 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Microsoft CEO Satya Nadella sees a different future for cloud computing over the coming decade. In his Microsoft Ignite keynote, he laid out the five attributes that will define the cloud in the next 10 years. His vision is a cloud platform that is decentralized, ubiquitous, intelligent, sensing, and trusted. One that actually titillizes the senses and levels the playing field between consumers and creators by placing tools in the hands of more people around the world. Welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we'll review the highlights of Nadella's Ignite keynote, share our thoughts on what it means for the future of cloud, specifically, and the tech industry generally. We'll also give you a more tactical view of Microsoft and compare its performance within the ETR's dataset to its peers. Satya Nadella's forward-looking cloud attributes comprised five key vectors that he talked about. The first was ubiquitous and decentralized computing. Nadella made the statement that we've reached peak centralization today, that we're witnessing radical changes in computing architecture from the materials used to semiconductors, software that is going to serve a new frontier that's forming at the edge. Nadella envisions a world where there will be more sovereignty and decentralized control. We couldn't agree more. The cloud universe is expanding and the lines are blurring between what's being done on-prem across public clouds and the cloud experience, which is going to extend everywhere, including the edge. And of course, data is going to be flowing through this hyper-decentralized system. Next was sovereign data and ambient intelligence. Now to us, data sovereignty means that whatever the local laws are, the system is going to have the intelligence to govern privacy, ensure data provenance, and adhere to corporate edicts. Ambient intelligence is a field of research that leverages pervasive sensor networks and AI to respond to and anticipate humans and machines. Nadella sees the future where business logic will move from being code that is written to code that is actually learned from data. Pretty interesting. He sees this auto-didactic system, if you will, as fundamental to tackling big problems like personalized medicine or even climate change. Third, he talked about empowered creators and communities everywhere. Nadella said there'll be increasingly a balance between consumption and creation. He's talking about an economic balance. Essentially, he's predicting that creation will be democratized and his vision is to put tools in the hands of people to allow them to tip the scales toward knowledge workers, frontline employees, students, everyone, essentially creating content, applications, code, et cetera, power to the people, if you will. And underneath this vision is a new form or emerging new forms of silicon operating systems and entirely transformative digital experiences. Next was economic opportunity for the global workforce. So picking up on the accelerated themes of remote work that were catalyzed by COVID, Nadella emphasized that the future has to accommodate flexibility in how, when, and where people work. He sees a new model of productivity emerging, not necessarily defined by corporate revenue per employee, for example, but by the economic advantages that become accessible to everyone through better access to technology, collaboration tools, education, and healthy lifestyles all enabled by this ubiquitous cloud. Finally, trust by design. Nadella said that ethical principles must govern the design, development, and deployment of AI. The system, he said, must be secure by design with zero trust built in to protect business assets and personal privacy. So this was a big vision that Nadella put forth. It connects the dots between bits and atoms and sets up Microsoft to extend its reach well beyond office productivity tools and cloud infrastructure. He cited the Microsoft cloud as the underpinning of its future and specifically called out teams, he mentioned 365, HoloLens 2, and the announcement of Microsoft Mesh, a new mixed reality platform. Nadella said Mesh will do for virtual reality what Xbox Live did for gaming, take the experience from single person to multi person. Imagine holographic images with no screens empowering advances in medicine, science, technology, and very importantly, social interactions. Now, one of the things that we took away from his talk was this notion of Microsoft as a technology arms dealer. No, well not, Nadella avoided slamming the competition directly by name. One statement that he made stood out. He said no customer wants to be dependent on a provider that sells them technology on one end and competes with them on the other. And to us, this was a direct shot at Amazon, Google, and Apple. How so you ask? And what does it tell us? In his book, Seeing Digital, author David Meshella said that Silicon Valley, broadly defined, has a dual disruption agenda. What does that mean? Not only are large tech companies disrupting horizontal layers of the tech stack like compute, storage, networking, database, security applications, and so forth, but they're also disrupting industries. Amazon and media, grocery, logistics, for example, Google and Amazon and healthcare, Google and Apple and automobiles, all three in fintech. And it's likely this is just the beginning. But Nadella's posture suggests that Microsoft, for now anyway, is content being mostly a horizontal technology provider, AKA arms dealer. Now there are some examples where you could argue that Microsoft sort of crosses the line maybe as a games developer or as a SaaS competitor. Do you really want to, if you're a SaaS player, do you want to run your system on Azure and compete with Microsoft? Well, it depends. If you're vertically oriented or maybe horizontal in their swim lanes. But anyway, these are more natural cohorts to technology than say, for example, Amazon's retail business. So I thought that was something that was worth taking a look at. All right, let's take a quick look at how Microsoft compares to a couple of the great tech giants of the past several decades. Here's a financial snapshot of Microsoft compared to Oracle, a highly profitable software company and IBM, an industry legend. The first two things that jump right out of Microsoft's size and its growth rate. Microsoft is twice the revenue of IBM and nearly four X that of Oracle. And yet Microsoft's growing in the mid teens compared to low single digits for Oracle and IBM continues to shrink so ostensibly you can grow. Microsoft's gross margin model has been pulled down by its hardware business, but its operating margins are unbelievable. Meanwhile, the cash on its balance sheet is immense, much larger than Oracle's, which is very impressive. It's certainly dwarfs that of IBM. A company that had to take on a lot of debt to acquire Red Hat, and has a balance sheet that increasingly looks more like Dell's than its historical self. And look at the last two rows. Oracle and IBM, both owners of their own cloud have been lapped by Microsoft in terms of CAPEX and research and development investment. Ironically, as we pointed out, IBM's R&D spend in 2007, the year after AWS launched the modern era of cloud was comparable to that of Microsoft. Let's now pivot into some of the ETR survey data and see how Microsoft fares. We'll start by sharing a fundamental basis of the ETR methodology. That is the calculation of net score. Net score is a measure of spending momentum, and here's how it's derived. This chart shows the components of Microsoft's net score. It comprises five parts and represents the percentage of customers within the ETR survey with specific spending profiles. The lime green is new adoptions. The forest green is increased spend of 6% or more for 2021 relative to 2020. The gray is flat spend. The pinkish slice is spend declining by more than 6%, or 6% or more relative to last year. And the bright red is replacing the platform. You subtract the reds from the greens and you get net score. As you can see, Microsoft's net score is 53%, which is very high for $150 billion company. Now let's put that in context and expand the scope here a little bit. This chart shows how Microsoft fares relative to its peers. The vertical axis shows net score, again, spending velocity, and the horizontal axis shows market share. Market share measures pervasiveness in the survey. In the table insert, you can see the vendors. They're sorted by net score and the shared end column is there as well, which represents the number of shared accounts in the dataset. On both accounts, bigger is better. Now note the red dotted line. That's the 40% watermark, which is my personal indicator of an elevated net score. Anything above that in our view is really solid. Microsoft is as usual off the charts strong, well to the right with its market presence and an overall net score of 53% as we showed earlier. And then there's Azure separate from Microsoft overall. We wanted to plot that specifically, which of course it doesn't have the presence of Microsoft overall, no surprise, but it's still prominent on the X axis and it has a net score approaching 70%, which is quite amazing. AWS not surprisingly is highly elevated with a presence that's even larger than Azure. And you can see Zoom, Salesforce and Google Cloud all above the 40% line. Google, as we've reported, is well off the pace on the horizontal axis. And even though its net score is elevated, we would like to see it even higher given its smaller size relative to AWS and Azure. You know, SAP always stands out because it's a large company and it's got a net score that's hovering just under 30%. It's not above that 40% line, but it's solid. And then you can see IBM and Oracle. Now we're showing here IBM and Oracle overall. So it's the whole kitchen sink comparable to Microsoft that Turquoise dot, if you will. So you can see why those two are valued much lower than Microsoft. The large base of its business that's declining is much, much larger than the pieces of their business that are growing. Now, Oracle has some momentum. The Barron's article on February 19th, which declared Oracle a cloud giant and it declared its stock a buy, combined with some earnings upgrades, including one today from Ramo Lenshaw of Barclays, has catapulted the stock to all-time highs and evaluation over $200 billion. IBM is a different story as we've discussed frequently. Arvin has a lot of work to do to get this national treasure back to its prime. Back to its prominent self. Okay, let's now unpack Microsoft's vast portfolio a bit and see where it's doing well and where it's making moves and maybe where it's struggling some. This graphic shows Microsoft's net score, net scores across its entire product portfolio within the ETR taxonomy. And you can see it's pretty much killing it across the board. Microsoft plays in almost every sector in the ETR taxonomy and you can see the 40% red line and how many of its offerings are above that line. The Yellow Bar being the most recent survey and while there's quite a bit of gray, i.e. flat spend relative to 2020, we're talking about some very tough compares from last year. And yet there's still a huge chunk of the portfolio in the green, meaning spending momentum is actually up from last year in some of Microsoft's most important sectors like cloud and teams and analytics. Look, only Skype and Microsoft Dynamics are lagging. So really nice story there in our view. Now let's come back and take a look at Microsoft's cloud business specifically as compared to its peers. So, Satya basically said that Microsoft's future will build on top of its cloud and looking at this picture, it's pretty encouraging for the company. This chart again shows net score or spending momentum inside specifically Fortune 500 customers. It's a key bellwether in the ETR data set. And you can see Azure and Azure functions well above the 40% red line and extremely well positioned relative to AWS and GCP. Importantly, the Yellow Bar tells us that compared to previous surveys, Microsoft's cloud business is actually gaining momentum in this very important sector. Now other notable callouts on this chart VMware cloud, which is its on-prem hybrid cloud and VMware cloud on AWS, which is reportedly doing well, but off from the momentum of its highs last spring. You can see Oracle jumped up indicating cloud momentum, but still well below the performance of the largest cloud players. The IBM cloud appears to be a non-factor in the survey. And as we previously stated, we'd like to see IBM recalibrate the financials for its cloud business and come up with a reporting framework that better represents the prevailing mental model of cloud computing. We think a cleaner number would allow IBM to build on the red hat momentum. I'm not sure what to make of the HPE boost. It looks significant, but in digging into the data, it's only 17 data points. But look, 17 within the Fortune 500 companies is not terrible. And HPE's net score in that sector is more than double its overall cloud net score. So that's positive, we think. Okay, let's wrap by looking at how customers are thinking about multi-cloud adoption. And really this data that we're about to show you is simply asking customers about clouds they're using versus any type of long-term vision. So it's a good representation of what's happening today and what CIOs are thinking about in the near future, particularly over the next 12 months. The survey asks customers to describe their cloud provider usage and strategy. You can see that only 14% of the survey respondents have exclusively a monocloud strategy. But now add in another 22% who are predominantly single cloud and you now have more than a third of the customer base gravitating toward monocloud. Another 14% say they're concentrating cloud providers more narrowly. Now on the flip side, you got a big group, 29% that are moving toward multi-cloud. And if you add in the additional 16% who say they are and will continue to be evenly spread, 45% of the survey is solidly headed in that direction. So it's a mixed picture. What's the takeaway? Well, we think Angie Jassy is right when he says that while many customers use more than one cloud they tend to have a primary provider and have something like a 70, 30 or even 80, 20 split between primary and secondary clouds. Now we think however that this will change but only to the extent that the vendor community is adding value on top of the existing hyperscale clouds. What we're saying and have been saying is that there is a real opportunity to create value on top of the cloud infrastructure that's being built out by AWS, Google and Microsoft. Instead of fearing cloud, the vendor community should be embracing it, creating a layer on top, abstracting away the underlying complexities associated with cloud native, exploiting cloud native and then building on top of that. Snowflake's data cloud vision is right on in my view. We can envision virtually every layer of the stack following suit. Look, even within database there are opportunities to identify more granular segments across clouds. For example, despite Snowflake's early multi-cloud lead you're seeing competitive firms like Teradata begin to architect a system across clouds that can query data warehouses from distributed locations including on-prem as part of what they refer to as a data fabric. Sounds kind of like Snowflake's global data mesh or maybe better, Jamakthaghani's data mesh. Yeah, sure, but Teradata has capabilities that Snowflake doesn't. For example, the ability to do complex joins and we can see plenty of market for both companies to differentiate. And why shouldn't a similar vision extend from on-prem across clouds to the edge or data protection, security, governance, hybrid compute, analytics, federated applications? A huge market that the hyperscale providers are likely too busy worrying about their own wall gardens to start building across on top of their competitors clouds. So Dell, HPE, VMware, Cisco, Palo Alto, Fortinet, Zscaler, Cohesity, Veeam and hundreds of other tech companies including, by the way, IBM and Oracle should be saying thank you to AWS, Google and Microsoft for spending all that money to build out great infrastructure on which they can build value, tap for future growth. And many of you will say, hey, we're already doing this. Okay, I'll be watching to see the ratio of real versus slideware because generally today in my opinion, the denominator is much larger than the numerator. So when that ratio hits one X, we'll know it started to become real. Okay, that's it for today. Remember, all these episodes are available as podcasts wherever you listen. So please subscribe. I publish weekly on wikibon.com and siliconangle.com. Please comment on my LinkedIn poster. You can tweet me at dvolante or feel free to email me at david.volante and siliconangle.com. And don't forget to check out etr.plus for all the survey and data science action. This is Dave Vellante for theCUBE Insights powered by ETR. Be well, thanks for watching and we'll see you next time.