 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. New data suggests the tech spending will be higher than we previously thought for 2021. COVID learnings, a faster than expected vaccine rollout, productivity gains in the last 10 months and broad based cloud leverage lead us to raise our outlook for next year. We now expect a three to 5% increase in 2021 technology spending, roughly double our previously forecasted growth rate of 2%. Hello, everyone and welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we're going to share new spending data from ETR partners and take a preliminary look at which sectors and which companies are showing momentum heading into next year. Let's get right into it. The data is pointing to a strong 2021 rebound. The latest survey from ETR and the information from theCUBE community suggests that the accelerated pace of the vaccine rollout, pent up demand for normalcy and learnings from COVID, will boost 2021 tech spending higher than previously anticipated. Now a key factor we've cited is that the forced march to digital transformation due to the pandemic created a massive proof of concept for what works and what doesn't in a digital business. CIOs are planning to bet on those sure things to drive continued productivity improvements and new business opportunities. Now speaking of productivity, nearly 80% of respondents in the latest ETR survey indicate that productivity either stayed the same or improved over the past three months. Now of those, the vast majority, more than 80% cited improvements in productivity. This has been a common theme throughout the year. As well, the expectation among CIOs is that many workers will return to the office in the second half of the year, which we expect will drive new spending in the infrastructure needs of company HQs, which have been neglected over the past 10 months. Now despite the expectation that many workers will return to the office, 2020 has shown us that working remotely, hey, it's here to stay. And a much larger number of employees are going to be permanently remote working than pre-pandemic. ETR survey data shows that that number is going to be approximately double over the long term. We'll look at some of that specific data. In addition, cloud computing, it became the staple of business viability in 2020. Those that were up the cloud adoption ramp, well, they benefited greatly. Those that weren't, well, they had to learn fast. Now, along with remote work, cloud necessitated new thinking around network security. And as we reported, identity access management, endpoint security and cloud security were the beneficiaries. Companies like Okta, CrowdStrike, Zscaler and a number of others continue to ride this wave. Larger established security companies like Cisco, Palo Alto Networks, F5, Fortinet and others, they have major portions of their business that are benefiting from the tailwinds in the shift in network traffic as a result of cloud and remote work. Now, despite all the momentum in the market and the expected improvements in 2021, these tailwinds are not expected to be evenly distributed, far from it. We think Q4 is going to remain soft relative to last year and Q1 2021 is going to be flat, maybe up slightly. Remember, the COVID impact was definitely felt in March of this year. So based on the earnings that we saw, there may be some upside in Q1 given that organizations are still being cautious in Q4. And really there's still some uncertainty in Q1. So let's look at some of the survey responses and you'll see why we're more optimistic than we've previously reported. This chart shows the responses to key questions around spending trajectories from the March, June, September and December surveys of this year. Now it's no surprise that there's been little change in remote workers and limiting business travel, but look at the other categories. We've seen a dramatic reduction in hiring freezes. The percentage of companies freezing new IT deployments continues to drop throughout the year. And then conversely, the percentage of companies accelerating new IT deployments, that's sharply up to 34% from the March low of 12%. And look at the headcount trends. The percentage of companies instituting layoffs, it continues its downward trajectory while accelerated hiring is now up to 17%. So there's a lot to be excited about in these results. Now let's look at the remote worker trend. How do CIOs see that shaping up in the near to midterm? This chart shows the work from home data and it's amazingly consistent from the September survey drill down. You can see CIOs indicate that on average, 15 to 16% of workers were remote prior to the pandemic and that jumped up to 72 to 73% currently and is expected to stay in the high 50s until the summer of 2021. Thereafter, organizations expect that the number of employees that work remotely on a permanent basis is gonna more than double to 34% long-term. By the way, I've talked to a number of executives, CEOs, CIOs and CFOs that expect that number to be higher. These especially are in the technology sector. They expect more than half of their workers to be remote and are looking to consolidate facilities costs to save money. Now, as we've said, cloud computing has been the most significant contributor to business resilience and digital transformation this year. So let's look at cloud strategies and see how CIOs expect those to evolve. This chart shows responses to how organizations see multi-cloud evolving. It's interesting to note the ETR call out, which concludes that the narrative around multi-cloud is real and it is. But you know, I want to talk to you about a flip side to this notion in that as many customers have or are planning to increasingly concentrate workloads in the cloud. Now, this actually makes some sense. Sure, virtually every major company uses multiple clouds, but more often than not, they concentrate work on a primary cloud. CIO strategies, they're not generally evenly distributed across clouds. The data shows that this is the case for less than 20% of the respondents. Rather, organizations are typically going to apply an 80-20 or a 70-30 rule for their multi-cloud approach, meaning they pick a primary cloud on which most work is done, and then they use alternative clouds as either a hedge or maybe for specific workloads or maybe even data protection purposes. Now, if you think about it, optimizing on a primary cloud allows organizations to simplify their security and governance and consolidate their skills. Now, at this point in the cloud evolution, it seems CIOs feel there's more value that is going to come from leveraging the cloud to change their operating models and maybe broadly spreading the wealth to reduce risk or maybe cut cost or maybe even to tap specialized capabilities. What's more, in thinking about AWS and Microsoft, respectively, each can make a very strong case from monocloud. AWS has more features than any other cloud and as such can handle most workloads. Microsoft can make a similar argument for its customers that have an affinity in a large estate of Microsoft software. The key for multi-cloud, in our view, will be the degree to which technology vendors can abstract the underlying cloud complexity and create a layer that floats above the clouds and adds incremental value. Snowflake's data cloud is one of the best examples of this and we've covered that pretty extensively. Now, clearly VMware and Red Hat have aspirations at the infrastructure layer in a similar fashion. Pure storage and NetApp are a couple of larger storage players with similar visions and then Cumulo and Clumio are two other examples with promising technologies but they have a much smaller install base. And take a look at Cisco, Dell, IBM and HPE. They have a lot to gain and a lot to lose in this cloud game. So multi-cloud is an imperative for these leaders but for them it's much more complicated because of the complexity and vastness of their portfolios. Notably, Dell has VMware and IBM of course has Red Hat which are key assets that can be leveraged for this multi-cloud game. HPE has a channel and a large install base but all of these firms, they have to spread R&D much more thinly than some of these other companies that we mentioned, for example. The bottom line is that multi-cloud has to be more than just plugging into and operating well on any of the clouds. It requires, by the way, this is mostly where we are today. It requires an incremental value proposition that solves a clear problem and at the same time runs efficiently, meaning it takes advantage of cloud native services at scale. So what sectors are showing momentum heading into 2021 and who are some of the names that are looking strong? We've reported a lot that cloud containers and container orchestration, machine intelligence and automation are by far the hottest sectors, the biggest areas of investment with the greatest spending momentum. Now we measure this in ETR parlance, remember by net score. But here's the good news. Almost every other sector in the ETR taxonomy with a notable exception of IT outsourcing and IT consulting is showing positive spending momentum relative to previous surveys this year. You know, maybe that's not a shock but it appears that the tech spending recovery will be broad based. It's also worth noting that there are several vendors that stand out and we show a number of them here. CrowdStrike, Microsoft has had consistent performance in the dataset throughout this year. Akta, we called out those guys last year and they've clearly performed, as you can see in their earnings reports. Pure storage, interestingly, big acceleration and a turnaround from last quarter in the dataset and of course Snowflake has been off the charts as we reported many, many times. These guys are all seeing highly accelerated momentum. UiPath just announced its intent to IPO. AWS, Google, Zscaler, SailPoint, ServiceNow and Elastic. These all continue to trend up and so there are some real positives that we're looking for. Remember the ETR surveys, they're forward looking. So we'll see as we catch up next quarter. Now before we wrap, I want to say a few words on security. Maybe it's a bit of a non-sequitur here but I think it's relevant to the trends that we've been discussing, especially as we talk about moving to the cloud. And as you know, we've reported many times on the security space, basically updating you quarterly with our scenarios and the spending and the technology trends and highlighting our four star companies. Four star companies in security are those with both momentum and significant market presence. And last year we put CrowdStrike, Akta and Zscaler and some others on the radar and we've closely tracked the cyber business of larger companies with a security portfolio like Palo Alto and Cisco and more recently VMware was made some acquisitions. Now the government hack that became news this week, it really underscores the importance of security. It remains the most challenging area for organizations because, well, failure's not an option, right? Skills are short, tools are abundant, the adversaries are very well funded and extremely capable yet failure is common as we saw this week. And there's a misconception that cloud solves the security problem and it's important to point out that it does not. Cloud is a shared responsibility model, meaning the cloud provider is going to secure the infrastructure, for example, but it's up to you as the customer to configure things properly and deal with application security. It's ultimately on you. And the example of S3 is instructive because we've seen a number of S3 breaches over the years where the customer didn't properly configure the S3 bucket. We're talking about companies like Honda and Capital One, not just small businesses that don't have the SecOps resources. And generally it was because a non-security person was configuring things. You know, maybe they were developers who were not focused on security. And perhaps permissions were set too broadly and access was given to far too many people. Whatever the issue, it took some breaches and subsequent education to increase awareness of this problem and tighten it up. We see some similar trends occurring with new workloads, especially in cloud databases. It's becoming so easy to spin up new data warehouses, for example, and we believe there are exposures out there due to the lack of awareness or inconsistent corporate governance being applied to these new data stores as well. Even though important areas like threat intelligence and database security are important, SecOps budgets are stretched thin. And when you ask companies where the priorities are, these fall lower down the list. These areas specifically have taken a back seat to endpoint identity and cloud security. And we bring this up because it's a potential blind spot as we saw this week with the US government hack. It was stealthy, it wasn't detected for many, many months. Who knows, maybe even years. And not to be a buzzkill, but the point is cloud enthusiasm has to be concomitant with security vigilant. Okay, enough preaching, let's wrap up here. As we entered 2020, we said, as we entered 2020 this year, we said the cloud was going to be the force that drove innovation along with data and AI. And as we look in the rear view mirror and put 2020 behind us, I know many of you want to do that. It was the cloud that enabled businesses to not only continue to operate, but to actually increase productivity. Nonetheless, we still see IT spending declines of four to 5% this year with an expectation of a tepid Q4 relative to last year. We see Q1 slowly rebounding and kind of a swoosh. Let me try that again. Recovery in the subsequent quarters with tech spending rebounding in 2021 to a positive three to 5%, let's call it 4%. Now supporting our scenario, the pandemic forced a giant Petri dish for digital. And we see some real successes and learnings that organizations will apply in 2021 to bet on sure things. These are cloud, containers, AI, ML, machine intelligence pieces and automation. For sure, along with upticks for virtually every other sector of technology because spending has been so depressed. Two exceptions are outsourcing and IT consulting and related services, which continue to be a drag on overall spending. Priorities must be focused on security and governance and further improvements in applying corporate edicts in a cloud world. We also see new data architectures emerging where domain knowledge becomes central to data platforms. We'll be covering this in more detail on top of the work that we've already done in this area. Now automation is not only an opportunity, it's become a mandate, yes, RPA, but also broader automation agendas beyond point tools. And importantly, we're not talking about paving the cow path here by automating existing processes, rather we're talking about rethinking processes across the entire organization for a new digital reality where many of these processes are being invented. You know, the work of Eric Brynjolfsson and Andrew McAfee on the second machine age, it was prescient back in 2014 and the conclusions they drew, they're becoming increasingly important in the 2020s. Meaning that, look, machines have always replaced humans throughout time. But for the first time in history, it's happening for cognitive functions and a huge base of workers is going to be or is being marginalized unless they're retrained. Education and public policy that supports this transition is critical and I for one would like to see a much more productive discussion that goes beyond the call to break up big tech, rather I'd like to see governments partner with big tech to truly do good and help drive the reskilling of workers for the digital age. Now cloud remains the underpinning of the digital business mandate, but the path forward isn't really always crystal clear. This is evidenced by the virtual dead heat between those organizations that are consolidating workloads in a cloud workloads versus those that are hedging bets on a multi-cloud strategy. One thing is clear, cloud is the linchpin for our growth scenarios and will continue to be the substrate for innovation in the coming decade. Okay, well remember these episodes, they're all available as podcasts wherever you listen, all you got to do is search breaking analysis podcast and please subscribe to the series, appreciate that. Check out ETR's website at ETR.plus. We also publish full report every week on wikibon.com and siliconanglebot.com, you can get in touch with me at David.Valante at siliconangle.com, you can DM me at Dvalante. And please by all means comment on our LinkedIn posts. This is Dave Valante for theCUBE, insights powered by ETR. Have a great week everybody, Merry Christmas, happy Hanukkah, happy Kwanzaar, happy whatever holiday you celebrate, stay safe, be well, and we'll see you next time.