 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Five publicly traded US-based companies have market valuations over or just near a trillion dollars. As of October 29th, Apple and Microsoft topped the list each with 2.5 trillion, followed by Alphabet at 2 trillion, Amazon at 1.7, and Facebook, now Metta, at just under a trillion, off from a tie of 1.1 trillion prior to its recent troubles. These companies have reached extraordinary levels of success and power. What, if anything, could disrupt their market dominance? In his book Seeing Digital, author David Michela made three key points that I want to call out. First, in the technology industry, disruptions of the norm, the waves of mainframes, minis, PCs, mobile, and the internet, all saw new companies emerge in power structures to warped previous eras of innovation. Is that dynamic changing? Second, every industry has a disruption scenario, not just the technology industry. And third, Silicon Valley broadly defined to include Seattle or at least Amazon has a dual disruption agenda. The first, being horizontally disrupting the technology industry, and the second, as digital disruptors in virtually any industry. How relevant is that to the future power structure of the digital industry generally and Amazon specifically? Hello, and welcome to this week's Wikibon Cube Insights powered by ETR. In this breaking analysis, we welcome in author, speaker, researcher, and thought leader, David Michela, to assess what could possibly disrupt today's trillionaire companies, and we're going to start with Amazon. Dave, good to see you, welcome. Thanks, Dave, good to see you. Yeah, so Dave approached this about a month or so ago, he was working on these disruption scenarios, and we agreed to make this a community research project where we're going to tap the knowledge of the cube crowd and its adjacent communities. And to that end, we're initiating a community survey that asks folks to rate the likelihood of seven plus one disruption scenario. So we have a slide here that sort of shows what that survey structure is going to look like. And so as I say, there's seven plus another one, which is kind of an open ended. And we're going to start with Amazon as the disruptee. So Dave, you've been writing about the technology industry for decades and digital disruption in China and automation and harnesses of other topics. What prompted you to start this project? Yeah, it's a great question. As you said, the whole history of our business has been every decade or so, you have a new set of leaders, IBM, digital, Microsoft, the internet companies, et cetera. But when I started looking at it, I was like, that seems in some ways to have actually stopped that Microsoft is now 40 years old. Amazon is what, 1995 is getting towards 30. Google's been a dominant company for 20 years. And Apple of course, and Facebook more recently. So whatever reason this sort of longevity of these firms has been longer than we've seen in the past. So I started to say, well, is there anything that's going to change that? So part of it, and we'll get into this, what could happen to disrupt those big five? But then the sort of second question was, well, maybe the disruptive energies of the tech business have moved elsewhere. They've moved to cryptocurrencies or they've moved to Tesla. And so you started to sort of broaden your sense of disruption. And when you talked about that dual disruption agenda, that whole ability of tech to disrupt other sectors, banking, healthcare, insurance, automobiles, whatever is sort of a second wave of disruption. So we started coming out, all right, what sort of scenarios are we really looking at over say for the 2020s? What might shake up the big five as we know them and how might disruption spread to sort of more industry specific parts of the world? And that was really the genesis of the project and really just my own thinking of, all right, what scenarios can I come up with? And then reaching out to companies like yourselves to figure out, okay, how can we get more input on that? How can we crowdsource it? How can we get a sense of what the community thinks of all this? It's great, love it. And as you know, we're very open to do that. So we're going to crowdsource this. We're going to open it up to virtually anyone and use a multiple channels. So let's go through some of the scenarios, all of them actually, and explain the reasoning behind their inclusion. The first one, a government mandated separation of investment and or limits on Amazon's cloud computing, retail, media, credit card and or in-house product groups. You probably no coincidence that this was the first one you chose, Dave, but why'd start here? Well, I think the government interest in doing something to hit back at Big Tech is pretty clear and probably one of the few things that has bipartisan support in Washington these days. And also government intervention have always been an enormous part of the tech industry's history, the antitrust efforts against IBM and AT&T in particular. And more recently, Microsoft, a smaller one, but it's always been there. There's a vibe to do it now. And when you look at all the big ones, but particularly Amazon, you can see that potential divestments and breakups are sitting there right in front of you, the separation of retail and AWS, perhaps breaking out credit card or music or media businesses, these sorts of things are all on the surface at least, relatively clean things to do. And I think when you look at the formation of an alphabet or a meta, those companies themselves are starting to see their own businesses as consisting of multiple firms. Yeah, so I just want to kind of drill into the cloud piece, just to emphasize the importance of AWS in the context of Amazon. Amazon announced earnings Thursday night after the close. AWS is now a $64 billion revenue run rate company and they're growing at 39% year over year. That's actually an accelerated growth rate from Q3 2020 when the company grew at 29%. It's astounding to think of a company of this size. Moreover, AWS accounted for more than actually, but 100% of Amazon's operating profit last quarter. So the AWS cloud is obviously crucial as a funding vehicle and ecosystem accelerant for Amazon. And I just wanted to share some data points, Dave, before we move on to these other scenarios. Yeah, and just on that, I think that is the fundamental point. It's very easy to see AWS on its own as a powerhouse, but I think if you figure how much freedom AWS money has given the retail business or the credit card business or the music businesses to launch themselves and to essentially make no money for very long periods of time, you see that if you're a Walmart trying to compete with Amazon as a retailer, well, that money from AWS is an awful big problem. And so when they look at separation, that's the sort of stuff people talk about. Right, so I just want to put that into context just in terms of the cloud business. So this chart is one from our ETR surveys that isolates the four hyperscale cloud providers and adds in Oracle and IBM who both own public clouds, but don't have nearly the scale. And we don't have Apple or Facebook, they have clouds as well. And we can talk about that in a moment, but the chart shows net score or spending momentum on the vertical axis and market share or pervasiveness in the survey on the horizontal axis. It's really mentioned share, not dollar market share, but it's an indicator. And the red line is an indicator of elevated spending momentum. And you can see Azure and AWS, they're up and to the right. I mean, Amazon is 64 billion. Azure will claim larger because they're including their application business, but just their IaaS business, obviously smaller than Amazon's. But you can see in the survey, the respondents define cloud, they include that SaaS business. So they both impressively have this high spending momentum on the vertical axis, well above that 40% line despite their size. Google obviously well behind those to the left and then Alibaba, which has a small sample in the ETR survey, it's not as prominent in China. But even though it's IaaS cloud, business is larger than Google's by probably a couple billion dollars. Now the point is these four hyperscalers and there really are only four in my view anyway. They have a presence that allows them to build new businesses and disrupt ecosystems and enact that dual disruption agenda should they choose to do so, at least in the case of Amazon, Oracle and IBM are not in a position to do that. It's not part of their agenda. They don't have that scale, but Dave, can you talk about your dual disruption scenario? Very clearly Amazon fits in there and I would think Alibaba as well, but what about Microsoft, Facebook, Apple, Google? Yeah, I mean, people often say, what's the biggest difference between Microsoft and Amazon from a cloud point of view? And the answer is pretty clear that Microsoft goes out of its way to assure its customers that it really doesn't have any interest in competing directly about them. So you don't see Microsoft going into the retail business or the banking business or the healthcare business, all that seriously. In contrast, that's really what Amazon is all about, is taking its capabilities to essentially any industry it likes and therefore as great as the service AWS provides, it's often being provided to people who Amazon is actually competing with it in at least some degree or another. And that's a huge part of Microsoft sales pitch and it's certainly a potential of all the really down the road. It's very hard in the end to be an essential supplier and a direct competitor at the same time, but so far they've managed to do that. Yeah, so we put together just another sort of a side here, this little thought experiment to see what AWS would look like as a separate entity. And so it's a chart that looks at a number of tech companies and lays out their revenue run rate, growth rates, gross margin, probably should have done operating margin, might have been more relevant, but market cap and revenue multiple. Again, given the size of AWS at $64 billion run rate and accelerating growth trajectory, it's remarkable. And so we figured this out based on industry norms and today's valuations, it's not inconceivable that AWS could be in the trillionaire club or close to it. So based on that discussion we had earlier and Amazon's dual disruption agenda, being funded and powered by AWS as we just discussed, Dave. Yeah, and just keep in mind nothing that you or I are saying are predictions or saying that anything is going to happen. They are possible scenarios of what might happen that seem to make some plausible sense. So that when Amazon is making the sort of profits that it's making at AWS, naturally that's going to attract other companies cause there's margin to be had there. And similarly, look at Microsoft for all those years, the profits it made in Windows or in office software allowed it to do all kinds of other things and essentially that's what Amazon is doing today. But if a Google or a Microsoft could cut into those profits through some sort of aggressive pricing and perhaps we'll talk about that, that would have a lot of impact on Amazon as a whole. All right, so let's quickly go through the other disruption scenarios and maybe make some comments. The next one sort of major companies increasingly choose to do their own cloud computing and or sell their products directly for competitive cost security or other reasons. So Dave, I saw this and look at a company like Walmart and others, no way they're going to run their business on AWS, Walmart as we know is building out its own cloud and maybe it doesn't have the size of a hyperscaler but it's very large. It's got the technical chops. It can most likely do it a lot cheaper than renting cloud space. What was your thinking in this scenario? Yeah, the broader thing here is essentially one of that computing paradigms have been proven to go in cycles, you know, a long time ago people shared computers and called time share and then people ran their own and now they're sharing again through the cloud. Again, who knows? It's possible that the cycle could shift again through some innovation and you know, a lot of companies today look at the bills they're getting for cloud or for various SaaS services and some of them are pretty high and a lot of them will look at it and say, hey, maybe we actually can do some of this stuff cheaper. So the scenario is that essentially that the cycle shifts once again and it makes more sense to do stuff in-house. Again, that's not a prediction but certainly something that's happened before and couldn't plausibly happen again. You know, there's a lot of discussion about that in the industry of Martín Casado and Sarah Wong wrote that piece about the, you know, the trillion dollar basically sucking sound and basically saying the scenario was the premise rather was that SaaS companies, their cost of goods sold are increasingly going to be chewed up by cloud costs and then of course Mark Andreessen says every company is going to be a SaaS company so as the SaaSification of business occurs, you know, that's something to consider. Okay, next scenario is environmental policies raise costs, change packaging, delivery, recycling rules and or consumer preferences. Can you comment, Dave, on your thinking on this scenario? Yeah, first I'll just back up a bit. We're used to thinking of technology as the great disruptor and clearly that's still important but there are now other forces out there. China, which we'll talk about the environment, various cultural forces and here with the environment you see all kinds of things that could change that, you know, if you look at Amazon and its model of very high levels of packaging, lots of delivery vehicles and all the things it is doing are those necessarily the best environmentally and will there potentially be various taxes, carbon metrics or things that might work against that model and tend to favor more traditional stores where people go to pick them up? That seems to me a plausible scenario and I think everybody here knows that desire to do something in the climate, environmental spaces is pretty strong and, you know, if you look at, you know, the recycling industry itself has arguably been quite a failure in that much of what is so-called recycled was basically put in tankers and shipped to the third world which no longer wants it. And so the backlog of packaging and concerns about packaging and what to do with all that, you know, those issues are rising and will be real. And I don't know whether Amazon has a good answer to that. They're, you know, they obviously are very aware of it. They're working very hard to do everything they can in that space but their fundamental model of essentially packaging every good in its own little box or envelope or whatever is arguably not the greenest way of doing business. Got it, thank you. So, okay, so the next one is price and slash trade wars with the US and or China cloud and e-commerce giant. So protectionism favors national players. So we're talking here about, for example, Google bombing prices or Alibaba or trade policy making it difficult for Amazon to do business in certain parts of the world. Can you add some color on this one? Yeah, all of those things. And I would just start with China itself. You know, you could argue that COVID has been the biggest disruptor of the last couple of years. But if you look at the next five or eight and you had to look at all these things, you'd probably say China, the size of the Chinese market, the power of its vendors, players like Alibaba clearly can rival Amazon in many different ways. You know, it's no secret that it'd be hard for Amazon to, they're not gonna be a big success in China. But you can see it in harder ways that you imagine across Asia or other markets where Alibaba is strong and you're in today's sort of environment where there's scarce goods and maybe certain products, well, maybe they go, Chinese made product, go to Alibaba first. And you wanna buy that product? Well, Amazon doesn't have it, but Alibaba has it. You know, those sort of scenarios, if you get into a sharp trade war with China or even if the current tensions continue, it's quite easy to see how that could play some havoc with Amazon's supply chains. In many ways, the whole Amazon retail model is based on a steady flow of goods manufactured in China. And that clearly is not as stable as it was. Right, got it. The next one actually caught my attention. And this is a big part of the reason why we wanna survey the community to see how plausible folks think this is. And it's technology related scenario. So that would potentially disrupt AWS and by default hit Amazon. So that's major computing innovation such as quantum, edge, machine to machine would obsolete today's cloud architectures. Okay, so here, what's your thinking? Just as AWS changed the game in IT, some future innovations or new business models that we haven't conceived yet could disrupt the prevailing cloud computing model, right? Yeah, absolutely. I mean, again, we'll go back to where we started that new technologies have always been the main disruptors. And here we're looking at some potentially very powerful new technologies. Your guess is gonna mind about what's gonna happen with quantum is clearly a very different way of computing quite possibly led by other vendors, possibly even led by China, which would be a huge issue. You look at the cloud, well, cloud's not very good at sort of edge stuff or machine to machine stuff or sort of near field things out, cars in a highway talking to each other. Again, Amazon's totally aware of these things and they are working on it, but they have a huge investment in other ways of doing things. And historically that inertia that need to protect existing bases of activity and practices has made it difficult for a lot of companies to adjust to new things. So that couldn't happen again and there's certainly a positive one. But in all these cases so far, Amazon has been aware of it and is trying to do it, but you can still see the scenario playing out and in a truly disruptive technology, it's not always possible for the incumbent to effectively cope with it. Okay, the next scenario speaks to, I think some of the work that you've done in automation and related areas. Software replaces centralized warehouses as delivery services are directly connected to suppliers and factories. So Dave, this is the cut out the middleman, right? Software and automation changes the nature of the retail business. Absolutely, I mean, in a world of ubiquitous delivery services and product standardization metrics and products being built and shipped from all over the world, the concept of running them all through a centralized warehouse is at least at a minimum, seems like something that might be obsolete and replaced. And you imagine if Google built a significant taxonomy of core products that could be traced directly to where they are either manufactured, supplied or brought into the country from whatever company that tries to sell them and the delivery service connected directly to that. And so that model has always been out there. I think at various times people have looked at it, it hasn't happened so far. And I think Amazon itself is looking at this, particularly as it gets more into food that the idea of shipping all fresh food to any sort of centralized warehouse is a pretty bad idea. And so that model of software essentially replacing giant automated warehouses is out there and seems to me likely. And I'll just say that, Ali Baba for the record doesn't really use that warehouse model. It uses a network of suppliers and does it that way. And there do seem to be some efficiencies that would likely come with that. The next one was really interesting from a historian's perspective and it's the penultimate scenario. And that's the proverbial self-inflicted wound. You and I certainly remember IBM's fateful decision to outsource the microprocessor and operating system to Intel and Microsoft. Sorry, IBM's decision to do that Lotus, you might recall, they refuse to allow one, two, three to run on windows back in the day. Novel buying word perfect. Jim Barksdale, a lot of young people in the audience won't of course remember this, but Jim Barksdale poo-pooing. Microsoft's decision to bundle internet explorer into the operating system. All those were kind of self-inflicted or blind spots. So this one is complacency, arrogance, blindness, abuse of power, loss of trust. So much more than the examples I gave, consumer and or employee backlash, you're seeing some of that at Facebook now. And I guess this is taking their eye off the customer ball, losing the day zero in Amazon's case, forgetting that customer's obsession formula, their working backwards culture. And I think this is a big reason why Andy Jassy was put in charge. So this wouldn't happen, but we've seen time and time again as the examples I just gave. Blind spots have absolutely killed companies, haven't they Dave? Yeah, absolutely. He listed many of the most famous, but perhaps my favorite of all was Ken Olson, the founder of Digital Equipment Corporation, one of the great tech visionaries of his time who stated over and over again, why would anybody want a home computer? Or Unix's snake oil was his other beautiful. Yeah, all of those things. And so there's the blindness. There is the IBM who just came to the view that an AT&T both came to the view that they were invincible and nothing could ever crack their control of their customer base. So we've seen all that. I think more recently, I think some of these things can actually go from the bottom up. And what's happening to Facebook today? Well, they're being hurt by former employees speaking out. This never really happened too much in the IBM AT&T days, but people calling into question Amazon's work labor practices and such things is certainly a possible scenario. And the whole sort of, in the end, people talk about a cultural backlash against technology. I'm not sure I believe it'll happen, but it certainly is possible that people will start to rebel against these firms. You see it more likely with Facebook is fairly well along there. Amazon's still popular, but in the end, and I think you said that the core thing that companies routinely fail on is they lose their customer focus and they get caught up in other things, their financial numbers, their power inside, their position of their company, but they lose track of staying close to the customer need. And Amazon has done a terrific job of staying close to the customers over the years. So if anyone was maybe less vulnerable to that, they would be well along that line, but it can happen to anyone. And new management is often one of the real tests. And there's many examples of that through history. When a new executive comes in, will they have that same focus, that same thing? Particularly, as the first generation's employees get wealthy and retired and a new set of people come in, you look at Microsoft, the new people who came in, well, they're not going to be multimillionaires. They may have missed the great runs. They're there to work. And the culture of companies changes when you get to that state, you know, Amazon's not there yet, but you can envision that coming soon enough. So, you know, cultural issues have always been a factor and it's hard to imagine there won't be some sort of factor going forward. Well, you know, you talk about that the succession of founders and CEOs. I mean, that's what, to me, makes Microsoft so astounding because during the bomber years, it was unclear that they were ever going to become relevant again. And so, Nadella has done a masterful job. But of course, they had the margins from the PC software business that allowed them to buy that time. But look at Intel and the troubles it's going through. And so many other examples of companies that just sort of said, all right, well, we're going to pack it in and either sell the company or, which is, again, what I think makes, think companies like Oracle and Dell, which founder led CEOs, not CEO in the case of Oracle, but still running the business, so quite significant. Yeah. Yeah. And, you know, we've talked a lot about things in my herd answer, but you got to recognize how many of us, how amazing they are. And most tech companies, a lot of them anyways, have essentially been one-trick ponies. I mean, Google still makes overwhelming amount of its money selling ads and the things it's tried to do in cars and healthcare and various things. They often struggled. Apple still makes the core of its money around its cell phone platform. Amazon's one of the few that continually generates entirely new, huge businesses. And you have to give them an enormous amount of credit for that. You know, Microsoft failed repeatedly over and over again with internet stuff and phone stuff and all these things. And it really wasn't until Satya came in and really focused on their customers and their need for enterprise services that he really got the company on the right track. So, you know, Amazon has always been good to listen to his customers and if they continue to do so, it bodes well, but history says other stuff comes along. Okay, and the last scenario is open-ended. Dave included, you know, what did we miss? Is there another scenario that we haven't put forth that you could feel could be disruptive to Amazon, right? I mean, you got to have the least, what did we miss? Yeah, I mean, you know, these are things that me and you and I just sort of made up at the top of our head. These are things we see that might happen. But, you know, in your huge audience of people in this community every day, I'm sure there are other people out there who have thoughts of what might shake things up or even doing things that might shake things up already. And, you know, one of the things you do through you guys is get this sort of material out there and see what ideas surface. So hopefully people will participate in this and we'll see what comes out of it. All right, so what happens from here is we're going to publish the link to the survey in this video description and in our posts. We ask you to take the survey, please tell your friends. We're going to publish the results as always we do in an open and free way. David and Michelle, thanks so much for putting your brain power on this and collaborating with us. I'm really excited to see the results and run through the other giants with you as well once we see what this survey says. Yeah, thanks David, great. And yeah, if we can make this one work, it'd be fun to do it for Google and Microsoft and Facebook and Apple and see where it all goes. Thanks a lot. All right, okay, that's it for today. Remember, these episodes are all available as podcasts wherever you listen to search, breaking analysis podcast. I publish each week on wikibon.com and siliconangle.com, etr.plusses where all the cool survey data lives. They just dropped their October survey with some great findings, so do check that out. You can reach me on Twitter at D-Velante. He's at D-Michella or comment on my LinkedIn post or email me at david.volante at siliconangle.com. This is Dave Vellante for Dave Michella. Thanks for watching The Cube Insights, powered by ETR. Be well and we'll see you next time.