 Hello everyone, welcome to a special Cube conversation here at the SiliconANGLE Media Cube and Wikibon Studio in Palo Alto. I'm John Furrier, co-founder of SiliconANGLE Media Inc. I'm here with Peter Burst, head of research for a special Amazon web services re-invent preview. We just had a great session with Peter's weekly action item table, round table meeting with analysts around the trend, so that'll be up on YouTube. Check that out. Really in-depth conversation around what's expected Amazon web services re-invent coming up in about a week and a half and also great content in there, but I want to go here, Peter, have a conversation with you back and forth because we've been having a debate, ping-ponging back and forth around what we think might happen. We certainly have some visibility in some of the news that might be happening at re-invent, but you guys have been doing a great job with the research. I want to get your thoughts and I want to just have a conversation around Amazon web services. Continuing to kick ass, they've had a run on their own for many, many years now, but they got competition. The visibility on Wall Street is clear. They know the profitability, the numbers are all taking shape. Microsoft stocks up from 26 to wherever it is now, it's clear that cloud is the game. That's what's going on and you have, again, the top three Amazon, Azure, Google, and then you can argue four through seven, including Alibaba and others, big game going on. This is causing a lot of opportunities, but disruption to business models, technology architectures, and ultimately how customers are going to deploy their IT and or their digital business. Your thoughts? I think one of the most interesting things about this, John, is that in the first 10 years of the cloud, it was implied that it was a cosplay. Don't do IT anymore, it's blah, blah, blah, blah. Do the cloud, do AWS. And I think that because the competition is so real now and a lot of businesses are starting to realize what actually could be done if you're able to use your data in new and different ways and dramatically accelerate and transform your businesses, that all this has become a value play. And the minute that it becomes a value play, in other words, new types of work, new types of capabilities, then for Amazon, for AWS, it becomes an ecosystem play. So I think one of the things that's most interesting about this re-invent is it's, from my opinion, it's going to be the first one where it's truly a strong ecosystem story. It's about how Amazon is providing services that the rest of the world's going to be able to consume and create new types of value through the Amazon ecosystem. Great point, I want to bring up a topic that we've been talking on theCUBE and some other CUBE conversations as it relates to the ecosystem is. In all these major ways, and we've seen many, you've covered many ways as an analyst over the years, there's always been a gestation period between a disruptive enabler. You could talk about TCP IP, you could talk about HTTP. There's always a period of gestation. Sometimes it's accelerated now more than ever, but you start to see the impact of that disruptive enabler. Certainly cloud and what Amazon has done has been a disruptive enabler. Value's been created, more value's being created, more and more every day we're seeing it. You start to see new things pop up from this gestation period, problems that become opportunities, and competitors that are now partners, partners that are now competitors. So a full changeover is happening in the landscape because of it. So the question for you is, what are you seeing, given your experience of seeing other ways before, what is starting to be clear in terms of visibility that are becoming known points of obvious, straight and narrow trends that are happening with this cloud enabling? Well, let's talk about perhaps one of the biggest differences between traditional IT and cloud-oriented IT. And to kind of tell that story, I'll do something that a lot of people don't think about when they think about innovation. But if you really think about innovation, you got to break it down into two distinct acts. There's the act of inventing, which is an engineering act. It's how do I take knowledge of physics or knowledge of sociology or knowledge of something, and invent something new that reflects my understanding of the problem and creating a solution. And then there's an innovation act, which is always a social act. It's getting people to change the way they do things, businesses to change the way they do things. That's a social act. And one of the interesting things about the transition, this transition, this cloud-based transition, is we're moving into a world where the social acts are much more synonymous with the actual engineering act. And by that I mean, when something is positioned as a service, that the customer gets and just acts on it because they're now renting a service, that is truly an innovation process. You are adopting it as a service and embedding it more quickly. So what we're seeing now, in many respects, going back to your core point, is everything being done as a service, it means that the binding of the inventing and the innovating is much more strong and much more immediate. And AWS re-invent's been a form where we see this. It's not just inventing or putting forward a new product that may get out to market in six months or nine months. It is, here's a service, people are consuming it, we're embedding it in our other AWS stuff. We're putting this AI into how folks are going to manage AWS and the invention innovation process collapse. So I mean, that's a good point. I would just give you some validation on that by seeing other trend points to talk about that social piece. You hear about social engineering in cybersecurity, but that's now a big part of how hackers are getting in through social engineering. Open source software is a social engineering exercise because it's got a community dynamic. Blockchains, huge social engineering around how these companies are forming. So I would 100% agree that's a great, great point. The other thing I'd ask you to elaborate on is something that is a trend that's obvious, is that there's a, and because everyone talks about the old way, new way, legacy is being disrupted, new players like Amazon are disrupting people like Oracle and Oracle thinks they're winning, Amazon thinks they're winning. The scoreboards aren't the same, but here's the question. Technology used to be built to solve technology problems. You build a box, you ship it and it works. Software, craft it, ship it, it does work or it doesn't work. Now software and technology are being used to solve non-technology problems. This brings it to a whole other level when you take your social comment and invention. This is now a new dynamic that tend to be, I don't want to say minimize in the old way, old days, the old ways was load some boxes, rack it up and you got a PC on your desk. We could work effectively on a network. So now it's completely going, non-technology problems, healthcare, you know. Here's the way we look at it, Tom. Our simple bromide is that we are in the midst of the transition in computing. And by that I mean for the first 50 years we talked about known process, unknown technology. By that I mean, for example, have you ever seen a gap accounting convention wandering out in the wild? No, it doesn't exist. It's man-made, it's artifice, it's nothing wrong with it. We all agree what an accounting thing is, but it's all highly stylized and extremely well-defined. It's a known process. And the first 50 years were about taking those known processes in accounting and in HR and a lot of other domains and then saying, okay, what's the right technology to automate as much as this is possible? And we did a phenomenal job of it. Started with mainframes and client server and was it this server, that server, Unix or something else, TCPIP or some other network. But that was the first 50 years of computing. Now we've got a lot of those things out. In fact, cloud kind of summarizes and puts forward a common set of experiences. Still a lot of technology questions are going to be important. I don't want to suggest that that's not important, but increasingly it's okay, what are the processes that we're going to try to automate? So we're now in a world where the technology is much more known, but the processes are incredibly unknown. So what does that impact the cloud players like Amazon? Because what I'm trying to figure out is what will be the posture on the keynotes? Is it going to be a speeds and feeds show or is it going to be much more holistic business impact or societal impact? The obvious one is that Amazon increasingly has to be able to render these common building blocks for infrastructure up through to developers and a new way of thinking about how do you solve problems? And so a lot more of what we're likely to see this year is Amazon continuing to move up the stack and say, here's how you're going to look at a problem, here's how you're going to solve the problem, here's the tooling, and here's the ecosystem that we're going to bring along with us. So it's much more problem solving at the value level, going back to what we talked about earlier, problem solving that creates new types of business value as opposed to problem solving to reduce the cost of existing infrastructure. We have a VIP chat on crowdchat.net slash adipus reinvent if you want to participate. We got open and we're going to keep it open for a long time, weigh in on that. We just had a great research meeting that you do weekly called Action Item, which is a format that's designed to flesh out the latest and greatest research that's tied to current events or trends and then unpack the Action Item for buyers and customers and large businesses in the industry. What's the summary for the meeting we just had here? We had a lot of stuff being talked about, uni-grid, we're talking about under the hood with data, a lot of good stuff. What's the bottom line? How do you level it for the CIO or CXO that's watching or listening, doesn't have time to get in the weeds? Well, I think the three fundamental conclusions that we reached this year is that we expect AWS to spend a lot of time talking about AI, both as a generalized way of moving up the stack as we talked about. Here's the services that developers are going to work with. Here's the toolkits that they're going to utilize, et cetera, to solve more general problems, but also AI being embedded more deeply within AWS and how it runs as a service and how it integrates and works with other clouds. So AI, machine learning for IT operations management through AWS. So AI is going to be a major feature. The second one we think that we're going to hear a lot about is Amazon's been putting forward this notion that they were going to facilitate migration of legacy applications into AWS. That's been a slog, but we expect to see even more or a more focused effort by going after specific big software houses that have large installed bases of on-premise stuff and see if they can't, with the software house, bring more of that infrastructure or more of those installations into AWS. Now I don't want to call VMware an application house, but not unlike what they did with VMware about a year and a half ago. And the last one is that we don't think that Amazon is going to put forward a general purpose IoT edge solution this year. We think that they're going to reveal further what their approach to those problems are, which is bigger networks, more pops. More scale. More scale, a lot of additional services for building applications that operate within that framework, but not that kind of, here's what the hybrid cloud by Amazon is going to look like. Let's talk about competition in China. Obviously they kind of go hand in hand. Obviously Andy Jassy and the Amazon web services team are seeing for the first time, massive competition. Obviously Microsoft stocks, as I mentioned earlier. So you're starting to see the competition wheels cranking, Oracle's certainly been all over Amazon. We know that Microsoft's just up in their game trying to catch up and their numbers are looking good. You got SAP playing the multi-cloud game. You got Google differentiating on things like TensorFlow and other AI and kind of developer tools. This is interesting. It's the first time Amazon's really had some competition. I won't say nipping at its heels, but put in pressure. It's not the one game and down. People talking multi-cloud. That's kind of talking about lock in. And then you get the China situation. You got Alibaba, technically the number four cloud by some standards. Some will argue that position. But the point is it's massive. I don't think it's by any reasonable standard. They are a big cloud player. So let's go through that. China, let's start with China. Amazon just announced, and the news was broken by the Wall Street Journal, who actually got it wrong and didn't correct the story for about almost 24 hours. Really kind of screwed up the market and thought that they were selling AWS to China. It was a unique deal. Rob Hoaf and the team reported corrected. At SiliconANGLE. At SiliconANGLE.com that we got it right. And that is that it was a $300 million data center deal, not intellectual property. But this is the China playbook. So they sold their physical assets. They didn't sell their IP. They didn't sell the services with the ability to provide the services. Based upon my reporting, and this is again, still facts on the ground are loose because China is not as hard to get the data. But when I can gather, they're already doing business in China. Apple went through this, even though they're hardware, they still have software. Everyone has that standoff, but ultimately getting it to China is requires a government-owned partner or a Chinese company that government-owned is quasi, you can argue that. And then they expand from there. Apple now has I think six stores or more in Shanghai and all over China. So this is a growth opportunity for Amazon, if they play it right. Thoughts on that, and obviously we cover a lot of the Chinese companies here. Well, I don't want to present myself as an expert on this, John. I've been watching what the SiliconANGLE reporting has been my primary information source. But I think that it's interesting. We talk about hard assets and soft assets. Hard assets are buildings, machines, and in the IT world it's the hardware, it's the building, et cetera. And when China talks about ownership, they talk about ownership of those assets. And I think it sounds to me anyway, like AWS has done a very interesting thing where they said, okay, fine, you want 51% of the hard assets, have 51% of the hard, have 100% of the hard assets. But we are going to decide what those assets look like, and we are going to continue to control, to own and operate the software that runs on those assets. So it sounds like through that, they're going to provide a service into China, whatever the underlying hardware assets are running on. Interesting play. Well, we get the story right, and the story is, they're going into China, and they had to cut a deal. That's it, that's the story. But for the hard assets. For the hard assets, they didn't get the actual property. So I think it's a good deal for Amazon. We'll see, we're going to watch that closely. I'm going to ask Andy Jesse that specific question. Now on the competition. The FUD is off the charts. Fear, uncertainty, and doubt. You see that in competitive markets. Competition, throw, and FUD. Sometimes it's really blatantly obvious FUD. Sometimes it's just how they report numbers. I mean, I've been not critical, but pointing out that Azure includes Office 365. Well, when you start getting down that road, you bundle in Salesforce as a cloud player. So, you know, all these things start, of course. So what is, what is true cloud? Are people parsing the categories too narrowly in your opinion? What's the opinion from the research team on, on what is cloud? Well, what is cloud? We like to talk about the cloud experience where the data demands for your business. So the cloud experience is basically, it's a self-provisioning, it's a service, it is continuous, and it allows you a range of different options about what assets you do or do not want to own. According to the reality, the physical realities, the legal realities, and intellectual property realities of the data that runs your business. So that's kind of what we mean by cloud. So let's, let's talk about a couple of these. First. Before you get to the question, Andy Jassy said a couple of years ago, he believes all enterprises will move to the cloud. I mean, he was kind of, of course, he's by 100% Amazon and Amazon has defined as cloud. But he's kind of referring to that, the enterprise on premise current business model and the associated technology will move to cloud. Now, I'm not sure he would agree that the true private cloud is the same as Amazon, but if he cuts a deal with VMware, like he did, is that AWS? So will his prediction come true? I mean, ultimately, everyone's saying it'll never be full cloud. I think it's, I think this is one of those things where we got to be a little bit careful about trying to read too much into what he said, but here's what we think. We, our advice to customers is don't think about moving your enterprise to the cloud. Think about moving the cloud to your enterprise. And I think that's the whole basis for the hybrid cloud conversation that we're having. And the reason why we say the cloud experience where your data demands is that there are physical realities that every enterprise is going to have to deal with. Latency, bandwidth, there are legal realities that every enterprise is going to have to deal with. GDPR, what it means to handle privacy and handle data. And then there's finally the intellectual property realities that every enterprise is going to have to deal with. Amazon not wanting to sell its IP to a Chinese partner to comply with Chinese laws. Every business faces these issues and they're not going to go away and that's what's going to shape every business's configuration of how they're using the cloud. And by the way, when I didn't ask that question, it might have been three years ago, I actually can't remember if losing my mind here, but at that time, cloud was not yet endorsed as the viable way. So I mean, you might have been referring to, again, I'm going to ask him this when I see him in my one-on-one, you might have been referring to old enterprise ways. You know, so I mean. Let's be honest, Amazon has done such an incredible job of making this a real thing. And in our opinion is that they're going to continue to grow as fast as the cloud industry, however we define it. What we tend to define, we think that SAS is going to be a big player and it's going to be the biggest part of the player. We think infrastructure as a service is going to be continuing to be critically important. We think that the competition for developers is going to heat up in a big way. AI, machine learning, deep learning, all of those things are going to be part of that competition. In our view of things, we're going to see SAS be much bigger in a few years. We're going to see this notion of true private cloud, which is a cloud experience on premise with your assets because you need to control your data in different ways, is going to be bigger than IAS, but it's all going to be cloud. I mean, at all points, my opinion and what I'm looking for this year, Peter, just to kind of ramp up the segment is, I think, and if you look at Amazon's new ad campaign, The Builders, that's a topic that we talked about last year. Developers. Developers, we are living in a world where DevOps is now going mainstream and there are still cultural issues around what does that actually mean for a business? The personnel, how they operate, and some of the things you guys point out in your true private cloud report illuminates those things. And that is whoever can automate and create great tooling for the DevOps culture going forward. Whatever that's called, developer, new developers, new normal, whatever it is, that to me is going to be the competitive landscape. So let me take it, let me parse that slightly or put it slightly differently. I think everybody put forward this concept of DevOps as, hey, business, redefine yourself around DevOps and it hasn't gone as well as a lot of people thought it would. I think what's really going to happen, I don't think you disagree with me, John, is that we need to bring more developers into cloud, building that cloud experience, building more of the application value, building more of the enterprise value in cloud. Now that's happening and they are going to start snapping this DevOps concept into place. But I think it really is going to boil down to how our developer is going to fully embrace the cloud, what's it going to look like? It's going to be multi-cloud. Let's go back to the competition. Microsoft, you're right. But they're a big SaaS player. Companies are building enormous relations, big contracts with Microsoft. They're going to be there. Google, last year, they couldn't get out of their own way. Diane Greene comes in, we see a much more focused effort. There's some real engineering that's going on for Google cloud services or platform that wasn't there before. Google is emerging as a big player. We're having a lot of conversations with users where they're taking Google very seriously. IBM is still out there, still got some things going on. You've already mentioned Alibaba, 10 cent, a whole bunch of other players in the globe. This is going to be a market that's going to be very, very contentious, but Amazon's going to get there for sure. And I think we pointed out years ago that DevOps will merge to cloud developers. You nailed it. I think you just said it. Okay, Peter Burris, here for the Amazon Webster's preview, of course, theCUBE will be there with two sets. We're going to have over 75 interviews over the course of three days in the hall. Look for theCUBE. If you watch this video, you want to come by. If you've got a ticket, it's sold out, but if you come by, if you have a ticket, we'll be there in Las Vegas for Amazon Web Services Reinvent. I'm John Furrier. Thanks for watching this CUBE Conversation for Palo Alto. Transcribed and translated by ESO, Translated by —