from the cube studios in Palo Alto in Boston bringing you data-driven insights from the cube and ETR this is breaking analysis with Dave vellante over the past decade cloudflare has built a Global Network that has the potential to become the fourth us-based hyperscale class cloud in our view the company is building a durable Revenue model with hooks into many important markets these include the more mature DDOS protection space to other growth sectors such as zero trust a serverless platform for application development and an increasing number of services such as database and object storage and other network services in essence cloudflare could be thought of as a giant distributed supercomputer that can connect multiple clouds and act as a highly efficient scheduling engine at scale its disruptive DNA is increasingly attracting novel startups and established Global firms alike looking for Reliable secure high performance low latency and more cost-effective alternatives to AWS and Legacy infrastructure Solutions hello and welcome to this week's wikibon Cube insights powered by ETR in this breaking analysis we initiate our deeper coverage of cloudflare we'll briefly explain our take on the company and its unique business model we'll then share some peer comparisons with both the financial snapshot and some fresh ETR survey data finally we'll share some examples of how we think cloudflare could be a disruptive force with a super cloud-like offering that in many respects is what multi-cloud should have been cloudflare has been on our peripheral radar Ben Thompson and many others have written about their disruptive business model and recently a breaking analysis follower who will remain anonymous emailed with some excellent insights on cloudflare that prompted us to initiate more detailed coverage let's first take a look at how cloudflare seize the world in terms of its view of a modern stack this is a graphic from cloudflare that shows a simple three-layer Stack comprising Storage and compute the lower level and application layer and the network and their key message is basically that the big four hyperscalers have replaced the on-prem leaders apps have been satisfied and that mess of network that you see and Security in the upper left can now be handled all by cloudflare and the stack can be rented via Opex versus requiring heavy capex investment so okay somewhat of a simplified view is those companies on the the left are you know not standing still and we're going to come back to that but cloudflare has done something quite amazing I mean it's been a while since we've invoked Russ hanneman of Silicon Valley Fame on breaking analysis but remember when he was in a meeting one of his first meetings if not the first with Richard Hendricks it was the whiz kid on the show Silicon Valley and hanneman said something like if you had a blank check and you could build anything in the world what would it be and Richard's answer was basically a new internet and that led to Pied Piper this peer-to-peer Network powered by decentralized devices and and iPhones and this amazing compression algorithm that enabled high-speed data movement and low latency uh up to no low latency access across the network well in a way that's what cloudflare has built its founding premise reimagined how the internet should be built with a consistent set of server infrastructure where each server had lots of cores lots of dram lots of cash fast ssds and plenty of network connectivity and bandwidth and well this picture makes it look like a bunch of dots and points of presence on a map which of course it is there's a software layer that enables cloudflare to efficiently allocate resources across this Global Network the company claims that it's Network utilization is in the 70 percent range and it has used its build out to enter the technology space from the bottoms up offering for example free tiers of services to users with multiple entry points on different services and selling then more services over time to a customer which of course drives up its average contract value and its lifetime value at the same time the company continues to innovate and add new services at a very rapid cloud-like Pace you can think of cloudflare's initial Market entry as like a lightweight Cisco as a service the company's CFO actually he uses that term he calls it that which really must tick off Cisco who of course has a massive portfolio and a dominant Market position now because it owns the network cloudflare is a marginal cost of adding new Services is very small and goes towards zero so it's able to get software like economics at scale despite all this infrastructure that's building out so it doesn't have to constantly face the increasing infrastructure tax snowflake for example doesn't own its own network infrastructure as it grows it relies on AWS or Azure gcp and and while it gives the company obvious advantages it doesn't have to build out its own network it also requires them to constantly pay the tax and negotiate with hyperscalers for better rental rates now as previously mentioned Cloud Fair cloudflare claims that its utilization is very high probably higher than the hyperscalers who can spin up servers that they can charge for underutilized customer capacity cloudflare also has excellent Network traffic data that it can use to its Advantage with its Analytics the company has been rapidly innovating Beyond its original Core Business adding as I said before serverless zero trust offerings it has announced a database it calls its database D1 that's pretty creative and it's announced an object store called R2 that is S3 minus one both from the alphabet and the numeric I.E minus the egress cost saying no egress cost that's their big claim to fame and they've made a lot of marketing noise around about that and of course they've promised in our a D2 database which of course is R2D2 RR they've launched a developer platform cloudflare can be thought of kind of like first of all a modern CDN they've got a simpler security model that's how they compete for example with z-scaler that brings uh they also bring VPN sd-wan and DDOS protection services that are that are part of the network and they're less expensive than AWS that's kind of their sort of go to market and messaging and value proposition and they're positioning themselves as a neutral Network that can connect across multiple clouds now to be clear unlike AWS in particular cloudflare is not well suited to lift and shift your traditional apps like for instance sap Hana you're not going to run that in on cloudflare's platform rather the company started by making websites more secure and faster and it flew under the radar and much in the same way that clay Christensen described the disruption in the steel industry if you've seen that where new entrants picked off the low margin rebar business then moved up the stack we've used that analogy in the semiconductor business with arm and and even China cloudflare is running a similar playbook in the cloud and in the network so in the early part of the last decade as aws's ascendancy was becoming more clear many of us started thinking about how and where firms could compete and add value as AWS is becoming so dominant so for instance take an industry Focus you could do things like data sharing with snowflake eventually you know uh popularized you could build on top of clouds again snowflake is doing that as are others you could build private clouds and of course connect to hybrid clouds but not many had the wherewithal and or the hutzpah to build out a Global Network that could serve as a connecting platform for cloud services cloudflare has traction in the market as it adds new services like zero trust and object store or database its Tam continues to grow here's a quick snapshot of cloudflare's financials relative to Z scalar which is both a competitor and a customer fastly which is a smaller CDN and Akamai a more mature CDN slash Edge platform cloudflare and fastly both reported earnings this past week Cloud Fair Cloud flare surpassed a billion dollar Revenue run rate but they gave tepid guidance and the stock got absolutely crushed today which is Friday but the company's business model is sound it's growing close to 50 annually it has sas-like gross margins in the mid to high 70s and it's it it's got a very strong balance sheet and a 13x revenue run rate multiple in fact it's Financial snapshot is quite close to that of z-scaler which is kind of interesting which zinc sailor of course doesn't own its own network that's a pure play software company fastly is much smaller and growing more slowly than cloudflare hence its lower multiple well Akamai as you can see is a more mature company but it's got a nice business now on its earnings call this week cloudflare announced that its head of sales was stepping down and the company has brought in a new leader to take the firm to five billion dollars in sales I think actually its current sales leader felt like hey you know my work is done here bring on somebody else to take it to the next level the company is promising to be free cash flow positive by the end of the year and is working hard toward its long-term financial model or so working towards sorry it's a long-term financial model with gross margin Targets in the mid 70s it's targeting 20 non-gaap operating margins so so solid you know very solid not like completely off the charts but you know very good and to our knowledge it has not committed to a long-term growth rate but at that sort of operating profit level you would like to see growth be consistently at least in the 20 range so they could at least be a rule of 40 company or perhaps even even five even higher if they're going to continue to command a premium valuation okay let's take a look at the ETR data ETR is very positive on cloudflare and has recently published a report on the company like many companies cloudflare is seeing an across the board slowdown in spending velocity we've reported on this quite extensively using the ETR data to quantify the degree to that Slowdown and on the data set with ETR we see that many customers they're shifting their spend to Flat spend you know plus or minus let's say you know single digits you know two three percent or even zero or in the market we're seeing a shift from paid to free tiers remember cloudflare offers a lot of free services as you're seeing customers maybe turn off the pay for a while and going with the freebie but we're also seeing some larger customers in the data and the fortune 1000 specifically they're actually spending more which was confirmed on cloudflare's earnings call they did say everything across the board was softer but they did also indicate that some of their larger customers are actually growing faster than their smaller customers and their churn is very very low here's a two-dimensional graphic we'd like to share this view a lot it's got Net score or spending momentum on the vertical axis and overlap or pervasiveness in the survey on the horizontal axis and this cut isolates three segments in the etrs taxonomy that cloudflare plays in Cloud security and networking now the table inserted in that upper left there shows the raw data which informs the position of each company in the dots with Net score in the ends listed in that rightmost column the red dotted line indicates a highly elevated Net score and finally we posted the breakdown those colors in the bottom right of cloudflare's Net score the lime green that's new adoptions the forest green is we're spending more six percent or more the gray is flat plus or minus uh five percent and you can see that the majority of customers you can see that's the majority of the customers that gray area the pink is we're spending Less in other words down six percent or worse and the bright red is churn which is minimal one percent very good indicator for for cloudflare what you do to get etr's proprietary Net score and they've done this for many many quarters so we have that time series data you subtract the Reds from the greens and that's Net score cloudflare is at 39 just under that magic red line now note that cloudflare and zscaler are right on top of each other Cisco has a dominant position on the x-axis that cloudflare and others are eyeing AWS is also dominant but note that its Net score is well above the red dotted line it's incredible Palo Alto networks is also very impressive it's got both a strong presence on the horizontal axis and it's got a Net score that's pretty comparable to cloudflare and z-scaler to much smaller companies Akamai is actually well positioned for a reasonably mature company and you can see fastly ATT Juniper and F5 have far less spending momentum on their platforms than does cloudflare but at least they are in positive Net score territory so what's going to be really interesting to see is whether cloudflare can continue to hold this momentum or even accelerate it as we've seen with some other clouds as it scales its Network and keeps adding more and more services cloudflare has a couple of potential strategic vectors that we want to talk about and it'll be going to be interesting to see how that plays out Now One path is to compete more directly as a Cloud Player offering secure access Edge services like firewall as a service and zero Trust Services like data loss prevention email security from its area one acquisition and other zero trust offerings as well as Network Services like routing and network connectivity this is The Sweet Spot of the company load balancing many others and then add in things like Object Store and database Services more Edge services in the future it might be telecom like services such as Network switching for offices so that's one route and cloudflare is clearly on that path more services more cohorts at innovating and and growing the company and bringing in more Revenue increasing acvs and and increasing long-term value and keeping retention high now the other Vector is what we're just going to refer to as super cloud as an enabler of cross-cloud infrastructure this is new value uh relative to the former Vector that we were just talking about now the title of this episode is what multi-cloud should have been meaning cloudflare could be the control plane providing a consistent experience across clouds one that is fast and secure at global scale now to give you Insight on this let's take a look at some of the comments made by Matthew Prince the CEO and co-founder of cloudflare cloudflare put its R2 Object Store into public beta this past May and I believe it's storing around a petabyte of data today I think that's what they said in their call here's what Prince said about that quote we are talking to very large companies about moving more and more of their stored objects to where we can store that with R2 and one of the benefits is not only can we help them save money on the egress fees but it allows them to then use those object stores or objects across any of the different Cloud platforms they're that they're using so by being that neutral third party we can let people adopt a little bit of Amazon a little bit of Microsoft a little bit of Google a little bit of SAS vendors and share that data across all those different places so what's interesting about this in the super cloud context is it suggests that customers could take the best of each Cloud to power their digital businesses I might like AWS for in redshift for my analytic database or I love Google's machine learning Microsoft's collaboration and I'd like a consistent way to connect those resources but of course he's strongly hinting and has made many public statements that aws's egress fees are a blocker to that vision now at a recent investor event Matthew Prince added some color to this concept when he talked about one metric of success being how much R2 capacity was consumed and how much they sold but perhaps a more interesting Benchmark is highlighted by the following statement that he made he said a completely different measure of success for R2 is Andy jassy says I'm sick and tired of these guys meaning cloudflare taking our objects away we're dropping our egress fees to zero I would be so excited because we've then unlocked the ability to be the network that interconnects the cloud together now of course it would be Adam solipski who would be saying that or maybe Andy Jesse you know still watching over AWS and I think it's highly unlikely that that's going to happen anytime soon and that of course but but in theory gets us closer to the super cloud value proposition and to further drive that point home and we're paraphrasing a little bit his comments here he said something the effect of quote customers need one consistent control plane across clouds and we are the neutral Network that can be consistent no matter which Cloud you're using interesting right that Prince sees the world that's similar to if not nearly identical to the concepts that the cube Community has been putting forth around supercloud now this vision is a ways off let's be real Prince even suggested that his initial vision of an application running across multiple clouds you know that's like super cloud Nirvana isn't what customers are doing today that's that's really hard to do and perhaps you know it's never going to happen but there's a little doubt that cloudflare could be and is positioning itself as that cross-cloud control plane it has the network economics and the business model levers to pull it's got an edge up on the competition at the edge pun intended cloudflare is the definition of Edge and it's distributed platform it's decentralized platform is much better suited for Edge workloads than these giant data centers that are you know set up to to try and handle that today the the hyperscalers are building out you know their Edge networks things like outposts you know going out to the edge and other local zones Etc now cloudflare is increasingly competitive to the hyperscalers and those traditional Stacks that it depositioned on an earlier slide that we showed but you know the likes of AWS and Dell and hpe and Cisco and those others they're not sitting in their hands they have a huge huge customer install bases and they are definitely a moving Target they're investing and they're building out their own Super clouds with really robust stacks as well let's face it it's going to take a decade or more for Enterprises to adopt a developer platform or a new database Cloud plus cloudflare's capabilities when compared to incumbent stacks and the hyperscalers is much less robust in these areas and even in storage you know despite all the great conversation that R2 generated and the buzz you take a specialist like Wasabi they're more mature they're more functional and they're way cheaper even than cloudflare so you know it's not a fake a complete that cloudflare is going to win in those markets but we love the disruption and if cloudflare wants to be the fourth us-based hyperscaler or join the the big four as the as the fifth if we put Alibaba in the mix it's got a lot of work to do in the ecosystem by its own admission as much to learn and is part of the value by the way that it sees in its area one acquisition it's email security company that it bought but even in that case much of the emphasis has been on reseller channels compare that to the AWS ecosystem which is not only a channel play but is as much an innovation flywheel filling gaps where companies like snowflake Thrive side by side with aws's data stores as well all the on-prem stacks are building hybrid connections to AWS and other clouds as a means of providing consistent experiences across clouds indeed many of them see what they call cross-cloud services or what we call super cloud hyper cloud or whatever you know Mega Cloud you want to call it we use super cloud they are really eyeing that opportunity so very few companies frankly are not going after that space but we're going to close with this cloudflare is one of those companies that's in a position to wake up each morning and ask who can we disrupt today and very few companies are in a position to disrupt the hyperscalers to the degree that cloudflare is and that my friends is going to be fascinating to watch unfold all right let's call it a wrap I want to thank Alex Meyerson who's on production and manages the podcast as well as Ken schiffman who's our newest addition to the Boston Studio Kristen Martin and Cheryl Knight help us get the word out on social media and in our newsletters and Rob Hof is our editor-in-chief over at silicon angle thank you to all remember all these episodes are available as podcasts wherever you listen all you're going to do is search breaking analysis podcasts I publish each week on wikibon.com and siliconangle.com you can email me at david.velante at siliconangle.com or DM me at divalante if you comment on my LinkedIn posts and please do check out etr.ai they got the best survey data in the Enterprise Tech business this is Dave vellante for the cube insights powered by ETR thank you very much for watching and we'll see you next time on breaking analysis

>> From "theCUBE" studios in Palo Alto, in Boston, bringing you data driven insights from "theCUBE" and ETR. This is "Breaking Analysis" with Dave Vellante. >> There are very few political issues that get bipartisan support these days, nevermind consensus spanning geopolitical boundaries. But whether we're talking across the aisle or over the pond, there seems to be common agreement that the power of big tech firms should be regulated. But the government's track record when it comes to antitrust aimed at big tech is actually really mixed, mixed at best. History has shown that market forces rather than public policy have been much more effective at curbing monopoly power in the technology industry. Hello, and welcome to this week's "Wikibon CUBE" insights powered by ETR. In this "Breaking Analysis" we welcome in frequent "CUBE" contributor Dave Moschella, author and senior fellow at the Information Technology and Innovation Foundation. Dave, welcome, good to see you again. >> Hey, thanks Dave, good to be here. >> So you just recently published an article, we're going to bring it up here and I'll read the title, "Theory Aside, Antitrust Advocates Should Keep Their "Big Tech" Ambitions Narrow". And in this post you argue that big sweeping changes like breaking apart companies to moderate monopoly power in the tech industry have been ineffective compared to market forces, but you're not saying government shouldn't be involved rather you're suggesting that more targeted measures combined with market forces are the right answer. Can you maybe explain a little bit more the premise behind your research and some of your conclusions? >> Sure, and first let's go back to that title, when I said, theory aside, that is referring to a huge debate that's going on in global antitrust circles these days about whether antitrust should follow the traditional path of being invoked when there's real harm, demonstrable harm to consumers or a new theory that says that any sort of vast monopoly power inevitably will be bad for competition and consumers at some point, so your best to intervene now to avoid harms later. And that school, which was a very minor part of the antitrust world for many, many years is now quite ascendant and the debate goes on doesn't matter which side of that you're on the questions sort of there well, all right, well, if you're going to do something to take on big tech and clearly many politicians, regulators are sort of issuing to do something, what would you actually do? And what are the odds that that'll do more good than harm? And that was really the origins of the piece and trying to take a historical view of that. >> Yeah, I learned a new word, thank you. Neo-brandzian had to look it up, but basically you're saying that traditionally it was proving consumer harm versus being proactive about the possibility or likelihood of consumer harm. >> Correct, and that's a really big shift that a lot of traditional antitrust people strongly object to, but is now sort of the trendy and more send and view. >> Got it, okay, let's look a little deeper into the history of tech monopolies and government action and see what we can learn from that. We put together this slide that we can reference. It shows the three historical targets in the tech business and now the new ones. In 1969, the DOJ went after IBM, Big Blue and it's 13 years later, dropped its suit. And then in 1984 the government broke Ma Bell apart and in the late 1990s, went after Microsoft, I think it was 1998 in the Wintel monopoly. And recently in an interview with tech journalist, Kara Swisher, the FTC chair Lena Khan claimed that the government played a major role in moderating the power of tech giants historically. And I think she even specifically referenced Microsoft or maybe Kara did and basically said the industry and consumers from the dominance of companies like Microsoft. So Dave, let's briefly talk about and Kara by the way, didn't really challenge that, she kind of let it slide. But let's talk about each of these and test this concept a bit. Were the government actions in these instances necessary? What were the outcomes and the consequences? Maybe you could start with IBM and AT&T. >> Yeah, it's a big topic and there's a lot there and a lot of history, but I might just sort of introduce by saying for whatever reasons antitrust has been part of the entire information technology industry history from mainframe to the current period and that slide sort of gives you that. And the reasons for that are I think once that we sort of know the economies of scale, network effects, lock in safe choices, lot of things that explain it, but the good bit about that is we actually have so much history of this and we can at least see what's happened in the past and when you look at IBM and AT&T they both were massive antitrust cases. The one against IBM was dropped and it was dropped in as you say, in 1980. Well, what was going on in at that time, IBM was sort of considered invincible and unbeatable, but it was 1981 that the personal computer came around and within just a couple of years the world could see that the computing paradigm had change from main frames and minis to PCs lines client server and what have you. So IBM in just a couple of years went from being unbeatable, you can't compete with them, we have to break up with them to being incredibly vulnerable and in trouble and never fully recovered and is sort of a shell of what it once was. And so the market took care of that and no action was really necessary just by everybody thinking there was. The case of AT&T, they did act and they broke up the company and I would say, first question is, was that necessary? Well, lots of countries didn't do that and the reality is 1980 breaking it up into long distance and regional may have made some sense, but by the 1990 it was pretty clear that the telecom world was going to change dramatically from long distance and fixed wires services to internet services, data services, wireless services and all of these things that we're going to restructure the industry anyways. But AT& T one to me is very interesting because of the unintended consequences. And I would say that the main unintended consequence of that was America's competitiveness in telecommunications took a huge hit. And today, to this day telecommunications is dominated by European, Chinese and other firms. And the big American sort of players of the time AT&T which Western Electric became Lucent, Lucent is now owned by Nokia and is really out of it completely and most notably and compellingly Bell Labs, the Bell Labs once the world's most prominent research institution now also a shell of itself and as it was part of Lucent is also now owned by the Finnish company Nokia. So that restructuring greatly damaged America's core strength in telecommunications hardware and research and one can argue we've never recovered right through this 5IG today. So it's a very good example of the market taking care of, the big problem, but meddling leading to some unintended consequences that have hurt the American competitiveness and as we'll talk about, probably later, you can see some of that going on again today and in the past with Microsoft and Intel. >> Right, yeah, Bell Labs was an American gem, kind of like Xerox PARC and basically gone now. You mentioned Intel and Microsoft, Microsoft and Intel. As many people know, some young people don't, IBM unwillingly handed its monopoly to Intel and Microsoft by outsourcing the micro processor and operating system, respectively. Those two companies ended up with IBM ironically, agreeing to take OS2 which was its proprietary operating system and giving Intel, Microsoft Windows not realizing that its ability to dominate a new disruptive market like PCs and operating systems had been vaporized to your earlier point by the new Wintel ecosystem. Now Dave, the government wanted to break Microsoft apart and split its OS business from its application software, in the case of Intel, Intel only had one business. You pointed out microprocessors so it couldn't bust it up, but take us through the history here and the consequences of each. >> Well, the Microsoft one is sort of a classic because the antitrust case which was raging in the sort of mid nineties and 1998 when it finally ended, those were the very, once again, everybody said, Bill Gates was unstoppable, no one could compete with Microsoft they'd buy them, destroy them, predatory pricing, whatever they were accusing of the attacks on Netscape all these sort of things. But those the very years where it was becoming clear first that Microsoft basically missed the early big years of the internet and then again, later missed all the early years of the mobile phone business going back to BlackBerrys and pilots and all those sorts of things. So here we are the government making the case that this company is unstoppable and you can't compete with them the very moment they're entirely on the defensive. And therefore wasn't surprising that that suit eventually was dropped with some minor concessions about Microsoft making it a little bit easier for third parties to work with them and treating people a little bit more, even handling perfectly good things that they did. But again, the more market took care of the problem far more than the antitrust activities did. The Intel one is also interesting cause it's sort of like the AT& T one. On the one hand antitrust actions made Intel much more likely and in fact, required to work with AMD enough to keep that company in business and having AMD lowered prices for consumers certainly probably sped up innovation in the personal computer business and appeared to have a lot of benefits for those early years. But when you look at it from a longer point of view and particularly when look at it again from a global point of view you see that, wow, they not so clear because that very presence of AMD meant that there's a lot more pressure on Intel in terms of its pricing, its profitability, its flexibility and its volumes. All the things that have made it harder for them to A, compete with chips made in Taiwan, let alone build them in the United States and therefore that long term effect of essentially requiring Intel to allow AMD to exist has undermined Intel's position globally and arguably has undermined America's position in the long run. And certainly Intel today is far more vulnerable to an ARM and Invidia to other specialized chips to China, to Taiwan all of these things are going on out there, they're less capable of resisting that than they would've been otherwise. So, you thought we had some real benefits with AMD and lower prices for consumers, but the long term unintended consequences are arguably pretty bad. >> Yeah, that's why we recently wrote in Intel two "Strategic To Fail", we'll see, Okay. now we come to 2022 and there are five companies with anti-trust targets on their backs. Although Microsoft seems to be the least susceptible to US government ironically intervention at this this point, but maybe not and we show "The Cincos Comas Club" in a homage to Russ Hanneman of the show "Silicon Valley" Apple, Microsoft, Google, and Amazon all with trillion dollar plus valuations. But meta briefly crossed that threshold like Mr. Hanneman lost a comma and is now well under that market cap probably around five or 600 million, sorry, billion. But under serious fire nonetheless Dave, people often don't realize the immense monopoly power that IBM had which relatively speaking when measured its percent of industry revenue or profit dwarf that of any company in tech ever, but the industry is much smaller then, no internet, no cloud. Does it call for a different approach this time around? How should we think about these five companies their market power, the implications of government action and maybe what you suggested more narrow action versus broad sweeping changes. >> Yeah, and there's a lot there. I mean, if you go back to the old days IBM had what, 70% of the computer business globally and AT&T had 90% or so of the American telecom market. So market shares that today's players can only dream of. Intel and Microsoft had 90% of the personal computer market. And then you look at today the big five and as wealthy and as incredibly successful as they've been, you sort of have almost the argument that's wrong on the face of it. How can five companies all of which compete with each other to at least some degree, how can they all be monopolies? And the reality is they're not monopolies, they're all oligopolies that are very powerful firms, but none of them have an outright monopoly on anything. There are competitors in all the spaces that they're in and increasing and probably increasingly so. And so, yeah, I think people conflate the extraordinary success of the companies with this belief that therefore they are monopolist and I think they're far less so than those in the past. >> Great, all right, I want to do a quick drill down to cloud computing, it's a key component of digital business infrastructure in his book, "Seeing Digital", Dave Moschella coined a term the matrix or the key which is really referred to the key technology platforms on which people are going to build digital businesses. Dave, we joke you should have called it the metaverse you were way ahead of your time. But I want to look at this ETR chart, we show spending momentum or net score on the vertical access market share or pervasiveness in the dataset on the horizontal axis. We show this view a lot, we put a dotted line at the 40% mark which indicates highly elevated spending. And you can sort of see Microsoft in the upper right, it's so far up to the right it's hidden behind the January 22 and AWS is right there. Those two dominate the cloud far ahead of the pack including Google Cloud. Microsoft and to a lesser extent AWS they dominate in a lot of other businesses, productivity, collaboration, database, security, video conferencing. MarTech with LinkedIn PC software et cetera, et cetera, Googles or alphabets of business of course is ads and we don't have similar spending data on Apple and Facebook, but we know these companies dominate their respective business. But just to give you a sense of the magnitude of these companies, here's some financial data that's worth looking at briefly. The table ranks companies by market cap in trillions that's the second column and everyone in the club, but meta and each has revenue well over a hundred billion dollars, Amazon approaching half a trillion dollars in revenue. The operating income and cash positions are just mind boggling and the cash equivalents are comparable or well above the revenues of highly successful tech companies like Cisco, Dell, HPE, Oracle, and Salesforce. They're extremely profitable from an operating income standpoint with the clear exception of Amazon and we'll come back to that in a moment and we show the revenue multiples in the last column, Apple, Microsoft, and Google, just insane. Dave, there are other equally important metrics, CapX is one which kind of sets the stage for future scale and there are other measures. >> Yeah, including our research and development where those companies are spending hundreds of billions of dollars over the years. And I think it's easy to look at those numbers and just say, this doesn't seem right, how can any companies have so much and spend so much? But if you think of what they're actually doing, those companies are building out the digital infrastructure of essentially the entire world. And I remember once meeting some folks at Google, and they said, beyond AI, beyond Search, beyond Android, beyond all the specific things we do, the biggest thing we're actually doing is building a physical infrastructure that can deliver search results on any topic in microseconds and the physical capacity they built costs those sorts of money. And when people start saying, well, we should have lots and lots of smaller companies well, that sounds good, yeah, it's all right, but where are those companies going to get the money to build out what needs to be built out? And every country in the world is trying to build out its digital infrastructure and some are going to do it much better than others. >> I want to just come back to that chart on Amazon for a bit, notice their comparatively tiny operating profit as a percentage of revenue, Amazon is like Bezos giant lifestyle business, it's really never been that profitable like most retail. However, there's one other financial data point around Amazon's business that we want to share and this chart here shows Amazon's operating profit in the blue bars and AWS's in the orange. And the gray line is the percentage of Amazon's overall operating profit that comes from AWS. That's the right most access, so last quarter we were well over a hundred percent underscoring the power of AWS and the horrendous margins in retail. But AWS is essentially funding Amazon's entrance into new markets, whether it's grocery or movies, Bezos moves into space. Dave, a while back you collaborated with us and we asked our audience, what could disrupt Amazon? And we came up with your detailed help, a number of scenarios as shown here. And we asked the audience to rate the likelihood of each scenario in terms of its likelihood of disrupting Amazon with a 10 being highly likely on average the score was six with complacency, arrogance, blindness, you know, self-inflicted wounds really taking the top spot with 6.5. So Dave is breaking up Amazon the right formula in your view, why or why not? >> Yeah, there's a couple of things there. The first is sort of the irony that when people in the sort of regulatory world talk about the power of Amazon, they almost always talk about their power in consumer markets, whether it's books or retail or impact on malls or main street shops or whatever and as you say that they make very little money doing that. The interest people almost never look at the big cloud battle between Amazon, Microsoft and lesser extent Google, Alibaba others, even though that's where they're by far highest market share and pricing power and all those things are. So the regulatory focus is sort of weird, but you know, the consumer stuff obviously gets more appeal to the general public. But that survey you referred to me was interesting because one of the challenges I sort of sent myself I was like okay, well, if I'm going to say that IBM case, AT&T case, Microsoft's case in all those situations the market was the one that actually minimized the power of those firms and therefore the antitrust stuff wasn't really necessary. Well, how true is that going to be again, just cause it's been true in the past doesn't mean it's true now. So what are the possible scenarios over the 2020s that might make it all happen again? And so each of those were sort of questions that we put out to others, but the ones that to me by far are the most likely I mean, they have the traditional one of company cultures sort of getting fat and happy and all, that's always the case, but the more specific ones, first of all by far I think is China. You know, Amazon retail is a low margin business. It would be vulnerable if it didn't have the cloud profits behind it, but imagine a year from now two years from now trade tensions with China get worse and Christmas comes along and China just says, well, you know, American consumers if you want that new exercise bike or that new shoes or clothing, well, anything that we make well, actually that's not available on Amazon right now, but you can get that from Alibaba. And maybe in America that's a little more farfetched, but in many countries all over the world it's not farfetched at all. And so the retail divisions vulnerability to China just seems pretty obvious. Another possible disruption, Amazon has spent billions and billions with their warehouses and their robots and their automated inventory systems and all the efficiencies that they've done there, but you could argue that maybe someday that's not really necessary that you have Search which finds where a good is made and a logistical system that picks that up and delivers it to customers and why do you need all those warehouses anyways? So those are probably the two top one, but there are others. I mean, a lot of retailers as they get stronger online, maybe they start pulling back some of the premium products from Amazon and Amazon takes their cut of whatever 30% or so people might want to keep more of that in house. You see some of that going on today. So the idea that the Amazon is in vulnerable disruption is probably is wrong and as part of the work that I'm doing, as part of stuff that I do with Dave and SiliconANGLE is how's that true for the others too? What are the scenarios for Google or Apple or Microsoft and the scenarios are all there. And so, will these companies be disrupted as they have in the past? Well, you can't say for sure, but the scenarios are certainly plausible and I certainly wouldn't bet against it and that's what history tells us. And it could easily happen once again and therefore, the antitrust should at least be cautionary and humble and realize that maybe they don't need to act as much as they think. >> Yeah, now, one of the things that you mentioned in your piece was felt like narrow remedies, were more logical. So you're not arguing for totally Les Affaire you're pushing for remedies that are more targeted in scope. And while the EU just yesterday announced new rules to limit the power of tech companies and we showed the article, some comments here the regulators they took the social media to announce a victory and they had a press conference. I know you watched that it was sort of a back slapping fest. The comments however, that we've sort of listed here are mixed, some people applauded, but we saw many comments that were, hey, this is a horrible idea, this was rushed together. And these are going to result as you say in unintended consequences, but this is serious stuff they're talking about applying would appear to be to your point or your prescription more narrowly defined restrictions although a lot of them to any company with a market cap of more than 75 billion Euro or turnover of more than 77.5 billion Euro which is a lot of companies and imposing huge penalties for violations up to 20% of annual revenue for repeat offenders, wow. So again, you've taken a brief look at these developments, you watched the press conference, what do you make of this? This is an application of more narrow restrictions, but in your quick assessment did they get it right? >> Yeah, let's break that down a little bit, start a little bit of history again and then get to Europe because although big sweeping breakups of the type that were proposed for IBM, Microsoft and all weren't necessary that doesn't mean that the government didn't do some useful things because they did. In the case of IBM government forces in Europe and America basically required IBM to make it easier for companies to make peripherals type drives, disc drives, printers that worked with IBM mainframes. They made them un-bundle their software pricing that made it easier for database companies and others to sell their of products. With AT&T it was the government that required AT&T to actually allow other phones to connect to the network, something they argued at the time would destroy security or whatever that it was the government that required them to allow MCI the long distance carrier to connect to the AT network for local deliveries. And with that Microsoft and Intel the government required them to at least treat their suppliers more even handly in terms of pricing and policies and support and such things. So the lessons out there is the big stuff wasn't really necessary, but the little stuff actually helped a lot and I think you can see the scenarios and argue in the piece that there's little stuff that can be done today in all the cases for the big five, there are things that you might want to consider the companies aren't saints they take advantage of their power, they use it in ways that sometimes can be reigned in and make for better off overall. And so that's how it brings us to the European piece of it. And to me, the European piece is much more the bad scenario of doing too much than the wiser course of trying to be narrow and specific. What they've basically done is they have a whole long list of narrow things that they're all trying to do at once. So they want Amazon not to be able to share data about its selling partners and they want Apple to open up their app store and they don't want people Google to be able to share data across its different services, Android, Search, Mail or whatever. And they don't want Facebook to be able to, they want to force Facebook to open up to other messaging services. And they want to do all these things for all the big companies all of which are American, and they want to do all that starting next year. And to me that looks like a scenario of a lot of difficult problems done quickly all of which might have some value if done really, really well, but all of which have all kinds of risks for the unintended consequence we've talked before and therefore they seem to me being too much too soon and the sort of problems we've seen in the past and frankly to really say that, I mean, the Europeans would never have done this to the companies if they're European firms, they're doing this because they're all American firms and the sort of frustration of Americans dominance of the European tech industry has always been there going back to IBM, Microsoft, Intel, and all of them. But it's particularly strong now because the tech business is so big. And so I think the politics of this at a time where we're supposedly all this great unity of America and NATO and Europe in regards to Ukraine, having the Europeans essentially go after the most important American industry brings in the geopolitics in I think an unavoidable way. And I would think the story is going to get pretty tense over the next year or so and as you say, the Europeans think that they're taking massive actions, they think they're doing the right thing. They think this is the natural follow on to the GDPR stuff and even a bigger version of that and they think they have more to come and they see themselves as the people taming big tech not just within Europe, but for the world and absent any other rules that they may pull that off. I mean, GDPR has indeed spread despite all of its flaws. So the European thing which it doesn't necessarily get huge attention here in America is certainly getting attention around the world and I would think it would get more, even more going forward. >> And the caution there is US public policy makers, maybe they can provide, they will provide a tailwind maybe it's a blind spot for them and it could be a template like you say, just like GDPR. Okay, Dave, we got to leave it there. Thanks for coming on the program today, always appreciate your insight and your views, thank you. >> Hey, thanks a lot, Dave. >> All right, don't forget these episodes are all available as podcast, wherever you listen. All you got to do is search, "Breaking Analysis Podcast". Check out ETR website, etr.ai. We publish every week on wikibon.com and siliconangle.com. And you can email me david.vellante@siliconangle.com or DM me @davevellante. Comment on my LinkedIn post. This is Dave Vellante for Dave Michelle for "theCUBE Insights" powered by ETR. Have a great week, stay safe, be well and we'll see you next time. (slow tempo music)

>>live from Barcelona, Spain. It's the Cube covering Cisco Live 2020 right to you by Cisco and its ecosystem partners. >>Live on Welcome to the Cube. 2020 is the first Cube segment and session for 2020 next 10 years. This is the 10th year the Cube has been in operation. We're here in Barcelona for Cisco Live, but we're going to spend the next few minutes talking about the Enterprise Tech trends for 2020 and beyond. Really looking back at the past 10 years and then forward 10 years, I'm John Furrier, host of The Cube with Dave Vellante, Stew Minimum and The Cube team. The analysts want to analyze Enterprise tech. You know we love to do that day, but I think more notable is this is our first interview in 2020 for the year. We're kicking off our 10th year as we close down the Cube for 10 year anniversary in May. Quite an evolution. A lot of things we got right with Wiki bond research and the Cuban sites. Ah, lot of things we saw early, and that's the benefit of the Cube. And now, more than ever, it's more complex. It's a lot of noise. A lot of people talking about value propositions here. They're a lot of cloud. I think the reality is set in Cloud is here. It's not a question of why and when it's now. And the impact is just hitting mainstream Tech and Enterprises now leading the category in investments, venture capital, private equity M and A over consumer companies seeing much more focused emphasis on what's going on in the enterprise, which is business. Incredible opportunity ahead. 2020. What's in store? >>Well, you know, the last decade we obviously saw the consumer ization of i t. There was all that social media hype, and I think you're right, John. The enterprises now where the action is. But the last 10 years have been all about Cloud. What got us here to 2020 is not what's going to power through the next 10 years. I think it's not only Cloud, it's cloud plus data, which we definitely bet on it, right. But now the injection of machine intelligence on that data, which, of course, is running in the cloud for scale. So the real big question now is what's gonna happen in the cloud guys Amazon and Azure and clearly have momentum. Google actually beginning to pick it up a little bit, but particularly the case of Amazon who dominated the last decade. Yeah, it's gonna be not as easy for them going forward, You know, everybody now realizes. Wow, they got it right. You said many times they were misunderstood. Well, I think now people are beginning to realize how powerful they are. And the enterprise players have really begun to respond. And they don't like to give up their position to be really interesting to see how that goes. And, of course, you know we're going to talk more about Cisco, but still what? Your thoughts? >>Yeah. So, John, I think some of the things that we looked at as bleeding edge over the last 10 years are becoming a bit more mainstream. The role of the developer. We know the developers, the new king maker. You look where we are in the DEV Net zone. Definite zone. A couple years ago was small and there was people were kind of exciting everything. You look at it today, it looks much more like the regular show. It has really become mainstream. Dave said Cloud Cloud is mainstream developers mainstream that connection between the business enterprise, tech talk about and these other pieces really coming together. That's where the data really is the next fly wheel for what's happening and obviously machine learning the application developer. And still, it's about moving faster that companies are looking to do, and that is what all of the last 10 years has been building for. And now it's the new normal >>great, and I want to get into some of the ways I think when you look at this, because we can always rattle into any kind of technology. But you know, one things that we love to do is look at the ways what waves are going to come where you get your thoughts on that. But I think just let's reflect on what's going on around us right now. The Cube is the 10th year finishing up its 10th year. We're in the media business had a comment from someone here, a distinguished engineer at Cisco said. I can't believe you guys are a technology company. I had tweeted out yesterday on Barcelona about our Cube alumni list. It's turning into an expert network If you look at what's going on with Facebook and with Trump and the impeachment, you're seeing a changing of the guard in the media business. So we as media with Cube, it's looking angle has become interesting, and I think I bring this up because that's kind of out our new model that we've been doing for 10 years. But if you look at how people share information, misinformation, quality information, you're starting to see a paradigm where you don't know what the trust vendor A says they could do this vendor b so they could do that. Amazon says. This Azure says that. So I think the practitioners and consumers of I t in Enterprise Tech, the buyer's Where's the truth day? I mean, the models are completely changing. I've heard comments in the analyst firms are struggling to get modern press outlets are being dwindled down to a handful in the enterprise that new networks are being formed. The expert APS are out there. So this is a tell sign, Yeah, that the world more complex and different than ever before. >>The authentic community doesn't lie right, And your peers at the other day when you have private conversations. That's where the truth comes out. To the extent that you can like to bring that to the Cuban sessions like this, that's really where you say, extract the signal from the noise. We try to do that. We try to do it for 10 years, and I think that's part of the reason why we've been so successful. But at the same time, Look way no were funded by sponsors, which is great. We really appreciate their support, but at the end of the day, we've always gotta put forth what we think is actually happening out there. >>Let's get into some of the ways because it sets the context. So as you have these networks forming, you have cloud technology. You know, Os, I model looks, but I look back at the nineties, and I think this is a proposed to the Cisco show at that time. Dave, During the mini computer wave that set the stage for what became the PC revolution and then ultimately inter networking category, you had proprietary network operating systems, IBM s and a digital equipment corporation deck net, etcetera, etcetera and incomes. The open systems interconnect seven layer stack that changed the industry. In today's world, we have open source, but people are chirping about open core. There seems to be a trend towards proprietary now. Amazon is the big proprietary cloud. >>I don't >>mean proprietary in the sense of you can work with it, but scale is the new proprietary. So you almost have this revert back to old tactics of differentiation, and I think that's not good for customers. I think you look at the customer situation, it creates more complexity. And so I think that's why we're seeing multi Cloud really be a trend, because whoever can connect all the clouds and do that seamlessly is going to win big. And I think that's a TCP I peed like Dynamic >>John. It's a really interesting point because open source in general is more important than ever before. Enterprise companies are contributing. The big vendor community is spending more time on open source than they are on standards anymore. Over. If you look at the big projects out there limits kubernetes like more than half of the contributors have full time jobs. They work for big companies, but as you said, how am I consuming that get hub is a company at the core of open source. But get the platform itself is a proprietary, that open core model that you talked about. And of course, Microsoft built them for a big number. And some people have a little bit concerned >>when might get Lab is there >>and get lab right. Of course, similar they deliver their application itself. Is that open core model so open source is there. Open core is the model that they're doing. Absolutely. It is interesting because, as you said, open source is more pervasive than ever. But I'm consuming it more as >>a service >>from Amazon or from these >>providers face to the bitching and moaning that's going on the open source because there is kind of a lot of chirping going on around. Well, you know, if I build this in the open, is it truly open being co opted by? So the big clouds and you got Microsoft Microsoft Open Office 3 65 That's not gonna go away for the next 10 years. They've SAS ified, their core offering almost like a lock in. I mean, so so it seems to be just >>it smells >>like that old nasty >>habit. Everything we're entering this decade with four trillion years of Amazon hit Trillionaire Club in 2018. Drop town lost Akamas, Russ Hanneman would say, But but Apple, Google, Microsoft and an Amazon they looking vulnerable, don't in the trillions club. But I mean, I would point out, You're saying John, there will be a backlash. Open source Open, open distributed computing tier networks. I don't think I mean history would suggest that these big whales, they're not invulnerable. They can be taken down and open. Source is is one way out? >>Well, it's interesting. One of the things you look at one of the big threat for Cisco for a long time was like, Oh, STN is going to take over what Cisco's doing Well, Cisco still doing just fine with software defined networking and what that having the open compute model for networking is also a threat. If I look at Microsoft, Azure is leveraging their model that the big hyper scaler aren't necessarily coming to Cisco for gear. They're shifting as to where Cisco will be involved. When we talk about cloud models, they're spending much more time up the stack. John in the layer four through seven, they are down in their traditional Vera to three. >>The pressure on these monopolies, historically to continue to perform as public companies, has been enormous, and they get more proprietary to your point, John. And eventually the open markets has hold on. You know that opens up new opportunities. It takes a while, but it's always happened. >>I don't think I think your point about the big incumbent. Players are not going to yield to just being rolled over by the incumbent growing cloud companies. But you cannot deny the fact that, say, Amazon. Dave, I want to get your thoughts on this because what Amazon did to compute change the game in my mind, they completely changed the capabilities. The consumption models, the cost structures. All the economics were changed with compute looking outpost wavelengths. When things are getting in, they have their own networking. So the question is, if you have the cloud ification of the Holy Trinity of infrastructure, which is storage, compute networking. Okay, you can see almost the cloud guys almost changing radically. All three of them computes Already done. Stories is already done. Networking is left, so you have networking battleground because you got to move the packets around. You don't need Mpls route routes because you just go through the cloud. How things are stored data, backup recovery. The list goes on and on. Ultimately, that's the infrastructure as code ethos that's going to change the application environment. So it will. Amazon will Google Will azure commoditized or change networking? >>Yeah. I mean, John, we already see that happening when we came two years ago. One of the challenges for most network engineers is what I need to manage. A large part of it I can't actually touch. I have to rely on third party. It's outside. I don't control it. But if something goes wrong, I'm on the hook for it. And if you go look forward a little bit, you know, if I'm deploying serverless architectures, is their networking involved? Yes. So I know what it is. I know my platform underneath it is going to take care of it, you know, sitting here talking about that transformation of the workforce, Dave, you wrote about it in your piece. That future of work is if you're you know, really, you know, putting together, You know, I'm a CCP my job is being a Cisco certified engineer, and my role will be racking, stacking, configuring and changing and managing those boxes today, it's well, I better get involved in the security side or the application side, because that's where I'm actually connected to the business and the data of things. Because if I'm just concerned about the moving packets around, yeah, there's gonna be either automation or clarification or combination of those things. They take that away from a >>couple thoughts on this. John, you were the very first to report trillion dollar opportunity for Andy Jassy and Amazon, and there was a 35 billion, so they have a long way to go. So I think a big theme for Amazon is gonna be tam. Expansion in one of those areas is, of course, networking, and you've seen the cloud slowly eat away reported this in my Wiki Bond post from the data because slowly eating away over the last 10 years. It's the networking share, and one practitioner said, as we put our data into the cloud, we're going to spend less on traditional networking, so it's clearly a threat. So Cisco, obviously diversifying its portfolio, we're gonna talk about that this week. But but more focused, as we've said do under the leadership of Chuck Robbins than it was. >>Well, Dave, here's a question for you because if you look at enterprise spend, they're increasing their spend on public cloud. But their data center stuff. It has stayed relatively solid. We haven't yet seen the erosion there. So are you saying networking is going to road before the rest of it? Because you know the story of data gravity? What? >>I think you're seeing the networking road not necessarily in terms of shrinking Cisco, although there guiding to a flat to down quarter. But you've certainly seen their growth slowdown, and especially in their core networking space. I mean, they've tried to double down on their switching and routing, and they just made new announcements in that space that John, you know well, but unquestionably the cloud is that it had an impact on Cisco's business. >>Well, 20 point, let's look ahead to the next 10 years. We've got a lot going on, so I think wait and see the big wave. So, to me, the big wave will start David on the ways I think the big wave is value proposition. Is the business model evolution? I think that's going to be a way that will constantly be the North Star or transformation. If whatever people are buying or operating, whether it's their infrastructure or their operating model, it has to have direct contribution to the business model, the company. So I think that's 12 I think AI and data will continue to power a lot of the value. And I think networking is going to be cloud ified. And the impact of that is going to be that as cloud and hybrid computing becomes a technical solution that achieves cheese, the operation model of companies you're going to start to see Multi Cloud emerged as a solution of that meaning Multi cloud isn't a technology. It's an outcome of hybrid combination of cloud. And that's going to change how packets are routed, how packets are networked. I think data ai and a complete transformation of the of the engine of business is gonna happen the next 10 years more than we've ever seen before. And I call this Dev Ops 234 point. Oh, do this. Is it a complete new engine of innovation. Technically, with storage, compute networking, where the application focus is going to be business driven, almost dynamic, almost real time. I think that will be a 10 year horizon. I wrote a Twitter post on this just a few minutes ago, and the lead architect for Azure tweeted back and said late, See, Layton sees never changes >>John. The innovation cocktail, as you said, is, What's the driver going forward, Right? >>Yes, exactly The speed of light. You can't solve that problem without putting points of presence all over, but >>the network architecture is what defines. It's, too, and I've been talking about network automation. We talked about Dev ops. But if you think of hybrid as a technical solution, how you work with public and private premises, Edge is just now a new network configuration that is going to be a very instrumental engineering task, which will actually impact how the software engineers, >>to your point, the latency that's physics and that's the plumbing and the plumbing is going to be there. But I do feel like we're exiting the cloud era into a new era of this innovation cocktail that you talk about the sandwich, which is cloud data plus AI plus digital services. And that's really what we're gonna be talking about 8 to 10 years from now is how organizations are applying those digital services and which companies, whether they're cloud native companies or guys like Cisco and IBM, HP Deli, EMC, how they're leveraging those waves and applying them >>to their business. And I'd be curious. See how the standards evolve around, whether it's de facto standards around interoperability around data, >>and you could look at what's >>happening with data privacy. You start to see the tell signs that data is going to be starting managed, just like packets are managed. It's like a whole interesting dynamic. >>But really what? This is the payoff for what company has been working on to be able to move faster. It was before was okay, used to take 18 months, and now I could do it a few months. But now I can react to that business between the automation, the machine learning, you know, putting together cloud, and you're gonna be able to refocus your workforce to be able to respond to the business and drive new value. >>All right, guys, we got to wrap up guest coming up. Appreciate the commentary. I'll just say that Dave Tesla. You mentioned one of your bringing analysis what Tesla did to the automobile company. I think there's going to be someone in the enterprise that comes out of the woodwork that changes the game on everybody. I think opportunity for that kind of new entrant >>in the same way Amazon. >>Did you think? >>I think Amazon is now an incumbent. I mean, look at the size and scale of it is always an opportunity for that bowl start up company. So it takes a kind of new dynamic electricity with cars, so we'll see. Okay, that's a wrap up. This is a cube conversation here in Barcelona for Cisco Live. I'm John. First Minutemen. Dave Vellante breaking down the Enterprise for the next 10 >>years. Yeah, yeah, yeah, yeah

>> From the SiliconANGLE Media office in Boston, Massachusetts, it's theCUBE. Now, here's your host, Dave Vellante. >> Hello everyone and welcome this week's episode of theCUBE Insights powered by ETR. And welcome to the Trillionaire's Club. In this Breaking Analysis, I want to look at how the big tech companies have really changed the recipe for innovation in the Enterprise. And as we enter the next decade, I think it's important to sort of reset and re-look at how innovation will determine the winners and losers going forward, including not only the sellers of technology but how technology applied will set the stage for the next 50 years of economic growth. Here's the premise that I want to put forth to you. The source of innovation in the technology business has been permanently altered. There's a new cocktail of innovation, if you will, that will far surpass Moore's Law in terms of it's impact on the industry. For 50 years we've marched to the cadence of that Moore's Law, that is the doubling of transistor counts every 18 months, as shown in the left-hand side of this chart. And of course this translated as we know, into a chasing of the chips, where by being first with the latest and greatest microprocessor brought competitive advantage. We saw Moore's Law drive the PC era, the client server era, and it even powered the internet, notwithstanding the effects of Metcalfe's Law. But there's a new engine of innovation or what John Furrier calls the "Innovation Cocktail," and that's shown in the right-hand of this slide where data plus machine intelligence or AI and Cloud are combinatorial technologies that will power innovation for the next 20 plus years. 10 years of gathering big data have put us in a position to now apply AI. Data is plentiful but insights are not and AI unlocks those insights. The Cloud brings three things, agility, scale, and the ability to fail quickly and cheaply. So, it's these three elements and how they are packaged and applied that will in my view determine winners and losers in the next decade and beyond. Now why is this era now suddenly upon us? Well I would argue there are three main factors. One is cheap storage and compute combined with alternative processor types, like GPUs that can power AI. And the era of data is here to stay. This next chart from Dave Moschella's book, "Seeing Digital," really underscores this point. Incumbent organizations born in the last century organized largely around human expertise or processes or hard assets like factories. These were the engines of competitive advantage. But today's successful organizations put data at the core. They live by the mantra of data driven. It is foundational to them. And they organize expertise, processes and people around the data. All you got to do to drive this point home is look at the market caps of the top five public companies in the U.S. Stock Market, Apple, Microsoft, Google, Amazon, and Facebook. I call this chart the Cuatro Comas! as a shout out to Russ Hanneman, the crazy billionaire supporting, was a supporting character in the Silicon Valley series. Now each of these companies, with the exception of Facebook, has hit the trillion dollar club. AWS, like Mr. Hanneman, hit the trillion dollar club status back in September 2018 but fell back down and lost a comma. These five data-driven companies have surpassed big oil and big finance. I mean, the next closest company is Berkshire at 566 billion. And I would argue that if it hadn't been for the fake news scandal, Facebook probably would be right there with these others. Now, with the exception of Apple, these companies, they're not highly valued because of the goods they pump out, rather, and I would argue even in the case of Apple, their highly valued because they're leaders in digital and in the best position to apply machine intelligence to massive stores of data that they've collected. And they have massive scale, thanks to the Cloud. Now, I get that the success of some of these companies is largely driven by the consumer but the consumerization of IT makes this even more relevant, in my opinion. Let's bring in some ETR data to see how this translates into the Enterprise tech world. This chart shows market share from Microsoft, AWS, Apple iPhone, and Google in the Enterprise all the way back to 2010. Now I get that the iPhone is a bit of a stretch here but stick with me. Remember, market share in ETR terms is a measure of pervasiveness in the data set. Look at how Microsoft has held it's ground. And you can see the steady rise of AWS and Google. Now if I superimpose traditional Enterprise players like Cisco, IBM, or Hewlett or even Dell, that is companies that aren't competing with data at the core of their business, you would see a steady decline. I am required to black out January 2020 as you probably remember, but that data will be out soon and made public shortly after ETR exits its self-imposed quiet period. Now Apple iPhone is not a great proxy but Apple, they're not an Enterprise tech company, but it's data that I can show but now I would argue again that Apple's real value and a key determinate of their success going forward, lies in how it uses data and applies machine intelligence at scale over the next decade to compete in apps and digital services, content, and other adjacencies. And I would say these five leaders and virtually any company in the next decade, this applies. Look, digital means data and digital businesses are data driven. Data changes how we think about competition. Just look at Amazon's moves in content, grocery, logistics. Look at Google in automobiles, Apple and Amazon in music. You know, interestingly Microsoft positions this as a competitive advantage, especially in retail. For instance, touting Walmart as a partner, not a competitor, a la Amazon. The point is, that digital data, AI, and Cloud bring forth highly disruptive possibilities and are enabling these giants to enter businesses that previously were insulated from the outsiders. And in the case of the Cloud, it's paying the way. Just look at the data from Amazon. The left bar shows Amazon's revenue. AWS represents only 12% of the total company's turnover. But as you can see on the right-hand side, it accounts for almost half of the company's operating income. So, the Cloud is essentially funding Amazon's entrance into all these other businesses and powering its scale. Now let's bring in some ETR data to show what's happening in the Enterprise in the terms of share shifts. This chart is a double-Y axis that shows spending levels on the left-hand side, represented by the bars, and the average change in spending, represented by the dots. Focus for a second on the dots and the percentages. Container orchestrations at 29% change. Container platforms at 19.7%. These are Cloud-native technologies and customers are voting with their wallets. Machine learning and AI, nearly 18% change. Cloud computing itself still in the 16% range, 10 plus years on. Look at analytics and big data in the double digits still, 10 years into the big data movement. So, you can see the ETR data shows that the spending action is in and around Cloud, AI, and data. And in the red, look at the Moore's Law techs like servers and storage. Now, this isn't to say that those go away. I fully understand you need servers, and storage, and networking, and database, and software to power the Cloud but this data shows that right now, these discreet cocktail technologies are gaining spending momentum. So, the question I want to leave you with is, what does this mean for incumbents? Those that are not digital-natives or not born in the Cloud? Well, the first thing I'd point out is that while the trillionaires, they look invincible today, history suggests that they are not invulnerable. The rise of China, India, open-source, peer-to-peer models, open models, could coalesce and disrupt these big guys if they miss a step or a cycle. The second point I would make is that incumbents are often too complacent. More often than not, in my experience, there is complacency and there will be a fallout. I hear a lot of lip service given to digital and data driven but often I see companies that talk the talk but they don't walk the walk. Change will come and the incumbents will be disrupted and that is going to cause action at the top. The good news is that the incumbents, they don't have to build the tech. They can compete with the disruptors by applying machine intelligence to their unique data sets and they can buy technologies like AI and the Cloud from suppliers. The degree to which they are comfortable buying from these supplies, who may also be competitors, will play out over time but I would argue that building that competitive advantage sooner rather than later with data and learning to apply machine intelligence and AI to their unique businesses, will allow them to thrive and protect their existing businesses and grow. These markets are large and the incumbents have inherent advantages in terms of resources, relationships, brand value, customer affinity, and domain knowledge that if they apply and transform from the top with strong leadership, they will do very, very well in my view. This is Dave Vellante signing out from this latest episode of theCUBE Insights powered by ETR. Thanks for watching everybody. We'll see you next time and please feel free to comment. In my LinkedIn, you can DM me @dvellante and don't forget we turned this into a podcast so check that out at your favorite podcast player. Thanks again.