 From the SiliconANGLE Media Office in Boston, Massachusetts, it's theCUBE. Now, here's your host, Dave Vellante. Hello, everybody, and welcome to this week's episode of theCUBE Insights, powered by ETR. In this breaking analysis, we're going to go deep into AWS. In a couple of weeks, theCUBE is going to be at the eighth AWS re-invent, which will be our seventh year of having theCUBE at that show. You know, re-invent has really become the Super Bowl for enterprise tech innovation. And ahead of the event, what I want to do is talk about the revolution of cloud and the impact that it's having on the industry. And of course, I want to dig into some of the data using the ETR dataset. Before I do that, let me first say that cloud 2.0, which is a term that we've been using, is it's becoming a reality. This is something that John Furrier and I talk about a lot here at theCUBE and at Silicon Angle. The cloud is not about an incremental transition. It's really about transformation. We're talking here about the end-to-end modernization of the enterprise. The game is changing and the engine of innovation is really being driven by new architectures. And these architectures are built around a few items, data, machine intelligence, and of course, cloud for scale. We feel like what we're witnessing is the build-out of this massively scalable distributed system. And this system is transforming businesses and really enabling entire new companies and business models to emerge. The cloud is the underpinning of this digital revolution and virtually every industry is going to be disrupted. No industry is safe. All right, let's get right to it. So the key questions that I want to explore in this session, let's start with the spending patterns. We're going to look at the ETR survey data and what services are attracting the most action inside cloud and which vendors are winning. I then want to look at the market share data from a couple of angles. I'll look at ETR data and I'll talk about some other market data. Then we're going to drill into some of the services that are critical to innovation. I specifically want to look at databases, databases in a particular analytic data stores. And then I want to look at big data and analytic services, AI, machine intelligence. And then I want to look at the data around containers and functions like Lambda, which are very hot right now. Then we're going to share some data on how the cloud is impacting the so-called old guard. This is a pejorative term that Andy Jassy coined to refer to the legacy enterprise tech providers. Then I want to make some comments about the AWS ecosystem. It's getting a lot of chatter lately. And then I want to share some thoughts on what you can expect this year and reinvent and then I'll wrap. So the first data point that I want to show you here really draws on ETR's latest survey of 1,336 respondents. So what this chart does is it cuts the data and it's showing just the cloud sector ranked by net score. Now remember, net score is a measure of spending momentum. So you can see where the action is. So at the top, you see Azure functions and AWS Lambda popping right up. Look at their net scores. They got a net score of 74% and 71% respectively. You can see Azure overall. This is the overall Azure business that's right up there as well. And of course, AWS overall. So people who responded AWS is right there. Very, very high, but it's dropped a little bit below Azure. And we'll talk about that more in a moment. Then you can see VMware cloud on AWS. It's got strong momentum, which are real positive. You got Google Cloud functions. Again, functions very hot right now. OpenShift from Red Hat. GCP is up there. VMware cloud. And then you got Alibaba. Alibaba has only got 18 mentions, whereas the others have much higher shared ends. So I'm not going to really put too much weight on that. And you can see the other folks as well on that chart. But also you can point out the functions and Azure functions and services like Lambda Lambda are gaining really a lot of momentum in the marketplace. I think point to a new mode of compute. What I want to do now is I want to isolate in this chart the big three in cloud and put them into context with a legacy player, namely IBM. I'm not trying to pick on the legacy guys, but I think it's good for context. So as you can see here, Azure and AWS, they've been like neck and neck battling it out in the last 10 surveys or so. And you can see even Google, somewhat behind, but it's still got pretty strong spending momentum. Now, these figures overall are trending down relative to the expectations early in the year. This is something that we've talked about that spending is reverting back to pre-18 levels, not falling off the cliff. It's still solid in the grand scheme of things. So you can see, you know, net scores here are well above 50% for AWS and Azure. Now take a look at IBM. The ETR data shows them in the red zone where the net score is 16%. This is not a surprise that they're behind the big three. And I, but I've said many, many times, here's the thing. IBM and Oracle, I'm not showing Oracle here, they're at least in the cloud game. Think about it. HP had the public cloud, they had to tap out. Cisco, they don't have a public cloud. Dell EMC, even VMware, they don't have a public cloud. So at least IBM and Oracle have a cloud play where they can take their SaaS business and run it and get some vertically integrated and some operating leverage. Okay. I'm going to switch now gears a little bit and talk about market share. And we want to focus here in the battle between Azure and AWS. We all know Microsoft is growing faster, but AWS is much larger. And this is something that AWS's CEO, Andy Jassy, he takes a lot of time to explain to the analysts and to the crowd at re-invent. Let's take a look at what Jassy said last year at re-invent on this topic and then we'll come back. So if you look at the provider, who most people think is the second place provider in this space, in their last financials, they grew 76% year over year. And you can look at that and say, oh, 76% is more than 46%. But if you look at it in reality, that 76% represents about a billion dollars of growth year over year. If you look at the 46% growth of AWS on that much larger base, that represents $2.1 billion of growth year over year. So more than double that. So AWS not only has a significant market segment leadership position in share, but also on an absolute revenue basis is growing meaningfully faster than anybody else. Okay, so think about what Jassy said. He was using Q3 data and he said that AWS had a $27 billion run rate business. And if you look at those charts that I showed or he showed, it looked like the yellow bar, which was Microsoft, even though they didn't say, the company that shall not be named, it was about one third the size of AWS. So where would that put Microsoft? That somewhere around 9 billion last year and kind of an apples to apples run rate basis using those extrapolated market data that Jassy showed. By the way, ironically, this is about what AWS did last quarter, which you can see here on this chart that I'm showing. You might remember I showed you this chart in a previous episode of Breaking Analysis. And what it shows is AWS's quarterly revenue on the blue bars and the growth rate on the right hand access, that's the red line. And you can see Jassy talked about 46% growth. And you can see that in Q3 last year. And then look how it's moderated. It's 35% in Q3 this in 2019, the last quarter that they announced. So Jassy's right, AWS is growing slower than Microsoft last year, which was growing in the mid-70s, but Microsoft was 59% last quarter, so that trend's continued. That's if you believe Microsoft numbers, which are really not clean. It's hard to say sometimes all the SaaS in there and Office 365, LinkedIn, what else is in there, but we try to parse that out. Regardless, Jassy's point that size matters is still correct, but Microsoft is closing the gap. I talked to the Wikibon team recently and they think that AWS is going to come in at $35 billion in revenue this year. And they have Microsoft's IS business at around 15 billion. So that's 43% of AWS's business, versus 33% at this time last year. So you can see that Microsoft is closing that gap. AWS is still adding $8 billion a year in growth, but Microsoft is definitely catching up. So what is the spending data show? Let's take a look here at the ETR data and see what they say about market share. Now remember, in the ETR parlance, market share is a measure of how pervasive a vendor is within the dataset. And as you can see here, it maps pretty well to the market estimates that I was just talking about. Although it actually appears that in these lines that AWS is widening that lead, you can see in the net scores, by the way, this is net scores across all sectors, not just cloud computing, so it pulls in the other segments. But nonetheless, you can see Azure has a somewhat higher net score, which indicates stronger spending intentions. So that pretty much fits what we see in the market for the most part. Now it's not all rosy from Microsoft. They are super strong in the ETR dataset across the board, but specifically in cloud. So that's important. I don't want to lose sight of that, but I want to share something that Gartner said recently in its 2019 Magic Quadrant on cloud computing. Microsoft Azure's reliability issues continue to be a challenge for customers, largely as a result of Azure's growing pains. Since September of 2018, Azure has had multiple service impacting incidents, including significant outages involving Azure Active Directory. The nature of many of these outages is such that customers had no controls in order to mitigate the downtime. So caution is what Gartner said. So despite the great numbers and the fact that Azure is gaining, it's having growing pains. For years I've talked about the economies of scale for AWS due to its automation. I talked about the company's marginal economics at volume and you can see it in the firm's operating margins. The question to ask is Microsoft running into disc economies at scale due to its large install base and does it have technical debt? Because it's jamming its large software estate into Azure and having to preserve the past while trying to innovate for the future. I don't know and it's hard to tell because Microsoft is so big and so profitable, but it's something that CIOs definitely should keep an eye on. Now I want to look at some key sectors here and evaluate how AWS is doing and some of the areas where we see really innovation and I want to start in the all important database area. Now I'm going to focus here on analytic databases and data warehouses and I think there's some interesting trends going on here. So this is a cut of the ETR data warehouse segment. Now I've talked about Snowflake in the previous episodes of Breaking Analysis and you can see why. Snowflake has a net score of 71%, one of the highest and most interesting newer companies in this space and in the ETR dataset. You can see AWS doing very well and I want to make some comments on both Snowflake and AWS Redshift. But before I do that, look at Oracle and Teradata on this chart. What you see here is the classic innovators dilemma. It's at play where AWS and Snowflake, you can see them, they're solidly in the green and you got the two legacy players are firmly in the red. So I include them as reference points. But I want to come back to Redshift and Snowflake because I feel like there's something new going on in cloud. Where cloud 1.0 was all about IaaS and compute and storage and throwing some database. There's this new trend emerging that's really driving new workloads. And this data that now sits in the cloud, it's maybe stored in S3. Customers are using data stores like Redshift and Snowflake to get more insights out of that data. They're bringing tools like Databricks into the equation and really driving a whole new set of workloads that are not just about provisioning infrastructure, but really extracting insights much more quickly from the data and applying it to your business. And for AWS, it's driving tons of compute sales and customers are getting more value out of their data. Now, here's the interesting thing is Redshift and Snowflake are both best in class modern data warehouses. They seem to be coexisting. They're both thriving. Why is that? They're both MPP columnar stores. They've got many similar attributes, but I think what it comes down to really is what I call horses for courses. I may not have time to dig into it today, but when you peel back the onion, what you find is different approaches to things like architecture, security, scaling, different philosophies, pricing, different feature sets. So it really comes down to the best strategic fit. And for now, you know, it looks like to me that there's room for both platforms as they're both doing very well from a spending momentum perspective. You know, we'll see how that plays out over time. Let's now take a look at the analytics sector. Now here, we're talking about things like Amazon's query services, Elastic MapReduce, Search, Kinesis, QuickSight, Glue, Streaming, those kinds of tooling. You can see in this chart that AWS is very strong and it leads Microsoft by a small margin in the ETR dataset. Now for comparison, and again, I'm not trying to pick on the legacy players, but I think it's important to provide context. And when it comes to spending momentum, you know, the data doesn't lie. You can see here, IBM, they've got a sizable and very impressive set of capabilities in the analytics space, but you can see where the buyers are placing their bets. Now, what I'm showing you now in this next chart is a similar view, but this time, I'm showing ETR market share for AI and the machine learning segment. So for context, I've added IBM Watson. Remember, market share for ETR is a measure of pervasiveness. Not only to AWS and Microsoft, they're battling it out for the top spot, but they got stronger spending momentum, as you can see by the net scores. Now, look at Watson. I mean, it's respectable in the ETR data, but it just doesn't have the scale of the top two players. Okay, finally, I want to look at the container space. It's hot and I want to focus on Lambda from AWS. So what we're showing here is the net scores for Lambda and Amazon's Elastic Container Service. And you can see Lambda, very, very strong. You know, ECS is tapering a little bit. It's showing less momentum over time, but still well over 50% next net score. But look at Pivotal Cloud Foundry. They've showed a steady downturn over time. Now, this underscores the work that VMware and Pat Gelsinger have to do with one of their newest acquisitions. As an aside, this is an opportunity for VMware, which I, in my opinion, I've said they really need to get their developer act together really to drive new innovation. And by the way, Pivotal just had some layoffs, but my understanding that it was not an engineering, but rather folks that VMware saw as redundant and roles that it already had in place. So the bottom line is Pivotal has been steadily losing momentum in the ETR surveys. But look, a 27% net score is not a disaster by any means. I said on my last breaking analysis that if I were Michael Dell, I'd dedicate a thousand engineers to open source using Pivotal to really appeal to developers and then make his hardware run better on the open source tooling and apps that these thousand build and make his infrastructure programmable. This is how the edge is going to be won. It's not going to be by throwing boxes over the top of the fence, but it really bottoms up by devs. I digress. The last data point that I want to share here is really designed to address the question, how is the cloud impacting what Jassy calls the old guard? So this view shows market share, it's defined, which again is defined by ETR. Remember, they do the math to measure the pervasiveness of a vendor in their dataset. And they call that market share. And I've cut the data by just the cloud spenders. So those buyers spending heavily and I've isolated on AWS Azure and Google Cloud and how they're spending on traditional vendors has changed over time. And I'm picking out Cisco, HPE, Dell EMC and Oracle. And the story you can see is clear. So they came out of the downturn in 2010 and the big guys who were holding their breath and they came up for air and they saw lots of pent up demands. And they did pretty well. But the cloud has continued to slowly eat away at their share and their spending momentum, seen by the net scores in this table has been affected. But look at Cisco. They actually have quite a strong net score. It's 37%. So, and to me, by the way, this makes sense. And I think Cisco's in a good position to connect clouds and secure data moving across clouds. But the cloud, it's a long, steady march continues. And we are entering a new era that I think is only going to see greater share gains for the cloud in my view. By the way, I want to just back to my rant about the edge and programmable infrastructure and how developers are going to win the edge. Cisco with DevNet is actually in a pretty good position here. It's done a good job. And I think they're one of the few, if not the only legacy player that has kind of figured this out. Now, before I close, I want to make a few comments on the ecosystem and give a glimpse as to what to expect at a reinvent in 2019. All right, first, the ecosystem. There's a lot of sort of chatter and griping and concerns around, you know, AWS cannibalizing the ecosystem partners. And I think, frankly, that concern has merit. You know, when AWS has like this insane customer focus, you can pretty much take that to the bank. If a customer wants something and expresses that to AWS and they see a space to fill work and leverage that flywheel that they always talk about and add services, AWS is not going to sub-optimize its portfolio to protect its partner. It's going to go hard after it. So as a partner of AWS, it's up to you to keep innovating and moving fast. That's hard because AWS is probably moving faster than you are. But, you know, you can still specialize as a partner and thrive as a best-of-breed player. I mean, look at the snowflake example. You know, there's plenty of opportunities out there in security, backup, governance, you know, machine intelligence, workflow, edge. And of course, there's the infamous multi-cloud opportunity. And I say infamous because AWS doesn't use that term. You're not going to see it on the floor of reinvent this year because it's frankly not allowed. AWS is very controlling over the messaging that it puts out to its customers. And that includes the rules of the ecosystem if you want to go to their show. But you'll hear, you know, plenty of side conversations about multi-cloud. And we're certainly going to be talking about it on the cube. You know, it's multi-cloud, a symptom of multi-vendor. You know what I think on this topic. I think it's more than that than it is a strategy. But CIOs are now being asked to clean up the multi-cloud mess. And so it does have merit, but it creates complexity and that means opportunity for partners. So multi-cloud is white space for the ecosystem as is hybrid and on-prem connectivity. So partners are hedging their bet, they're supporting multiple clouds and they're partnering with Azure and Google. And that makes sense to do so. But here's the thing. Cloud 2.0 is getting more complex. AI, new workloads, edge, new use cases, machine learning, more APIs, more services, more complicated pricing. These are confusing matters for customers. And partners can help simplify this. And as well, thinking about, you know, competition with Microsoft, Microsoft's kind of an easy choice if you're already a Microsoft software customer. So partners need AWS and AWS need partners to help them deliver solutions to go to market and keep it simple. As you know, John Furrier says this a lot winning in the enterprise requires salesmanship. And AWS partners, they're a powerful channel. So AWS has to lean on this channel to really create solutions for customers and simplify. Okay, let's talk about what to expect at Reinvent 2019. And I want to start with storage. Jeff Barr put out a blog post announcing a series of new storage offerings around block store, new gateways, S3 replication, a new Windows file server capabilities, and stronger emphasis on file storage. Now most of the world's data is stored on file and AWS is expanding its portfolio. It started with S3 object back in 2006 and then EBS block store and then now big emphasis on file services. So I expect to hear a lot about that. And as well, we're going to hear about outposts. What progress has Amazon made with outposts? What's the status? What's the vision for outposts? How does it fit in at the edge? You know, as I just said in my rant earlier, the edge is all about developers. And I like AWS's edge approach. I think AWS has the right perspective. It's very dev centric. It's bottoms up from devs, not over the top like many of the box sellers. Now at Reinvent, you're probably going to hear more about unplugging Oracle databases, certainly security is going to be a big focus as will AI and machine learning. But I also expect a lot on transformation of industries. As Microsoft continues to grow and I ask, expect AWS to somehow try to change the game again. And I'm not sure AWS can win the battle head on with CIOs. Rather, I think AWS is really going to focus on this dual disruption agenda, both within the horizontal technology stack, but also within industries. In other words, expect AWS to increasingly focus on enabling industry transformation in different segments like media, healthcare, financial services, manufacturing, government, automobiles, telco, virtually every vertical. This dual disruption agenda, both in the tech stack and within industries, it's in AWS's DNA because it's in Amazon's DNA. It's driven by Jeff Bezos at the top. Now in closing, I want to stress again that Cloud 2.0 is here and it's getting more complex. The so-called old guard is hanging onto its install basis, but in many ways it's working hard to get simpler. Now these two domains going to collide together and create an equilibrium, the cloud native wannabes and the cloud native guys, probably not functionally, but there are a lot of opportunities for the big whales to capitalize on this industry consolidation and compete by simplifying their experience enough to keep customers hanging around. You know, don't forget, the enterprise business for years has relied on high touch specials and unique requirements and that's the wheelhouse for the legacy players. It's not AWS's and AWS's approach is going to continue to pick away at those opportunities with repeatable and automatable solutions. So this should be really interesting to watch. Stop by theCUBE, come see us at Reinvent. We got two sets there. This is Dave Vellante signing out from this episode of Cube Insights powered by ETR. Thanks for watching, we'll see you next time.