 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Last week's AWS re-invent brought it to focus the degree to which cloud computing generally and AWS specifically have impacted the technology landscape from making infrastructure orders of magnitude simpler to deploy to accelerating the pace of innovation to the formation of the world's most active and vibrant infrastructure ecosystem. It's clear that AWS has been the number one force for change in the technology industry in the last decade. Now going forward, we see three high-level contributors from AWS that will drive the next 10 years of innovation, including one, the degree to which data will play a defining role in determining winners and losers. Two, the knowledge assimilation effect of AWS's cultural processes, such as two pizza teams, customer obsession and working backwards, and three, the rise of super clouds. That is, clouds that run on top of hyperscale infrastructure that focus not only on IT transformation, but deeper business integration and digital transformation of entire industries. Hello everyone and welcome to this week's Wikibon Cube Insights powered by ETR. In this breaking analysis, we'll review some of the takeaways from the 10th annual AWS re-invent conference and focus on how we see the rise of super clouds impacting the future of virtually all industries. One of the most poignant moments for me was a conversation with Steve Malaney at AWS re-invent. He's the CEO of networking company, Aviatrix. Now, just before we went on the cube, Nick Sturriel, one of Aviatrix's VCs, looked up at Steve and said, it's happening. Now, before I explain what that means, this was the most important hybrid event of the year. You know, no one really knew what the crowd would be like, but well over 20,000 people came to re-invent. And I'd say at least 25 to 26,000 people attended the Expo and probably another 10,000 or more came without badges to have meetings and side meetings and do networking off the Expo floor. So let's call it somewhere between 30 to 40,000 people physically attended the re-invent and another 200,000 or more online. So huge event. Now, what Nick Sturriel meant by it's happening was the next era of cloud innovation is upon us and it's happening in earnest. The cloud is expanding out to the edge. AWS is bringing its operating model, its APIs, its primitives and services to more and more locations. Yes, data and machine learning are critical. We talk about that all the time but the ecosystem flywheel was so evident at this year's re-invent. More so than any other re-invent. Partners were charged up. You know, there wasn't nearly as much chatter about AWS competing with them. Rather, there was much more excitement around the value that partners are creating on top of AWS's massive platform. Now, despite aggressive marketing from competitive hyperscalers, other cloud providers and as a service or on-prem slash hybrid offerings, AWS's lead appears to be accelerating. A notable example is AWS's efforts around custom silicon. Far more companies, especially ISVs, are tapping into AWS's silicon advancements. We saw the announcement of Graviton 3 and new chips for training and inference. And as we've reported extensively, AWS is now on a curve, a silicon curve that will outpace x86 vis-a-vis performance, price performance, cost, power consumption and speed of innovation. And its nitro platform is giving AWS and its partners the greatest degree of optionality in the industry, from CPUs, GPUs, Intel, AMD, NVIDIA and very importantly, arm-based custom silicon springing from AWS's acquisition of Anaperna. AWS started its custom silicon journey in 2008 and has invested massive resources into this effort. Other hyperscalers, notably Microsoft, Google and Alibaba, which have the scale economics to justify such custom silicon efforts are just recently announcing initiatives in this regard. Others who don't have the scale will be relying on third-party silicon providers, a perfectly reasonable strategy. But because AWS has control of the entire stack, we believe it has a strategic advantage in this respect. Silicon especially is a domain where to quote Andy Jassy, there is no compression algorithm for experience. Be on the curve matters a lot. And the biggest story in my view this past week was the rise of the super clouds. In his 2020 book with Steve Hamm, Frank Slutman laid out the case for the rise of data cloud. A title which I've conveniently stolen for this breaking analysis, rise of the super cloud. Thank you, Frank. In his book, Slutman made a case for companies to put data at the center of their organizations rather than organizing just around people, for example. The idea is to create data networks. Well, people of course are critical, organizing around data and enabling people to access and share data will lead to the democratization of data and network effects will kick in. This was essentially Metcalfe's law for data, Bob Metcalfe was the inventor of Ethernet. Ethernet, he put forth that premise when we both worked or the premise when we both worked for Pat McGovern at IDG that the value of a network is proportional to the square of the number of its users or nodes on the network. Thought of another way, the first connection isn't so valuable, but the billionth connection is really valuable. Slutman's law, if I may says the more people that have access to the data governed, of course, and the more data connections that can be shared or create sharing, the more value will be realized from that data, exponential value in fact. Okay, but what is a super cloud? Super cloud is an architecture that taps the underlying services and primitives of hyperscale clouds to deliver incremental value above and beyond what's available from the public cloud provider. A super cloud delivers capabilities through software consumed as services and can run on a single hyperscale cloud or span multiple clouds. In fact, to the degree that a super cloud can span multiple clouds and even on-premises workloads and hide the underlying complexity of the infrastructure supporting this work, the more adoption and the more value will be realized. Now we've listed some examples of what we consider to be super clouds in the making. Snowflake is an example we use frequently, building a data cloud that spans multiple clouds and supports distributed data but governs that data centrally, somewhat consistent with the data mesh approach that we've been talking about for quite some time. Goldman Sachs announced at Reinvent this year a new data management cloud, the Goldman Sachs financial cloud for data with Amazon Web Services. We're going to come back to that later. NASDAQ CEO, Adina Friedman spoke at the day one keynote with Adam Salipsky, of course the new CEO of AWS and talked about the super cloud they're building. They didn't use that term, that's our term. Dishnetworks is building a super cloud to power 5G wireless networks. United Airlines is really in my view they're porting applications to AWS as part of its digital transformation but eventually it will start building out a super cloud travel platform. What was most significant about the United effort is the best practices they're borrowing from AWS like small teams and moving fast. But many others that we've listed here are on a super cloud journey. Just some of the folks we talked to at Reinvent that are building clouds on top of clouds that are shown here. Cohesity, building out a data management cloud focused on data protection and governance. HashiCorp announced its IPO at a $13 billion valuation building an IT automation super cloud. Databricks, Chaos Search, Zscaler. Zscaler is building a security super cloud and many others that we spoke with at the event. Now we want to take a moment to talk about castles in the cloud. It's a premise put forth by Jerry Chen and the team at Greylock. It's a really important piece of work that is building out a data set and categorizing the various cloud services to better understand where the cloud giants are investing where startups can participate and how companies can play in the castles that are being built, that have been built by the hyperscalers and how they can cross the motes that have been dug and where innovation opportunities exist for other companies. Now frequently I'm challenged about our statements that there really are only four hyperscalers that exist in the world today. AWS, Microsoft, Google and Halibaba. While we recognize that companies like Oracle have done a really excellent job of improving their clouds, we don't consider companies like Oracle IBM and other managed service providers as hyperscalers. And one of the main data points that we use to defend our thinking is CAPEX Investment. This was a point that was made in castles in the cloud. There are many others that we look at, other KPIs, size of ecosystem, partner acceleration, enablement for partners, feature sets, et cetera. But CAPEX is a big one. Here's a chart from Platformonomics, a firm that is obsessed with CAPEX showing annual CAPEX spend for five cloud companies, Amazon, Google, Microsoft, IBM and Oracle. This data goes through 2019, it's annual spend. And we've superimposed the direction for each of these companies. Amazon spent more than $40 billion on CAPEX in 2020 and will spend more than 50 billion this year. Sure, there are some warehouses for the Amazon retail business in there and there's other capital expenses in these numbers. But the vast majority has spent on building out its cloud infrastructure. Same with Google and Microsoft. Now, Oracle is at least increasing its CAPEX. It's going to spend about four billion, but it's de minimis compared to the cloud giants. And IBM is headed in the other direction. It's choosing to invest, for instance, $34 billion in acquiring Red Hat instead of putting its capital into a cloud infrastructure. Look, that's a very reasonable strategy, but it underscores the gap. Okay, another metric we look at is IaaS revenue. Here's an updated chart that we showed last month in our cloud update, which at the time excluded Alibaba's most recent quarter results. So we've updated that, very slight change. It wasn't really material. So you see the four hyperscalers. And by the way, they invested more than $100 billion in CAPEX last year, it's going to be larger this year. They'll collectively generate more than $120 billion in revenue this year. And they're growing at 41% collectively. That is remarkable for such a large base of revenue. And for AWS, the rate of revenue growth is accelerating. It's the only hyperscaler that can see that that's unreal at their size. And they're going to do more than $60 billion in revenue this year. Okay, so that's why we say there are only four hyperscalers. But so what? There are so many opportunities to build on top of the infrastructure that the three U.S. giants especially are building as folks are really cautious about China at the moment. So let's take a look at what some of the companies that we've been following are doing in the super cloud arena, if you will. This chart shows some ETR data plotting net score or spending momentum on the vertical axis and market share or presence in the ETR dataset on the horizontal axis. Most every name on the chart is building some type of super cloud. But let me start as we often do calling out AWS and Azure. I guess they're already super clouds, but they're not building necessarily on top of other people's clouds. And they are a little bit, Microsoft does some of that. Certainly Google's doing some of that. Amazon really bringing its cloud to the edge at this point, it's not participating in multi-cloud actively. Anyway, AWS and Azure, they stand alone as the cloud leaders and you can debate what's included in Azure and our previous chart on revenue attempts to strip out the Microsoft SaaS business. But this is a customer view. They see Microsoft as a cloud leader, which it is. So that's why its presence on the horizontal axis and its momentum is very large and very strong. Stronger than even the AWS in this view, even though it's IS revenue that we showed earlier, Microsoft is significantly smaller, but they both have strong momentum on the vertical axis as shown by that red horizontal line. Anything above that, remember, is considered elevated, that 40% or above. Now Google Cloud, it's well behind these two, we kind of put a red dotted line around it. But look at Snowflake, that blue circle. I mean, I realize we repeat ourselves often, but Snowflake continues to hold a net score in the mid to high 70s. It held 80% for a long time. It's getting much bigger. It's so hard to hold that. And in 165 mentions in the survey, which you can see in the inserted table, it continues to expand its market's presence on the horizontal axis. Now all the technology companies that we track, of all of them, we feel Snowflake's vision and execution on its data cloud, and that strategy is the most prominent example of a super cloud. Truly, every tech company, every company should be paying attention to Snowflake's moves and carving out unique value propositions for their customers by standing on the shoulders of cloud giants as CEO Ed Walsch likes to say. Now on the left hand side of the chart, you can see a number of companies that we spoke with that are in various stages of building out their super clouds. Databricks, ThoughtSpot, DataRobots, Zscaler, I mentioned Hashi, you see Elastic, Confluent, they're all above the 40% line. And somewhat below that line, but still respectable, we see VMware with Tanzu, Cohesity, Rubrik, and Veeam. And many others that we didn't necessarily speak with directly at re-invent, and or they don't show up in the ETR data set. Now we've also called out Cisco, Dell, HPE and IBM. We didn't plot them because there's so much other data in there. That's not apples to apple, but we want to call them up because they all have different points of view and are to varying degrees building super clouds. But to be honest, these large companies are first protecting their respective on-prem turf. You can't blame them. Those are very large install bases. Now they're all adding as a service offerings, which is cloud-like, I mean, they're behind, way behind, trying to figure out things like billing and they don't nearly have the ecosystem, but they're going to fight rightly. They're going to fight hard and compete with their respective portfolios, with their channels, and their vastly improved simplicity. But when you speak to customers at re-invent, and these are not just startups we're talking to, we're talking about customers of these enterprise tech companies. These customers want to build on AWS. They look at AWS as cloud and that is the cloud that they want to write to. Now they want to connect. They're on-prem, but they're still largely different worlds when you talk to these customers. Now they'll fully admit they can't or won't move everything out of their data centers, but the vast, vast majority of the customers I spoke with last week at re-invent have much more momentum around moving towards AWS. They're not repatriating as everybody's talking about or not everybody, but many are talking about. And yeah, there's some recency bias because we just got back, but the numbers that we shared earlier don't lie. The trend is very clear. Now, these large firms that we mentioned, these incumbents in the tech industry, these big enterprise tech giants, they're starting to move in the super cloud direction and they will have much more credibility around multi-cloud than the hyperscalers. But my honest view is that AWS's lead is actually accelerating. The gap in my opinion is not closing. Now I want to come back and dig into super cloud a little bit more. Around 2010 and 2011, we collaborated with two individuals really shaped our thinking in the big data space. Peter Goldmacher was a celled side analyst at Common at the time and Abhi Abhishek Mehta was with Bank of America. And B of A was transforming its data operations and Abhi was leading that. Now Peter was an analyst, sharp analyst at the time. He said, you know, it's going to be the buyers of big data technology and those that apply big data to their operations who would create the most value. He used an example of SAP, he said, look, you couldn't have chosen that SAP was going to lead an ERP but if you could have figured out which companies were going to apply ERP to their business, you would have made a lot of money investing. So that was kind of one of his investment theses. Now he posited that the companies that would apply the big data technology, the buyers if you will, would create far more value than the cloud errors or the Hortonworks or a collection of other number of big data players. Clearly he was right in that regard. Now Abhi Mehta was an example of that and he posited that ecosystems would evolve within vertical industries around data. Kind of going back to Frank Slutman's premise that he put data at the core and that would power the next generation of value creation via data, machine learning and business transformation and he was right and that's what we're seeing with the rise of super cloud. Now after the first reinvent, we published a post seated on the right hand side of this chart on Wikibon about the making of a new gorilla, AWS. And we said the way to compete would be to take an industry focus or one way to compete, would take an industry focus and become best of breed within that industry. And we aligned really with Abhi Mehta's point of view that industry ecosystems would evolve around data and offer opportunities for non-hyperscalers to compete. Now what we didn't predict at the time but are now seeing clearly emerge is that these super clouds are going to be built on top of AWS and other hyperscale clouds, makes sense. Goldman's financial cloud for data is taking a page out of AWS. It's pointing its proprietary data, algorithms, tools and processes at its clients just like Amazon did with its technology and it's making these assets available as a service on top of the AWS cloud. A super cloud for financial services if you will. They are relying on AWS for infrastructure, compute storage, networking, security and other services like SageMaker to power that super cloud but they're bringing their own IP to the table. NASDAQ and Dish similarly bringing forth their unique value and as I said earlier United Airlines will in our view eventually evolve from migrating its app's portfolio to the cloud building out a super cloud for travel. What about your logo? What's your super cloud strategy? I'm sure you've been thinking about it or perhaps you're already well down the road. You'd love to hear how you're doing it and if you see the trends the same or differently as we do. Okay that's it for now, don't forget. These episodes are all available as podcasts wherever you listen. All you have to do is search breaking analysis podcast. You definitely want to check out ETR's website at ETR.plus for all the survey data. Remember we publish a full report every week on wikibon.com and siliconangle.com. You can email me if you want to get in touch at david.volante at siliconangle.com. You can DM me at dvolante on Twitter. You can comment on our LinkedIn posts. This is Dave Vellante for theCUBE Insights powered by ETR. Have a great week, stay safe, be well and we'll see you next time.