 Live from Washington D.C., it's theCUBE, covering AWS Public Sector Summit 2018, brought to you by Amazon Web Services and its ecosystem partners. Welcome back to the nation's capitol. I'm Stu Miniman and you're watching theCUBE's coverage of AWS Public Sector Summit 2018. Joining me for the wrap up of day one, John Furrier, Dave Vellante. So John, thanks for bringing us down. So you were here last year, we've interviewed Teresa Carlson a number of times at ReInvent, but got to start with you since of course you were here last year watching this explode. I said this reminds me of like ReInvent three years ago, how big it is, 14,500 people, wow. Yeah, so you're right on. This is definitely a ReInvent kind of vibe and in a way to describe what happened with Amazon ReInvent, their annual conference, which we were at the second year, 2013 and have been every year. ReInvent got bigger every year and just became more prominent and the solution scaled, the number of announcements and as we know, Amazon today is packed, it's the bigger than ever. The public sector market, which is defined as government, education, and global public sector countries like Bahrain and other countries is really the target. They have unique requirements. So what's happening is that that market's being disrupted and there's been similar moments in the public sector here in the United States that as well known, the fail of the website Obama, the healthcare site was won, government initiatives that have been going on. The government is not modern, right? And people are frustrated. The IT workers are living in cages, they're strapped in, it's like not good. The tooling's old, old client server, old vendors like Oracle and IBM and others that are trying to keep that business and they're not modernizing. So this modernization wave has hit the public sector across the board and what's happening is they could actually build newer systems faster and get lower costs, more efficiency done faster and this is disrupting not only their business model but how they buy technology, the role of the supplier in that piece of the equation and also just overall faster innovation. So this is driving it. The shocker of all of it is the security conversation has been up leveled and meaning it's not a real issue. Certainly the security is a real issue but in terms of a barrier that stops everything, that's not the case anymore. The CIA is really the most notable that came on and said the worst day in cloud security is better than anything we got working today. So that's a really interesting thing in the Department of Defense Jedi project is billions of dollars that would have gone to say an Oracle and IBM and all the incumbent or Beltway bandits as they've been called. That those days are over. So that to me is a really exciting thing for the country but Amazon is running the tables too. So again, this year more the same, bigger, big agencies, small partners and big all riding the wave of growth and it's a new operating model and again we'll predict it here in theCUBE as we always say and then we'll be right again. This is going to be a special market for Amazon going forward. Yeah I think the government market is definitely a microcosm of the overall marketplace. As John said, it's very bureaucratic, they're slower to move, you get a regime change every four or eight years, there's a lot of turnover. It's really hard to get, okay we're going to go strategy because the strategy is a start, stop. It's a near to midterm strategies are affected in the government. Obviously there's a greater focus on security. Cloud addresses a lot of those. We certainly heard that from the CIA. I don't think you could talk about cloud and federal without talking about that milestone CIA deal. That really was a watershed moment. It was a wake up call to the old guard. IBM as you might recall tried to fight the government and because they awarded Amazon, the CIA awarded the contract to Amazon. IBM lost that case, they were eviscerated by the judge. It forced IBM to go out and pay $2 billion for software. It was years later that Oracle really got in. So Amazon to an earlier guess point has a huge lead. The estimate was five to 10 years I heard over some of the legacy suppliers, interesting. Not sure exactly where Microsoft fits in there, Stu I'd love to get your thoughts. But the thing about cloud that we've, John you talk about being right, for years we've talked about the economics of cloud, the scale of cloud, the marginal economics, looking much more like software and that's clearly been to Amazon's advantage. And they're mopping the floor with guys who can't keep pace. And so that's played out in a big way and this seems to be a winner take all market or a few companies take all market. Yeah, the thing that I actually wanted to comment on that's really interesting to dig in here is if you talk about application modernization. Yes, it is super challenging and it's not happening overnight but have heard universities, nonprofits, they're moving, it's not just mobility and moving to the web, but talking about how they are decoupling and creating cloud native microservices environments. So I was talking to a large government healthcare organization that was super excited to show me how he was going to take his really old application and start pulling together services at a time. And he's like, I've got 130 services and here's how I'll stick a router in here and I'll start pulling them off to the cloud. I talked to a big university and said, how are they going from my data center which I'm out of power, I'm out of capacity, I'm going to use like the VMware thing but over time I'm moving to containers, I'm moving to serverless, that modernization. We know it's not moving all of it to the public cloud but that migration is happening, it is challenging and as I've said many times that many of these Amazon shows Dave and John, it's the companies that come here, they're the ones that are trying cool stuff, they're able to play in some of these environments and they make progress. So the thing that really excites me too is when you hear like government agencies that are like doing innovative cool things. It's like, how do I leverage my data and give back to the communities I serve, help charities, help our communities and do it in cost-effective ways. And Stu, I want to say Dave, I just saw Theresa Carlson just came by the queue, we give her a wave. She's the CEO of Public Sector, that's I call her the CEO. She's the chief, she's in charge. Andy Jazz is the CEO of AWS. But again, Public Sector is almost its own little pocket of AWS. Her leadership I think is a real driving force of why this is successful so fast. Theresa Carlson is hard charging, she knows the government game, she's super nice but she can fight and she motivates her team but she listens to the customers and she takes advantage of that Amazon vibe which is solve a problem, lower prices, makes things go faster, that's the flywheel of the culture and she brings it to a home of the level. She's brought together a group of people that are succeeding with her. She leans on her partners, so partners are making money. She's bringing in cloud native kind of culture, I mean, CrowdStrike. You can't get any better than seeing guys like CrowdStrike raise $200 million today announced worth over $3 billion because they built their system to work for CloudScale. Cloud Checker, another company. Purpose built for the cloud and it's extremely successful because they're not trying to retrofit an enterprise technology and make it cloudified. They're actually built it for the cloud. This to me is a signal of what has to happen on successful deployments from a customer standpoint and I think that's what's attracting the customers and they will change their operations because the benefits are multi-fold and they're pretty big. Financially, operationally, culturally, it's disruptive so I think that's a key point. Yeah, and I think again, this is a microcosm of the larger AWS which is a microcosm of the larger Amazon but some of the things we heard today, some of the benchmarks and milestones from Teresa on the keynote, 60 consultancies that she put up on the slide, 200 ISVs and SaaS companies, 953rd party software providers, this is all GovCloud and then Aurora now in GovCloud which has been, you know, you see it lags, right? Database. Amazon Inspector, you heard a lot about database, Amazon Inspector which manages security configurations. We heard about the intent to go forward with the VMware partnership, the VMware cloud in GovCloud. So it's a little bit behind where you see the Amazon web services in commercial but taking basically the same strategy as John said, the requirements are different. I also think, Stu and John, it's important to point out just the progress of AWS. We're talking about tracking to $22 billion this year, they're growing still at 15% at that massive number. 26% operating income, their operating income is growing at 54% a year. So just to compare Amazon web services to other so-called infrastructure providers, HPE's operating income is 8%, IBM's is 9%, VMware which is a software company is 19%, Amazon's a 26% at Cisco level of profitability. Only companies like Oracle and Microsoft are showing better operating income. This is that marginal economics that we've talked about for years and Amazon is crushing it just in terms of the economic model. And they bring it to the public sector. Can you imagine the disruption for that incumbent mindset of these government kind of agencies that have been, the frog in boiling water for so many years around IT. It's like, boom, what a wake up call. I mean, this is just, I mean, if you know IT, you know what it's like. Older tools, huge budget cycles, massive amounts of technology treasure in terms of time to value. I mean, Stu, you've seen this movie before. Yeah, absolutely. And it's interesting. Some of the things we heard is there's challenge in the government sometimes moving from CAPEX to OPEX. The way that government is used to buying is they buy out of the GSA catalog. They are making that move. We actually had on the federal CTO for Cohesity came from the GSA and he said, we're making progress as an industry on this. Dave, you mentioned a whole lot of stats here. I mean, year over year, Q1, Amazon was up 49% revenue growth. So, you know, you always hear in the news, it's like, oh, well, market share is shifting. Amazon's still growing at such a phenomenal pace. And in the GovCloud, one of the things I thought was kind of interesting that gets overlooked is that GovCloud is about five years. It's actually, no, it was launched in August of 2011. So it's coming up on seven years. It's actually based out on the West Coast. They have, you know, GovCloud US East is coming later this year. And we talked in the VMware interview that we did today about why some of the lagging. You need to go through the certification. You need to make sure there's extra security levels because there's not only GovCloud, then they've got the secret region and the top secret region. So special things that we need to make sure that you're FedRAMP compliant and all of these things. And, you know, Amazon is hitting it hard and definitely winning at this stage. And they have a competitive advantage. I mean, they're running the table literally because nobody else has secret cloud, right? So Amazon, Google, others, they don't have what the spec requires on these certain, these big agencies like the DOD. So, you know, it's not a sole source deal. And we saw the press that President Trump had dinner with Stafford Katz CEO of Oracle and that Amazon, you know, people are crying foul. Make it a multi-cloud multi-vendor, kind of be fair, you know, fairness. Amazon's not asking for sole source. They're just saying, we're responding to the bid. And we're the only ones that actually can do it. John Wood, for the CEO of Tello, said it best on theCUBE today. He was like, Amazon is well down the road. Five years advantage over any cloud. Five years, he said. But there's no compression algorithm for experience, right? Right, but this is a real conundrum for the buyers, the government buyers, the citizens and the vendors. So, typically, you know, let's face it, technology, IBM, HPE, Oracle, Dell, I think I can all pretty much do the same thing if they have to. They got software, Cisco, whatever. They got their different spaces, but head-to-head, they all pretty much can do what the RFP requires. But what you just pointed out, John, is Amazon's the only one that can do a lot of this stuff. And so, when they say, okay, let's make it fair, what they're really saying is, let's revert back to the mean. And is that the right thing for the citizens? I mean, that's the kind of question that's on the table now. As a citizen, do you want the government pushing the envelope go when we begin? So crowd-strike, why go backwards? Right, but that's essentially what the old guard is saying. Come back to us, make it fair, is that unfair? You're too successful. Let the competition catch up so it could be fair. No, they got to match up the value proposition. And that, fundamentally, is going to put the feet to the fire of the government, and it's going to be a real critical tell sign on how well real, how much teeth to the mission that the government modernization plan is. If that mission would be modernizing government has teeth, they will stay on the course. Now, if they have to wait to catch up, that's great. Now, I can already hear it on Twitter. John, you don't really know what you're talking about with Microsoft, they're right there. Okay, you can say you're doing cloud, but as they teach you in business school, there's diseconomies of scale to try to match the trajectory of an experienced cloud vendor. Stu, you just mentioned that. Let's explore that. If I want to match Amazon's years of experience, I can say I'm up there with all these services, but you can't just match that overnight, there's diseconomies of scale, reverse proxies, there's technical debt, all kinds of stuff. So Microsoft, although looking good on paper, is under serious pressure, and those diseconomies of scale creates more risk. That more risk is more downtime. They just saw 11 hours of downtime on Microsoft Azure in Europe, 11 hours. Well, 11 hours, that's a massive, it's not like, oh, something just happened for a day. Here's the behind the scenes narrative that you hear from certain factions is, hey, we hire people, let's say I'm talking about Microsoft, we hire people out of Amazon too, we know where they're at. We think they've, we've narrowed that lead down to six months, you and I have both heard that. When you talk to other people on the other side of the table, it's like, no way, there's no way. We're moving faster. In fact, our lead is extended. So the proof is in the pudding, you know, and the results that you see in the marketplace. And just to build on that, the customers, Amazon has the customers, you've talked to anybody that's in these agencies, like any industry, they're all moving around. Not only the federal, but, you know, I had a great interview with Nutanix this morning. He said, this was the best collection of state and local government that I ever had. It's like, I got to meet all my customers in person last year when they came here. So the Fed kind of sets the bar and then state, local, education, they all learn there. So as you said, John, Teresa and her team have really built a flywheel of customers and those customers, they understand the product, they're going deeper on that. But look, look, Microsoft has success where it has a software state. I mean, clearly, and there are a lot of Microsoft customers in the government and they're going to do very well there. But it's really different. We're talking about the inventor, essentially of infrastructure as a service in public cloud and Amazon with a clean sheet of paper. And it- And Microsoft and Google and others, they have to catch up. So really, if you look at them, let's compare and contrast. Amazon first mover, they did the heavy lifting up front. They win the CIA deal a couple of three, four years ago. Now they're going to win the DOD deal and more. So they've got the boilerplate and they got scaled, economies of scale. Microsoft's got to catch up. So they got this economy to scale. Google is kind of backing out. We heard some Google employees revolting because they don't want to work on these AI projects for drones or whatnot. But Google's approach is not trying to match Amazon speed for speed. Speed for speed. They're staying with, they have leverage. They're Android, they're security. Data. So Google's taking much more pragmatic and they're humble of their thing. Look, we're not trying to match Amazon, but we're going to have a bad ass cloud from a Google perspective. Microsoft hasn't yet said that. They just trying to level up. I think if Microsoft takes that approach, they will do well. Microsoft. Well, you got to give Microsoft a lot of credit, obviously, for the transformation that's occurred. But again, it's still tied to the company's software estate, in my view, anyway. All right, Stu, what's your impression? What's your take? Yeah, so John, like every Amazon show I've been to, I'm impressed. I said a high bar, we go to a lot of shows and not only are there more people here, but the quality of people, the energy, the passion, the discussion of innovation and change is just super impressive. You and I cover cloud-native pretty deep. We go to all the shows, obviously the Linux Foundation and Amazon, ReInvent and others. Does the public sector have that vibe, in your opinion? Oh. What's your sense of that? Yeah, no, I've already had a couple of conversations about Kubernetes and Lambda. More serverless conversations at this show than almost any show I go to other than probably KubeCon or the serverless comp. So, no, advanced users. These are not the ones, you know, a couple of years ago, I was like, oh, I'm checking what this is. No, no, no, they're in their deep, they're using. Yeah, and they had, I noticed also, near the press room, they had the certification stickers, now levels of certifications. Just so they're just moving the ball down the field with Amazon. Dave, I want to go to you and ask you what your impression is. Obviously, you know, we've done shows like HPE, Reinvent, which we didn't do this year. That's going down its own path. We've got other shows. What do you mean discovery, I mean? What did I say? It's a reinvent. Okay. It's a reinvent in the brain. The two ends of the spectrum. Yeah. You know, there's companies trying to transform. What's your take on this show, public sector, what's your view? Well, I mean, first of all, I mean, it's packed. And the ecosystem here is really robust. I mean, you see the consultancies, you see every technology vendor. I mean, it's quite amazing. They got to figure out the logistics, right? I've never seen a line so long. The line to get into registration was longer than Disney lines this morning. I mean, really, it was amazing. And- It's a Disneyland for public sector. It really is. I mean, and people are excited here. I think you were touching upon it before. They sort of been hit with this bureaucratic, you know, cemented infrastructure. And now it's like they're taking the gloves off and they're really excited. Well, still, Dave, I got to say, you know, I'm not a big federal person over the years of my career, but, you know, my general impression over the past couple of years digging in here is that most people in the agency want to do a good job. So I've, I saw that last year. It's like, these are real innovators. And finally they can break away, right? And do some real good, not do shadow IT, do it legit with the cloud. So good stuff. All right, well guys, thanks for commentating, Stu. Yeah, so let me bring it on home. So I just want to say this goes up in a podcast. If you go to your favorite podcast player and look for the cube insight, you'll find this as well as the key analysis from our team from all of the shows. Of course, as always, go to the cube.net to get all the research. If you want the exclusive more detail on Teresa Carlson, go, you know, just search John Furrier and Forbes and you'll find that article. So this is the end of day one of two days live coverage from AWS public sector. Of course, the cube.net. Come find us. We've got stickers if you're at the show. So for Dave Vellante, John Furrier, I'm Stu Miniman. And as always, thanks so much for watching theCUBE.