist out of New Delhi and he pointed out that we were kind of overlooking Alibaba. And I responded that, no, we not just discounting them, but we just need to do more homework on the company's cloud business. He also said we're ignoring IBM, but really they're not in this conversation as a hyperscale IS competitor to the big four in our view. We'll just leave it at that for now on IBM. But back to Alibaba and the big four, we actually did some homework. So thank you for that suggestion. This chart shows our updated IS figures and includes the full year 2020, which was pretty close to our Q4 projections. You know, the big change is we've added Alibaba in the mix. Now these four companies last year accounted for $86 billion in revenue and they grew at a 41% rate combined relative to 2019. Now, notably Azure revenue for the first time is more than half of that of AWS's revenue, which of course hit over $45 billion AWS's revenue over top 45 billion last year, which is just astounding. Alibaba, you'll note is larger than Google Cloud, the Google Cloud platform, I should say, GCP at just over 8 billion for Alibaba. And the reason Baba is such a formidable competitor is because the vast majority of its revenue comes from China inside that country. And the company, they do have plans to continue their international expansion. So we see Alibaba as a real force here and their cloud business showed positive EBITDA for the first time in the history of the company last quarter. So that has people excited. Now, Google, as we've often reported as far behind AWS and Azure, despite its higher growth rates, Google's overall cloud business lost 5.6 billion in 2020, which has some people concerned. We, on the other hand, are thrilled because as we've reported in our view, Google needs to get its head out of its ads. Cloud is its future. And we're very excited about the company pouring investments into its cloud business. Look, with $120 billion essentially in the balance sheet, we can't think of a better use of its cash. Now, I want to stress that these figures are our best efforts to create an apples-to-apples comparison across all four clouds. Many people have asked about how much of these figures represent, for example, Microsoft's Office 365 or Google's G Suite, which by the way now is called Workspaces. And the answer is our intention is $0. These are our estimates of worldwide IS and PAS revenue. You know, some have said we're too low, some have said we're too high. Hey, if you have better numbers, please share them. Happy to have a look. Now you may be asking, what are the drivers of these figures and the growth that we're showing here? Well, all four of these companies, of course they're benefiting from an accelerated shift to digital as a result of COVID, but each one has other tailwinds. You know, for example, AWS, it's capitalizing on its large headstart. It's created tremendous brand value. And as well, despite the fact that, while we estimate that more than 75% of AWS revenue comes from compute and storage, AWS's feature and functional differentiation combined with this large ecosystem is a very much a driving force of its growth. In the case of Azure, in addition to its captive software application estate, the company on its earnings call cited strong growth in its consumption-based business across all of its industries and customer segments. As we've said many times, Microsoft makes it really easy for customers to tap into Azure and a true consumption pricing model with no minimums and cancel, no minimums and cancel anytime. Those kind of terms make it extremely attractive to experiment and get hooked. We certainly saw this with AWS over the years. Now for Google, its growth is being powered by its outstanding technology and in particular its prowess in AI and analytics. As well, we suspect that much of the losses in Google Cloud are coming from large go-to-market investments for Google Cloud platform and they're paying growth dividends. Now as Tim Crawford said on Twitter, six billion, you know, that's not too shabby. Also, Google cited wins at Wayfair in Etsy that Google's putting forth in our view to signal that many retailers might be reluctant to do business with Amazon, it was of course a big retail competitor. These are two high-profile names we'd like to see more in future quarters and likely will. Now let's give you another view of this data and paint a picture of how the pie is being carved out in the market. Actually, we'll use bars because my millennial sounding boards, they hate pie charts and I like to pay attention to these emerging voices at any rate. Amongst these four, AWS has more than half of the market. AWS and Azure are well ahead of the rest and we think we'll continue to hold serve for quite some time. Now, while we're impressed with Alibaba, they're currently constrained to doing business mostly in China and we think it'll take many years for Baba and GCP to close that gap on the two leaders if they'll ever even get there. Now, let's take a look at what the customers are saying within the ETR survey data. The chart that we're showing here, this is XY chart that we show all the time, it's got net score or spending momentum on the vertical axis and market share or the pervasiveness in the data sets in the survey on the horizontal axis. Now, on the upper right, you can see the net scores and the number of mentions for each company and the detail behind this data. And what we've done here is cut the January survey data of 1,262 respondents. You can see that in the filtered end there on the left. And we've filtered the data by cloud meaning the respondents are answering about the company's cloud computing offerings only. So we're filtering out any of the non-cloud spend. It's a nice little capability of the ETR platform. Azure is really quite amazing to us. It's got a net score of 72.6%. And that's across 572 responses out of the 1262. AWS is the next most pervasive in the data set with 492 shared accounts and a net score of 57.1%. Now, you may be wondering, well, why is Azure bigger in the data set than AWS? And when we just told you the opposite is the case in the market in the previous slide. And the answer is, this is a survey and there's a lot of Microsoft out there, they're everywhere. And I have no doubt that the respondents notion of cloud doesn't directly map into our IS and PAS views of the world. But the trends are clear and consistent. Amazon and Azure, they dominate in this market space. Now for context, we've included functions in the form of AWS Lambda, Azure functions and Google Cloud functions because as you can see, there's a lot of spending momentum in these capabilities and these services. You'll also note that we've added Alibaba to this chart. It's got a respectable 63.6% net score, but there are only 11 shared responses in the data. So don't go into the bank on these numbers. But look, 11 data points, we'll take it. It's better than zero data points. We've also added VMware Cloud on AWS in this chart. And you can see that that capability, that service, that has the momentum. And you can see those ones that we've highlighted above the 40% red dotted line, that's where the real action in the market is. So all of those offerings have very strong or strong spending velocity in the ETR data set. Now for context, we've put Oracle and IBM in the chart. And you can see they both have, they got a decent presence in the data set. They have 132 mentions and 81 responses respectively. So Oracle, they've got a positive net score of 16.7%. And IBM is in a negative 6.2%. Now remember, this is for their cloud offerings as the respondents in the data set see them. So what does this mean? It says that among the 132 survey respondents answering that they use Oracle Cloud, 16.7% more customers are spending more on Oracle's cloud than are spending less. In the case of IBM, it says more customers are spending less than spending more. Both companies are in the red zone and show far less momentum than the leaders. Look, I've said many times that the good news is that Oracle and IBM at least have clouds, but they're not direct competitors of the big four in our view, they're just not. They have a large software business and they can migrate their customers to their respective clouds and market hybrid cloud services. Their definition of cloud is most certainly different than that of AWS, which is fine. But both companies use what I call a kitchen sink method of reporting their cloud business. Oracle, Oracle includes cloud and license support often with revenue recognition at the time of contract with a term that's renewable. It also includes on-prem fees for things like database and middleware. And if you want to call that cloud fine, IBM is just as bad, maybe they're worse and includes so much legacy stuff in its cloud number to hide the ball, it's just not even worth trying to unpack for this episode. I have previously and frankly, it's just not a good use of time. Now, as I've said before, both companies are in the game and can make good money provisioning infrastructure to support their respective software businesses. I just don't consider them hyperscale class clouds which are defined by the big four and really only those four. Now I'm sure I'll get hate mail about that statement and I'm happy to defend that position, so please reach out. Okay, but one other important thing that we want to discuss is something that came up this week in our Twitter conversation. Here's a tweet from Matt Baker who had strategic planning for Dell. He was responding to someone who commented on our cloud data, basically saying that with all that cloud revenue, who took the hit, which pockets did it come out of? And Matt was saying, look, it's coming out of customer pockets, but can we please end this zero-sum game narrative? In other words, it's not a dollar for cloud, that doesn't translate into a lost dollar from on-prem for the legacy companies. So let's take a look at that. So first, I would agree with Matt Baker, it's not a one-for-one swap of spend, but there's definitely been an impact. And here's some data from ETR that can maybe give us some insight here. What this chart shows is a cut of 915 hyperscale cloud accounts. So within those big four. And within those accounts, we show the spending velocity or net score cut within further sectors, representative of these on-prem players. So servers, storage and networking. So we cut the data on those three segments. And we're looking here at VMware, Cisco, Dell, HPE and IBM for 2020 and into 2021. It's kind of an interesting picture. It shows the net scores for the January of 20, April, July and October 20 surveys and the January 21 surveys. Now all the on-prem players, they were of course impacted by COVID. IBM seems to be that counter trend line, not that they weren't impacted, but they have this notable mainframe cycle thing going on and they're in a down cycle now. So it's kind of opposite of the other guys in terms of the survey momentum. And you can see pretty much all the others are showing upticks headed into 2021, Cisco kind of flattish but stable and held up a bit. So to Matt Baker's point, despite the 35% or so growth expected for the big four in 2021, the on-prem leaders are showing some signs of positive spending momentum. So let's dig into this a little bit further because we're not saying cloud hasn't hurt on-prem spending. You know, of course it has. Here's that same picture over a 10 year view. So you're seeing this long, slow decline occur and it's no surprise. If you think about the prevailing model for servers, storage and networking on-prem in particular, servers have been perpetually underutilized even with virtualization. You know, with the exception of like backup jobs, there aren't many workloads that can max out server utilization. So we kept buying more servers to give us performance headroom and ran at 20 to 30% utilization, you know, in a good day. Yes, I know some folks could get up over 50% but generally speaking, servers are well underutilized and storage, my gosh, it's kind of the same story, maybe even worse because for years it was powered by a mechanical system. So more spindles were required to gain performance, lots of copying going on, lots of, you know, pre-flash waste and in networking, it was a story of you've got to buy more ports, you've got to buy more ports. In the case of these segments, customers were just essentially forced in this endless cycle of planning, procuring, you know, first planning, they got to get the, and then they got to get to secure the CapEx and then they procure and then they over-prevention and then they manage, you know, ongoing. So then along comes AWS and says, try this on for size and you can see from that chart the impact of cloud on those bellwether on-prem infrastructure players. Now just to give you a little bit more insight on this topic, here's a picture of the wheelcharts from the ETR dataset for AWS, Microsoft, Google and we brought in VMware to compare them. A wheelchart shows the percentage of customers saying they'll either add a platform new, that's the line green, increase spending by more than 5%, that's the forest green, spend flat relative to last year, that's the gray, spend less by more than 5% down, that's the pinkish or leave the platform, that's the bright red. You subtract the red from the green and you get a percentage that represents net score. AWS with a net score of 60% is off the charts good. Microsoft remember this includes the entire Microsoft business portfolio, not just Azure, so it's still really strong. Google frankly, we'd like to see higher net scores and VMware is, there's a gold standard for on-prem so we include them so you can see for reference, they're strong. But notice they have a much, much bigger flat spending which is what you would expect from some of these more mature players. Now let's compare these scores to the other on-prem Kings. So this is not surprising to see but the greens, they go down, the flats that gray area goes up compared to the cloud guys and the red which is virtually non-existent within AWS goes into the high teens with the exception of Cisco which despite its exposure to virtually all industries including those hard hit by COVID shows pretty low red scores, so that's good. And I got to share one other. Look at this wheel chart for pure storage. I'm not really not sure what's happening here but this is impressive, we're seeing a huge rebound and you can see we've superimposed this candlestick over time comparing previous quarter surveys and look at the huge uptick in the January survey for pure. That blue line that's highlighted in that red dotted ellipse jumps to a 63% net score from below 20% last quarter. You know, we'll see, I've never seen that kind of uptick before for an established company you know, maybe it's pent up demand or some other anomaly in the data we'll find out when pure reports in 2021 because remember these are forward looking surveys but the point is you still see action going on in hybrid and on-prem and despite the freight train that is cloud coming at the legacy players. You know, not that pure is legacy but it's no longer a lanky teenager and I think the bottom line coming back to Matt Baker's point is there are opportunities that the on-prem players can pursue in hybrid and multi-cloud and we've talked about this a lot where you're building an abstraction layer on top of the hyperscale clouds and letting them build out their data center presence worldwide, spend on CAPEX, they're going to outspend everybody and these guys, these on-prem and hybrid and multi-cloud folks, they're going to have to add value on top of that. That they move fast, you no doubt they'll be acquiring startups to make that happen. They're going to have to put forth a value proposition and execute on that in a way that adds clear value above and beyond what the hyperscalers are going to do. Now the challenge is picking those right spots, moving fast enough and balancing Wall Street promises with innovation, there's that same old dilemma. Let's face it, Amazon for years could lose tons of money and not get killed in the street. Google has so much cash, it can't spend it fast enough and Microsoft after years of going sideways has finally figured it out and then some. Alibaba, they're new to our analysis but it's looking like it's the Amazon of China plus Ant despite its regulatory challenges with the Chinese government. So all four of these players are in the driver's seat in our view and they're leading in not only cloud but AI and of course the data keeps flowing into their cloud. So there really are in a strong position. The bottom line is we're still early into the cloud platform era and it's morphing. It's from a collection of remote cloud services into this ubiquitous sensing, thinking, anticipatory system that's increasingly automated and working towards full automation. It's intelligent and it's hyper decentralizing toward the edge. One thing's for sure, the next 10 years they're not going to be the same as the past 10. Okay, that's it for now. Remember I publish each week on wikibon.com and siliconangle.com and these episodes they're all available as podcasts. Just search for breaking analysis podcast. You can always connect on Twitter. I'm at dvolante or email me at david.volante at siliconangle.com. I love the comments on LinkedIn and of course in Clubhouse, the new social app so please follow me so that you can get notified when we start a room and riff on these topics and don't forget to check out etr.plus for all the survey action. This is Dave Vellante for the Cube Insights powered by ETR. Be well and we'll see you next time.