 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Cloud computing has been the single most transformative force in IT over the last decade. As we enter the 2020s, we believe that cloud will become the underpinning of a ubiquitous, intelligent, and autonomous resource that will disrupt the operational stacks of virtually every company in every industry. Welcome to this week's special edition of Wikibon Cube Insights powered by ETR. In this Breaking Analysis, and as part of theCUBE 365's coverage of AWS re-invent 2020, we're going to put forth our scenario for the next decade of cloud evolution. We'll also drill into the most recent data on AWS from ETR's October 2020 survey of more than 1,400 CIOs and IT professionals. So let's get right into it and take a look at how we see the cloud of yesterday, today, and tomorrow. This graphic shows our view of the critical inflection points that catalyzed cloud adoption. In the middle of the 2000s, the IT industry was recovering from the shock of the dot-com bubble, and of course, 9-11. CIOs, they were still licking their wounds from the narrative, does IT even matter? AWS launched its simple storage service in later EC2 with little fanfare in 2006, but developers at startups and small businesses, they noticed, and overnight, AWS turned the data center into an API. Analysts like myself, we saw the writing on the wall, and CEO after CEO, they poo-pooed Amazon's entrance into their territory and they promised a cloud strategy that would allow them to easily defend their respective terms. We'd seen the industry in denial before, and this was no different. The financial crisis was a boon for the cloud. CFOs saw a way to conserve cash, shift CAPEX to OPEX and avoid getting locked into long-term capital depreciation schedules or constrictive leases. We also saw shadow IT take hold and then bleed in to the 2010s in a big way. This, of course, created problems for organizations, rightly concerned about security and rogue tech projects. CIOs were asked to come in and clean up the crime scene, and in doing so, realized the inevitable, i.e., that they could transform their IT operational models, shift infrastructure management to more strategic initiatives, and drop money to the bottom lines of their businesses. The 2010s saw an era of rapid innovation and a level of data explosion that we'd not seen before. AWS led the charge with a torrent pace of innovation via frequent rollouts, or frequent feature rollouts. Virtually every industry, including the all-important public sector, got into the act. Again, led by AWS with the seminal CIA deal. Google got in the game early, but they never really took the enterprise business seriously until 2015 when it hired Diane Greene. But Microsoft saw the opportunity and leaned in heavily and made remarkable strides in the second half of the decade, leveraging its massive software state. The 2010s also saw the rapid adoption of containers and an exit from the long AI winter, which, along with the data explosion, created new workloads that began to go mainstream. Now, during this decade, we saw hybrid investments begin to take shape and show some promise, as the ecosystem realized broadly that it had to play in the AWS sandbox or it would lose customers. And we also saw the emergence of Edge and IoT use cases, like, for example, AWS ground station, those emerged. Okay, so that's a quick history of cloud from our vantage point. The question is, what's coming next? What should we expect over the next decade? Whereas the last 10 years was largely about shifting the heavy burden of IT infrastructure management to the cloud, in the coming decade, we see the emergence of a true digital revolution. And most people agree that COVID has accelerated this shift by at least two to three years. We see all industries as ripe for disruption as they create a 360 degree view across their operational stacks. Meaning, for example, sales, marketing, customer service, logistics, et cetera, they're unified such that the customer experience is also unified. We see data flows coming together as well where domain-specific knowledge workers are first-party citizens in the data pipeline, i.e. not subservient to hyper-specialized technology experts. No industry is safe from this disruption and the pandemic has given us a glimpse of what this is going to look like. Healthcare is going increasingly remote and becoming personalized. Machines are making more accurate diagnoses than humans in some cases. Manufacturing will see new levels of automation. Digital cash, blockchain, and new payment systems will challenge traditional banking norms. Retail has been completely disrupted in the last nine months as has education. And we're seeing the rise of Tesla as a possible harbinger to a day where owning and driving your own vehicle could become the exception rather than the norm. Farming, insurance, on and on and on, virtually every industry will be transformed as this intelligent, responsive, autonomous, hyper-distributed system provides services that are ubiquitous and largely invisible. I was that for some buzzwords, but I'm here to tell you it's coming. Now a lot of questions remain. First, you may even ask, is this cloud that you're talking about? And I can understand why some people would ask that question. And I would say this. The definition of cloud is expanding. Cloud has defined the consumption model for technology. You're seeing cloud-like pricing models moving on-prem with initiatives like HPE's GreenLake and now Dell's Apex. SAS pricing is evolving. You're seeing companies like Snowflake and Datadog challenging traditional SAS models with a true cloud consumption pricing option, not option, that's the way they price. And this we think is going to become the norm. Now as hybrid cloud emerges and pushes to the edge, the cloud becomes this, as what we called again, a hyper-distributed system with a deployment and programming model that becomes much more uniform and ubiquitous. So maybe this S-curve that we've drawn here needs an adjacent S-curve with a steeper vertical this decade, jumping S-curves, if you will, into this new era. And perhaps the nomenclature evolves, but we believe that cloud will still be the underpinning of whatever we call this future platform. We also point out on this chart that public policy is going to evolve to address the privacy and concentrated industry power concerns that will vary by region and geography. So we don't expect the big tech clash to abate in the coming years. And finally, we definitely see alternative hardware and software models emerging as witnessed by NVIDIA and ARM and DPAs from companies like Fungible and AWS and others designing their own silicon for specific workloads to control their costs and reduce their reliance on Intel. So the bottom line is that we see programming models evolving from infrastructure as code to programmable digital businesses where ecosystems power the next wave of data creation, data sharing and innovation. Okay, let's bring it back to the current state and take a look at how we see the market for cloud today. This chart shows a just released update of our IS and PAS revenue for the big three cloud players, AWS, Azure and Google. And you can see we've estimated Q4 revenues for each player in the full year 2020. Now, please remember our normal caveats on this data, AWS reports clean numbers, whereas Azure and GCP are estimates based on the little tidbits and breadcrumbs each company tosses our way. We add in our own surveys and our own information from the CUBE network. Now, the following points are worth noting. First, while AWS's growth is lower than the other two, note what happens with the laws of large numbers. Yes, growth slows down, but the absolute dollars are substantial. Let me give an example. For AWS, Azure and Google in Q4 2020 versus Q4 2019, we projected, we project annual quarter over quarter growth rate of 25% for AWS, 46% for Azure and 58% for Google cloud platform. So, meaningfully lower growth rates for AWS compared to the other two. Yet, AWS's revenue in absolute terms grows sequentially, 11.6 billion versus 12.4 billion, whereas the others are flat to down sequentially. Azure and GCP, they'll have to come in with substantially higher annual growth to increase revenue from Q3 to Q4, that sequential increase that AWS can achieve with lower growth rates year to year because it's so large. Now, having said that on an annual basis, you can see both Azure and GCP are showing impressive growth in both percentage and absolute terms. AWS is going to add more than $10 billion to its revenue this year with Azure growing nearly 9 billion or adding nearly 9 billion and GCP adding just over 3 billion. So, there's no denying that Azure is making ground as we've been reporting. GCP still has a long way to go. Thirdly, we also want to point out that these three companies alone now account for nearly $80 billion in infrastructure services annually. And the IS and PAS business for these three companies combined is growing at around 40% per year, so much for repatriation. Now, let's take a deeper look at AWS specifically and bring in some of the ETR survey data. This wheel chart that we're showing here really shows you the granularity of how ETR calculates net score or spending momentum. Now, each quarter, ETR, they go get responses from thousands of CIOs and IT buyers and they ask them, are you spending more or less on a particular platform or vendor? Net score is derived by taking adoption plus increase and subtracting out decrease plus replacing, so subtracting the reds from the greens. Now, remember, AWS is a $45 billion company and it has a net score of 51%. So, despite its exposure to virtually every industry, including hospitality and airlines and other hard hit sectors, far more customers are spending more with AWS than are spending less. Now, let's take a look inside of the AWS portfolio and really try to understand where that spending goes. This chart shows the net score or across the AWS portfolio for three survey dates. Going back to last October, that's the gray. The summer is the blue and October, 2020, the most recent survey is the yellow. Now, remember, net score is an indicator of spending velocity and despite the deceleration as shown in the yellow bars, these are very elevated net scores for AWS. Only chime video conferencing is showing notable weakness in the AWS dataset from the ETR survey with an anemic 7% net score. But every other sector has elevated spending scores. Let's start with Lambda on the left-hand side. You can see that Lambda has a 65% net score. Now, for context, very few companies have net scores that high. Snowflake and Kubernetes spend are two examples with higher net scores, but this is rarefied air for AWS Lambda, i.e. functions. Similarly, you can see AI, containers, cloud, cloud overall, and analytics all with over 50% net scores. Now, while database is still elevated with a 46% net score, it has come down from its highs of late. Now, perhaps that's because AWS has so many options in database and its own portfolio and its ecosystem. And the survey maybe doesn't have enough granularity there, but in this competition, so I don't really know, but that's something that we're watching. But overall, there's a very strong portfolio from a spending momentum standpoint. Now, what we want to do, let's flip the view and look at defections off of the AWS platform. Okay, look at this chart. We find this mind-boggling. The chart shows the same portfolio view, but isolates on the bright red portion of that wheel that I showed you earlier, the replacements. And basically, you're seeing very few defections show up for AWS in the ETR survey. Again, only chime is the source spot. But everywhere else in the portfolio, we're seeing low single-digit replacements. That's very, very impressive. Now, one more data chart, and then I want to go to some direct customer feedback and then we'll wrap. Now, we've shown this chart before. It plots net score or spending velocity on the vertical axis and market share, which measures pervasiveness in the data set on the horizontal axis. And in the table portion in the upper right corner, you can see the actual numbers that drive the plotting position. And you can see the data confirms what we know. This is a two-horse race right now between AWS and Microsoft. Google there kind of hanging out with the on-prem crowd vying for relevance in the data center. We've talked extensively about how we would like to see Google evolve its business and rely less on appropriating our data to serve ads and focus more on cloud. There's so much opportunity there. But nonetheless, you can see the so-called hybrid zone emerging. Hybrid is becoming real, customers want hybrid and AWS is going to have to learn how to support hybrid deployments with offerings like outposts and others. But the data doesn't lie. The foundation has been set for the 2020s and AWS is extremely well positioned to maintain its leadership in our view. Now, the last chart we'll show takes some verbatim comments from customers that sum up the situation. These quotes were pulled from several ETR event roundtables that occurred in 2020. The first one talks to the cloud compute bill. It spikes and sometimes can be unpredictable. The second comment is from a CIO at a telco and let me paraphrase what he or she is saying. AWS is leading the pack and is number one and this individual believes that AWS will continue to be number one by a wide margin. The third quote is from a CTO at an S&P 500 organization who talks to the cloud independence of the architecture that they're setting up and the strategy that they're pursuing. The central concern of this person is the software engineering pipeline, the CICD pump pipeline. The strategy is to clearly go multi-cloud, avoid getting locked in and ensuring that developers can be productive and independent of the cloud platform. It's actually separating the underlying infrastructure from the software development process. All right, let's wrap. So we talked about how the cloud will evolve to become an even more hyper-distributed system that can sense, act and serve and provide sets of intelligent services on which digital businesses will be constructed and transformed. We expect AWS to continue to lead in this build out with this heritage of delivering innovations and features at a torrid pace. We believe that ecosystems will become the main spring of innovation in the coming decade and we feel that AWS has to embrace not only hybrid but cross-cloud services and has to be careful not to push its ecosystem partners to competitors. Has to walk a fine line between competing and nurturing its ecosystem. To date, its success has been key to that balance AWS has been able to, for the most part, call the shots. However, we shall see if competition and public policy attenuate its dominant position in this regard. What will be fascinating to watch is how AWS behaves given its famed customer obsession and how it decodes the customer's needs. As Steve Jobs famously said, some people say, give the customers what they want. That's not my approach. Our job is to figure out what they're going to want before they do. I think Henry Ford once asked, if I'd asked customers what they wanted, they would have told me a faster horse. Okay, that's it for now. It was great having you for this special report from theCUBE Insights powered by ETR. Keep it right there for more great content from theCUBE from ReInvent 2020 virtual.