 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Cloud repatriation is a term often used by technology companies, the ones that don't operate a public cloud. The marketing narrative most typically implies that customers have moved work to the public cloud and for a variety of reasons, expense, performance, security, et cetera, are disillusioned with the cloud, and as a result, are repatriating workloads back to their safe, comfy, and cost effective on-premises data center. While we have no doubt this does sometimes happen, the data suggests that this is a single-digit, de minimis phenomenon. Hello and welcome to this week's Wikibon Cube Insights, powered by ETR. Some have written about the repatriation myth, but in this Breaking Analysis, we'll share hard data that we feel debunks the narrative and is currently being promoted by some. We'll also take this opportunity to do our quarterly cloud revenue update and share with you our latest figures for the big four cloud vendors. Let's start by acknowledging that the definition of cloud is absolutely evolving and in this sense, much of the vendor marketing is valid. No longer is cloud just a distant set of remote services that lives up there in the cloud. The cloud is increasingly becoming a ubiquitous, sensing, thinking, acting set of resources that touches nearly every aspect of our lives. The cloud is coming on-prem and work is being done to connect clouds to each other and the cloud is extending to the near and far edge. There's a little question about that. Today's cloud is not just compute, storage, connectivity and spare capacity, but increasingly it's a variety of services to analyze data and predict slash anticipate changes, monitor and interpret streams of information, apply machine intelligence to data, to optimize business outcomes, it's tooling to share data, protect data, visualize data and bring data to life, supporting a whole new set of innovative applications. Notice there's a theme there, data. Increasingly the cloud is where the high value data lives from a variety of sources and it's where organizations go to mine it because the cloud vendors have the best platforms for data. And this is part of why the repatriation narrative is somewhat dubious, actually a lot dubious because the volume of data in the cloud is growing at rates much faster than data on-prem at least by a couple of thousand basis points by our estimates annually. So cloud data is where the action is and we'll talk about the edge in a moment, but a new era of application development is emerging with containers at the center. The concept of right wants run anywhere allows developers to take advantage of systems that run on-prem say a transaction system and tap data from multiple sources in various locations that might be multiple clouds or at the edge or wherever and combine that with immense cheap processing power that we've discussed extensively in previous breaking analysis episodes and you see this new breed of apps emerging that's powered by AI, those are hitting the market. So this is not a zero sum game. The cloud vendors have given the world an infrastructure gift by spending like crazy on CapEx more than a hundred billion last year on CapEx for example for the big four. And in our view, the players that don't own a cloud should stop being so defensive about it. They should thank the hyperscalers and lay out a vision as to how they'll create a new abstraction layer on top of the public cloud. And you know, that's what they're doing and they'll certainly claim to be actively working on this vision, but consider the pace of play between the hyperscalers and their traditional on-prem providers. We believe the innovation gap is actually widening when the public cloud players are accelerating their innovation lead and will 100% compete for hybrid applications. They have the resources, the developer affinity, they're doing custom silicon and have the expertise there and the TAM expansion goals that loom large. So while it's not a zero sum game and hybrid is definitely real, we think the cloud vendors continue to gain share most rapidly unless the hybrid crowd can move faster. Now, of course there's the edge and that is a wild card, but it seems that again the cloud players are very well positioned to innovate with custom silicon, programmable infrastructure, CAPEX buildouts at the edge and new thinking around system architectures. But let's get back to the core story here and take a look at cloud adoptions. You hear many marketing messages that call into question the public cloud at its recent think conference, IBM CEO, Arvind Krishna said that only about 25% of workloads had moved into the public cloud and he made the statement that, you know, this might surprise you. Implying that you might think it should be much higher than that. Well, we're not surprised by that figure, especially if you narrow it to mission critical work, which IBM does in its annual report. Actually, that's probably high for mission critical work moving to the cloud. We think it's a lot lower than that. But regardless, we think there are other ways to measure cloud adoption. This chart here from David Michele's book, Seeing Digital shows the adoption rates for major technological innovations over the past century. And the number of years, how many years it took to get to 50% household adoption? Electricity took a long time as the telephones that infrastructure, the last mile build out. Radios and TVs were much faster given the lower infrastructure requirements. PCs actually took a long time and the web around nine years from when the mosaic browser was introduced. We took a stab at estimating the pace of adoption of public cloud. And within a decade, it reached 50% adoption in top enterprises. And today that figures easily north of 90%. So as we said, at the top cloud adoption is actually quite strong. And that adoption is driving massive growth for the public cloud. Now we've updated our quarterly cloud figures and want to share them with you. Here are our latest estimates for the big four cloud players with only Alibaba left to report. Now remember only AWS and Alibaba report clean or relatively clean IaaS figures. So we use survey data and financial analysis to estimate the actual numbers for Microsoft and Google. It's a subset of what they report. In Q121, we estimate that the big four IaaS and PAS revenue approached 27 billion. That's Q121. That figure represents about 40% growth relative to Q1 2020. So our trailing 12 month calculation puts us at 94 billion. So we're now on roughly a 108 billion dollar run rate. As you may recall, we predicted that figure will surpass 115 billion by year end when it's all said and done. AWS, it remains the leader amongst the big four with just over half of the market. That's down from around 63% for the full year of 2018. Unquestionably, as we've reported Microsoft, they're everywhere, they're ubiquitous in the market and they continue to perform very well. But anecdotally, customers and partners in our community continue to report to us that the quality of the AWS cloud is noticeably better in terms of reliability and overall security, et cetera. But it doesn't seem to change the trajectory of the share movements as Microsoft's software dominance makes doing business with Azure really easy. Now, as if this recording Alibaba has yet to report but will update these figures once their earnings are released. Let's dig into the growth rates associated with these revenue figures and make some specific comments there. This chart here shows the growth trajectory for each of the big four. Google trails the pack in revenue but it's growing faster than the others from, of course, a smaller base. Google is being very aggressive on pricing and customer acquisition. To that we say, good, Google needs to grow faster in our view and they most certainly can afford to be aggressive. As we said, combined, the big four are growing revenue at 40% on a trailing 12 month basis and that compares with low single digit growth for on-prem infrastructure. And we just don't see this picture changing in the near to midterm. Like storage growth, revenue from the big public cloud players is expected to outpace spending on traditional on-prem platforms by at least 2,000 basis points for the foreseeable future. Now, interestingly, while AWS is growing more slowly than the others from a much larger $54 billion run rate, we actually saw sequential quarterly growth from AWS and Q1, which breaks a two-year trend from where AWS's Q1 growth rate dropped sequentially from Q4. Interesting. Now, of course, at AWS, we're watching the changing of the guards, Andy Jassy becoming CEO of Amazon, Adam Salipski boomeranging back to AWS from a very successful stint at Tableau and Max Peterson taking over for AWS's public sector replacing Theresa Carlson, who is now president and heading up, go to market at Splug. So lots of changes and we think this is actually a real positive for AWS. As it promotes from within, we like that it taps previous Amazon DNA from Tableau slash Salesforce and it promotes the head of AWS to run all of Amazon, a signal to us that Amazon will dig its heels in and further resist calls to split AWS from the mothership. So let's dig in a little bit more to this repatriation myth buster theme. The revenue numbers don't tell the entire story. So it's worth drilling down a bit more. Let's look at the demand side of the equation and pulling some ETR survey data. Now to set this up, we want to explain the fundamental method used by ETR around its net score metric. Net score measures spending momentum and measures five factors as shown in this wheel chart. It shows the breakdown of spending for the AWS cloud. It shows the percentage of customers within the platform that are either one, adopting the platform new. That's the lime green in this wheel chart. Two, increasing spending by more than 5%. That's the forest green. Three, flat spending between plus or minus 5%. That's the gray. And four, decreasing spend by 6% or more. That's the pink and finally five, replacing the platform. That's the bright red. Now dare I say that the bright red is a proxy for or at least an indicator of repatriation. Sure, why not? Let's say that. Now net score is derived by subtracting the reds from the greens. Anything above 40%, we consider to be elevated. AWS is at 57%, so very high. Not much sign of leaving the cloud nest there, but we know it's nuanced and you can make an argument for corner cases of repatriation, but come on, the numbers just don't bear out that narrative. Let's compare AWS with some of the other vendors to test the theory theory a bit more. This chart lines up net score granularity for AWS, Microsoft and Google that compares that to IBM and Oracle. Now, other than AWS and Google, these figures include the entire portfolio for each company, but humor me and let's make an assumption that cloud defections are lower than the overall portfolio average because cloud is more momentum, it's getting more spending. So just stare at the red bars for a moment. The three cloud players show one, two and 3% replacement rates, respectively. But IBM and Oracle, while still in the single digits, which is good, show noticeably higher replacement rates and meaningfully lower new adoptions in the lime green. As well, the spend more category in the forest green is much higher within the cloud companies and the spend less in the pink is notably lower. And you can see the sample sizes on the right hand side of the chart. We're talking about many hundreds, over 1300 in the case of Microsoft. And if we look, if we put HPE or Dell on the charts, it would send several hundred responses, many hundreds. It would look similar to IBM and Oracle where you have higher reds, a bigger fat middle of gray and lower greens. It's just the way it is. It shouldn't surprise anyone. And it's, you know, these are respectable, it's just what happens with mature companies. So if customers are repatriating, there's a little evidence here. We believe what's really happening is that vendor marketing people are talking to customers who are purposefully spinning up test and dev work in the cloud with the intent of running a workload or portions of that workload on-prem. And when they move into production, they're counting that as repatriation and they're taking liberties with the data to fund the market. Okay, well, that's fair game and all's fair in tech marketing, but that's not repatriation. That's experimentation or sandboxing or testing and deving. It's not I'm leaving the cloud because it's too expensive or less secure or doesn't perform for me. We're not saying that those things don't happen, but it's certainly not visible in the numbers as a meaningful trend that should factor into buying decisions. Now, we perfectly recognize that organizations can't just refactor their entire application portfolios into the cloud and migrate. And we also recognize that lift and shift without a change in operating model is not the best strategy. In real migrations, they take a long time, six months to two years. I used to have these conversations all the time with my colleague, Stu Miniman. And I spoke to him recently about these trends and I wanted to see if six months at Red Hat and IBM had changed his thinking on all this. And the answer was a clear no, but he did throw a little Red Hat Kool-Aid at me saying that the way they think about the cloud blueprint is from a developer perspective. Start by containerizing apps and then the devs don't need to think about where the apps live, whether they're in the cloud, whether they're on-prem, whether they're at the edge. And Red Hat, the story is brings a consistency of operations for developers and operators and admins and the security team, et cetera. Or on any platform, but I don't have to lock in to a platform and bring that everywhere with me. I can work with anyone's platform. So that's a very strong story there and it's how Arvin Krishna plans to win what he calls the architectural battle for hybrid cloud. Okay, so let's take a look at how the big cloud vendors stack up with the not so big cloud platforms and all those in between. This chart shows one of our favorite views, plotting net score or spending velocity on the vertical axis and market share or pervasiveness in the dataset on the horizontal axis. The red shaded area is what we call the hybrid zone and the dotted red lines, that's where the elite live. Anything above 40% net score on the vertical axis, we consider elevated anything to the right of 20% on the horizontal axis implies a strong market presence. And by those KPIs, it's really a two horse race between AWS and Microsoft. Now as we suggested, Google still has a lot of work to do and if they're out buying market share, that's a start. Now you see Alibaba shown in the upper left hand corner, high spending momentum but from a small sample size as ETR's China responded level is obviously much lower than it is in the US, Europe and the rest of APAC. Now that shaded red zone is interesting and gives credence to the other big non-cloud owning vendor narrative that is out there that is the world is hybrid and it's true. Over the past several quarters, we've seen this hybrid zone performing well. Prominent examples include VMware cloud on AWS, VMware cloud, which would include VCF, VMware cloud foundation, Dell's cloud which is heavily based on VMware and red hat open shift which perhaps is the most interesting given its ubiquity as we were talking about before. And you can see it's very highly elevated on the net score axis, right there with all the public cloud guys. Red hat is essentially the Switzerland of cloud which in our view puts it in a very strong position. And then there's a pack of companies hovering around the 20% vertical axis level that are hybrid. That by the way, you see OpenStack there, that's from a large telco presence in the data set but anyway, you see HPE, Oracle and IBM. IBM's position in the cloud just tells you how important red hat is to IBM. And without that acquisition, IBM would be far less interesting in this picture. Oracle is Oracle and actually has one of the strongest hybrid stories in the industry within its own little or not so little world of the red stack. HPE is also interesting and we'll see how the big green lake to as a service pricing push will impact its momentum in the cloud category. Remember, the definition of cloud here is whatever the customer says it is. So if a CIO says we're buying cloud from HPE or IBM or Cisco or Dell or whomever, we take her or his word for it. And that's how it works. Cloud is in the eye of the buyer. So you have the cloud expanding into the domain of on-premises and the on-prem guys finally getting their proverbial acts together with hybrid that they've been talking about since 2009. But it looks like it's finally becoming real. And look, it's true. You're not going to migrate everything into the cloud, but the cloud folks are in a very strong position. They are on the growth flywheel as we've shown that each have adjacent businesses that are database disruptive and dominant, whether it's a retail or search or a huge software estate. They are winning the data wars as well. That seems to be pretty clear to us. And they have a leg up in AI and I want to look at that. Can we all agree that AI is important? I think we can. Machine intelligence is being infused into every application. And today, much of the AI work is being done in the cloud as modeling. But in the future, we see AI moving to the edge in real time and real time inferencing is a dominant workload. But today, again, 90% of it is building models and analyzing data. A lot of that work happens in the cloud. So who has the momentum in AI? Let's take a look. Here's that same X, Y graph with the net score against market share and look who has the dominant mind share and position and spending momentum. Microsoft, AWS and Google. You can see in the table in certain lower right hand side, they're the only three in the data set of 1500 responses that have more than a hundred N. AWS and Microsoft have around 200 even more in the case of Microsoft. And their net scores are all elevated above the 60% level. Remember that 40%, that red line indicates the elevation mark, the high elevation mark. So the hyperscalers have both the market presence and the spend momentum. So we think the rich get richer. Now they're not alone. There are several companies above the 40% line. Databricks is bringing AI and data science to the world of data lakes with its managed services and it's executing very well. Salesforce is infusing AI into its platform by Einstein. You got SAP on there. And a condo is kind of the gold standard that platform for data science. And you can see C3.ai is Tom Siebel's company going after enterprise AI. And DataRobot, which like C3.ai is a small sample in the data set but they're highly elevated and they're simplifying machine learning. Now there's IBM Watson. It's actually doing okay. I mean, sure, we'd like to see it higher given the Ginny Rometti essentially bet IBM's future on Watson but it has a decent presence in the market and a respectable net score. And IBM owns a cloud. So okay, at least it's a player. Not the dominance that many had hoped for when Watson beat Ken Jennings and Jeopardy back 10 years ago, but it's okay. And then there's Oracle and they're now getting into the act. Like it always does, they're watch, they watch, they waited, they invested, they spent money on R&D and then boom, they dove into the market and made a lot of noise and acted like they invented the concept. Oracle is infusing AI into its database with autonomous database and autonomous data warehouse. And look, that's what Oracle does. It takes best of breed industry concepts and technologies to make its products better. You got to give Oracle credit. It invests in real tech and it runs the most mission critical apps in the world. You can hate them if you want but they smoke everybody in that game. All right, let's take a look at another view of the cloud players and see how they stack up and where the big spenders live in the all important Fortune 500. This chart shows net score over time within the Fortune 500. AWS is particularly interesting because its net score overall is in the high 50s but in this large big spender category, AWS's net score jumps noticeably to nearly 70%. So this is a strong indication that AWS the largest player also has momentum not just with small companies and startups but where it really counts from a revenue perspective in the largest companies. So we think that's a very positive sign for AWS. All right, let's wrap. The realities of cloud repatriation are clear. Corner cases exist but it's not a trend to take to the bank. Although many public cloud users may think about repatriation, most will not act on it. Those that do are the exception, not the rule and the ETR data shows that. Test and dev in the clouds is part of the cloud operating model. Even if the app will ultimately live on-prem, that's not repatriation. That's just smart development practice. And not every workload will or should live in the cloud. Hybrid is real, we agree. And the big cloud players know it and they're positioning to bring their stacks on-prem and to the edge. And despite the risk of lock in and higher potential monthly bills and concerns over control, the hyperscalers are well-compositioned to compete in hybrid. To win hybrid, the legacy vendors must embrace the cloud and build on top of those giants and add value where the clouds aren't going to or can't or won't. They got to find places where they can move faster than the hyperscalers and so far they haven't shown a clear propensity to do that. Hey, that's how we see it. What do you think? Okay, well remember, these episodes are all available as podcasts wherever you listen, enjoy a new search, breaking analysis podcast. And please subscribe to the series. Check out ETR's website at ETR.plus. We also publish a full report every week on wikibon.com and siliconangle.com. A lot of ways to get in touch. You can email me at David.Valante at siliconangle.com or DM me at dvalante on Twitter. Comment on our LinkedIn post. I always appreciate that. This is Dave Valante for theCUBE Insights, powered by ETR. Have a great week, everybody. Stay safe, be well, and we'll see you next time.