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Breaking Analysis: re:Invent 2019: AWS Gears up for Cloud 2.0

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>> From the SiliconANGLE Media office in Boston, Massachusetts, it's theCUBE Now here's your host, Dave Vellante

>> Hello everyone and welcome to this week's episode of theCUBE insights, powered by ETR In this Breaking Analysis, we're going deep into AWS In a couple of weeks, theCUBE is going to be at the eighth AWS Reinvent, which will be our seventh year of having theCUBE at that show You know, reinvent has really become the Super Bowl for enterprise tech innovation And, ahead of the event, what I want to do is talk about the revolution of cloud, and the impact that it's having on the industry

And of course, I want to dig in to some of the data using the ETR data set Before I do that, let me first say that the cloud 20, which is a term that we've been using, is becoming a reality This is something that John Furrier and I talk about a lot here at theCUBE and at SiliconANGLE The cloud is not about an incremental transition, it's really about transformation

We're talking here about the end to end modernization of the enterprise The game is changing, and the engine of innovation is really being driven by new architectures, and these architectures have built around a few items Data, machine intelligence, and of course cloud, for scale We feel like what we are witnessing is the build out of this massively scalable distributed system And this system is transforming businesses, and really enabling entire new companies and business models to emerge

The cloud is the under pitting of this digital revolution, and virtually every industry is going to be disrupted, no industry is safe All right, let's get right to it So, the key questions that I want to explore in this session, let's start with the spending patterns We're going to look at the ETR survey data, and what services are attracting the most action inside cloud, and which vendors are winning? I then want to look at the market share data from a couple of angles I'll look at ETR data, I'll talk about some other market data

Then we're going to drill into some of the services that are critical to innovation, and I specifically want to look at databases in particular analytic data stores And then I want to look at the data and analytic services at AI, machine intelligence, and then I want to look at the data around containers and functions, like Lambda, which are very hot right now Then, we're going to share some data on how the cloud is impacting the so called, "old guard" This is a pejorative term that Andy Jassy coined to refer to the legacy enterprise tech providers Then I want to make some comments about the AWS ecosystem, it's getting a lot of chatter lately

And then I want to share some thoughts on what you can expect this year at Reinvent, and then I'll wrap So the first data point that I want to show you here really draws on ETR's latest survey of 1,336 respondents So what this chart does is it cuts the data, and it's showing just the cloud sector ranked by net score Now remember, net score is a measure of spending momentum Okay? So you can see where the action is

So at the top, you see Azure Functions and AWS Lambda popping right up Look at their net scores, they've got a net score of 74% and 71% respectively You can see Azure overall, this is the overall Azure business that's right up there as well, and of course AWS overall, so people responded AWS is right there Very, very high, but it's dropped a little bit below Azure We'll talk about that more in a moment

Then you can see VMware Cloud on AWS, it's got strong momentum, which is a real positive You've got Google Cloud Functions, again, Functions very hot right now Open Shift from Red Hat, GCP is up there, VMware Cloud Then you've got Alibaba Alibaba's only got 18 mentions, whereas the others have much higher shared in, so I'm not going to really put too much weight on that

And you can see the other folks as well on that chart But also you can you can point out the functions The Azure functions, and services like Lander, Lambda, are gaining really a lot of momentum in the marketplace, and I think point to a new mode of compute What I want to do now is I want to isolate in this chart, the big 3 in cloud, and put them into context with a legacy player, you know, namely IBM I'm not trying to pick on the legacy guys, but I think it's good for context

So as you can see here, Azure and AWS, they've been neck and neck battling it out in the last 10 surveys or so And you can see even Google, somewhat behind, but it's still got pretty strong spending momentum Now, these figures overall are trending down relative to the expectations earlier in the year This is something that we've talked about, that spending is reverting back to pre '18 levels, not falling off a cliff, still solid in the grand scheme of things So you can see, you know, net scores here are well above 50% for AWS and Azure

Now take a look at IBM The ETR data shows them in the red zone, with a net score of 16% That is not a surprise, that they're behind the Big 3 And I've said many many times, here's the thing, IBM and Oracle, I'm not showing Oracle here, they're at least in the cloud game Think about it, HP had the public cloud, they had to tap out

Cisco, they don't have a public cloud Dell EMC, even VMware, they don't have a public cloud So at least IBM and Oracle have a cloud play, where they can take their SaaS business and run it, and get vertically integrated and some operating leverage Okay, I'm going to switch gears a little bit and talk about market share And we want to focus here on the battle between Azure and AWS

We all know Microsoft is growing faster, but AWS is much larger And this is something that AWS CEO Andy Jassy, he takes a lot of time to explain to the analyst, and to the crowd at Reinvent Let's take a look at what Jassy said last year at Reinvent on this topic, and then we'll come back >> So if you look at the provider who most people think is the second place provider in this space, in their last financials they grew 76% year over year And you can look at that and say, "Oh, 76% is more than 46%

" But if you look at it in reality, that 76% represents about a billion dollars of growth year over year If you look at the 46% growth of AWS on that much larger base, that represents $21 billion of growth year over year So more than double that So AWS not only has a significant market segment leadership position in share, but also on an absolute revenue basis is growing meaningfully faster than anybody else

>> Okay so, think about what Jassy said He was using Q3 data and he said that AWS had a $27 billion run rate business And if you look at those charts that I showed, or he showed, it looked like the yellow bar, which was Microsoft, even though they didn't say, you know, "the company that shall not be named" It was about 1/3 the size of AWS, so where would that put Microsoft? Somewhere around 9 billion last year, on kind of an apples to apples run rate basis, using those extrapolated market data that Jassy showed By the way, ironically, this is about what AWS did last quarter which you can see here on this chart that I'm showing you

You might remember, I showed you this chart in a previous episode of Breaking Analysis And what it shows is AWS' quarterly revenue on the blue bars, and the growth rate on the right hand axis, that's the red line And you can see Jassy talked about 46% growth And you can see that in Q3 last year, and then look how its moderated

It's 35% in Q3 in 2019, the last quarter that they announced So Jassy is right AWS is growing slower than Microsoft last year, which was growing in the mid-70's But Microsoft was 59% last quarter so that trend is continued If, you know, that's if you believe Microsoft numbers, which are really not clean

It's hard to say sometimes with all the SaaS in there, and Office 365, LinkedIn, I don't know what else is in there but we try to parse that out Regardless, Jassy's point that size matters is still correct But, Microsoft is closing the gap I talked to the Wikibon team recently, and they think that AWS is going to come in at $35 billion dollars in revenue this year And they have Microsoft's IS business at around $15 billion

So that's 43% of AWS's business versus 33% at this time last year So you can see that Microsoft is closing that gap AWS is still adding $8 billion a year in growth, but Microsoft is definitely catching up So what is the spending data show? Let's take a look here at the ETR data, and see what they say about market share Now, remember, in the ETR parlance market share is a measure of how pervasive a vendor is within the data set

And as you can see here, it maps pretty well to the market estimates that I was just talking about Although it actually appears that in these lines that AWS is widening that lead But you can see in the net scores, by the way, this is net scores across all sectors, not just cloud computing, so it pulls in the other segments But none the less, you can see Azure has a somewhat higher net score which indicates stronger spending intentions So that pretty much fits what we see in the market for the most part

Now it's not all rosy for Microsoft You know, they are super strong in the ETR data set across the board, but specifically in cloud So that's important, I don't want to lose sight of that, but I want to share something that Gartner said recently, and it's a 2019 magic quadrant on cloud computing Microsoft Azure's reliability issues continue to be a challenge for customers, largely as a result of Azure's growing pains Since September of 2018, Azure has had multiple service-impacting incidents, including significant outages involving Azure active directory

The nature of many of these outages is such that customers had no controls in order to mitigate the downtime So, caution is what Gartner said So despite the great numbers and the fact that Azure is gaining, it's having growing pains For years I've talked about the economies of scale for AWS due to its automation I talked about the companies marginal economics at volume, and you can see it in the firm's operating margins

The question to ask, is Microsoft running into dis-economies at scale, due to it's large install base, and does it have technical debt? Because it's jamming large software estate into Azure, and having to preserve the past while trying to innovate for the future I don't know, and it's hard to tell because Microsoft is so big and so profitable, but it's something that CIO's definitely should keep an eye on Now, I want to look at some key sectors here and evaluate how AWS is doing in some of the areas where we see really innovation And I want to start in the all important data base area Now I'm going to focus here on analytic databases, and data warehouses, and I think there's some interesting trends going on here

So this is a cut of the ETR data warehouse segment Now I've talked about Snowflake in the previous episodes of Breaking Analysis, and you can see why Snowflake has a net score of 71% They're one of the highest and most interesting newer companies in this space and in the ETR data set You can see AWS doing very well, and I want to make some comments on both Snowflake and AWS Redshift

But before I do that, look at Oracle and Teradata on this chart What you see here is the classic innovator's dilemma It's at play where AWS and Snowflake, you can see them, they're solidly in the green, and you got the two legacy players affirmly in the red So I include them as reference points But I want to come back to Redshift and Snowflake, because I feel like there's something new going on in cloud

Where cloud 10 was all about IS and compute and storage and throw in some data base, there's this new trend emerging that's really driving new workloads And this data that now sits in the cloud, it's maybe stored in S3, and customers are using data stores like Redshift and Snowflake to get more insights out of that data They're bringing tools like data bricks into the equation, and really driving a whole new set of work loads that are not just about provisioning infrastructure, but really extracting insights much more quickly from the data and applying it to your business And for AWS, it's driving tons of compute sales and customers are getting more value out of their data

Now, here's the interesting thing Redshift and Snowflake are both best in class modern data warehouses, they seem to be coexisting, they're both thriving, you know, why is that? They're both MPP columnar stores, so they've got many similar attributes, but I think what it comes down to really is what I call horses for courses I don't have time to dig into it today, but when you peel back the onion, what you find is different approaches to things like architecture, security, scaling, different philosophies, pricing, different feature sets So it really comes down to the best strategic fit, and for now it looks like to me, there's room for both platforms They're both doing very well from a spending momentum perspective

We'll see how that plays out over time Let's now take a look at the analytic sector Now here, we're talking about things like Amazon's quarry services, elastic map reduce, search kinesis, quick site glue, streaming, those kinds of tooling You can see in this chart that AWS is very strong and it leads Microsoft by a small margin in the ETR data set Now for comparison, and again, I'm not trying to pick on the legacy players, but I think it's important to provide context, and when it comes to spending momentum, the data doesn't lie

You can see here, IBM they've had a sizeable and very impressive set of capabilities in the analytic space, but you can see where the buyers are placing their bets Now, what I'm showing you now in this next chart is a similar view, but this time I'm showing ETR market share for both AI and the machine learning segment So for context I've added IBM Watson Remember, market share for ETR is a measure of pervasiveness, not only to AWS and Microsoft, though they're battling it out for the top spot, but they got stronger spending momentum as you can see by the net scores Look at Watson, I mean, it's respectable in the ETR data, but it just doesn't have the scale of the top two players

Okay, finally, I want to look at the container space It's hot and I want to focus on Lambda from AWS So what we're showing here is the net scores for Lambda, and Amazon's elastic container service And you can see Lambda, very very strong ECS is tapering a little bit, it's showing less momentum overtime, but still well over 50% net score

But look at Pivotal Cloud Foundry, they've showed a steady down term over time This underscores the work that VMware and Pat Gelsinger have to do with one of their newest acquisitions As in aside, this is an opportunity for VMware, which in my opinion, I've said they really need to get their developer act together, really to drive new innovation And by the way, Pivotal just had some layoffs, but my understanding that it was not in engineering but rather folks that VMware saw as redundant, rolls that they already had in place The bottom line is, Pivotal has been steadily losing momentum in the ETR surveys

But look, a 27 net score is not a disaster by any means I said on my last Breaking Analysis, that if I were Michael Dell, I'd dedicate a thousand engineers to open sources, using Pivotal to really appeal to developers, and make his hardware run better on the open source tooling and apps that these thousand build And make his infrastructure programmable This is how the edge is going to be won It's not going to be by throwing boxes over the top of the fence, but really a bottoms up by devs

I digress The last data point that I want to share here is really designed to address the question, how is the cloud impacting what Jassy calls the "old guard?" So this view shows market share, which again is defined by ETR, remember they do the math to measure the pervasiveness of a vendor in their data set And they call that market share And I've cut that data by just the cloud spenders So those buyers spending heavily, and I've isolated on AWS, Azure, and Google Cloud

And how their spending on traditional vendors has changed overtime And I'm picking out Cisco, HPE, Dell EMC, and Oracle And the story you can see is clear They came out of the downturn in 2010, and the big guys who were holding their breath, and they came up for air and they saw lots of pet up demands, so they did pretty well But the cloud has continued to slowly eat away at their share, and their spending momentum as seen by the net scores in this table, has been affected

But look at Cisco They actually have quite a strong net score, its 37% So to me, by the way, this makes sense And I think Cisco is in a good position to connect clouds and secure data moving across clouds But the cloud, it's long steady march continues

And we are entering a new era that I think is only going to see greater share gains for the cloud in my view By the way, I don't want to just, back to my rant about the edge in programmable infrastructure, and how developers are going to win the edge Cisco with Devnet is actually in a pretty good position here, and done a good job And I think they're one of the few, if not the only legacy player that is going to figure this out Now before I close, I want to make a few comments on the ecosystem, and give a glimpse as to what to expect at Reinvent in 2019

All right first the ecosystem There's a lot of sort of chatter, and griping, and concerns around AWS cannibalizing the ecosystem partners And I think frankly, that concern has merit You know when AWS has this insane customer focus, you can pretty much take that to the bank If a customer wants something and expresses that to AWS, and they see a space to fill where it can leverage that flywheel that they always talk about at ad services, AWS is not going to sub optimize it's portfolio to protect it's partner

It's going to go hard after it So as a partner of AWS, it's up to you to keep innovating and moving fast And that's hard, because AWS is probably moving faster than you are But you know, you can still specialize as a partner, and thrive as a best debride player I mean, look at the Snowflake example

There's plenty of opportunities out there in security, backup, governess, machine intelligence, work flow, edge, and of course, there's the infamous multi cloud opportunity And I saw infamous because AWS doesn't use that term, you're not going to see it on the floor of Reinvent this year because it's frankly not allowed AWS is very controlling over the messaging that it puts out to it's customers, and that includes the rules of the ecosystem if you want to go to their show But you'll hear plenty of side conversations about multi cloud, and we're certainly going to be talking about it on theCUBE Is multi cloud a symptom of multi vendor? You know what I think on this topic

I think it's more than that than it is a strategy But CIO's are now being asked to clean up the multi cloud mess, so it does have merit But it creates complexity, and that means opportunity for partners So multi cloud is white space for the ecosystem, as is hybrid, and on prim connectivity, so partners are hedging their bet, they're supporting multiple clouds, and they're partnering with Azure and Google, and that makes sense to do so But here's the thing

Cloud 20 is getting more complex AI, new workloads, edge, new use cases, machine learning, more API's, more services, more complicated pricing These are confusing matters for customers, and partners can help simplify this As well, thinking about competition with Microsoft, Microsoft is kind of an easy choice

If you're already a Microsoft software customer, (murmurs) So partners need AWS, and AWS need partners to help them deliver solutions to go to market, and keep it simple John Furrier says this a lot, that winning in the enterprise requires salesmanship, and AWS partners, they're a powerful channel, so AWS has to lean on this channel to really create solutions for customers and simplify Okay, let's talk about what to expect at Reinvent 2019, and I want to start with storage Jeff Bar put out a blog post announcing a series of new storage offers around block store, new gateways, S3 replication, a new Windows file server capabilities, and stronger emphasis on file storage Now, most of the world's data is stored on file, and AWS is expanding it's portfolio

It started with S3 object, back in 2006, and then EBS, block store, and now a big emphasis on file services So I expect to hear a lot about that, and as well, we're going to hear about outpost What progress has Amazon made with outpost? What's the status? What's the vision for outpost? How does it fit in at the edge? You know as I just said in my rant earlier, the edge is all about developers, and I like AWS' edge approach I think AWS has the right perspective It's very devs centric

It's bottoms up from devs, not over the top like many of the box sellers Now at Reinvent, you're probably going to hear more about unplugging Oracle databases, certainly security is going to be a big focus, as will AI and machine learning I also expect a lot on transformation of industries As Microsoft continues to grow in IS, expect AWS to somehow try to change the game again And I'm not sure AWS can win the battle head on with CIO's

Rather, I think AWS is really going to focus on this duel disruption agenda, both within the horizontal technology stack but also within industries In other words, expect AWS to increasingly focus on enabling industry transformation in different segments, like media, health care, financial services, manufacturing, government, automobiles, telco, virtually every vertical This dual disruption agenda, both in the tech stack and within industries, its in AWS's DNA because it's in Amazon's DNA It's driven by Jeff Bezos at the top Now in closing, I want to stress again, the cloud 2

0 is here, and it's getting more complex The so called "old guard" is hanging on to it's install basis, but in many ways, it's working hard to get simpler Now are these two domains going to collide together and create an equilibrium in the cloud native wannabes and the cloud native guys? Probably not functionally, but there are a lot of opportunities for the big whales to capitalize on this industry consolidation, and compete by simplifying their experience enough to keep customers hanging around You know, don't forget, the enterprise business for years has relied on high touch specials, and unique requirements, and that's the wheelhouse for the legacy players, it's not AWS' And maybe this approach is going to continue to pick away at those opportunities with repeatable and automatible solutions

So this should be really interesting to watch Stop by theCUBE, come see us at Reinvent, we got two sets there This is Dave Vellante, signing out from this episode of CUBE insights powered by ETR Thanks for watching, we'll see you next time (upbeat music)

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