 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. As we reported in our last episode, tech spending overall continues to be significantly muted relative to 2019. Now our forecast continues to project a four to 5% decline in 2020 spending and a tepid 2% increase in 2021. This is based on the latest data from ETR surveys of CIOs and other IT buyers. Nonetheless, there continues to be some sectors and vendor bright spots in what is generally an overall challenging market. Hello everyone and welcome to this week's Wikibon Cube Insights powered by ETR. My name is Dave Vellante and in this Breaking Analysis, we welcome back Eric Bradley from ETR to provide added color from my solo flight from last time. Always a pleasure to see you. Thanks so much for coming back in theCUBE. I always enjoy it. Happy Friday Dave, we're almost through. Happy Friday, they just blend together. Guys, if you would bring up the first slide. Let's want to summarize the situation. This is from ETR's latest findings. I just extracted some and I want to go down very quickly Eric and then get your take. As I said, technology buyers expect the downturn for 2020, but this quarter coming into fourth quarter minus 3.2% was ETR's forecast. That's year to year spending decline and a 2% uptick in 2021. Now Eric, this is slightly, what I call it, slightly less bad relative to last quarter. So sequentially it's less bad. Yeah, there's a couple of things to break down there. So first to begin with, beginning of the year when we launched not only our spending attention surveys, we did a simultaneous COVID impact survey. And that's where we caught originally a 5% decline was expected. So although negative 3.2 is probably the worst quarter over quarter, you know, laps we've seen. As a matter of fact, it is the lowest drop we've had. The, going into 2021, the IT people that we've actually surveyed are actually expecting a 2% increase. So there is a reason for optimism, but if we're looking at the current data set, there is no doubt the picture remains a little bit bleak. We can go into different sectors and vendors where they are impacted. But I think maybe if you're willing, I think it might be worth to sort of breaking down the demographics of the survey a little bit and how we got to that 3.2% survey over survey decline. Yeah, and we have a chart on that. But before we get there, I just wanted to lay out some of the other key points of your analysis. The other one, which is, we talked about this last, in the last episode, we call it a slow thawing. Hiring and IT project freezes are thawing with fewer companies expecting layoffs. So that gives us some bright spots, but there are definitely a widening bifurcation between vendors gaining share and those who are donating share. And then, you know, again, relative to last quarter survey, we're seeing government and education in Fortune 100. You guys are showing the deepest cuts from the last survey where IT telco retail and retail consumer are showing a little bit more stability. And then, of course, you talked about the work from home, which we've covered doubling from pre-pandemic. Pretty interesting findings from your COVID survey. Yeah, it's fantastic. And this is the fourth iteration of this survey that we've done now. So we've been able to track it, you know, very quickly launched it in the field when we realized the true impact of what was happening in early March. This is our fourth version and we've been able to track it overall. Yes, without a doubt, government education are being the biggest impact, the biggest declines without a doubt. Now, clearly the caveat to that is if there's any sort of government policy, maybe, you know, those could actually help a little bit. But for right now, those are getting hit the most. Retail consumer is faring much, much better. And the IT companies, as generally we're seeing in the market as well, they can, you know, are still spending money and still moving. But the reason for optimism actually comes from multiple metrics. And I will say, we have caught a bottom on all of the negative metrics at this point. Now who knows what'll happen the next time we do it, right? The world is always fluid. But based on this, this is our fourth iteration of this survey, whether it be IT projects being frozen, whether it be layoffs, whether it be just overall expected budget increase, everything looks like it is already bottomed and there is some optimism going into 2021. Of course, the January survey that we launched will be able to corroborate that, hopefully, and we'll have much more granularity into those findings at that time. Great. Okay, now let's get into the demographics that you referenced before. This next slide shows those. Record number of respondents, Eric, congratulations on that. And so take us through the makeup of the survey respondents, guys, if you bring up this next slide. Yes, so for the October 20, what we're really doing here is we're asking the IT decision makers to update the survey responses they gave us in July. We're basically saying, okay, you thought you were gonna spend this in the back half, what did you actually do? And in this particular survey, we had 1,438 qualified IT decision makers get involved. That's 60% of the Fortune 100 is represented, almost a quarter of the global 1,000, and we had about 35% of the Fortune 500. The industry breakdown is all across the board, whether it's financials insurance, IT telco, we have industrials manufacturing, we have energy utilities, we have government. So it's really a great cross-section. Now geographically, that tends to be about 80% North America. We are heavily concentrated in that area, but we also have 12% EMEA, 5% APAC, and the remainder is Latin America. If there were any visibility concerns at all would probably be in China. It's just not that easy to get qualified IT decision makers from China to respond to us, but that's an area we are working on going forward. But overall a huge survey response, certainly meaningful in, and we're very happy with the data that we collected this time. Okay, thank you for that. I want to go into the next graphic here, and I want to look at how net score has changed over time. And I want to remind people that, so this slide basically goes back to 2016 and shows some ebbs and flows and some real strength coming in. You see 17 and 18 and you may forget, coming into Q419 and into 2020, the ETR data was telling us, hey, things are going to slow down a little bit. It's hard to remember that. And so, and the thinking back then was, okay, last couple of years, people have spent a lot on digital transformation and there was a lot of experimentation. They were hanging on to their legacy stuff and with all that technical debt and they were experimenting with a lot of the new technologies. And what we saw coming into Q4 2019 was people beginning to unplug some of that, making bets basically, unplugging some of the legacy stuff. Oh, and by the way, maybe saying, hey, the new stuff that we tried didn't work, we're going to do less experimentation. So we saw a somewhat depressed net score and you can see that in here coming into 2020. And then of course COVID hit and you can see the bottom fell out. But wow, what a drop. I mean, that says it all, a lot different than what we're seeing in the stock market. Yeah, first of all, just a great recap on what we caught last year, really well done. So at that time, there was concurrent spending. There was a lot of proof of concepts being done. People weren't exactly sure how to transition off, how fast they were going to get into the cloud, how fast they could make that digital transformation. And they were kicking the tires on everything. And there was a ton of spend. It was the golden era of IT spending at the time. But we did catch that some of that was coming down. So what we've seen now is obviously that spending was going to cool off either way. But now with the global pandemic impact hitting, what we've caught, of course, is the biggest survey over survey decline. 3.2% was matched at one other point in our survey history, but that was at very elevated spendings. So that drop was not as meaningful. When we're seeing from a more baseline, that drop right now is extremely seasonal and extremely meaningful, my apologies. Now, I do want to make a quick caveat that usually the October survey catches some seasonality because a lot of people have expected spend in the back half that doesn't always materialize. But make no mistake, this is way beyond our normal seasonality. This trough is a real metric. Yeah, and when I talk to buyers and I talk to even salespeople, if you want to know the truth, go talk to salespeople if you can get the truth out of them, which you usually can. Sales and engineering, that's really, we want to know what's happening in companies, but they will tell you that their visibility, same with the buyers, they're saying, look, I think I'm going to spend and I think I'm going to get approval on it, but the normal buying signals, you kind of have to take with a grain of salt because the buyers don't know, the sellers don't really know, I mean, they think they've got reasonable visibility, but things change so fast as we know. So you have to be really, really careful. All right, let's drill in to some of the sectors. And that's really the next two slides. Guys, if you bring up the first of the next two, so this shows the change from July to October. So the last survey to this survey 2020 and the green bars of July, yellow bars are October. And you can see right away jumps out at you. Container orchestration and ML and AI, and we've got some other data on this, jump right off the charts. They're still elevated levels, so that's a real positive. You can see AI actually maybe waning a bit. And I think that's probably, Eric, because a lot of it's just, you don't even see it, it's just embedded. But take us through this first chart and then we'll dig into some of these sectors. What are you seeing? Yes, certainly. So from a sector breakdown point of view, listen, none of them were spared, let's be honest, right? There's a slowdown in spending, but containers and containerization were by far the most stable. So clearly this is a priority. People are recognizing that they need to go that route. Nobody wants to be tied to any particular cloud provider. So container and containers are moving the best. They are looking about as stable as they can be. When we drill down a little bit further in there, we're seeing Kubernetes, of course, Microsoft and AWS really supporting in that sector. Now, when you talk about the ones that had the biggest survey over survey declines, we are looking at ML AI. But like you said, still elevated spend. So even though there was a big survey over survey decline, the overall spending intentions are healthy. Nobody is getting away from it. Also to corroborate that in the COVID impact study, we asked people given the current situation where their priorities are. And unfortunately in that area, ML AI and the RPA were actually not positioned as well. So it actually corroborates the COVID impact survey, corroborates what we're seeing here in our larger intentions. Now, when you look at ML AI, Microsoft is still very well suited in that area. Virtualization was another big area that dropped, which was interesting because I think the immediate COVID impact in the work from home, we saw a little spike there. I think we definitely saw companies like Citrix, right? And F5 and Newtonix and AWS Workspaces, they all had a really good impact positive when we first hit. But virtualization is dropping quite a bit there. And again, no surprise, Microsoft is well positioned as well. And then lastly, enterprise content management also had a big, big drop off. And there you're looking at Adobe, Box, Open Text. Those are the type of companies that seem to be having the biggest survey over survey decline in ECM. Yeah, and I just want to make a comment on this first of the two slides, is you see security, it's okay, there's a little bit of a decline, but there's the story of the haves and the have nots. If you're in endpoint security, you're in cloud security, you're in identity access management, there's some real tailwinds for you right now. You're seeing that with Octa, CrowdStrike, and Zscaler, SailPoint, had a really good quarter. So that's the story of kind of a mixed bag. If you go to the next slide, guys, what jumps out here on the second sector breakdown, and Eric, you alluded to this, is RPA, very elevated although down, somewhat still, again, very elevated, and cloud computing. I mean, that's how everybody wants to talk about it. This is a large market that continues to grow very, very fast. Yeah, it's a A2 cloud, right? I mean, even the cloud, we're kind of shocked when we saw that too, but again, it's still a healthy survey for cloud. Spending is still there, but what we are seeing is a pretty big survey over survey decline. That is probably, if you had to translate that, it's going to show slower growth. Still double digit growth, but slower than we expected. And interesting in the cloud, again, Microsoft is very steady, GCP steady. We saw AWS soften a little bit, and that's something that I think we need to keep an eye on there. We are seeing some softening trends. IBM and Oracle, unfortunately, no matter how hard they push, doesn't really seem to be making a dent at least with our IT decision makers that respond to the survey. But one thing that was interesting was VMware on AWS actually looked much, much better than VMware alone. So on the cloud side, those are pretty interesting takeaways. Yeah, we've talked about that a couple of episodes back as the, well, a couple of things to pick up on your comments. You mentioned IBM and Oracle, they're just so large, they're growing businesses are not growing fast enough, and they're not large enough to offset the decline in their declining businesses. Yet they're huge, they throw off a lot of cash, and so maybe their stock's not going through the roof, but they're pretty stable companies from that regard. I wonder, maybe AWS is starting to hit some of those, the law of large numbers. I mean, they're still growing very, very rapidly for a $45 plus billion organization, still growing well into the double digits. So it just gets harder. But the other thing I wanted to pick up on is you mentioned VMware cloud on AWS, we're seeing those hybrid solutions really start to pick up the multi-cloud solutions, which I was a real skeptic a couple of years ago because it wasn't really real, now becoming real. And I think when you talk to, and you know this well from your Venn discussions, people are looking at options for cloud. They want multiple clouds, the right horse for the right course, they want to reduce their risk, they want to ensure exit strategies, and some clouds are just better at some things than others. Yeah, I completely agree. And as you know, I do interview a lot of these IT decision makers that we surveyed to get a little more granularity and to dig into the details. And you and I just, a great example, we did a session on data warehousing as a service where Snowflake, and the main reason that people love them is because they have cloud portability. They can move across multiple clouds. Nobody wants to be tied to one cloud provider. They need to be agnostic. And if you look at, you know, something like Microsoft, right? Their software suite is fantastic. So most people are going to be aligned for them. They provide great active directory. The enterprise applications are absolutely incredible. But if you're looking to do straight MLAI or straight data warehousing, maybe AWS Redshift, maybe Google BigQuery might be a better fit for you. There's no reason to be tied into one. So what we're seeing more and more is those vendors that offer cloud portability or hybrid availability to do some on-prem for security, some cloud, they're really taking, you know, taking a step up in our recent surveys. And another comment you made, Dave, if I can just backtrack to it is, you kind of mentioned how some of the vendors are taking more and more share. We are continuing to see this theme of a widening bifurcation, where although the overall spend, that pie is shrinking, the leading vendors are taking much bigger slices from that pie. And that is continuing across the entire year. Yeah, definitely a time of disruption. So thank you for bringing that up. Okay, the next graphic I want to show you is actually a motion graphic. And what we're showing here is one of our favorite views on the vertical axis, you've got net score. Remember, net score, essentially ETR, every quarter like clockwork asks customers, are you spending more, are you spending less? It's more granular than that. But essentially they subtract the red from the green and that leaves you with net score. So the higher the net score, the better on the vertical axis, on the horizontal axis is market share. It's presence, it's pervasiveness in the data set. So you want to be up and to the right, of course, like all these x, y's. And what we're showing here is, we go back to October 2018. Remember, this is the October survey and you can see the movement and what's happening. And a couple of points here really is, one is container orchestration and container platforms, cloud, RPA, ML, they all stand out. And now you can see the context of their quote-unquote market share as well. And you see that bunching, you see some of the legacy stuff, the more mature markets like storage and PC tablets and laptops. They don't have a huge next to outsourcing, not a big net score, but they're there and they're kind of bunched up down in the middle. But you can also see how they've slowly got depressed over time, even the elevated ones. Nobody in the recent survey is over a 60% net score. I think you guys said that the overall net score was the lowest in history. So this is just a good way to visualize the various sectors and how spending momentum and share is shifting. Yeah, that's a very good point. And you are right. The overall survey net score is actually 25.3%. And it is the lowest ever we've captured. So that actually is translating into what we expect to be single digit declines in overall growth in IT budgets, which again is in line with what we've been saying. We caught early on about negative five and a half. That has improved now. It's in this quarter to about negative three and a half. But if you look at the midpoint here, we're very clearly in mid single digit declines. And the entire area is being impacted. Now, there are certainly some areas that are more important than others. There's no doubt about it. But yeah, outsourcing is one you mentioned. I'm absolutely getting decimated. Nobody really has the money right now to be doing IT outsourcing. That's just not a priority. The priority is remote connectivity, remote security. How do I get identity access and governance to make sure that my employees are doing what they're supposed to be doing, even though they're not on my network anymore? All of those things are continuing. And as you saw in the COVID-19 impact survey, they're not going away. You had mentioned on a solo session you did I think a week ago, where you cited our data saying that permanent workforce is going to double from where it was at pre-pandemic levels. So that means a lot of the people that slapped a band-aid on their networking to get their employees to work from home, that band-aid solution is not gonna work. They need to find one that's permanent now. So the areas of spend, although it is declining, there are very clear delineations of where that spend is going. Yeah, and I want to just pick up on something you said about the work from home doubling because I've shared that data with some folks and had some discussions. We're talking about people that work from home. Not, eh, I come in a couple of times a week. This is the work from home component. And so I think the hybrid is going to increase as well, but the hardcore work from home, I think it was mid-teens, 16% or something, doubling in the post-pandemic was the expectation. And again, I just wanted to sort of clarify that. I think your data there is quite good. How about some of the vendors? I think, you know, now that Snowflake's public, you guys may be doing some forecast there. Let's start there. Sure, yeah. So it's fun to talk about the high level, right? And talk about the sector breakdown and where we're seeing things. But at the end of the day, people just love to talk about the individual vendors. So there's a few things that were interesting. Yeah, we were able to finally, you know, come out with a real viewpoint on Snowflake now that they're out in public and we kind of launched with a positive to neutral viewpoint. I don't think there's gonna be anything here that shocks you. We're seeing absolutely outstanding expansion rates. All the commentary we get from a CIOs are just, you know, incredible. The market share gains are about as high as you're going to see in the survey. They are extremely well positioned to continue executing. And, you know, this is not in the data set, but we also know that that management team is fantastic. I would think that they had set themselves up coming out as a public company, not to completely disappoint. And everything in our data set shows absolutely no reason why they would disappoint. Well, and so you may be wondering folks, like, well, wait a minute, with all that great news, I mean, how could they be positive to neutral? I could maybe be neutral. The reason is because they have a 66, roughly $66 billion valuation. And what ETR is doing is they're taking that into consideration as well, relative to, so they're looking at the street forecast, the consensus forecast, and saying, okay, how does the data line up to that? And so a lot of people are asking the question, you know, can Snowflake live up to its valuation? I don't think there's any lack of total available market here. I mean, it's very, very large. The data market, it's enormous. And I'll just plug for an event that we're doing on November 17th, it starts. We're doing a global event. And we're going to be looking at this issue very closely interviewing customers and partners and executives, and you can judge for yourself if you think the vision, they're putting out this vision of a data cloud. You see this, if this vision you think is going to have a big enough time that they can grow into, and as Eric said, great management team, will they be able to execute? Decide for yourself, but very exciting IPO, obviously, that we've tracked quite closely. Elastic is another one that you guys have followed quite closely. I know you got some data there that you want to share as well. Yeah, I certainly do. The APM spaces is really interesting. One last quick point on Snowflake. We don't have regression forecasts on them because they haven't been out public long enough for us to be able to do that sort of back testing. So without that data science behind us, we will never really go with a full positive. So to your point, saying positive to neutral is not negative at neutral stance whatsoever. It's just without that regression support behind our data, that's what we just tend to do. Because at the end of the day, we're a data science company. Yeah, you need some history there to really make those calls. But yeah, let's talk about Elastic. Yeah, sure, you got it. So recently I hosted a panel on the APM and monitoring space. It was incredibly enlightening. It's a very crowded space that our CIO has told us is ripe for disruption. And it ended up being a little bit of an avalanche in our data because it wasn't just Elastic, but it was also Splunk and Dynatrace that we ended up putting ratings on. Now Elastic, as we know, is an open source model, a freemium to pay type of model. And we normally try to stay away from open source models because it's kind of hard to predict how that converts to revenue. But the data was so strong that again, we came out with a positive to neutral rating on Elastic. It was based on just elevated spend levels across. There was almost no negativity. We weren't seeing any decrease or replacement indications. Really solid positioning in the Fortune 500 accounts, which I was a bit surprised about. And the other thing here is that Elastic tends to be really expanding in information security. This is no longer just about monitoring and logging. They are becoming a very relevant infosec play and they are breathing down the necks of Splunk. They can do the same thing and they can do it much cheaper. The caveat being you need to have the IT and the human skillset to run Elastic. So it really comes down to are you sophisticated enough with the human capital management to run it? But everything we saw here, just incredibly improved competitive positioning. They actually had the number one net score in all of information security in any vendor that had over 50 citations. It was just too hard to ignore. We had to come out with a positive to neutral. That's super interesting, Eric. And of course, yeah, we covered that space recently. Everybody wants a piece of Splunk and have for a number of years, but you're seeing Datadog come after it. Then you see some startups getting into the space. Jeremy Burton launched his company, Observe. Honeycomb is in that. They kind of coined the term observability. A chaos search is another one. Ed Walts joined that company. And so you see a lot of folks really going after that space, why not? I mean, it's such a successful company. The pickup of Signal FX, fill in some holes. We talked about that on the Venn. And it's a very interesting space. And one that I think has some somewhat depressed levels from a net score standpoint, but as some of your Venn observers said, this market is here to stay and becoming much more important as part of digital transformation, as part of a dashboard of digital transformation. Yeah, the coining that term observability really just hit it on the nail on the head. When we just talked about monitoring an application, that's not what it's about anymore. You need to have observability in multi-hybrid cloud environments, whether it's your infrastructure or people actually writing code for your application. And so that single pane of glass end-to-end is the holy grail of monitoring. And that's what these guys are pushing for, the new relics, the data dogs, the elastics, they're getting there more quickly than Splunk and Dynatrace or AppDynamics from Cisco are. That's what the people are telling us, the ones I speak to, the CIOs that use it in the field. They're getting there more quickly and they're doing it more cheaply. Now this is not to say Splunk is not a great company. We know it is. And also Splunk has more API integration into any ecosystem you want. They're not getting pulled or ripped out anytime soon. We're not saying that. But when we look at our data, we had no choice but to come out with a neutral to negative. They are deteriorating in their spending intentions. Their customer growth is completely stalling. We're not seeing any more increased perversion in our data set among customers. There just wasn't really anything we could really do. Looking at the data set and that's what we do, we had no choice. There's a lot of skepticism heading into the back half of this year and next year. There's so much competition coming after them and some of these people are just giving it away for free. It's pretty hard to compete with free. Yeah, free is very powerful. All right, speaking of skepticism, Rackspace had their IPO, what do you see in there? Oh man, I'm not really sure how to start there. But listen, I don't want to beat a company while it's down, but their net scores are actually negative. I think at the negative 20% range if I could possibly recall that. But listen, Rackspace when they were private, let's give them some credit, right? They decided to go out and buy a bunch of different managed service providers. They tried to align themselves with AWS with Oracle. So they've got this whole bundled thing right now that isn't just straight cloud computing anymore. We'll see if that plays out. But clearly we saw that the IPO was not a very special IPO. In this environment, the valuations in the technology stocks being very elevated, having a negative IPO was very telling. But sticking straight to the data, basically we're seeing negativity across several years. It's the worst position vendor in cloud computing that we even cover. We just had to take a look at it right now and just be honest and say, according to the data, this is a very negative data set that just isn't much we can do about it. Wish them the best. I hope their MSP revenue starts kicking in and hopefully it'll change. But for right now, the snapshot of our data was quite dire. Okay, Eric, well, thanks so much. So let's update folks. So the ETR is exiting its quiet period, which I love because that means I can have at the data and share with you. So we'll be updating our cloud scenarios, security, automation, our infrastructure and many other segments as well. Certainly the data piece. We've been tracking Snowflake very closely. And of course, Eric, you guys are already gearing up for your January survey. So, you know. Never ends. Never ends, Dave. Well, I gotta really. And I've got a CISO panel that I'm doing next week as well. We got four CISOs talking about security threats and priorities for 2021. So as soon as I wrap that, you'll be the first one I get my summary to. Oh, those are great. I mean, there's such deep dives with practitioners and it's just an open discussion. So Eric Bradley, thanks so much for coming back in theCUBE. Have a great weekend, Dave. Yeah, you too. And thank you for watching everybody. This episode of CUBE Insights powered by ETR. Go to ETR.plus. That's where all the survey action is. I publish every week on wikibon.com and siliconangle.com. All these episodes are available on podcasts. Wherever you watch, you can DM me. I'm at D.Valante. I post on LinkedIn. You can comment there or email me at david.valante at siliconangle.com. This is Dave Valante for Eric Bradley. Thanks for watching everybody. We'll see you next time.