 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Every CEO is figuring out the right balance for new hybrid business models. Now, regardless of the chosen approach, which is going to vary, technology executives, they understand they have to accelerate their digital and build resilience as well as optionality into their platforms. Now, this is driving a dramatic shift in IT investments. Now, at the macro level, we expect total spending to increase at as much as 8% or even more in 2021 compared to last year's contraction. Investments in cybersecurity cloud collaboration that are enabling hybrid work, as well as data, including analytics, AI and automation are at the top of the spending priorities for CXOs. Hello, everyone, and welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we're pleased to welcome back Eric Bradley, who's the chief engagement strategist at our partner ETR. Now, in this segment, we're going to share some of the latest findings from ETR's surveys and provide our commentary on what it means for the markets, for sellers and for buyers. Eric, great to see you, my friend. Welcome back to Breaking Analysis. Thank you for having me, always enjoyed. We've got some fresh data to talk about on this beautiful summer Friday, so I'm ready to go. All right, I'm excited too. Okay, last year we saw our contraction in IT spending by at least 5%, and now we're seeing a snapback to, as I say, at least 8% growth relative to last year. You got to go back to 2007, just before the financial crisis, to see this type of top-line growth. The shift to hybrid work, it's exposed us to new insidious security threats, and we're going to discuss that in a lot more detail. Cloud migration, of course, picked up dramatically last year, and based on the recent earnings results of the big cloud players, now we got two quarters of data. That trend continues as organizations are accelerating their digital platform build-outs, and this is bringing a lot of complexity and a greater need for so-called observability solutions, which Eric is going to talk about extensively later on in this segment. Data, we think, is entering a new era of decentralization. We see organizations not only focused on analytics and insights, but actually creating data products, leading technology organizations like JP Morgan, they're heavily leaning into this trend toward packaging and monetizing data products. And finally, as part of the digital transformation trend, we see no slowdown in spending momentum for AI and automation generally, and RPA specifically. Eric, anything you want to add to that top-level narrative? Yeah, there's a lot to take on the macro takeaways. The first thing I want to state is that that eight, eight and a half percent number, that started off at just three to 4% beginning in the year. So as the year has continued, we are just seeing this trend in budgets continue to accelerate, and we don't have any reason to believe that's going to stop. So I think we're going to just keep moving on, heading into 2021, and we're going to see a banner year of spend this year and probably next as well. All right, now we're going to bring up a chart that shows kind of that progression here of spending momentum. So Eric, I'm going to let you comment on this chart that tracks those projections over time. Yeah, great. So thank you very much for pulling this up. As you can see in the beginning part of the year, when we asked people, what do you plan to spend throughout 2021? They were saying, there'll be about a 4% increase, which we were happy with, because as you said last year, it was all negative. That continued to accelerate and is only hyper-accelerating now as we head into the back half of the year. In addition, after we do this data, I always host a panel of IT end users to kind of get their feedback on what we collected to a man every one of them expects continued increase throughout next year. There are some concerns and uncertainty about what we're seeing right now with COVID, but even with that, they're planning their budgets now for 2022 and they're planning for even further increases going forward. Great, thank you. So we circled that 8%. That's really kind of where we thought it was going to land. And so we're happy with that number. But let's take a look at where the action is by technology sector. This chart that we're showing you here, it tracks spending priorities back to last September. When I believe that was the point, Eric, that cyber became the top priority in the survey ahead of cloud, collaboration, analytics and data and the other sectors that you see there. Now, Eric, we should explain these areas, they're the top seven and they outrank all the other sectors, ETR tracks many, many other sectors, but please weigh in here and share your thoughts on this data. Yeah, security, security, security. It hasn't changed. It really hasn't. The hybrid work, the fact that you're behind the firewall one day and then you're outside working from home the next, switching in and out of networks. This is just a field day for bad actors and we have no choice right now, but to continue to spend because as you're going to talk about in a minute, hybrid's here to stay. So we have to figure out a way to secure behind the firewall on-prem. We also have to secure our employees and our assets that are not in the office. So it is a main priority. One other thing that point out on this chart, I had a couple of ITN users talk to me about customer experience and automation really need to move from the right part of that chart to the left. So they're seeing more in what you were talking about in RPA and automation starting to creep up heading into next year as cloud migration matures, as cybersecurity spending has been ramping up. People are going to see a little bit more on the analytics and a little bit more on the automation side going forward. Great, now this next data view, first of all, one of the great things about the ETR data set is you can ask key questions and get a time series and I will tell you again, I go back to last March, ETR hit it, they were the first on the work from home trend and so if you were on that trend you were able to anticipate it and a lot of investors I think took advantage of that now but we've shown this before but there's new data points that we want to introduce so the data tracks how CIOs and IT buyers have responded to the pandemic since last March. Still 70% of the organizations have employees working remotely but 39% now have employees fully returning to the office and Eric, the rest of the metrics all point toward positives for IT spending although accelerating IT deployments there at the right peak last year as people realized they had to invest in the future. Your thoughts? Yeah, this is the slide for optimism without a doubt the entire macro survey we did this is the most optimistic slide it's great for overall business it's great for business travel and this is well beyond just IT. Hiring is up, I've had some people tell me that they possibly can't hire enough people right now they had to furlough employees they had to stop projects and they want to re-accelerate those now but talent is very hard to find another point to you about your automation and RPA another underlying trend for there. The one thing I did want to talk about here is the hybrid workplace but I believe there's another slide on it. So just to recap on this extremely optimistic we're seeing a lot of hiring we're seeing increased spending and I do believe that that's going to continue. Yeah, I'm glad you brought that up because a session that you and I did a while ago we pointed out as earlier this year that the skill shortage is one potential risk to our positive scenario. We'll keep an eye on that but so I want to show another set of data that we've showed previously but ETR again has added some new questions in here. So note here that 60% of employees still work remotely with 33% in a hybrid model that currently and the CIOs expect that to land on about 42% hybrid workforce with around 30% working remotely which is around it's been consistent by the way on your surveys but that's about double the historic North America. Yeah, and even further to your point Dave recently I did a panel asking people to give me some feedback on this and three of those four experts basically said to me if we had rerun this survey right now that even more people would be saying remote that they believe that that number that's saying they're expecting that number of people to be back in office is actually too optimistic. They're actually saying that maybe if we had run cause a survey launched about six, seven weeks ago before this little blip on the radar before the little COVID hiccup we're seeing now and they're telling me that they believe if we ran rerun this now that it would be even more remote work even more hybrid and less return to the office. So that's just an update I wanted to offer on this slide. Yeah, thank you for that. I mean, we're still in this kind of day to day week to week month to month mode but I want to do a little double click on this. We're not going to share this data but there's so much ETR data we ought to be selective but if you double click on the hybrid models you'll see that 50% of organizations plan to have time roughly equally split between on-site and remote with again around 30% or 31% mostly remote with on-site space available if they need it. And Eric, very few don't plan to have some type of hybrid model at least. Yeah, I think it was a less than 10% that said it was going to be exclusively on-site. And again, that was a more optimistic scenario six, seven weeks ago than we're seeing right now throughout the country. So I agree with you. Hybrid is here to stay. There really is no doubt about it from everyone I speak to and you know I basically make a living talking to IT end users. Hybrid is here to stay, they're planning for it and that's really the drive behind the spending because you have to support both. You have to give people the option. You have to, from an IT perspective you also have to support both, right? So if somebody's in office I need the support staff to be in office plus I need them to be able to remote in and fix something from home. So they're spending on both fronts right now. Okay, let's get into some of the vendor performance data and I want to start with the cloud hyperscalers. It's something that we've followed pretty closely. I get some Wikibon data that we just had earnings release. So here's data that shows the Q2 revenue shares on the left-hand side in the pie and the growth rates for the big four cloud players on the right-hand side goes back to Q1 2019. Now the first thing I want to say is these players generated just under $39 billion in the quarter with AWS capturing 50% of that number. I said 39, it was 29 billion, sorry. With AWS capturing 50% of that in the quarter as you're still tracking around a third in Alibaba and GCP in the eight or 9% range. But what's most interesting to me Eric is that AWS which generated almost 15 billion in the quarter was the only player to grow its revenue both sequentially and year over year. And Eric, I think the street is missing the real story here on Amazon. Amazon announced earnings on Thursday night. The company had a 2% miss on the top line revenues and a meaningful 22% beat on earnings per share. So the retail side of the business missed its revenue targets and that's why everybody's freaked out. But AWS, the cloud side saw a 4% revenue beat. So the stock was off more than 7% after hours and into Friday. Now, to me a mixed shift toward AWS that's great news for investors. Now, tepid guidance is a negative but the shift to a more profitable cloud business is a huge positive. Yeah, there's a lot that goes into a stock price, right? I remember I was a director of research back in the day and one of my analysts said to me, am I crazy for putting a $1,000 target on Amazon? And I laughed and I said, no, you're crazy if you don't make it 2000. So at that time it was basically the mixed shift towards AWS, you're 1,000% right. I think the tough year over year comps had something to do with that reaction that it's just getting really hard what's at the law of large numbers, right? It's really hard to grow at that percentage rate when you're getting this big. But from our data perspective, we're seeing no slowdown in AWS in cloud. None whatsoever. The only slowdown we're seeing in cloud is GCP. But to focus on AWS extremely strong across the board and not only just in cloud but in all their data products as well, data and analytics. Yeah, and I think that AWS, don't forget folks that funds Amazon's TAM expansion into so many different places. Okay, as we said at the top, the world of digital and hybrid work and multi-cloud, it's more complicated than it used to be. And that means if you need to resolve issues which everybody does like poor application performance, et cetera, what's happened at the user level, you have to have a better way to sort of see what's going on and that's what the emergence of the observability space is all about. So Eric, let me set this up and you have a lot of comments here because you've recently had some and you always have had a lot of round table discussions with CXOs on this topic. So this chart plots net score or spending momentum on the vertical axis and market share or pervasiveness in the data set on the horizontal axis. And we inserted a table that shows the data points in detail. Now that red dotted line is just sort of Dave Vellante's subjective mark in the sand for elevated spending levels. And there are three other points here. One is Splunk is well off its two year peak as highlighted in the red but Signal FX with Splunk acquired has made a big move northward this last quarter and as has Datadog. So Eric, what can you share with us on this hot but increasingly crowded space? Yeah, I could talk about the space for a long time as you know, I've gotten some flack over the last year and a half about kind of pointing out this trend, this negative trend in Splunk. So I do want to be the first one to say that this data set is rebounding. Splunk has been horrific in our data for going back almost two years now straight downward trend. This is the first time we're seeing any increase, any positivity there. So I do want to be fair and state that because I've been accused of being a little too negative on Splunk in the past. But I would basically say for observability right now it's a rising tide lifts all boats if I can use a New England phrase. The data across the board in analytics for these observability players is up, is accelerating. None more so than Datadog. And it's exactly your point, David. The complexity, the increased cloud migration is a perfect setup for Datadog, which is a cloud native. It focuses on microservices. It focuses on cloud observability. All Splunk was just application monitoring. Don't get me wrong, they're changing but they were on-prem application monitoring first and foremost. Datadog came out as cloud native. They, you know, do microservices. This is just a perfect setup for them. And not only is Datadog leading the observability, it's leading the entire analytics sector, all of it. Not just the observability niche. So without a doubt, that is the strongest that we're seeing. It's leading Dynatrace, New Relic. The only one that really isn't rebounding is Cisco App Dynamics. That's getting the dreaded legacy word really attached to it. But this space is really on fire, elastic as well. Really doing well in this space. New Relic is showing a little bit of improvement as well. And what I heard when I asked my panelists about this is that because of the maturity of cloud migration that this observability has to grow. Spending on this has to happen. So they all say the chart looks right and it's really just about the digital transformation maturity. So that's largely what they think is happening here and they don't really see it changing anytime soon. Yeah, and I would add, and you said it's getting crowded. You saw ServiceNow acquired LightStep. They want to get into the game. You mentioned Elastic, the Elk Stack is the open source alternative. But then we see a company who's raised a fair amount of money. Startup chaos search coming in, going after kind of the complexity of the Elk Stack. You've got Honeycomb, which has got a really innovative approach. Jeremy Burton's company observed so you have venture capital coming in. So we'll see if those guys can be disruptive enough or the candidates to get acquired. We'll see how you know that well, the M&A space. You think this space is ripe for M&A? I think it's ripe for consolidation, M&A. Something has to shake out. There's no doubt. I do believe that all of these can't be standalone. So we shall see what's happened. You mentioned the Splunk acquisition of SignalFX, just a house cleaning point. That was really nice acceleration by SignalFX, but it was only 20 citations. We've looked into this a little bit deeper. Our data scientists did. It appears as if the majority of people are just signaling Splunk and not FX separately. So moving forward for our data set, we're going to combine those two. So we don't have those anomalies going forward. But that type of acquisition does show what we should expect to see more of in this group going forward. Well, that's one of the challenges that any data company has is you, and you guys do a great job of it. You're constantly having to reevaluate. There's so much M&A going on in the industry. You've got to pick the right spots in terms of when to consolidate. There's some big, you know, Dell and EMC for example. You know, you beautifully work through that transition. You see an open shift and red hat with IBM. And you just got to be flexible. And that's where it's valuable to be able to have a pipeline to guys like Eric to sort of squint through that. So thank you for that clarification. Thank you too, because having a resource like you with industry knowledge really helps us navigate some of those as well for everyone out there. So that's a lot to do with you too, Dave. Thank you. It's going to be interesting to watch Splunk. Doug Merritt's made some, you know, management changes, not the least of which is bringing in Teresa Carlson to run GoToMarket. So if, you know, I'd be interested if they're hitting, you know, bouncing off the bottom and rising up again. They have a great customer base. Okay, let's look at some of the same dimensions. Go ahead, you got a comment. A few of ETR's clients looked at our data and then put a billion dollar investment into it too. So, obviously, I agree. Splunk is looking like it's set for a rebound and it's definitely something to watch, I agree. Well, I got, you know, not to rattle on this, but I got to say, when I look back, because theCUBE gives us kind of early visibility into sort of companies with momentum, and you talk to the customers at all these shows that we go to, I will tell you that the three companies stood out last decade. It was Splunk, it was ServiceNow and Tableau. And you could tell just from just discussions with their customers, the enthusiasm in that customer base. And so, that's a real asset and that helps them build them a moat. So, we'll see. All right, let's take a look at the same dimensions now for cyber. This is Cyber Security Net Score and the vertical and Marcus shared in the horizontal and I filtered by N greater than 100 shared N because it just gets so crowded. Eric, the only things I would point out here is Octa, CrowdStrike and Zscaler continue to shine. Cyberock also showing momentum over that 40% line. Very impressively, Palo Alto Networks, which has a big presence in the market, they've bounced back. We predicted that a while back. Your round table suggested people like working with Palo Alto. They're a gold standard. We had reported earlier on that divergence with Fortinet in terms of valuation and some of the challenges they had in cloud. They're clearly back in the momentum. And of course, Microsoft in the upper right, it's just they're literally off the charts obviously a major player here, but your thoughts on cyber. Yeah, going back to the backdrop, security, security, security. It has been the number one priority going back to last September. No one sees it changing. It has to happen. The threat vectors are actually expanding and we have no choice but to spend here. So it is not surprising to see. You did name our three favorite names. So as you know, we look at the data set. We see which ones have the most positive inflections and we put outlooks on those. And you did mention Zscaler, Okta and CrowdStrike. By far the three standouts that we're seeing. Just recently did a huge panel on Okta talking about their acquisition of Auth0. They're pushed into sale point space trying to move just from single sign on an MFA to going to really privileged account management. There is some hurdles there. Really Okta's ability to do this on-prem is something that a little bit of the ITN users are concerned about. But what we're seeing right now, both Okta and Auth0 are two of the main adoptive names in security. They look incredibly well set up. Zscaler as well, with the ZTNA push, the more towards zero trust. Zscaler came out so hot in their IPO and everyone was wondering if it was going to trail off. Just like Snowflake, it's not trailing off. This thing just keeps going up into the right, up into the right. The data supports a lot of tremendous growth for the three names that you just mentioned. Yeah, I'm glad you brought up Auth0. We had reported on that earlier. I just feel like that was a great acquisition. You had Okta doing the belly to belly enterprise selling. And the one thing that they really lacked was that developer momentum. And that's what Auth0 brings. Just a smart move by Todd McKinnon and company. I want to pull up another chart, show a quick snapshot of some of the players in the survey who show momentum and have you comment on this. We haven't mentioned Snowflake. So far, but they remain, again, like this gold standard of net score, they've consistently had those high marks with regard to spending velocity. But here's some other data, Eric, how should we interpret this? Yeah, just to harp on Snowflake for a second, right? I mean, the rich get richer. They came out, the IPO was so hyped. So it was hard for us as a research company to say, oh, well, we agree, but we did. The data is incredible. You can't beat the management team. You can't beat what they're doing. They've got so much cash, I can't wait to see what they do with it. And meanwhile, you would expect something that debuted with that high of a net score, that high of spending velocity to trail off. It would be natural. It's not. It's still accelerating. It's gone even higher. It's at all time highs, and we just don't see it stopping anytime soon. It's a really interesting space right now. Maybe another name to look at on here that I think's pretty interesting, kind of a play on return to business is Koopa. It's a great project expense management tool that got hit really hard. Listen, traveling stopped, business expense stopped, and I did a panel on it, and a lot of our guys basically said, yeah, it was the first thing I cut, but we're seeing a huge rebound in spending there in that space. So that's a name that I think might be worth being called out on a positive side. Negative, if you look down to the bottom right of that chart, unfortunately, we're seeing some issues in Ring Central, in Zoom. Anything that's sort of playing in this next video conferencing IP telephony space, they seem to be having really decelerating spend. Also now with Zoom's acquisition of 5.9, I'm not really sure how Ring Central is going to compete on that. But yeah, that's one where we debuted for the first time with a negative outlook on that name. And looking and asking to some of the people that in our community, a lot of them say externally, you still need IP telephony, but internally you don't because the UCAS communication systems are getting so sophisticated that if I have teams, if I have Slack, I don't need phones anymore, that you and I can just do a Slack call, we can do a Teams call. And many of them are saying, I'm truly ripping out my IP telephony internally as soon as possible, because we just don't need it. So this whole collaboration productivity space is here to stay, and it's got wide ranging implications to some of these more legacy type of tools. You know, one of the other things I'd call out on this chart is Accenture. You and I had a session earlier this year, and we had predicted that that skills shortage was going to lead to an uptick in traditional services. We've certainly seen that, I mean, IBM beat its quarter on the strength of services largely, and seeing Accenture on that is I think confirmation of that. Yeah, that was our New Year prediction show, right? They have a really top 10 prediction. That's right, that was part of our prediction show. Exactly, good memory. The data is really showing that continue to add. You know, people want the projects, they need to do the projects, but hiring is very difficult. So obviously the number one beneficiary there are going to be the Accenture's of the world. All right, so let's do a quick wrap. I'm going to make a few comments and then have you bring us home, Eric. So we laid out our scenario for the tech spending rebound. We definitely believe last year track downward along with GDP contraction, it was interesting. Gartner doesn't believe, at least factions of Gartner don't believe there's a correlation between GDP and tech spending. But I personally think there generally is some kind of relatively proportional pattern there. And I think we saw a contraction last year. People are concerned about inflation, of course, that adds some uncertainty, and of course, as well, as you mentioned around the Delta variant. But I feel as though that the boards of directors and CEOs, they've mandated that tech execs have to build out digital platforms for the future. They're data centric, they're highly automated to your earlier points. They're intelligent with AI infused. And that's going to take investment. I feel like the tech community has said, look, we know what to do here. We're dealing with hybrid work. We can't just stop doing what we're doing. Let's move forward, you know, and as you say, we're flying again and so forth. Now getting hybrid right is a major priority that directly impacts strategies, technology strategies, particularly around security, cloud, the productivity of remote workers with collaboration. And as we've said many times, we are entering a new era of data that's going to focus on decentralized data, building data products, and Eric, let's keep an eye on this observability space. A lot of interest there and buyers have a number of choices. You know, do they go with the specialist as we saw recently, what we've seen in the past, or do they go with the generalist like ServiceNow with the acquisition of LightStep? You know, it's going to be interesting. A lot of people are going to get into this space, start bundling into larger platforms. And so as you said, there's probably not enough room for all the players. We're going to see some consolidation there. But anyway, let me give you the final word here. Yeah, no, completely agree with all of it. And I think your earlier points are spot on that analytics and automation are certainly going to be moving more and more to that left of that chart we had of priorities. I think as we continue that survey heading into 2022, we'll have some fresh data for you again. In a few months, that's going to start looking at 2022 priorities and overall spend. And the one other area that I keep hearing about over and over and over again is customer experience. There's a transition from good old CRM to CXM. Right now, everything is digital. It is not going away. So you need an omnichannel support to not only track your customer experience, but improve it, make sure there's two-way communication and it's a really interesting space. Salesforce is going to migrate into it. We've got Qualtrics out there. You've got Medallia. You've got Freshworks. You've got Sprinkler. You've got some names out there and everyone I keep talking to on the ITN user side keeps bringing up customer experience. So let's keep an eye on that as well. Yeah, that's a great point. And again, it brings me back to service now. We wrote a piece last week that's a service now in Salesforce or on a collision course. We've said that for many, many years and you got this platform of platforms. They're just kind of sucking in different functions saying, hey, we're friends with everybody. But as you know, Eric, software companies, they want to own it all. All right, hey, Eric, thank you so much. I want to thank you for coming back on. It's always a pleasure to have you on Breaking Analysis. Great to see you. Love the partnership, love the collaboration. Let's go enjoy this summer Friday. All right, let's do. Okay, remember everybody, these episodes, they're all available as podcasts. Wherever you listen, all you got to do is search Breaking Analysis podcast. Click subscribe to the series. Check out ETR's website at ETR.plus. They've just launched a new website. They've got a whole new pricing model. It's great to see that innovation going on. Now remember, we also publish a full report every week on wikibon.com and siliconangle.com. You can always email me. Appreciate the back channel comments and the metadata insights, david.volante at siliconangle.com. DM me on Twitter at D-Volante or comment on the LinkedIn posts. This is Dave Volante for Eric Bradley and theCUBE Insights, powered by ETR. Have a great week. A good rest of summer, be well and we'll see you next time.