 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 watch an historic election unfold before our eyes, we look back at the early days of the millennium. With the memorable presidential race of 2000, that decade, of course, was defined by 9-11, which permanently reshaped our thinking. And we exited that decade at the tail end of a massive financial crisis, only to enter the 2010s with the hope and the momentum of fiscal stimulus, a flat globe, job growth, and very importantly, the ascendancy of the cloud. Cloud computing unquestionably powered the innovation engine over the last 10 years, and the pandemic marks a new era, where adoption of cloud data and AI have been accelerated by at least two to three years. And that's what's going to shape the future of the technology industry, and frankly, all businesses and organizations. Hello, everyone, and welcome to this week's episode of theCUBE Insights, powered by ETR. In this Breaking Analysis, we're going to update you on our latest cloud market share and dig into some fresh October survey data from our partners over at ETR. Let me start just with a brief summary of the latest action that's going on in cloud. Now, quite interestingly, each of the big three cloud players they showed nearly identical year on year growth rates in Q3 as they did in Q2. Now, we're going to dig into that in a moment, but our data suggests that these three companies combined will account for more than $75 billion in infrastructure as a service and platform as a service revenue in 2020. And they're potentially on track to hit 100 billion in 2021. Customer survey data indicates that CIO's top two infrastructure priorities remain security and cloud migration. Now that said, as we previously reported, the cloud, it's not immune to the pandemic. The remote worker pivot, well, it's a positive for cloud, hasn't completely eradicated certain headwinds. Now what I mean here is that because the cloud vendors are now so large, they're somewhat exposed to the softness in the overall IT spending climate and also industries that have been hit hardest by the pandemic. Now, would the cloud growth have been better if the pandemic didn't hit? Well, never know for sure, but our data suggests no, COVID has definitely been a benefactor to cloud. In our view, cloud will remain at the center of technological innovation for the foreseeable future. The economics of cloud are becoming so compelling that we think the power of the big cloud companies will only increase this decade. Now importantly, we're talking about the costs of running hyper-distributed systems. We're not commenting here on what they charge customers. That's a different story. We believe the cost structure for the hyperscalers is superior to alternative approaches and we believe this advantage will only accelerate over the next several years. We also believe the competition is going to continue to drive competitive pricing and innovation. All right, let's look at our latest market share numbers for the big three. This chart shows our estimates of AWS, Azure and the Google cloud platform. Now viewers of this program know that these are IS and PAS figures and you also know that AWS is the only company that provides clean numbers on that sector, whereas Azure and GCP are estimates that we make based on tidbits of guidance that the companies give us and survey data that we capture and other modeling that we do. Now as we've said, we'll end this year, it's about $75 billion in revenue or maybe even a little bit more. Note that for these three, note that we've slightly restated some of our earlier estimates for Azure to reconcile some differences that we had between constant currency and actual growth. We try to keep things in constant currency where possible. Sorry for that, but sometimes that happens. Azure, according to our estimates, as we reported last week is now 18% of Microsoft's overall revenue number. We had it at 19% that last week, but when I dug in, we made some adjustments. So we toned it down a bit. AWS represents a much smaller percentage of course of Amazon's revenues at about 12%, but it represents 56% of Amazon's profits. GCP, on the other hand, accounts for less than 5% of Google's overall revenue, which as we've stated a few weeks ago needs more attention from Google. But look at the growth rates for these three platforms and the respective size of their IS and PAS businesses. You hear all this talk about repatriation, i.e., what I mean by that is people go to the cloud but they're unhappy or the bill is too high, it's too expensive, so then they come back on-prem. Well, you just don't see that in the numbers. So you got to be careful when a vendor tries to sell you on that trend. I don't buy it except for selective situations. Now let's bring in some of the ETR data and compare the spending momentum for each of the big three. You've seen these wheel graphs before. They show the breakdown of net score for AWS, Microsoft, and Google. Now one note, these figures represent these three companies overall within the ETR technology taxonomy. So for example, they don't include Amazon's retail business, of course, but they do include, for example, Microsoft's entire tech portfolio, not just the cloud. The green portion of the wheel represents increases in spending via new adoptions and increased spending, whereas the red sections show decreases via lower spending and defections. Net score, which I've highlighted in the orange, is calculated by subtracting the two reds from the two greens. In other words, adoptions and increase minus decrease in replacements. The takeaway here is these are all pretty strong with AWS leading the pack. Microsoft is exceptionally strong, as we pointed out last week, because they're so huge and they still have net scores comparable to AWS, which is a pure play. GCP is a laggard and is showing softness in the data despite a sanguine outlook that we had back in 2019 based on survey data. I don't know, perhaps Google's smaller presence muted their customer's ability to take advantage of the platform. I mean, the thinking there is the customers maybe needed to pivot to the cloud so quickly and AWS and Azure were the incumbents and that was maybe the most expedient path. Hence the higher increases in the spend more category, but you do see GCP, they had 13% new adoptions, which is pretty good. So we'll keep looking at that. Regardless, again, these are not pure play cloud comparisons but they give a good indication of spending momentum. I'd also note that all three show very low defections while each is showing solid increases in new adoptions, especially Google as I mentioned. So that's kind of interesting to see. But again, Google much, much smaller, you would expect that. Now I want to turn our attention to one of the hottest areas in cloud, which is serverless. And this is a pure play comparison. So serverless, let me start there. It's a strange term, it's not really accurate, but it's stuck. Serverless computing is a model where the cloud platform dynamically delivers services as the application requires. So you don't have to configure the compute and the containers, for example, rather when an application needs resources, it goes and gets them. And you only pay for when the services are actually invoked and in use. So it's really good for workloads that spin up and spin down very frequently. It kind of reminds me in concept anyway of the component tree that we saw in the days of SOA, if you remember that, services oriented architecture. But now this is cloud, it's cloud native, it's a whole new world. And it's increasingly a popular model and as we'll show in a moment, there's a lot of spending momentum in this area. But before we do that, I want to share some comments made by Andy Jassy a while back about serverless. Take a listen. It's a good question. And I really, the comment I made was really about directionally what Amazon would do. You know, in the very earliest days of AWS, Jeff used to say a lot, if I were starting Amazon today, I'd have built it on top of AWS. We didn't have all the capability and all the functionality at that very moment, but he knew what was coming and he saw what people were still able to accomplish even with where the services were at that point. I think the same thing is true here with Lambda, which is I think if Amazon were starting today, it's a given they would build it on the cloud. And I think with a lot of the applications that comprise Amazon's consumer business, we would build those on our serverless capabilities. Now, Lambda, of course, Jassy was referring to Lambda, that's Amazon's serverless offering. And if you think about Amazon's retail business and take, for example, the frequent spin up and spin down of resources for something like Black Monday, serverless would be a much more cost-effective approach. Same for managed data warehouse service, for example, where you don't want to pay for the compute if it's idle. The app just calls for the compute when it's needed. So this is a very popular model and it's got increased momentum today. And you see that in this slide. It shows the net score breakdown for a serverless, for Azure, AWS is Lambda, which is, again, there's a serverless offering and Google Cloud Functions. Again, you're shipping functions to the application, that's why it's called functions. Look at the net scores. Azure functions nearly 70%, AWS at 65%, Google, again, lagging. And that's a bit of a concern because this is a really, really hot space. All right, let's move on and look at the competitive landscape as we like to do often and update you on that. This XY graph, it's one of our favorites and it shows net score or spending momentum on the vertical axis and market share on the horizontal. Market share is a measure of pervasiveness in the data set. In the upper right, you also see a table that ranks each vendor by net score and it includes the shared N, in other words, the number of mentions in this sector for each vendor. Now you can see up top in the middle, I've selected on the cloud computing category. So this represents only the cloud businesses for each of these players. It's a little bit of nuance here and that we've selected on Microsoft Azure. There's a category in the ETR taxonomy for that. And we're comparing that with AWS overall. So there are things in the AWS overall number that fit into the other parts of the taxonomy, like AI, maybe AI, collaboration, et cetera, whereas Azure's and GCP are just the cloud segments. So I know it's a bit strange because AWS is all cloud, but don't get caught up in the taxonomical nuance. The point is it's good to be Azure and AWS that's shown there when you look at the upper right of the chart here. They stand out and they stand alone in cloud leadership. Google cloud is, they have nice elevated levels, but they're much, much smaller. They don't have the presence in the market. Now look at that hybrid cloud zone emerging. We've talked about this sometimes in the past and I want to call it VMware cloud and AWS. Red Hat OpenShift and VMware cloud itself, like VMware cloud foundation and their other cloud services. All of these appear to be gaining traction. And you can see the number of occurrences in the upper right that's shared in that I talked about. We're starting to see real numbers that are meaningful in this space. VMware cloud and AWS, for example, has a net score of 53% with 116 accounts within that total respondent sample that you see there in the middle left of 1,438. That's how many CIOs and technology buyers responded to the ETR survey in October. You're going to OpenShift at 45% net score and that's with 82 accounts. Now OpenShift is in beta with what looked to be some really strong offerings on AWS. And you can see for context, I've added Dell EMC's cloud offerings, HPE's cloud offerings and the Oracle cloud and IBM cloud and also Rackspace. Dell actually pretty strong with a net score of 20% and 185 shared accounts, much, much higher than Dell overall, which is kind of in the red zone. Oracle, IBM, you see those Rackspace, you know, Oracle, IBM not killing it, Rackspace is kind of in the big negative. So that's a concern. But anyway, we'd like for these guys, we'd like to see the data match the marketing rhetoric for the guys that are in the red. And look, Alibaba is starting to show up in the survey. There's only 26 shared ends, but we thought we'd put it in there. There's three key points. Again, AWS and Microsoft keep on trucking. Google needs to do better. Hybrid is becoming real and that bodes well for multi-cloud and the legacy on-prem guys, they got a lot of work to do. They're under a lot of pressure. The pivot to cloud is not been easy for them. And it's still a case where they're, I've talked about this a lot. They're declines in their on-premises offerings. They're not being offset by the new stuff, the cloud momentum. All right, I want to close out by sharing some of the conversations and thoughts that we've had in the community around SaaS and its impact on cloud. We really have been focusing on IS and PAS, the SaaS layer obviously of the stack. So let me first share that there's a lot of talk around and has been for years about AWS. They're slowing growth rates and whether or not they'll have to enter the SaaS market to expand their total available market. And I say consistently, well, I never say never about AWS. I don't think so, at least not yet. This chart plots the big three cloud players. No, AWS is a bigger piece of this pie now that I've turned off the cloud computing filter. And I know more nuances, but the data wonks will see this and they'll ask me about it. This is all of AWS's portfolio. And again, it's only the Microsoft Azure portfolio. So you see AWS now overtakes Azure on the X-axis, i.e. market share. Now we've plotted some of the major SaaS vendors and you can see ServiceNow and Salesforce both very large and they have really strong spending momentum in ServiceNow's pushing $100 billion in market value. They've surpassed Workday quite some time ago. Workday's got less presence, but they've got really, really solid net score. And I gotta say, I'm impressed with SAP despite some of the earnings challenges that they've been having, they're right up there with Splunk and Tableau. Splunk has softened in recent surveys and I've also plotted in there NetSuite and Oracle Fusion, which are just okay. And that is, I think for now anyway, AWS is going to position as the best place and the most friendly and highest quality cloud in which to run your SaaS. For example, Workday runs on AWS. AWS's Salesforce is preferred infrastructure platform. So my premise here is just like retail companies might not want to run on AWS, a number of SaaS companies that compete with Microsoft, they might think twice about running on Azure. So AWS would be better off for now trying to attract those SaaS players and drive their services and sticking to infrastructure and the PAS layer. Snowflake is actually kind of interesting. I've added them for context because their net score is always kind of a bellwether. It's really off the charts. And they're an ISV running on the cloud. They're different from some of the other SaaS players and that Snowflake is a database, okay. And most of Snowflake's business runs on AWS and AWS competes with Snowflake with Redshift. But AWS has the best cloud and drives a lot of business for Snowflake and vice versa. So it's kind of interesting. Snowflake to Redshift in a very much smaller example is kind of like Netflix to Amazon Prime Video. To compete, they both thrive. So I think AWS is going to continue to grow by attracting SaaS players as the preferred platform. And they'll also attract developers and try to disrupt SaaS players like ServiceNow, which runs on its own cloud. I remember years ago, David Floria and I said that ServiceNow was awesome. But at some point, its infrastructure cost structure, is infrastructure cost structure is going to be less competitive than those companies that are running on hyperscale clouds, certainly the hyperscale clouds themselves. And ServiceNow, they have this multi-instance architecture which just can't easily pour it over to the cloud. But it can charge a lot, which it does. Now at some point, some sharp developers are going to look at all this and say, whoa, see that ServiceNow, I can build this for less. And they'll attack ServiceNow and their seat-based license model. Maybe with the consumption pricing model and a platform that's perhaps or a set of services that are perhaps less expensive. You're seeing this to a certain degree with like elastic inside the application performance management space. So there's some things to watch there. But there are those who firmly believe that AWS will and must enter the SaaS space directly. We talked last week about how beneficial Microsoft's application business is for Azure and what a flywheel that is. But for me, I think we're not there yet. Let's give it some time. I think maybe four or five years before AWS may even start to think about filling some of the space up the stack. Now maybe they'll find some unique opportunities to do that, for instance, at the edge, but I think that's way off. Okay, so bottom line, it's good to be in tech these days. It's even better to be in the cloud and it's best if you're AWS and Microsoft. And I'll see that changing for a while. Now remember, these episodes are all available as podcasts wherever you listen. I publish each week on wikibon.com and siliconangle.com. You can get in touch with me through email, it's david.volante at siliconangle.com. Feel free to DM me on Twitter at dvolante. I post on LinkedIn, love your comments there, thank you. And don't forget to check out ETR Plus for all the survey action. Thanks for watching this episode of theCUBE Insights powered by ETR. This is Dave Volante, stay safe, stay sane and we'll see you next time.