 Live from Las Vegas, it's theCUBE, covering AWS re-invent 2018. Brought to you by Amazon Web Services, Intel, and their ecosystem partners. Hello everyone, welcome back to theCUBE day two of three days of wall-to-wall coverage here in Las Vegas for AWS Amazon Web Services re-invent 2018. It's our sixth year covering Amazon, we've been doing all the re-invents except for the original one. I'm John Furrier, my co-host Dave Vellante. We've got two sets here in set one, we've got another set over there, so much content, we've got a set upstairs, total of four sets here, covering all the video coverage, and right now we're coming off the keynote with Andy Jassy, full action-packed analysis. Dave, a pretty amazing set of keynotes. They had so many announcements here at AWS that they had to basically start releasing them. They did media alerts, they did Before the Show, Midnight Madness, just a lot of front-end releases that would be notable releases for any other conference they're letting out early. Andy Jassy only has two hours on stage, he's given the keynote, finishing up. Huge announcement, huge announcement, Dave. So, you went to the analyst session, I met with Andy Jassy last Monday night for the preview, we've been following Amazon. A lot of the stuff that we've been saying for the past multiple years is actually happening. Our original predictions and impact of AWS business on the IT landscape is happened and happening, and now new areas that they're focused on that extends their leadership, both technology and on the business model side, continue to come on. Yesterday they launched, as a preview, Satellites is a service. You can actually stand up from satellites, which will power the IoT edge. So many implications, so many things to talk about through the course of today. A lot of interviews we're going to have again day two. Let's analyze Andy's keynote and the company. What's your take? Their business is strong, their lead, a lot of analysts are fooled by the numbers. You're not, we've been watching it. Huge number lead in the cloud. I think the first thing I want to say is, I go to siliconangle.com, I read both of your pieces that are up there, your piece on Forbes, this is a preview. And then the number of announcements here is just overwhelming. Last two days at the analyst event, they gave us previews of 62 announcements, and that's only a partial list of the announcements. 62 that they took us through. It was like rapid fire, Kool-Aid injection, unbelievable. So siliconangle.com is covering as much of that as physically possible. Andy Jassy made a big point this morning and at the private analyst meeting of talking about the context of the cloud market. He's very sensitive to people misinterpreting growth. They're a 26, 27 billion dollar business exclusively focused on infrastructure as a service and they're totally transparent about the size of that business. Everybody else throws in sass. I mean, you've made this point a bunch of times. And all these other things, they mix in hosting, and you really can't tell what's what. Despite that, Amazon is by far the leader infrastructure as a service with over 50% of the marketplace. Now, they're only growing at 46%, but they're a 26, 27 billion dollar run rate business growing at 46%. So you see sometimes, like Microsoft growing at whatever, 70%, but they're much, much smaller. So the absolute number in terms of revenue growth is much, much higher for Amazon. So that's sort of point number one. The thing that Jassy doesn't talk about is the profitability of the business. They're transparent about it in their financials. Amazon has 28% operating margins. Now, just to put that in context, software companies like Oracle have 37% operating margins. Microsoft 32%, AWS, I just mentioned 28%, Cisco 25%, VMware as a software company with 22% operating margins. IBM 15%, Dell 8.7%, HPE 7%. This underscores the power of the AWS model at scale where they're driving the marginal cost of new services and deploying new services down to zero, and it just keeps getting stronger and stronger and stronger. And it's a great point. It's a flywheel effect totally Amazon like, but it's a great point. We've been seeing it for a long time. The competitive advantage is scale and speed. And Jassy's now adopting that into his rhetoric and into his narrative, absolutely true. And the other thing to point out on that margin and the profitability is that they're plowing it back in. So what you have at scale, and I wrote this in my Forbes post, and it's all on SiliconANGLE transcripts of my exclusive interview with Andy, is that not only are they profitable, so they have software like margins for what is a hardware business basically in the cloud that's stacking in a rack on their own servers, they're making their own chips. As they start getting the scale up, Dave, they are getting a competitive advantage on plowing the profitability back in to launch new services. So as the trajectory, and I kind of tease this out in my Forbes article I wrote, which is as you have a trajectory of growth, they're building on that trajectory and the competition is trying to copy Amazon and you can't get the trajectory value by trying to meet Amazon's current trajectory. That's called Dish Economies of Scaling, teach you that in business school. Dish Economies of Scales is a sub-optimized execution model where you don't have the learning experiences, you don't have the scale, Amazon has that trajectory and as people try to match them, they will lose and they're at that risk of losing because of the risk. So the only play for the competition in my opinion, like Google, like Microsoft, like others, is to change the goalposts. They got to change the playing field on Amazon. This is the number one thing that the industry is looking at. Amazon's making the market and they continue to make the market. As market makers, that's going to attract an ecosystem, that's going to attract value and more companies. The only competitive strike that anyone could make is to change the playing field. They got to change the game on Amazon. That is extremely difficult to do when you're operating at scale. You got the profitability numbers you talked about. So again, that is the new bar and as Amazon, we've said this every year, and every year they've done it, they've doubled their Aurora customers on the database side. Every year they introduced more services. Last year, in 2018, they'll have introduced significantly new services on the number of 1,800 plus. Okay, the year before was like 1,400. Next year will probably be higher. By introducing new services faster, that keeps the pace and that's what's hard to copy. It's hard for competition to try to match that and as they try to match it, they have the disadvantage of scale. This is a major advantage. This is going to give Amazon customers a comfort because they know that as that scale becomes more stable, products become stable, the flywheel kicks in and as data gets into the cloud, it gets sticky. So there's no real lock-in spec. You can move in and out of Amazon all you want, but why would you? Because the benefits of being in Amazon, far outweighed benefits of actually doing anything else. So again, the lock-in spec doesn't exist anymore from a technology feature standpoint. It's a lock-in spec on business model. It's better. Well, and I want to add something, I want to add some color to what you said about the new services and the pace of innovation. They're services of substance and we know this because our developers talked to us about Amazon. Andy Jassy told a story about one of his executives that was on a plane leaving Seattle. He didn't mention Microsoft, but clearly he was talking about Microsoft. There's somebody's laptop was up. They had their PowerPoint presentation. They said their strategy explicitly said, just announce what Amazon announces. Don't worry about the functionality. So what Microsoft is doing, presumably it was Microsoft, is basically saying check the box, freeze the market, we have that too. So to your point, competitors cannot compete with Amazon on pace of innovation, no way. What they have to do is, in the case of Microsoft, they have to rely on their software estate. In the case of Google, they've got their innovations. Okay, fine, but nobody can match Amazon head to head. They'll just lose every time. I like Google's position. I love Google's got the technology power, but you're exactly right. That competitive strategy of checking the boxes is an old way of competing. And I think what's interesting is the competition has not yet woke up to the fact that the game has already changed on them. Look at the public sector work that Theresa Carlson's done. The CIA deal really made Amazon a business model because people said, hey, the CIA could do it. We could do it. That's come up in all my conversations across all Amazon executives. But what's happening now with the DOD is that they're going sole source. That's Oracle's business. They try to compete on checking the boxes, but because it's so easy to use the cloud, and Andy talked about this as keynote, is that you can't fake it till you make it. You can't. You have the service that's got to be up and running. So it's very easy to do a bake-off. So that whole way of competing, of checking the boxes is over. The only way to compete is to have value, and that is a new flywheel. That's what's happening right now, and that's key. So let me set it up. So when you get to reinvent, I mean, I'm so psyched to be here with you, John. It's been a while. But you try to absorb all the innovation. So you try to boil it down. You got to look at it to simplify it. Two dimensions. One is the data, exploiting data, better use out of data, and the other is developers, and developer tools are making it simpler for developers. Their announcements, the 60-plus announcement that they made, I break them down into five categories. Storage and database services, compute networking and security. Third is ease of use and abstractions, making things simpler. Fourth is machine learning and developer tools, and the fifth is these new growth frontiers, like you mentioned, satellite as a service, and some other things like in hybrid that we're going to talk about. So the announcements kind of fit into that framework, but let's maybe highlight some of the announcements that we heard. We don't have a lot of time, but let me just run down the announcements real quick. The main ones. He started at the bottom of the stack and has moved up. Storage, deep glacier, FX windows file systems, luster for high-performance workloads. The new persona developer, he called it the builder, the right tool for the right job. This is a constant refrain he's been saying. Control tower, blueprints and guardrails, template-based approach to stand up new use cases for compliance, all the kind of detailed manual things that they're automating. Signal from the noise, I love that phrase he put on this big screen, that's our motto here at SiliconANGLE, security hub, lake formation, instant data lakes. He kind of was poo-pooing data lakes, which I love, I'm like, yeah, data lakes, data ocean. Data lakes is just one piece of it. Freedom around databases. So, one, storage was a huge part of the innovation and they're expanding that front and compute and storage that's going to be critical. The database war is definitely happening. Open engines, Aurora doubling customers, DynamoDB, runtime capacity on demand, sensors and time series data, so they have time stream. Blockchaining, address that straight up. Look, we love blockchains. The customers want it, we're going to look at it and understand it, then announce it. They announced the Quantum Ledger database, QLDB, Amazon Managed Blockchain Service, so you want Ethereum or Hyperledger, you got it. And then he moved on from database to machine learning. This is where SageMaker comes in. So, you got S3 and EC2, the pillars, you got Aurora, that's the key product, and then SageMaker, the other key product that the top of the stack sets the tone for all these abstractions. The machine learning trends, TensorFlow, you want to use it, no problem, we'll optimize it. Amazon inference engines, so elastic inferences. Latency, they got a chip, inference chip. Inferentia. Inferentia, so you put the chip and the elasticity service together, you have a powerful combination. That comes out of the Annapurna acquisition from 2015. Building and tuning and managing machine learning apps is going to be a control area, they're going to add value on, and insights coming from this, and marketplace capability, so, and then on and on, and finally, the Amazon on-premise stack, which is going to be called Outpost, is the final nail in the coffin behind the strategy, because think about it, you're going to put Amazon on-premise with a hardware device that's going to connect with the cloud, with all the innovation, and this is what Andy Jassy talked about. We're not just a software company, we're hardware, we're networking, we're compute, we're storage, and we're software abstractions, we're going to bring that and put it in a device, so we're going to basically create a Amazon cloud in a box solution on-premise to allow people to manage those latencies where network traffic is there. This is not just a software only, he's not going to let people run their databases on their clouds, it's the Amazon footprint. I want to make a comment about that. I came in to reinvent with the statement that Amazon actually is winning in hybrid. Now they used to not talk about hybrid, as you well know. How can I make that statement when they don't really deliberately go after hybrid? Well, the reason I made the statement is because the entire ecosystem is connecting to Amazon. S3 targets, Direct Connect, you've seen Amazon do things like Snowball and VPC, so now what Amazon is doing with Outpost is they're putting the exact same hardware that Amazon uses in its data centers, allowing customers to put that in their data centers, the identical configuration, control plane, hardware, et cetera, that move is going to really even further extend Amazon's lead in hybrid. And we're going to have Andy Jassy on Thursday, we've got a full day of coverage here, we're going to have Teresa Carlson on Andy Jassy, all the topics, Dave McKen, you name all the AI folks coming on as well, we're going to get into all this and extract the signal from all this signal out here. Of course, RDS on VMware, I forgot, it's got the other one. I mean, there's so much signal in there. There's noise, there's so much signal. IoT, their IoT strategy is bottoms up and very, very impressive. We're going to have Jerry Chen come on, former VMware cloud guy now, Greylock Venture Capital Partners over there, he's going to come on and analyze what's all the announcements. We're going to continue to tease out the announcement. Of course, go to siliconangle.com, check out all the news. It's a tsunami of content coming out of re-invent, totally game-changing day, so we're going to wrap it up here. We're going to do more analysis, so you'll see a bunch of videos on our YouTube channel and stay tuned watching all week here for live coverage. I'm John Furrier, Dave Vellante. Stay with us, we'll be right back.