>>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 Ante. >>Have you ever been driving on the highway and traffic suddenly slows way down and then after a little while it picks up again and you're cruising along and you're thinking, Okay, hey, that was weird. But it's clear sailing now. Off we go, only to find out in a bit that the traffic is building up ahead again, forcing you to pump the brakes as the traffic pattern ebbs and flows well. Welcome to the Seesaw economy. The fed induced fire that prompted an unprecedented rally in tech is being purposefully extinguished now by that same fed. And virtually every sector of the tech industry is having to reset its expectations, including the cloud segment. Hello and welcome to this week's Wikibon Cube Insights powered by etr. In this breaking analysis will review the implications of the earnings announcements from the big three cloud players, Amazon, Microsoft, and Google who announced this week. >>And we'll update you on our quarterly IAS forecast and share the latest from ETR with a focus on cloud computing. Now, before we get into the new data, we wanna review something we shared with you on October 14th, just a couple weeks back, this is sort of a, we told you it was coming slide. It's an XY graph that shows ET R'S proprietary net score methodology on the vertical axis. That's a measure of spending momentum, spending velocity, and an overlap or presence in the dataset that's on the X axis. That's really a measure of pervasiveness. In the survey, the table, you see that table insert there that shows Wiki Bond's Q2 estimates of IAS revenue for the big four hyperscalers with their year on year growth rates. Now we told you at the time, this is data from the July TW 22 ETR survey and the ETR hadn't released its October survey results at that time. >>This was just a couple weeks ago. And while we couldn't share the specific data from the October survey, we were able to get a glimpse and we depicted the slowdown that we saw in the October data with those dotted arrows kind of down into the right, we said at the time that we were seeing and across the board slowdown even for the big three cloud vendors. Now, fast forward to this past week and we saw earnings releases from Alphabet, Microsoft, and just last night Amazon. Now you may be thinking, okay, big deal. The ETR survey data didn't really tell us anything we didn't already know. But judging from the negative reaction in the stock market to these earnings announcements, the degree of softness surprised a lot of investors. Now, at the time we didn't update our forecast, it doesn't make sense for us to do that when we're that close to earning season. >>And now that all the big three ha with all the big four with the exception of Alibaba have announced we've, we've updated. And so here's that data. This chart lays out our view of the IS and PAs worldwide revenue. Basically it's cloud infrastructure with an attempt to exclude any SaaS revenue so we can make an apples to apples comparison across all the clouds. Now the reason that actual is in quotes is because Microsoft and Google don't report IAS revenue, but they do give us clues and kind of directional commentary, which we then triangulate with other data that we have from the channel and ETR surveys and just our own intelligence. Now the second column there after the vendor name shows our previous estimates for q3, and then next to that we show our actuals. Same with the growth rates. And then we round out the chart with that lighter blue color highlights, the full year estimates for revenue and growth. >>So the key takeaways are that we shaved about $4 billion in revenue and roughly 300 basis points of growth off of our full year estimates. AWS had a strong July but exited Q3 in the mid 20% growth rate year over year. So we're using that guidance, you know, for our Q4 estimates. Azure came in below our earlier estimates, but Google actually exceeded our expectations. Now the compression in the numbers is in our view of function of the macro demand climate, we've made every attempt to adjust for constant currency. So FX should not be a factor in this data, but it's sure you know that that ma the the, the currency effects are weighing on those companies income statements. And so look, this is the fundamental dynamic of a cloud model where you can dial down consumption when you need to and dial it up when you need to. >>Now you may be thinking that many big cloud customers have a committed level of spending in order to get better discounts. And that's true. But what's happening we think is they'll reallocate that spend toward, let's say for example, lower cost storage tiers or they may take advantage of better price performance processors like Graviton for example. That is a clear trend that we're seeing and smaller companies that were perhaps paying by the drink just on demand, they're moving to reserve instance models to lower their monthly bill. So instead of taking the easy way out and just spending more companies are reallocating their reserve capacity toward lower cost. So those sort of lower cost services, so they're spending time and effort optimizing to get more for, for less whereas, or get more for the same is really how we should, should, should phrase it. Whereas during the pandemic, many companies were, you know, they perhaps were not as focused on doing that because business was booming and they had a response. >>So they just, you know, spend more dial it up. So in general, as they say, customers are are doing more with, with the same. Now let's look at the growth dynamic and spend some time on that. I think this is important. This data shows worldwide quarterly revenue growth rates back to Q1 2019 for the big four. So a couple of interesting things. The data tells us during the pandemic, you saw both AWS and Azure, but the law of large numbers and actually accelerate growth. AWS especially saw progressively increasing growth rates throughout 2021 for each quarter. Now that trend, as you can see is reversed in 2022 for aws. Now we saw Azure come down a bit, but it's still in the low forties in terms of percentage growth. While Google actually saw an uptick in growth this last quarter for GCP by our estimates as GCP is becoming an increasingly large portion of Google's overall cloud business. >>Now, unfortunately Google Cloud continues to lose north of 850 million per quarter, whereas AWS and Azure are profitable cloud businesses even though Alibaba is suffering its woes from China. And we'll see how they come in when they report in mid-November. The overall hyperscale market grew at 32% in Q3 in terms of worldwide revenue. So the slowdown isn't due to the repatriation or competition from on-prem vendors in our view, it's a macro related trend. And cloud will continue to significantly outperform other sectors despite its massive size. You know, on the repatriation point, it just still doesn't show up in the data. The A 16 Z article from Sarah Wong and Martin Martin Kasa claiming that repatriation was inevitable as a means to lower cost of good sold for SaaS companies. You know, while that was thought provoking, it hasn't shown up in the numbers. And if you read the financial statements of both AWS and its partners like Snowflake and you dig into the, to the, to the quarterly reports, you'll see little notes and comments with their ongoing negotiations to lower cloud costs for customers. >>AWS and no doubt execs at Azure and GCP understand that the lifetime value of a customer is worth much more than near term gross margin. And you can expect the cloud vendors to strike a balance between profitability, near term profitability anyway and customer attention. Now, even though Google Cloud platform saw accelerated growth, we need to put that in context for you. So GCP, by our estimate, has now crossed over the $3 billion for quarter market actually did so last quarter, but its growth rate accelerated to 42% this quarter. And so that's a good sign in our view. But let's do a quick little comparison with when AWS and Azure crossed the $3 billion mark and compare their growth rates at the time. So if you go back to to Q2 2016, as we're showing in this chart, that's around the time that AWS hit 3 billion per quarter and at the same time was growing at 58%. >>Azure by our estimates crossed that mark in Q4 2018 and at that time was growing at 67%. Again, compare that to Google's 42%. So one would expect Google's growth rate would be higher than its competitors at this point in the MO in the maturity of its cloud, which it's, you know, it's really not when you compared to to Azure. I mean they're kind of con, you know, comparable now but today, but, but you'll go back, you know, to that $3 billion mark. But more so looking at history, you'd like to see its growth rate at this point of a maturity model at least over 50%, which we don't believe it is. And one other point on this topic, you know, my business friend Matt Baker from Dell often says it's not a zero sum game, meaning there's plenty of opportunity exists to build value on top of hyperscalers. >>And I would totally agree it's not a dollar for dollar swap if you can continue to innovate. But history will show that the first company in makes the most money. Number two can do really well and number three tends to break even. Now maybe cloud is different because you have Microsoft software estate and the power behind that and that's driving its IAS business and Google ads are funding technology buildouts for, for for Google and gcp. So you know, we'll see how that plays out. But right now by this one measurement, Google is four years behind Microsoft in six years behind aws. Now to the point that cloud will continue to outpace other markets, let's, let's break this down a bit in spending terms and see why this claim holds water. This is data from ET r's latest October survey that shows the granularity of its net score or spending velocity metric. >>The lime green is new adoptions, so they're adding the platform, the forest green is spending more 6% or more. The gray bars spending is flat plus or minus, you know, 5%. The pinkish colors represent spending less down 6% or worse. And the bright red shows defections or churn of the platform. You subtract the reds from the greens and you get what's called net score, which is that blue dot that you can see on each of the bars. So what you see in the table insert is that all three have net scores above 40%, which is a highly elevated measure. Microsoft's net scores above 60% AWS well into the fifties and GCP in the mid forties. So all good. Now what's happening with all three is more customers are keep keeping their spending flat. So a higher percentage of customers are saying, our spending is now flat than it was in previous quarters and that's what's accounting for the compression. >>But the churn of all three, even gcp, which we reported, you know, last quarter from last quarter survey was was five x. The other two is actually very low in the single digits. So that might have been an anomaly. So that's a very good sign in our view. You know, again, customers aren't repatriating in droves, it's just not a trend that we would bet on, maybe makes for a FUD or you know, good marketing head, but it's just not a big deal. And you can't help but be impressed with both Microsoft and AWS's performance in the survey. And as we mentioned before, these companies aren't going to give up customers to try and preserve a little bit of gross margin. They'll do what it takes to keep people on their platforms cuz they'll make up for it over time with added services and improved offerings. >>Now, once these companies acquire a customer, they'll be very aggressive about keeping them. So customers take note, you have negotiating leverage, so use it. Okay, let's look at another cut at the cloud market from the ETR data set. Here's the two dimensional view, again, it's back, it's one of our favorites. Net score or spending momentum plotted against presence. And the data set, that's the x axis net score on the, on the vertical axis, this is a view of et r's cloud computing sector sector. You can see we put that magic 40% dotted red line in the table showing and, and then that the table inserts shows how the data are plotted with net score against presence. I e n in the survey, notably only the big three are above the 40% line of the names that we're showing here. The oth there, there are others. >>I mean if you put Snowflake on there, it'd be higher than any of these names, but we'll dig into that name in a later breaking analysis episode. Now this is just another way of quantifying the dominance of AWS and Azure, not only relative to Google, but the other cloud platforms out there. So we've, we've taken the opportunity here to plot IBM and Oracle, which both own a public cloud. Their performance is largely a reflection of them migrating their install bases to their respective public clouds and or hybrid clouds. And you know, that's fine, they're in the game. That's a point that we've made, you know, a number of times they're able to make it through the cloud, not whole and they at least have one, but they simply don't have the business momentum of AWS and Azure, which is actually quite impressive because AWS and Azure are now as large or larger than IBM and Oracle. >>And to show this type of continued growth that that that Azure and AWS show at their size is quite remarkable and customers are starting to recognize the viability of on-prem hi, you know, hybrid clouds like HPE GreenLake and Dell's apex. You know, you may say, well that's not cloud, but if the customer thinks it is and it was reporting in the survey that it is, we're gonna continue to report this view. You know, I don't know what's happening with H P E, They had a big down tick this quarter and I, and I don't read too much into that because their end is still pretty small at 53. So big fluctuations are not uncommon with those types of smaller ends, but it's over 50. So, you know, we did notice a a a negative within a giant public and private sector, which is often a, a bellwether giant public private is big public companies and large private companies like, like a Mars for example. >>So it, you know, it looks like for HPE it could be an outlier. We saw within the Fortune 1000 HPE E'S cloud looked actually really good and it had good spending momentum in that sector. When you di dig into the industry data within ETR dataset, obviously we're not showing that here, but we'll continue to monitor that. Okay, so where's this Leave us. Well look, this is really a tactical story of currency and macro headwinds as you can see. You know, we've laid out some of the points on this slide. The action in the stock market today, which is Friday after some of the soft earnings reports is really robust. You know, we'll see how it ends up in the day. So maybe this is a sign that the worst is over, but we don't think so. The visibility from tech companies is murky right now as most are guiding down, which indicates that their conservative outlook last quarter was still too optimistic. >>But as it relates to cloud, that platform is not going anywhere anytime soon. Sure, there are potential disruptors on the horizon, especially at the edge, but we're still a long ways off from, from the possibility that a new economic model emerges from the edge to disrupt the cloud and the opportunities in the cloud remain strong. I mean, what other path is there? Really private cloud. It was kind of a bandaid until the on-prem guys could get their a as a service models rolled out, which is just now happening. The hybrid thing is real, but it's, you know, defensive for the incumbents until they can get their super cloud investments going. Super cloud implying, capturing value above the hyperscaler CapEx, you know, call it what you want multi what multi-cloud should have been, the metacloud, the Uber cloud, whatever you like. But there are opportunities to play offense and that's clearly happening in the cloud ecosystem with the likes of Snowflake, Mongo, Hashi Corp. >>Hammer Spaces is a startup in this area. Aviatrix, CrowdStrike, Zeke Scaler, Okta, many, many more. And even the projects we see coming out of enterprise players like Dell, like with Project Alpine and what Pure Storage is doing along with a number of other of the backup vendors. So Q4 should be really interesting, but the real story is the investments that that companies are making now to leverage the cloud for digital transformations will be paying off down the road. This is not 1999. We had, you know, May might have had some good ideas and admittedly at a lot of bad ones too, but you didn't have the infrastructure to service customers at a low enough cost like you do today. The cloud is that infrastructure and so far it's been transformative, but it's likely the best is yet to come. Okay, let's call this a rap. >>Many thanks to Alex Morrison who does production and manages the podcast. Also Can Schiffman is our newest edition to the Boston Studio. Kristin Martin and Cheryl Knight helped get the word out on social media and in our newsletters. And Rob Ho is our editor in chief over@siliconangle.com, who does some wonderful editing for us. Thank you. Remember, all these episodes are available as podcasts. Wherever you listen, just search breaking analysis podcast. I publish each week on wiki bond.com at silicon angle.com. And you can email me at David dot valante@siliconangle.com or DM me at Dante or comment on my LinkedIn posts. And please do checkout etr.ai. They got the best survey data in the enterprise tech business. This is Dave Valante for the Cube Insights powered by etr. Thanks for watching and we'll see you next time on breaking analysis.

>>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 ante. >>When Frank sluman took service, now public many people undervalued the company, positioning it as just a better help desk tool. You know, it turns out that the firm actually had a massive Tam expansion opportunity in it. SM customer service, HR, logistics, security marketing, and service management. Generally now stock price followed over the years, the stellar execution under Slootman and CFO, Mike scar Kelly's leadership. Now, when they took the reins at snowflake expectations were already set that they'd repeat the feet, but this time, if anything, the company was overvalued out of the gate, the thing is people didn't really better understand the market opportunity this time around, other than that, it was a bet on Salman's track record of execution and on data, pretty good bets, but folks really didn't appreciate that snowflake. Wasn't just a better data warehouse that it was building what they call a data cloud, and we've turned a data super cloud. >>Hello and welcome to this. Week's Wikibon cube insights powered by ETR in this breaking analysis, we'll do four things. First. We're gonna review the recent narrative and concerns about snowflake and its value. Second, we're gonna share survey data from ETR that will confirm precisely what the company's CFO has been telling anyone who will listen. And third, we're gonna share our view of what snowflake is building IE, trying to become the defacto standard data platform, and four convey our expectations for the upcoming snowflake summit. Next week at Caesar's palace in Las Vegas, Snowflake's most recent quarterly results they've been well covered and well documented. It basically hit its targets, which for snowflake investors was bad news wall street piled on expressing concerns about Snowflake's consumption, pricing model, slowing growth rates, lack of profitability and valuation. Given the, given the current macro market conditions, the stock dropped below its IPO offering price, which you couldn't touch on day one, by the way, as the stock opened well above that and, and certainly closed well above that price of one 20 and folks express concerns about some pretty massive insider selling throughout 2021 and early 2022, all this caused the stock price to drop quite substantially. >>And today it's down around 63% or more year to date, but the only real substantive change in the company's business is that some of its largest consumer facing companies, while still growing dialed back, their consumption this past quarter, the tone of the call was I wouldn't say contentious the earnings call, but Scarelli, I think was getting somewhat annoyed with the implication from some analyst questions that something is fundamentally wrong with Snowflake's business. So let's unpack this a bit first. I wanna talk about the consumption pricing on the earnings call. One of the analysts asked if snowflake would consider more of a subscription based model so that they could better weather such fluctuations and demand before the analyst could even finish the question, CFO Scarelli emphatically interrupted and said, no, <laugh> the analyst might as well have asked, Hey Mike, have you ever considered changing your pricing model and screwing your customers the same way most legacy SaaS companies lock their customers in? >>So you could squeeze more revenue out of them and make my forecasting life a little bit easier. <laugh> consumption pricing is one of the things that makes a company like snowflake so attractive because customers is especially large customers facing fluctuating demand can dial and their end demand can dial down usage for certain workloads that are maybe not yet revenue producing or critical. Now let's jump to insider trading. There were a lot of insider selling going on last year and into 2022 now, I mean a lot sloop and Scarelli Christine Kleinman. Mike SP several board members. They sold stock worth, you know, many, many hundreds of millions of dollars or, or more at prices in the two hundreds and three hundreds and even four hundreds. You remember the company at one point was valued at a hundred billion dollars, surpassing the value of service now, which is this stupid at this point in the company's tenure and the insider's cost basis was very often in the single digit. >>So on the one hand, I can't blame them. You know what a gift the market gave them last year. Now also famed investor, Peter Linsey famously said, insiders sell for many reasons, but they only buy for one. But I have to say there wasn't a lot of insider buying of the stock when it was in the three hundreds and above. And so yeah, this pattern is something to watch our insiders buying. Now, I'm not sure we'll keep watching snowflake. It's pretty generous with stock based compensation and insiders still own plenty of stock. So, you know, maybe not, but we'll see in future disclosures, but the bottom line is Snowflake's business. Hasn't dramatically changed with the exception of these large consumer facing companies. Now, another analyst pointed out that companies like snap, he pointed to company snap, Peloton, Netflix, and face Facebook have been cutting back. >>And Scarelli said, and what was a bit of a surprise to me? Well, I'm not gonna name the customers, but it's not the ones you mentioned. So I, I thought I would've, you know, if I were the analyst I would've follow up with, how about Walmart target visa, Amex, Expedia price line, or Uber? Any of those Mike? I, I doubt he would've answered me anything. Anyway, the one thing that Scarelli did do is update Snowflake's fiscal year 2029 outlook to emphasize the long term opportunity that the company sees. This chart shows a financial snapshot of Snowflake's current business using a combination of quarterly and full year numbers in a model of what the business will look like. According to Scarelli in Dave ante with a little bit of judgment in 2029. So this is essentially based on the company's framework. Snowflake this year will surpass 2 billion in revenues and targeting 10 billion by 2029. >>Its current growth rate is 84% and its target is 30% in the out years, which is pretty impressive. Gross margins are gonna tick up a bit, but remember Snowflake's cost a good sold they're dominated by its cloud cost. So it's got a governor. There has to pay AWS Azure and Google for its infrastructure. But high seventies is a, is a good target. It's not like the historical Microsoft, you know, 80, 90% gross margin. Not that Microsoft is there anymore, but, but snowflake, you know, was gonna be limited by how far it can, how much it can push gross margin because of that factor. It's got a tiny operating margin today and it's targeting 20% in 2029. So that would be 2 billion. And you would certainly expect it's operating leverage in the out years to enable much, much, much lower SGNA than the current 54%. I'm guessing R and D's gonna stay healthy, you know, coming in at 15% or so. >>But the real interesting number to watch is free cash flow, 16% this year for the full fiscal year growing to 25% by 2029. So 2.5 billion in free cash flow in the out years, which I believe is up from previous Scarelli forecast in that 10, you know, out year view 2029 view and expect the net revenue retention, the NRR, it's gonna moderate. It's gonna come down, but it's still gonna be well over a hundred percent. We pegged it at 130% based on some of Mike's guidance. Now today, snowflake and every other stock is well off this morning. The company had a 40 billion value would drop well below that midday, but let's stick with the 40 billion on this, this sad Friday on the stock market, we'll go to 40 billion and who knows what the stock is gonna be valued in 2029? No idea, but let's say between 40 and 200 billion and look, it could get even ugly in the market as interest rates rise. >>And if inflation stays high, you know, until we get a Paul Voker like action, which is gonna be painful from the fed share, you know, let's hope we don't have a repeat of the long drawn out 1970s stagflation, but that is a concern among investors. We're gonna try to keep it positive here and we'll do a little sensitivity analysis of snowflake based on Scarelli and Ante's 2029 projections. What we've done here is we've calculated in this chart. Today's current valuation at about 40 billion and run a CAGR through 2029 with our estimates of valuation at that time. So if it stays at 40 billion valuation, can you imagine snowflake grow into a 10 billion company with no increase in valuation by the end, by by 2029 fiscal 2029, that would be a major bummer and investors would get a, a 0% return at 50 billion, 4% Kager 60 billion, 7%. >>Kegar now 7% market return is historically not bad relative to say the S and P 500, but with that kind of revenue and profitability growth projected by snowflake combined with inflation, that would again be a, a kind of a buzzkill for investors. The picture at 75 billion valuation, isn't much brighter, but it picks up at, at a hundred billion, even with inflation that should outperform the market. And as you get to 200 billion, which would track by the way, revenue growth, you get a 30% plus return, which would be pretty good. Could snowflake beat these projections. Absolutely. Could the market perform at the optimistic end of the spectrum? Sure. It could. It could outperform these levels. Could it not perform at these levels? You bet, but hopefully this gives a little context and framework to what Scarelli was talking about and his framework, not with notwithstanding the market's unpredictability you're you're on your own. >>There. I can't help snowflake looks like it's going to continue either way in amazing run compared to other software companies historically, and whether that's reflected in the stock price. Again, I, I, I can't predict, okay. Let's look at some ETR survey data, which aligns really well with what snowflake is telling the street. This chart shows the breakdown of Snowflake's net score and net score. Remember is ETS proprietary methodology that measures the percent of customers in their survey that are adding the platform new. That's the lime green at 19% existing snowflake customers that are ex spending 6% or more on the platform relative to last year. That's the forest green that's 55%. That's a big number flat spend. That's the gray at 21% decreasing spending. That's the pinkish at 5% and churning that's the red only 1% or, or moving off the platform, tiny, tiny churn, subtract the red from the greens and you get a net score that, that, that nets out to 68%. >>That's an, a very impressive net score by ETR standards. But it's down from the highs of the seventies and mid eighties, where high seventies and mid eighties, where snowflake has been since January of 2019 note that this survey of 1500 or so organizations includes 155 snowflake customers. What was really interesting is when we cut the data by industry sector, two of Snowflake's most important verticals, our finance and healthcare, both of those sectors are holding a net score in the ETR survey at its historic range. 83%. Hasn't really moved off that, you know, 80% plus number really encouraging, but retail consumer showed a dramatic decline. This past survey from 73% in the previous quarter down to 54%, 54% in just three months time. So this data aligns almost perfectly with what CFO Scarelli has been telling the street. So I give a lot of credibility to that narrative. >>Now here's a time series chart for the net score and the provision in the data set, meaning how penetrated snowflake is in the survey. Again, net score measures, spending velocity and a specific platform and provision measures the presence in the data set. You can see the steep downward trend in net score this past quarter. Now for context note, the red dotted line on the vertical axis at 40%, that's a bit of a magic number. Anything above that is best in class in our view, snowflake still a well, well above that line, but the April survey as we reported on May 7th in quite a bit of detail shows a meaningful break in the snowflake trend as shown by ETRS call out on the bottom line. You can see a steady rise in the survey, which is a proxy for Snowflake's overall market penetration. So steadily moving up and up. >>Here's a bit of a different view on that data bringing in some of Snowflake's peers and other data platforms. This XY graph shows net score on the vertical axis and provision on the horizontal with the red dotted line. At 40%, you can see from the ETR callouts again, that snowflake while declining in net score still holds the highest net score in the survey. So of course the highest data platforms while the spending velocity on AWS and Microsoft, uh, data platforms, outperforms that have, uh, sorry, while they're spending velocity on snowflake outperforms, that of AWS and, and Microsoft data platforms, those two are still well above the 40% line with a stronger market presence in the category. That's impressive because of their size. And you can see Google cloud and Mongo DB right around the 40% line. Now we reported on Mongo last week and discussed the commentary on consumption models. >>And we referenced Ray Lenchos what we thought was, was quite thoughtful research, uh, that rewarded Mongo DB for its forecasting transparency and, and accuracy and, and less likelihood of facing consumption headwinds. And, and I'll reiterate what I said last week, that snowflake, while seeing demand fluctuations this past quarter from those large customers is, is not like a data lake where you're just gonna shove data in and figure it out later, no schema on, right. Just throw it into the pond. That's gonna be more discretionary and you can turn that stuff off. More likely. Now you, you bring data into the snowflake data cloud with the intent of driving insights, which leads to actions, which leads to value creation. And as snowflake adds capabilities and expands its platform features and innovations and its ecosystem more and more data products are gonna be developed in the snowflake data cloud and by data products. >>We mean products and services that are conceived by business users. And that can be directly monetized, not just via analytics, but through governed data sharing and direct monetization. Here's a picture of that opportunity as we see it, this is our spin on our snowflake total available market chart that we've published many, many times. The key point here goes back to our opening statements. The snowflake data cloud is evolving well beyond just being a simpler and easier to use and more elastic cloud database snowflake is building what we often refer to as a super cloud. That is an abstraction layer that companies that, that comprises rich features and leverages the underlying primitives and APIs of the cloud providers, but hides all that complexity and adds new value beyond that infrastructure that value is seen in the left example in terms of compressed cycle time, snowflake often uses the example of pharmaceutical companies compressing time to discover a drug by years. >>Great example, there are many others this, and, and then through organic development and ecosystem expansion, snowflake will accelerate feature delivery. Snowflake's data cloud vision is not about vertically integrating all the functionality into its platform. Rather it's about creating a platform and delivering secure governed and facile and powerful analytics and data sharing capabilities to its customers, partners in a broad ecosystem so they can create additional value. On top of that ecosystem is how snowflake fills the gaps in its platform by building the best cloud data platform in the world, in terms of collaboration, security, governance, developer, friendliness, machine intelligence, etcetera, snowflake believes and plans to create a defacto standard. In our view in data platforms, get your data into the data cloud and all these native capabilities will be available to you. Now, is that a walled garden? Some might say it is. It's an interesting question and <laugh>, it's a moving target. >>It's definitely proprietary in the sense that snowflake is building something that is highly differentiatable and is building a moat around it. But the more open snowflake can make its platform. The more open source it uses, the more developer friendly and the great greater likelihood people will gravitate toward snowflake. Now, my new friend Tani, she's the creator of the data mesh concept. She might bristle at this narrative in favor, a more open source version of what snowflake is trying to build, but practically speaking, I think she'd recognize that we're a long ways off from that. And I also think that the benefits of a platform that despite requiring data to be inside of the data cloud can distribute data globally, enable facile governed, and computational data sharing, and to a large degree be a self-service platform for data, product builders. So this is how we see snow, the snowflake data cloud vision evolving question is edge part of that vision on the right hand side. >>Well, again, we think that is going to be a future challenge where the ecosystem is gonna have to come to play to fill those gaps. If snowflake can tap the edge, it'll bring even more clarity as to how it can expand into what we believe is a massive 200 billion Tam. Okay, let's close on next. Week's snowflake summit in Las Vegas. The cube is very excited to be there. I'll be hosting with Lisa Martin and we'll have Frank son as well as Christian Kleinman and several other snowflake experts. Analysts are gonna be there, uh, customers. And we're gonna have a number of ecosystem partners on as well. Here's what we'll be looking for. At least some of the things, evidence that our view of Snowflake's data cloud is actually taking shape and evolving in the way that we showed on the previous chart, where we also wanna figure out where snowflake is with it. >>Streamlet acquisition. Remember streamlet is a data science play and an expansion into data, bricks, territory, data, bricks, and snowflake have been going at it for a while. Streamlet brings an open source Python library and machine learning and kind of developer friendly data science environment. We also expect to hear some discussion, hopefully a lot of discussion about developers. Snowflake has a dedicated developer conference in November. So we expect to hear more about that and how it's gonna be leveraging further leveraging snow park, which it has previously announced, including a public preview of programming for unstructured data and data monetization along the lines of what we suggested earlier that is building data products that have the bells and whistles of native snowflake and can be directly monetized by Snowflake's customers. Snowflake's already announced a new workload this past week in security, and we'll be watching for others. >>And finally, what's happening in the all important ecosystem. One of the things we noted when we covered service now, cause we use service now as, as an example because Frank Lupin and Mike Scarelli and others, you know, DNA were there and they're improving on that service. Now in his post IPO, early adult years had a very slow pace. In our view was often one of our criticism of ecosystem development, you know, ServiceNow. They had some niche SI uh, like cloud Sherpa, and eventually the big guys came in and, and, and began to really lean in. And you had some other innovators kind of circling the mothership, some smaller companies, but generally we see sluman emphasizing the ecosystem growth much, much more than with this previous company. And that is a fundamental requirement in our view of any cloud or modern cloud company now to paraphrase the crazy man, Steve bomber developers, developers, developers, cause he screamed it and ranted and ran around the stage and was sweating <laugh> ecosystem ecosystem ecosystem equals optionality for developers and that's what they want. >>And that's how we see the current and future state of snowflake. Thanks today. If you're in Vegas next week, please stop by and say hello with the cube. Thanks to my colleagues, Stephanie Chan, who sometimes helps research breaking analysis topics. Alex, my is, and OS Myerson is on production. And today Andrew Frick, Sarah hiney, Steven Conti Anderson hill Chuck all and the entire team in Palo Alto, including Christian. Sorry, didn't mean to forget you Christian writer, of course, Kristin Martin and Cheryl Knight, they helped get the word out. And Rob ho is our E IIC over at Silicon angle. Remember, all these episodes are available as podcast, wherever you listen to search breaking analysis podcast, I publish each week on wikibon.com and Silicon angle.com. You can email me directly anytime David dot Valante Silicon angle.com. If you got something interesting, I'll respond. If not, I won't or DM me@deteorcommentonmylinkedinpostsandpleasedocheckoutetr.ai for the best survey data in the enterprise tech business. This is Dave Valante for the insights powered by ETR. Thanks for watching. And we'll see you next week. I hope if not, we'll see you next time on breaking analysis.

(upbeat music) >> The ascendancy of cloud and SAS has shown new light on how organizations think about, pay for, and value hardware. Once sought after skills for practitioners with expertise in hardware troubleshooting, configuring ports, tuning storage arrays, and maximizing server utilization has been superseded by demand for cloud architects, DevOps pros, developers with expertise in microservices, container, application development, and like. Even a company like Dell, the largest hardware company in enterprise tech touts that it has more software engineers than those working in hardware. Begs the question, is hardware going the way of Coball? Well, not likely. Software has to run on something, but the labor needed to deploy, and troubleshoot, and manage hardware infrastructure is shifting. At the same time, we've seen the value flow also shifting in hardware. Once a world dominated by X86 processors value is flowing to alternatives like Nvidia and arm based designs. Moreover, other componentry like NICs, accelerators, and storage controllers are becoming more advanced, integrated, and increasingly important. The question is, does it matter? And if so, why does it matter and to whom? What does it mean to customers, workloads, OEMs, and the broader society? Hello and welcome to this week's Wikibon theCUBE Insights powered by ETR. In this breaking analysis, we've organized a special power panel of industry analysts and experts to address the question, does hardware still matter? Allow me to introduce the panel. Bob O'Donnell is president and chief analyst at TECHnalysis Research. Zeus Kerravala is the founder and principal analyst at ZK Research. David Nicholson is a CTO and tech expert. Keith Townson is CEO and founder of CTO Advisor. And Marc Staimer is the chief dragon slayer at Dragon Slayer Consulting and oftentimes a Wikibon contributor. Guys, welcome to theCUBE. Thanks so much for spending some time here. >> Good to be here. >> Thanks. >> Thanks for having us. >> Okay before we get into it, I just want to bring up some data from ETR. This is a survey that ETR does every quarter. It's a survey of about 1200 to 1500 CIOs and IT buyers and I'm showing a subset of the taxonomy here. This XY axis and the vertical axis is something called net score. That's a measure of spending momentum. It's essentially the percentage of customers that are spending more on a particular area than those spending less. You subtract the lesses from the mores and you get a net score. Anything the horizontal axis is pervasion in the data set. Sometimes they call it market share. It's not like IDC market share. It's just the percentage of activity in the data set as a percentage of the total. That red 40% line, anything over that is considered highly elevated. And for the past, I don't know, eight to 12 quarters, the big four have been AI and machine learning, containers, RPA and cloud and cloud of course is very impressive because not only is it elevated in the vertical access, but you know it's very highly pervasive on the horizontal. So what I've done is highlighted in red that historical hardware sector. The server, the storage, the networking, and even PCs despite the work from home are depressed in relative terms. And of course, data center collocation services. Okay so you're seeing obviously hardware is not... People don't have the spending momentum today that they used to. They've got other priorities, et cetera, but I want to start and go kind of around the horn with each of you, what is the number one trend that each of you sees in hardware and why does it matter? Bob O'Donnell, can you please start us off? >> Sure Dave, so look, I mean, hardware is incredibly important and one comment first I'll make on that slide is let's not forget that hardware, even though it may not be growing, the amount of money spent on hardware continues to be very, very high. It's just a little bit more stable. It's not as subject to big jumps as we see certainly in other software areas. But look, the important thing that's happening in hardware is the diversification of the types of chip architectures we're seeing and how and where they're being deployed, right? You refer to this in your opening. We've moved from a world of x86 CPUs from Intel and AMD to things like obviously GPUs, DPUs. We've got VPU for, you know, computer vision processing. We've got AI-dedicated accelerators, we've got all kinds of other network acceleration tools and AI-powered tools. There's an incredible diversification of these chip architectures and that's been happening for a while but now we're seeing them more widely deployed and it's being done that way because workloads are evolving. The kinds of workloads that we're seeing in some of these software areas require different types of compute engines than traditionally we've had. The other thing is (coughs), excuse me, the power requirements based on where geographically that compute happens is also evolving. This whole notion of the edge, which I'm sure we'll get into a little bit more detail later is driven by the fact that where the compute actually sits closer to in theory the edge and where edge devices are, depending on your definition, changes the power requirements. It changes the kind of connectivity that connects the applications to those edge devices and those applications. So all of those things are being impacted by this growing diversity in chip architectures. And that's a very long-term trend that I think we're going to continue to see play out through this decade and well into the 2030s as well. >> Excellent, great, great points. Thank you, Bob. Zeus up next, please. >> Yeah, and I think the other thing when you look at this chart to remember too is, you know, through the pandemic and the work from home period a lot of companies did put their office modernization projects on hold and you heard that echoed, you know, from really all the network manufacturers anyways. They always had projects underway to upgrade networks. They put 'em on hold. Now that people are starting to come back to the office, they're looking at that now. So we might see some change there, but Bob's right. The size of those market are quite a bit different. I think the other big trend here is the hardware companies, at least in the areas that I look at networking are understanding now that it's a combination of hardware and software and silicon that works together that creates that optimum type of performance and experience, right? So some things are best done in silicon. Some like data forwarding and things like that. Historically when you look at the way network devices were built, you did everything in hardware. You configured in hardware, they did all the data for you, and did all the management. And that's been decoupled now. So more and more of the control element has been placed in software. A lot of the high-performance things, encryption, and as I mentioned, data forwarding, packet analysis, stuff like that is still done in hardware, but not everything is done in hardware. And so it's a combination of the two. I think, for the people that work with the equipment as well, there's been more shift to understanding how to work with software. And this is a mistake I think the industry made for a while is we had everybody convinced they had to become a programmer. It's really more a software power user. Can you pull things out of software? Can you through API calls and things like that. But I think the big frame here is, David, it's a combination of hardware, software working together that really make a difference. And you know how much you invest in hardware versus software kind of depends on the performance requirements you have. And I'll talk about that later but that's really the big shift that's happened here. It's the vendors that figured out how to optimize performance by leveraging the best of all of those. >> Excellent. You guys both brought up some really good themes that we can tap into Dave Nicholson, please. >> Yeah, so just kind of picking up where Bob started off. Not only are we seeing the rise of a variety of CPU designs, but I think increasingly the connectivity that's involved from a hardware perspective, from a kind of a server or service design perspective has become increasingly important. I think we'll get a chance to look at this in more depth a little bit later but when you look at what happens on the motherboard, you know we're not in so much a CPU-centric world anymore. Various application environments have various demands and you can meet them by using a variety of components. And it's extremely significant when you start looking down at the component level. It's really important that you optimize around those components. So I guess my summary would be, I think we are moving out of the CPU-centric hardware model into more of a connectivity-centric model. We can talk more about that later. >> Yeah, great. And thank you, David, and Keith Townsend I really interested in your perspectives on this. I mean, for years you worked in a data center surrounded by hardware. Now that we have the software defined data center, please chime in here. >> Well, you know, I'm going to dig deeper into that software-defined data center nature of what's happening with hardware. Hardware is meeting software infrastructure as code is a thing. What does that code look like? We're still trying to figure out but servicing up these capabilities that the previous analysts have brought up, how do I ensure that I can get the level of services needed for the applications that I need? Whether they're legacy, traditional data center, workloads, AI ML, workloads, workloads at the edge. How do I codify that and consume that as a service? And hardware vendors are figuring this out. HPE, the big push into GreenLake as a service. Dale now with Apex taking what we need, these bare bone components, moving it forward with DDR five, six CXL, et cetera, and surfacing that as cold or as services. This is a very tough problem. As we transition from consuming a hardware-based configuration to this infrastructure as cold paradigm shift. >> Yeah, programmable infrastructure, really attacking that sort of labor discussion that we were having earlier, okay. Last but not least Marc Staimer, please. >> Thanks, Dave. My peers raised really good points. I agree with most of them, but I'm going to disagree with the title of this session, which is, does hardware matter? It absolutely matters. You can't run software on the air. You can't run it in an ephemeral cloud, although there's the technical cloud and that's a different issue. The cloud is kind of changed everything. And from a market perspective in the 40 plus years I've been in this business, I've seen this perception that hardware has to go down in price every year. And part of that was driven by Moore's law. And we're coming to, let's say a lag or an end, depending on who you talk to Moore's law. So we're not doubling our transistors every 18 to 24 months in a chip and as a result of that, there's been a higher emphasis on software. From a market perception, there's no penalty. They don't put the same pressure on software from the market to reduce the cost every year that they do on hardware, which kind of bass ackwards when you think about it. Hardware costs are fixed. Software costs tend to be very low. It's kind of a weird thing that we do in the market. And what's changing is we're now starting to treat hardware like software from an OPEX versus CapEx perspective. So yes, hardware matters. And we'll talk about that more in length. >> You know, I want to follow up on that. And I wonder if you guys have a thought on this, Bob O'Donnell, you and I have talked about this a little bit. Marc, you just pointed out that Moore's laws could have waning. Pat Gelsinger recently at their investor meeting said that he promised that Moore's law is alive and well. And the point I made in breaking analysis was okay, great. You know, Pat said, doubling transistors every 18 to 24 months, let's say that Intel can do that. Even though we know it's waning somewhat. Look at the M1 Ultra from Apple (chuckles). In about 15 months increased transistor density on their package by 6X. So to your earlier point, Bob, we have this sort of these alternative processors that are really changing things. And to Dave Nicholson's point, there's a whole lot of supporting components as well. Do you have a comment on that, Bob? >> Yeah, I mean, it's a great point, Dave. And one thing to bear in mind as well, not only are we seeing a diversity of these different chip architectures and different types of components as a number of us have raised the other big point and I think it was Keith that mentioned it. CXL and interconnect on the chip itself is dramatically changing it. And a lot of the more interesting advances that are going to continue to drive Moore's law forward in terms of the way we think about performance, if perhaps not number of transistors per se, is the interconnects that become available. You're seeing the development of chiplets or tiles, people use different names, but the idea is you can have different components being put together eventually in sort of a Lego block style. And what that's also going to allow, not only is that going to give interesting performance possibilities 'cause of the faster interconnect. So you can share, have shared memory between things which for big workloads like AI, huge data sets can make a huge difference in terms of how you talk to memory over a network connection, for example, but not only that you're going to see more diversity in the types of solutions that can be built. So we're going to see even more choices in hardware from a silicon perspective because you'll be able to piece together different elements. And oh, by the way, the other benefit of that is we've reached a point in chip architectures where not everything benefits from being smaller. We've been so focused and so obsessed when it comes to Moore's law, to the size of each individual transistor and yes, for certain architecture types, CPUs and GPUs in particular, that's absolutely true, but we've already hit the point where things like RF for 5g and wifi and other wireless technologies and a whole bunch of other things actually don't get any better with a smaller transistor size. They actually get worse. So the beauty of these chiplet architectures is you could actually combine different chip manufacturing sizes. You know you hear about four nanometer and five nanometer along with 14 nanometer on a single chip, each one optimized for its specific application yet together, they can give you the best of all worlds. And so we're just at the very beginning of that era, which I think is going to drive a ton of innovation. Again, gets back to my comment about different types of devices located geographically different places at the edge, in the data center, you know, in a private cloud versus a public cloud. All of those things are going to be impacted and there'll be a lot more options because of this silicon diversity and this interconnect diversity that we're just starting to see. >> Yeah, David. David Nicholson's got a graphic on that. They're going to show later. Before we do that, I want to introduce some data. I actually want to ask Keith to comment on this before we, you know, go on. This next slide is some data from ETR that shows the percent of customers that cited difficulty procuring hardware. And you can see the red is they had significant issues and it's most pronounced in laptops and networking hardware on the far right-hand side, but virtually all categories, firewalls, peripheral servers, storage are having moderately difficult procurement issues. That's the sort of pinkish or significant challenges. So Keith, I mean, what are you seeing with your customers in the hardware supply chains and bottlenecks? And you know we're seeing it with automobiles and appliances but so it goes beyond IT. The semiconductor, you know, challenges. What's been the impact on the buyer community and society and do you have any sense as to when it will subside? >> You know, I was just asked this question yesterday and I'm feeling the pain. People question, kind of a side project within the CTO advisor, we built a hybrid infrastructure, traditional IT data center that we're walking with the traditional customer and modernizing that data center. So it was, you know, kind of a snapshot of time in 2016, 2017, 10 gigabit, ARISTA switches, some older Dell's 730 XD switches, you know, speeds and feeds. And we said we would modern that with the latest Intel stack and connected to the public cloud and then the pandemic hit and we are experiencing a lot of the same challenges. I thought we'd easily migrate from 10 gig networking to 25 gig networking path that customers are going on. The 10 gig network switches that I bought used are now double the price because you can't get legacy 10 gig network switches because all of the manufacturers are focusing on the more profitable 25 gig for capacity, even the 25 gig switches. And we're focused on networking right now. It's hard to procure. We're talking about nine to 12 months or more lead time. So we're seeing customers adjust by adopting cloud. But if you remember early on in the pandemic, Microsoft Azure kind of gated customers that didn't have a capacity agreement. So customers are keeping an eye on that. There's a desire to abstract away from the underlying vendor to be able to control or provision your IT services in a way that we do with VMware VP or some other virtualization technology where it doesn't matter who can get me the hardware, they can just get me the hardware because it's critically impacting projects and timelines. >> So that's a great setup Zeus for you with Keith mentioned the earlier the software-defined data center with software-defined networking and cloud. Do you see a day where networking hardware is monetized and it's all about the software, or are we there already? >> No, we're not there already. And I don't see that really happening any time in the near future. I do think it's changed though. And just to be clear, I mean, when you look at that data, this is saying customers have had problems procuring the equipment, right? And there's not a network vendor out there. I've talked to Norman Rice at Extreme, and I've talked to the folks at Cisco and ARISTA about this. They all said they could have had blowout quarters had they had the inventory to ship. So it's not like customers aren't buying this anymore. Right? I do think though, when it comes to networking network has certainly changed some because there's a lot more controls as I mentioned before that you can do in software. And I think the customers need to start thinking about the types of hardware they buy and you know, where they're going to use it and, you know, what its purpose is. Because I've talked to customers that have tried to run software and commodity hardware and where the performance requirements are very high and it's bogged down, right? It just doesn't have the horsepower to run it. And, you know, even when you do that, you have to start thinking of the components you use. The NICs you buy. And I've talked to customers that have simply just gone through the process replacing a NIC card and a commodity box and had some performance problems and, you know, things like that. So if agility is more important than performance, then by all means try running software on commodity hardware. I think that works in some cases. If performance though is more important, that's when you need that kind of turnkey hardware system. And I've actually seen more and more customers reverting back to that model. In fact, when you talk to even some startups I think today about when they come to market, they're delivering things more on appliances because that's what customers want. And so there's this kind of app pivot this pendulum of agility and performance. And if performance absolutely matters, that's when you do need to buy these kind of turnkey, prebuilt hardware systems. If agility matters more, that's when you can go more to software, but the underlying hardware still does matter. So I think, you know, will we ever have a day where you can just run it on whatever hardware? Maybe but I'll long be retired by that point. So I don't care. >> Well, you bring up a good point Zeus. And I remember the early days of cloud, the narrative was, oh, the cloud vendors. They don't use EMC storage, they just run on commodity storage. And then of course, low and behold, you know, they've trot out James Hamilton to talk about all the custom hardware that they were building. And you saw Google and Microsoft follow suit. >> Well, (indistinct) been falling for this forever. Right? And I mean, all the way back to the turn of the century, we were calling for the commodity of hardware. And it's never really happened because you can still drive. As long as you can drive innovation into it, customers will always lean towards the innovation cycles 'cause they get more features faster and things. And so the vendors have done a good job of keeping that cycle up but it'll be a long time before. >> Yeah, and that's why you see companies like Pure Storage. A storage company has 69% gross margins. All right. I want to go jump ahead. We're going to bring up the slide four. I want to go back to something that Bob O'Donnell was talking about, the sort of supporting act. The diversity of silicon and we've marched to the cadence of Moore's law for decades. You know, we asked, you know, is Moore's law dead? We say it's moderating. Dave Nicholson. You want to talk about those supporting components. And you shared with us a slide that shift. You call it a shift from a processor-centric world to a connect-centric world. What do you mean by that? And let's bring up slide four and you can talk to that. >> Yeah, yeah. So first, I want to echo this sentiment that the question does hardware matter is sort of the answer is of course it matters. Maybe the real question should be, should you care about it? And the answer to that is it depends who you are. If you're an end user using an application on your mobile device, maybe you don't care how the architecture is put together. You just care that the service is delivered but as you back away from that and you get closer and closer to the source, someone needs to care about the hardware and it should matter. Why? Because essentially what hardware is doing is it's consuming electricity and dollars and the more efficiently you can configure hardware, the more bang you're going to get for your buck. So it's not only a quantitative question in terms of how much can you deliver? But it also ends up being a qualitative change as capabilities allow for things we couldn't do before, because we just didn't have the aggregate horsepower to do it. So this chart actually comes out of some performance tests that were done. So it happens to be Dell servers with Broadcom components. And the point here was to peel back, you know, peel off the top of the server and look at what's in that server, starting with, you know, the PCI interconnect. So PCIE gen three, gen four, moving forward. What are the effects on from an interconnect versus on performance application performance, translating into new orders per minute, processed per dollar, et cetera, et cetera? If you look at the advances in CPU architecture mapped against the advances in interconnect and storage subsystem performance, you can see that CPU architecture is sort of lagging behind in a way. And Bob mentioned this idea of tiling and all of the different ways to get around that. When we do performance testing, we can actually peg CPUs, just running the performance tests without any actual database environments working. So right now we're at this sort of imbalance point where you have to make sure you design things properly to get the most bang per kilowatt hour of power per dollar input. So the key thing here what this is highlighting is just as a very specific example, you take a card that's designed as a gen three PCIE device, and you plug it into a gen four slot. Now the card is the bottleneck. You plug a gen four card into a gen four slot. Now the gen four slot is the bottleneck. So we're constantly chasing these bottlenecks. Someone has to be focused on that from an architectural perspective, it's critically important. So there's no question that it matters. But of course, various people in this food chain won't care where it comes from. I guess a good analogy might be, where does our food come from? If I get a steak, it's a pink thing wrapped in plastic, right? Well, there are a lot of inputs that a lot of people have to care about to get that to me. Do I care about all of those things? No. Are they important? They're critically important. >> So, okay. So all I want to get to the, okay. So what does this all mean to customers? And so what I'm hearing from you is to balance a system it's becoming, you know, more complicated. And I kind of been waiting for this day for a long time, because as we all know the bottleneck was always the spinning disc, the last mechanical. So people who wrote software knew that when they were doing it right, the disc had to go and do stuff. And so they were doing other things in the software. And now with all these new interconnects and flash and things like you could do atomic rights. And so that opens up new software possibilities and combine that with alternative processes. But what's the so what on this to the customer and the application impact? Can anybody address that? >> Yeah, let me address that for a moment. I want to leverage some of the things that Bob said, Keith said, Zeus said, and David said, yeah. So I'm a bit of a contrarian in some of this. For example, on the chip side. As the chips get smaller, 14 nanometer, 10 nanometer, five nanometer, soon three nanometer, we talk about more cores, but the biggest problem on the chip is the interconnect from the chip 'cause the wires get smaller. People don't realize in 2004 the latency on those wires in the chips was 80 picoseconds. Today it's 1300 picoseconds. That's on the chip. This is why they're not getting faster. So we maybe getting a little bit slowing down in Moore's law. But even as we kind of conquer that you still have the interconnect problem and the interconnect problem goes beyond the chip. It goes within the system, composable architectures. It goes to the point where Keith made, ultimately you need a hybrid because what we're seeing, what I'm seeing and I'm talking to customers, the biggest issue they have is moving data. Whether it be in a chip, in a system, in a data center, between data centers, moving data is now the biggest gating item in performance. So if you want to move it from, let's say your transactional database to your machine learning, it's the bottleneck, it's moving the data. And so when you look at it from a distributed environment, now you've got to move the compute to the data. The only way to get around these bottlenecks today is to spend less time in trying to move the data and more time in taking the compute, the software, running on hardware closer to the data. Go ahead. >> So is this what you mean when Nicholson was talking about a shift from a processor centric world to a connectivity centric world? You're talking about moving the bits across all the different components, not having the processor you're saying is essentially becoming the bottleneck or the memory, I guess. >> Well, that's one of them and there's a lot of different bottlenecks, but it's the data movement itself. It's moving away from, wait, why do we need to move the data? Can we move the compute, the processing closer to the data? Because if we keep them separate and this has been a trend now where people are moving processing away from it. It's like the edge. I think it was Zeus or David. You were talking about the edge earlier. As you look at the edge, who defines the edge, right? Is the edge a closet or is it a sensor? If it's a sensor, how do you do AI at the edge? When you don't have enough power, you don't have enough computable. People were inventing chips to do that. To do all that at the edge, to do AI within the sensor, instead of moving the data to a data center or a cloud to do the processing. Because the lag in latency is always limited by speed of light. How fast can you move the electrons? And all this interconnecting, all the processing, and all the improvement we're seeing in the PCIE bus from three, to four, to five, to CXL, to a higher bandwidth on the network. And that's all great but none of that deals with the speed of light latency. And that's an-- Go ahead. >> You know Marc, no, I just want to just because what you're referring to could be looked at at a macro level, which I think is what you're describing. You can also look at it at a more micro level from a systems design perspective, right? I'm going to be the resident knuckle dragging hardware guy on the panel today. But it's exactly right. You moving compute closer to data includes concepts like peripheral cards that have built in intelligence, right? So again, in some of this testing that I'm referring to, we saw dramatic improvements when you basically took the horsepower instead of using the CPU horsepower for the like IO. Now you have essentially offload engines in the form of storage controllers, rate controllers, of course, for ethernet NICs, smart NICs. And so when you can have these sort of offload engines and we've gone through these waves over time. People think, well, wait a minute, raid controller and NVMe? You know, flash storage devices. Does that make sense? It turns out it does. Why? Because you're actually at a micro level doing exactly what you're referring to. You're bringing compute closer to the data. Now, closer to the data meaning closer to the data storage subsystem. It doesn't solve the macro issue that you're referring to but it is important. Again, going back to this idea of system design optimization, always chasing the bottleneck, plugging the holes. Someone needs to do that in this value chain in order to get the best value for every kilowatt hour of power and every dollar. >> Yeah. >> Well this whole drive performance has created some really interesting architectural designs, right? Like Nickelson, the rise of the DPU right? Brings more processing power into systems that already had a lot of processing power. There's also been some really interesting, you know, kind of innovation in the area of systems architecture too. If you look at the way Nvidia goes to market, their drive kit is a prebuilt piece of hardware, you know, optimized for self-driving cars, right? They partnered with Pure Storage and ARISTA to build that AI-ready infrastructure. I remember when I talked to Charlie Giancarlo, the CEO of Pure about when the three companies rolled that out. He said, "Look, if you're going to do AI, "you need good store. "You need fast storage, fast processor and fast network." And so for customers to be able to put that together themselves was very, very difficult. There's a lot of software that needs tuning as well. So the three companies partner together to create a fully integrated turnkey hardware system with a bunch of optimized software that runs on it. And so in that case, in some ways the hardware was leading the software innovation. And so, the variety of different architectures we have today around hardware has really exploded. And I think it, part of the what Bob brought up at the beginning about the different chip design. >> Yeah, Bob talked about that earlier. Bob, I mean, most AI today is modeling, you know, and a lot of that's done in the cloud and it looks from my standpoint anyway that the future is going to be a lot of AI inferencing at the edge. And that's a radically different architecture, Bob, isn't it? >> It is, it's a completely different architecture. And just to follow up on a couple points, excellent conversation guys. Dave talked about system architecture and really this that's what this boils down to, right? But it's looking at architecture at every level. I was talking about the individual different components the new interconnect methods. There's this new thing called UCIE universal connection. I forget what it stands answer for, but it's a mechanism for doing chiplet architectures, but then again, you have to take it up to the system level, 'cause it's all fine and good. If you have this SOC that's tuned and optimized, but it has to talk to the rest of the system. And that's where you see other issues. And you've seen things like CXL and other interconnect standards, you know, and nobody likes to talk about interconnect 'cause it's really wonky and really technical and not that sexy, but at the end of the day it's incredibly important exactly. To the other points that were being raised like mark raised, for example, about getting that compute closer to where the data is and that's where again, a diversity of chip architectures help and exactly to your last comment there Dave, putting that ability in an edge device is really at the cutting edge of what we're seeing on a semiconductor design and the ability to, for example, maybe it's an FPGA, maybe it's a dedicated AI chip. It's another kind of chip architecture that's being created to do that inferencing on the edge. Because again, it's that the cost and the challenges of moving lots of data, whether it be from say a smartphone to a cloud-based application or whether it be from a private network to a cloud or any other kinds of permutations we can think of really matters. And the other thing is we're tackling bigger problems. So architecturally, not even just architecturally within a system, but when we think about DPUs and the sort of the east west data center movement conversation that we hear Nvidia and others talk about, it's about combining multiple sets of these systems to function together more efficiently again with even bigger sets of data. So really is about tackling where the processing is needed, having the interconnect and the ability to get where the data you need to the right place at the right time. And because those needs are diversifying, we're just going to continue to see an explosion of different choices and options, which is going to make hardware even more essential I would argue than it is today. And so I think what we're going to see not only does hardware matter, it's going to matter even more in the future than it does now. >> Great, yeah. Great discussion, guys. I want to bring Keith back into the conversation here. Keith, if your main expertise in tech is provisioning LUNs, you probably you want to look for another job. So maybe clearly hardware matters, but with software defined everything, do people with hardware expertise matter outside of for instance, component manufacturers or cloud companies? I mean, VMware certainly changed the dynamic in servers. Dell just spun off its most profitable asset and VMware. So it obviously thinks hardware can stand alone. How does an enterprise architect view the shift to software defined hyperscale cloud and how do you see the shifting demand for skills in enterprise IT? >> So I love the question and I'll take a different view of it. If you're a data analyst and your primary value add is that you do ETL transformation, talk to a CDO, a chief data officer over midsize bank a little bit ago. He said 80% of his data scientists' time is done on ETL. Super not value ad. He wants his data scientists to do data science work. Chances are if your only value is that you do LUN provisioning, then you probably don't have a job now. The technologies have gotten much more intelligent. As infrastructure pros, we want to give infrastructure pros the opportunities to shine and I think the software defined nature and the automation that we're seeing vendors undertake, whether it's Dell, HP, Lenovo take your pick that Pure Storage, NetApp that are doing the automation and the ML needed so that these practitioners don't spend 80% of their time doing LUN provisioning and focusing on their true expertise, which is ensuring that data is stored. Data is retrievable, data's protected, et cetera. I think the shift is to focus on that part of the job that you're ensuring no matter where the data's at, because as my data is spread across the enterprise hybrid different types, you know, Dave, you talk about the super cloud a lot. If my data is in the super cloud, protecting that data and securing that data becomes much more complicated when than when it was me just procuring or provisioning LUNs. So when you say, where should the shift be, or look be, you know, focusing on the real value, which is making sure that customers can access data, can recover data, can get data at performance levels that they need within the price point. They need to get at those datasets and where they need it. We talked a lot about where they need out. One last point about this interconnecting. I have this vision and I think we all do of composable infrastructure. This idea that scaled out does not solve every problem. The cloud can give me infinite scale out. Sometimes I just need a single OS with 64 terabytes of RAM and 204 GPUs or GPU instances that single OS does not exist today. And the opportunity is to create composable infrastructure so that we solve a lot of these problems that just simply don't scale out. >> You know, wow. So many interesting points there. I had just interviewed Zhamak Dehghani, who's the founder of Data Mesh last week. And she made a really interesting point. She said, "Think about, we have separate stacks. "We have an application stack and we have "a data pipeline stack and the transaction systems, "the transaction database, we extract data from that," to your point, "We ETL it in, you know, it takes forever. "And then we have this separate sort of data stack." If we're going to inject more intelligence and data and AI into applications, those two stacks, her contention is they have to come together. And when you think about, you know, super cloud bringing compute to data, that was what Haduck was supposed to be. It ended up all sort of going into a central location, but it's almost a rhetorical question. I mean, it seems that that necessitates new thinking around hardware architectures as it kind of everything's the edge. And the other point is to your point, Keith, it's really hard to secure that. So when you can think about offloads, right, you've heard the stats, you know, Nvidia talks about it. Broadcom talks about it that, you know, that 30%, 25 to 30% of the CPU cycles are wasted on doing things like storage offloads, or networking or security. It seems like maybe Zeus you have a comment on this. It seems like new architectures need to come other to support, you know, all of that stuff that Keith and I just dispute. >> Yeah, and by the way, I do want to Keith, the question you just asked. Keith, it's the point I made at the beginning too about engineers do need to be more software-centric, right? They do need to have better software skills. In fact, I remember talking to Cisco about this last year when they surveyed their engineer base, only about a third of 'em had ever made an API call, which you know that that kind of shows this big skillset change, you know, that has to come. But on the point of architectures, I think the big change here is edge because it brings in distributed compute models. Historically, when you think about compute, even with multi-cloud, we never really had multi-cloud. We'd use multiple centralized clouds, but compute was always centralized, right? It was in a branch office, in a data center, in a cloud. With edge what we creates is the rise of distributed computing where we'll have an application that actually accesses different resources and at different edge locations. And I think Marc, you were talking about this, like the edge could be in your IoT device. It could be your campus edge. It could be cellular edge, it could be your car, right? And so we need to start thinkin' about how our applications interact with all those different parts of that edge ecosystem, you know, to create a single experience. The consumer apps, a lot of consumer apps largely works that way. If you think of like app like Uber, right? It pulls in information from all kinds of different edge application, edge services. And, you know, it creates pretty cool experience. We're just starting to get to that point in the business world now. There's a lot of security implications and things like that, but I do think it drives more architectural decisions to be made about how I deploy what data where and where I do my processing, where I do my AI and things like that. It actually makes the world more complicated. In some ways we can do so much more with it, but I think it does drive us more towards turnkey systems, at least initially in order to, you know, ensure performance and security. >> Right. Marc, I wanted to go to you. You had indicated to me that you wanted to chat about this a little bit. You've written quite a bit about the integration of hardware and software. You know, we've watched Oracle's move from, you know, buying Sun and then basically using that in a highly differentiated approach. Engineered systems. What's your take on all that? I know you also have some thoughts on the shift from CapEx to OPEX chime in on that. >> Sure. When you look at it, there are advantages to having one vendor who has the software and hardware. They can synergistically make them work together that you can't do in a commodity basis. If you own the software and somebody else has the hardware, I'll give you an example would be Oracle. As you talked about with their exit data platform, they literally are leveraging microcode in the Intel chips. And now in AMD chips and all the way down to Optane, they make basically AMD database servers work with Optane memory PMM in their storage systems, not MVME, SSD PMM. I'm talking about the cards itself. So there are advantages you can take advantage of if you own the stack, as you were putting out earlier, Dave, of both the software and the hardware. Okay, that's great. But on the other side of that, that tends to give you better performance, but it tends to cost a little more. On the commodity side it costs less but you get less performance. What Zeus had said earlier, it depends where you're running your application. How much performance do you need? What kind of performance do you need? One of the things about moving to the edge and I'll get to the OPEX CapEx in a second. One of the issues about moving to the edge is what kind of processing do you need? If you're running in a CCTV camera on top of a traffic light, how much power do you have? How much cooling do you have that you can run this? And more importantly, do you have to take the data you're getting and move it somewhere else and get processed and the information is sent back? I mean, there are companies out there like Brain Chip that have developed AI chips that can run on the sensor without a CPU. Without any additional memory. So, I mean, there's innovation going on to deal with this question of data movement. There's companies out there like Tachyon that are combining GPUs, CPUs, and DPUs in a single chip. Think of it as super composable architecture. They're looking at being able to do more in less. On the OPEX and CapEx issue. >> Hold that thought, hold that thought on the OPEX CapEx, 'cause we're running out of time and maybe you can wrap on that. I just wanted to pick up on something you said about the integrated hardware software. I mean, other than the fact that, you know, Michael Dell unlocked whatever $40 billion for himself and Silverlake, I was always a fan of a spin in with VMware basically become the Oracle of hardware. Now I know it would've been a nightmare for the ecosystem and culturally, they probably would've had a VMware brain drain, but what does anybody have any thoughts on that as a sort of a thought exercise? I was always a fan of that on paper. >> I got to eat a little crow. I did not like the Dale VMware acquisition for the industry in general. And I think it hurt the industry in general, HPE, Cisco walked away a little bit from that VMware relationship. But when I talked to customers, they loved it. You know, I got to be honest. They absolutely loved the integration. The VxRail, VxRack solution exploded. Nutanix became kind of a afterthought when it came to competing. So that spin in, when we talk about the ability to innovate and the ability to create solutions that you just simply can't create because you don't have the full stack. Dell was well positioned to do that with a potential span in of VMware. >> Yeah, we're going to be-- Go ahead please. >> Yeah, in fact, I think you're right, Keith, it was terrible for the industry. Great for Dell. And I remember talking to Chad Sakac when he was running, you know, VCE, which became Rack and Rail, their ability to stay in lockstep with what VMware was doing. What was the number one workload running on hyperconverged forever? It was VMware. So their ability to remain in lockstep with VMware gave them a huge competitive advantage. And Dell came out of nowhere in, you know, the hyper-converged market and just started taking share because of that relationship. So, you know, this sort I guess it's, you know, from a Dell perspective I thought it gave them a pretty big advantage that they didn't really exploit across their other properties, right? Networking and service and things like they could have given the dominance that VMware had. From an industry perspective though, I do think it's better to have them be coupled. So. >> I agree. I mean, they could. I think they could have dominated in super cloud and maybe they would become the next Oracle where everybody hates 'em, but they kick ass. But guys. We got to wrap up here. And so what I'm going to ask you is I'm going to go and reverse the order this time, you know, big takeaways from this conversation today, which guys by the way, I can't thank you enough phenomenal insights, but big takeaways, any final thoughts, any research that you're working on that you want highlight or you know, what you look for in the future? Try to keep it brief. We'll go in reverse order. Maybe Marc, you could start us off please. >> Sure, on the research front, I'm working on a total cost of ownership of an integrated database analytics machine learning versus separate services. On the other aspect that I would wanted to chat about real quickly, OPEX versus CapEx, the cloud changed the market perception of hardware in the sense that you can use hardware or buy hardware like you do software. As you use it, pay for what you use in arrears. The good thing about that is you're only paying for what you use, period. You're not for what you don't use. I mean, it's compute time, everything else. The bad side about that is you have no predictability in your bill. It's elastic, but every user I've talked to says every month it's different. And from a budgeting perspective, it's very hard to set up your budget year to year and it's causing a lot of nightmares. So it's just something to be aware of. From a CapEx perspective, you have no more CapEx if you're using that kind of base system but you lose a certain amount of control as well. So ultimately that's some of the issues. But my biggest point, my biggest takeaway from this is the biggest issue right now that everybody I talk to in some shape or form it comes down to data movement whether it be ETLs that you talked about Keith or other aspects moving it between hybrid locations, moving it within a system, moving it within a chip. All those are key issues. >> Great, thank you. Okay, CTO advisor, give us your final thoughts. >> All right. Really, really great commentary. Again, I'm going to point back to us taking the walk that our customers are taking, which is trying to do this conversion of all primary data center to a hybrid of which I have this hard earned philosophy that enterprise IT is additive. When we add a service, we rarely subtract a service. So the landscape and service area what we support has to grow. So our research focuses on taking that walk. We are taking a monolithic application, decomposing that to containers, and putting that in a public cloud, and connecting that back private data center and telling that story and walking that walk with our customers. This has been a super enlightening panel. >> Yeah, thank you. Real, real different world coming. David Nicholson, please. >> You know, it really hearkens back to the beginning of the conversation. You talked about momentum in the direction of cloud. I'm sort of spending my time under the hood, getting grease under my fingernails, focusing on where still the lions share of spend will be in coming years, which is OnPrem. And then of course, obviously data center infrastructure for cloud but really diving under the covers and helping folks understand the ramifications of movement between generations of CPU architecture. I know we all know Sapphire Rapids pushed into the future. When's the next Intel release coming? Who knows? We think, you know, in 2023. There have been a lot of people standing by from a practitioner's standpoint asking, well, what do I do between now and then? Does it make sense to upgrade bits and pieces of hardware or go from a last generation to a current generation when we know the next generation is coming? And so I've been very, very focused on looking at how these connectivity components like rate controllers and NICs. I know it's not as sexy as talking about cloud but just how these opponents completely change the game and actually can justify movement from say a 14th-generation architecture to a 15th-generation architecture today, even though gen 16 is coming, let's say 12 months from now. So that's where I am. Keep my phone number in the Rolodex. I literally reference Rolodex intentionally because like I said, I'm in there under the hood and it's not as sexy. But yeah, so that's what I'm focused on Dave. >> Well, you know, to paraphrase it, maybe derivative paraphrase of, you know, Larry Ellison's rant on what is cloud? It's operating systems and databases, et cetera. Rate controllers and NICs live inside of clouds. All right. You know, one of the reasons I love working with you guys is 'cause have such a wide observation space and Zeus Kerravala you, of all people, you know you have your fingers in a lot of pies. So give us your final thoughts. >> Yeah, I'm not a propeller heady as my chip counterparts here. (all laugh) So, you know, I look at the world a little differently and a lot of my research I'm doing now is the impact that distributed computing has on customer employee experiences, right? You talk to every business and how the experiences they deliver to their customers is really differentiating how they go to market. And so they're looking at these different ways of feeding up data and analytics and things like that in different places. And I think this is going to have a really profound impact on enterprise IT architecture. We're putting more data, more compute in more places all the way down to like little micro edges and retailers and things like that. And so we need the variety. Historically, if you think back to when I was in IT you know, pre-Y2K, we didn't have a lot of choice in things, right? We had a server that was rack mount or standup, right? And there wasn't a whole lot of, you know, differences in choice. But today we can deploy, you know, these really high-performance compute systems on little blades inside servers or inside, you know, autonomous vehicles and things. I think the world from here gets... You know, just the choice of what we have and the way hardware and software works together is really going to, I think, change the world the way we do things. We're already seeing that, like I said, in the consumer world, right? There's so many things you can do from, you know, smart home perspective, you know, natural language processing, stuff like that. And it's starting to hit businesses now. So just wait and watch the next five years. >> Yeah, totally. The computing power at the edge is just going to be mind blowing. >> It's unbelievable what you can do at the edge. >> Yeah, yeah. Hey Z, I just want to say that we know you're not a propeller head and I for one would like to thank you for having your master's thesis hanging on the wall behind you 'cause we know that you studied basket weaving. >> I was actually a physics math major, so. >> Good man. Another math major. All right, Bob O'Donnell, you're going to bring us home. I mean, we've seen the importance of semiconductors and silicon in our everyday lives, but your last thoughts please. >> Sure and just to clarify, by the way I was a great books major and this was actually for my final paper. And so I was like philosophy and all that kind of stuff and literature but I still somehow got into tech. Look, it's been a great conversation and I want to pick up a little bit on a comment Zeus made, which is this it's the combination of the hardware and the software and coming together and the manner with which that needs to happen, I think is critically important. And the other thing is because of the diversity of the chip architectures and all those different pieces and elements, it's going to be how software tools evolve to adapt to that new world. So I look at things like what Intel's trying to do with oneAPI. You know, what Nvidia has done with CUDA. What other platform companies are trying to create tools that allow them to leverage the hardware, but also embrace the variety of hardware that is there. And so as those software development environments and software development tools evolve to take advantage of these new capabilities, that's going to open up a lot of interesting opportunities that can leverage all these new chip architectures. That can leverage all these new interconnects. That can leverage all these new system architectures and figure out ways to make that all happen, I think is going to be critically important. And then finally, I'll mention the research I'm actually currently working on is on private 5g and how companies are thinking about deploying private 5g and the potential for edge applications for that. So I'm doing a survey of several hundred us companies as we speak and really looking forward to getting that done in the next couple of weeks. >> Yeah, look forward to that. Guys, again, thank you so much. Outstanding conversation. Anybody going to be at Dell tech world in a couple of weeks? Bob's going to be there. Dave Nicholson. Well drinks on me and guys I really can't thank you enough for the insights and your participation today. Really appreciate it. Okay, and thank you for watching this special power panel episode of theCube Insights powered by ETR. Remember we publish each week on Siliconangle.com and wikibon.com. All these episodes they're available as podcasts. DM me or any of these guys. I'm at DVellante. You can email me at David.Vellante@siliconangle.com. Check out etr.ai for all the data. This is Dave Vellante. We'll see you next time. (upbeat music)

[Music] 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 top security pros indicate that the solar winds hack on top of the pandemic have further heightened a change in how they think about security not only musciso secure an increasingly distributed workforce and network infrastructure but they now must be wary of software code coming from reputable vendors including the very patches designed to protect them against cyber attacks hello everyone and welcome to this week's wikibon cube insights powered by etr in this breaking analysis we'll summarize cso sentiments from a recent etr venn session and provide our quarterly update of the cyber security sector now in an upcoming episode we'll be inviting eric bradley of etr to provide deeper analysis and insights on these trends but we wanted to give you a preliminary preview of what's happening in the sector as we start off 2021. now the solar winds attack was like nothing we've ever seen before it's been covered quite widely in the press but in case you don't know the details solarwinds is a company that provides software to monitor many aspects of largely on-prem infrastructure including things like network performance log files configuration data storage servers and the like now as with all software companies solarwinds sends out regular updates and patches hackers were able to infiltrate the update and trojanize the software meaning when customers installed the updates the malware just went along for the ride now the reason this is so insidious is that often hackers they're going to target installations that haven't installed patches or updates and identified vulnerabilities in the infrastructure that haven't been addressed doors that are open that haven't been closed if you will now here the very code designed to protect against the breach actually facilitated that breach now according to experts this was quite a sophisticated attack that most believe was perpetrated by the russian hacker group cozy bear an advanced persistent threat or apt as classified by the u.s government now it's suspected that somehow they fished their way into a github repo and stole username and password access to allow them to penetrate the supply chain of software that's delivered over the internet but public information on this attack it's still spotty people are still learning now what is known is that the attackers have been lurking since march of last year and they exfiltrated lots of information from the u.s government and many other high-profile companies now here's what the csos and the etr van had to say about it let me just read some of the quotes the impact of this breach is profound it really turned a lot of heads and conventions about cyber security i don't think this threat has been exaggerated in the media we're now in a situation where we have to monitor the monitors this attack didn't have any signatures of a previous attack so you got down to the code level 80 to 90 of that code is being downloaded from the internet it's bringing devops security processes and making us rethink how to reinvent security and i'll add my business friend val berkovici said to me on twitter last year that he thinks the government hack is going to have permanent implications on how organizations approach cyber security it seems these cisos agree now the one question is what can be done about this and when you talk to security pros they'll definitely tell you they're rethinking security practices but look there's only so much you can do here's a tag cloud summarizing some of what we hear in the cube community and in the venn from etr practitioners you hear a lot about xero trust many csos are really leaning into identity access management and pam and mandates around two-factor authentication we've talked a lot about firms like octa sale point cyber arc software and microsoft is coming up more and more in this conversation especially as octa is seen as setting a price umbrella there's definitely some frustration amongst csos about octa's pricing strategies and auth 0 which does authentication as a service that's hitting our radar as well now of course endpoint security is something we've talked a lot about as the work from home trend hit during the pandemic it's become much much more important and you can see in the growth of crowdstrike and as you see in a moment we're getting some traction with vmware and carbon black in the survey data and of course titanium is another company that we've talked about csos look they're not just going to rip out what they have so companies like cisco especially with umbrella and duo they come up in the conversation as does palo alto networks we've said many times palo alto is seen as a thought leader csos like them they also like fortinet especially those that may be more cost cost conscious we see that a lot in mid-market and so on with analytics micro-segmentation cloud security with z-scaler and even rpa to automate certain tasks uipath has come up in the conversation more and more in a security context so you look at this tag cloud and there's no one answer as is often the case case with cyber security lots of tools lots of disciplines and a very capable adversary who has learned to as they say live off the land using your own infrastructure and tooling against you now the common narrative is that security is a top priority with cios and csos and budgets are going to be up so let's take a look at that well kind of here's a chart that shows the net scores or spending momentum for various sectors of the etr tech taxonomy and we've highlighted the information security segment yes it's up relative to the october survey but it really doesn't stand out i mean everything's up as we've reported coming off a down year in tech spending minus four percent last year and we're forecasting a plus six to seven percent increase this year really depending on on the pace of their recovery but the point is cyber is one of many budget organizations and organizations they're simply not going to open up a blank check to the cso now part of the reason is they're heavily invested in cyber this graphic shows several sectors in context and we've highlighted security in the red box the vertical axis that shows spending velocity and the horizontal axis is market share or presence in the data set and you can see the security it's got a big presence it's pervasive of course but it lags some of the top sectors in terms of spending velocity because look organizations they've got lots of priorities and as you'll see in a moment this space like most mature markets has some companies with off the charts spending patterns and others that lag so let's dig into that a little bit here you see that same xy graphic and we've plotted a number of security players so there's a couple of points here that we want to make first microsoft as usual is off the charts to the right and amazingly has a net score of 48 percent so highly elevated octa continues to lead this pack in net score as it has the last several surveys it's got a net score of 61.5 percent up from last quarter survey octa crowdstrike cyberark fortinet proof point and splunk are all up nicely from last quarter's survey we also really want to highlight carbon black the company's net score last quarter was 23.9 percent with 134 mentions in this quarter its net score shot up to nearly 38 so a very meaningful and noticeable move for vmware's 2.1 billion dollar acquisition that it made in the summer of 2019. so a number of companies that have momentum which stems from a rebound in tech spending but also a shift in security spend that we've highlighted and you can see a couple of legacy security firms that are also there in the chart losing momentum we've highlighted fireeye and rsa okay so now let's dig deeper into the data and the vendor performance here's a view of the data that we first showed you in 2019 it shows the net score and the shared n which identifies the number of mentions within the sector and it's an indicator of presence in the marketplace the leftmost chart is sorted by netscore and the right-hand chart is sorted by shared n so to make this chart you had to have at least an n of 50 in the survey again you can see octa sale and sale point lead in net score and microsoft has the biggest presence in the right hand side along with cisco and palo alto and something we started two years ago was if a vendor shows up in the top 10 for both net score and shared n we anointed them with four stars so these are the four star companies microsoft palo alto octa and crowdstrike which crouch by the way it fell off but it's back on and i think that was probably a survey anomaly because based on the company's financials there has been no loss of momentum for crowdstrike and we give two stars to those companies that make the top 20 in both categories so cisco because of umbrella and duo splunk proofpoint fortinet z z-scaler cyborg and carbon black vmware carbon black is new to the two-star list due to its rapid rise in net score that we just talked about now just a quick aside on carbon black at vmworld 2019 pat gelsinger told john furrier and me that he felt like he got a great deal picking up carbon black for 2.1 billion dollars now his logic was in part based on the valuation of crowdstrike at the time which is of course carbon black competitor crowdstrike as you can see on this chart had a valuation that was at nine times higher than that of carbon black and you can see from the trailing 12-month revenue that crowdstrike was a significantly larger company by more than 100 million dollars in revenue so the real story though was the company's growth crowdstrike at the time was growing much much faster than carbon black at more than a hundred percent compared to carbon blacks 22 roughly now in vmware's recent earnings call they said that carbon black had good bookings performance so who knows exactly what that means but if it were more than 22 my guess is that vmware vmware would have been more effusive in its commentary so let's assume that since the acquisition carbon black growth has been flattish you know maybe down maybe up but probably flat so vmware they're figuring out how to integrate the company and we think that as it does that it's going to use its channel of distribution and global presence to really drive carbon black sales now nonetheless we would still peg carbon black's valuation of having increased pretty substantially since the time of the acquisition perhaps in the three to five billion range we don't know for sure so but a nice pickup in our view for vmware and it'll likely grow from here based on the etr data then that's very encouraging for carbon black now let's look at how the valuations in this sector have changed since before covid here's an updated view of our valuation matrix since just before the pandemic hit in the u.s as you can see the s p is up 16 from that time frame the nas composite up 43 percent wow now look at the others only splunk really hasn't seen a huge uptick in valuation but the others have either risen noticeably like proof point cyber arc sail point they bounced up like palo alto or fortinet or exploded like crowd chat octa and z scalar you combine all these and you're talking about 114 billion dollar increase in market cap for these so one would think carbon black as a vmware asset has done pretty well along with these names and we would expect that the tech spending rebound this year combined with the heightened concerns over the solar winds hack and the tectonic shifts from the accelerated work from home and digital business transformations will continue to bode well for many of these names for quite some time all right let's wrap it up with some of the things we're watching in this space as we exit the pandemic and experience a new digital reality cyber threats have never been greater look each january if you look back on the prior year you'd be able to say the same thing for the last couple of decades and the reality is the budgets and spending on cyber they're asymmetric to the economic risks we just don't spend enough and probably can't spend enough to solve this problem csos they have to balance their legacy legacy install base security infrastructure with the shift to zero trust accelerated endpoint new access management challenges the ever expanding cloud and dot dot dot lack of talent remains the single biggest challenge for organizations which are stretch thin making investments in automation a trend that is not going to abate anytime soon in cyber all the cliches apply there is no silver bullet there is no rest for the weary the adversary they are well funded and extremely capable and they only have to succeed once to create a business disaster for an organization that has to succeed every day 24 hours a day so expect more of the same with no end in sight in terms of complexity fragmentation and whack-a-mole approaches to fighting cyber crime i hate to say this but it just means the fundamentals for the sector just keep getting better and better sorry okay that's it for this week remember all these episodes are available as podcasts wherever you listen so please subscribe i publish weekly on wikibon.com and siliconangle.com and don't forget to check out etr.plus for all the survey data and the analytics i appreciate the comments on my linkedin post you can dm me at [Music] you

>> From theCUBE studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE at ETR. This is Breaking Analysis with Dave Vellante >> As we've reported extensively, the pandemic has affected cybersecurity markets perhaps more than any other. Remote work has caused CISOs, chief information security officers to shift spending priorities toward identity access management endpoint and cloud security. COVID has been a benefactor for next gen security companies that participate in these sectors. Notably, we believe tactical responses to the coronavirus have resulted in productivity improvements that will create permanent change in the way organizations defend themselves against cyber threats. Hello everyone and welcome to this week's Wikibon CUBE Insights powered by ETR. In this Breaking Analysis, we'll provide you with our quarterly update of the cybersecurity space and share fresh ETR data on the market. We also have some results from Eric Bradley's most recent Venn round table conducted with three senior chief information security officers. Let's start by looking at this notion of a single pane of glass. Now, despite the aspiration, there is no silver bullet to protect organizations from cyber attacks. The complexities of security, they're enormous and they require a layered defense approach. They range from securing internal networks to end points, to DMZ subnets, external traffic security, data in motion, data at rest, protecting from ransomware, dealing with web traffic, emails, phishing, not to mention threats from internal employees and contractors. As we mentioned at the open, there are three areas in particular that have seen significantly elevated spending momentum that is translated into the valuation increases for several companies, including CrowdStrike, Okta, Zscaler and several others. Zero trust security has gone from buzzword to reality. And spending shifts to these technologies have siphoned off demand from traditional hardware based firewalls. Although CISOs seem to be hedging their bets, at some point, they realized that people are actually going to come back to the office, so they have to remain agile. Lack of talent. Well, that remains one of the CISOs biggest challenges to securing applications and data. And automation while sometimes viewed as risky, is becoming increasingly important. Several companies have hit our radar this quarter and were highlighted in the CISO Panel, including Elastic which has seen momentum as an open source alternative to Splunk and notably multiple CIOs in the panel, they cited concerns related to Splunk's pricing and their sales tactics. They actually compared those of Splunk to those of EMC in the past, if anybody remembers how aggressive EMC salespeople could be. CloudFlare also broke into the top 10 in the ETR survey based on net score which is a measure of spending momentum. And that was for those companies with more than 50 mentions in the survey. CloudFlare is a CDN and provides security for websites. Also Netskope, a cloud security specialist cracked the top 10 in terms of net score and received high marks from the CISO panel, particularly with respect to it's vision and roadmap. Microsoft, Palo Alto Networks, Okta, CrowdStrike Cisco, CyberArk, SailPoint, Zscaler and Proofpoint remain focus vendors for us in the ETR survey as measured by spending momentum and their presence in the data set, what we call market share. And we'll talk more about those companies in a moment. Now finally, even CISOs that were skeptical about the permanence of the effects of COVID, they're seeing business benefits that suggest many of these shifts are circular, and not cyclical. Indeed, prior to the pandemic, ETR survey data showed that about 16% of organizations workers were primarily remote. CIOs expect that number to more than double post pandemic to 34%. Let's say you look at some of the cybersecurity vendors. We'll plot some, we don't have enough room to plot all of them, there are so many. But this chart shows one of our favorite XY views. On the Y axis, we measure net score. And that measures against spending velocity by looking at the net percentage of customers that are spending more versus those that are spending less within the ETR survey. The X axis measures market share or pervasiveness in the survey. Now we've included a select list of companies for this view and only include those with more than 50 responses, or 50 Ns, shared Ns, if you will, in the data set. In the upper right, you can see a table that shows the data sorted by both net score and shared Ns for each vendor. Now, as we indicated, Elastic has taken the top spot, just barely edging out Okta who took over from CrowdStrike in the last survey. And you can see the significant market presence of Palo Alto and Splunk and the most pervasive vendor here is Cisco. Note that Cisco also owns Umbrella and Duo which both have meaningful Ns in the survey. Now, if we were to combine these into one view, a single view of Cisco, all three of those, it would pull the company even further up into the right. Security is one of the bright spots in Cisco's portfolio and shows consistent year-on-year growth each quarter. Now having said that, some CISOs complained that Cisco's propensity to rely on acquisitions to fill gaps has caused them integration challenges in the past. Let's go back to Palo Alto for a moment. We'll make some comments later regarding their position relative to Fortinet, but we wanted to call them out here. Look, CISOs, they really liked Palo Alto. They trust the Palo Alto Networks. They consider Palo Alto as a trusted leader with a very strong portfolio and vision. Now let's turn our attention to the pack here, as we mentioned, Okta's momentum is notably elevated and it's meaningfully higher than the others. Its presence continues to increase up to the right, as does CrowdStrike's, or to the right, not necessarily up to the right, but to the right. But CrowdStrike has come off its net score high, so it's coming down actually in the vertical axis. And we're not super concerned about that because they're dramatically increasing their presence on the X axis each survey. But so is Okta, so that's something to watch. In other words, CrowdStrike's coming down in net score while it's increasing its presence, Okta is holding its net score while at the same time increasing its presence, which is really a strong sign. Now that they compete, they don't compete against each other directly, but it's they're still in the same sector. We've also included Carbon Black here because because of their VMware acquisition and VMware CEO, Pat Gelsinger, he's on a mission to fix security and the company has made a number of moves in cyber. VMware has a really good track record could of execution and while fixing Curity is highly aspirational. With its install base and history of success, we wanted to include them here because they're getting more attention of the CISOs in the ETR panel. So we're keeping an eye on VMware and Carbon Black. It's going to take some time, but we'll keep watching them. Now let's take a look at how the players have moved this year over the quarters. We're going to show you four tables here and we're going to compare the net scores and market share of the cyber companies for January, April, July, and October surveys. So pre-COVID and throughout the year. So let's look first at the pre-COVID positions. The left most chart is sorted by net score or spending momentum and the right most chart is the shared Ns, which is the number of mentions in the survey, which is what drives the horizontal axis that I showed you earlier. Now, when you go back to the January survey, you see CrowdStrike was already doing very well with an elevated net score of 68.3% and 123 mentions. By the way, please ignore those companies with less than 50 Ns, I didn't filter the data back then. I was kind of still learning how to use the ETR software platform. Okta was also elevated and you can see the others there as well. Now, last year, we came up with a method to assign stars to those companies that had both top net scores and large shared Ns in the survey. So spending momentum and strong market share. And you can see Microsoft, Splunk, Palo Alto Networks, Proofpoint, CrowdStrike, Zscaler and CyberArk made the cut and all received four stars. And we gave two stars to Cisco and Fortinet because they had strong net scores and very high presence in the survey. Now let's go forward and look at April when the lockdown was in full swing. Okay, so we tightened things up in April and on the presentation of the survey did and only included those companies with more than 50N. And we cut the top 10, that's the red line and we put in their Dell EMC which is RSA and IBM for context. And you can see CrowdStrike, they shot to the top with a 68% net score and increased it's shared N, and you can see the stars right. Now, let's just jump ahead to the July survey. So now we're well into the pandemic. Maybe things are calming down a little bit in the summer. People feeling a little bit more freedom, maybe not as concerned about the work-from-home peace, that's sort of settling in, and CISOs, they had a little time to respond here and that's kind of the picture in the summer. Okta jumped way up on the left, you see in spending momentum and CrowdStrike, they moderated a bit, although they remained elevated. And again, they're not direct competitors, but it's instructive to compare these two firms, 'cause they're both hot and growing. And you see the green lines, they show the direction of the momentum of the net score. CrowdStrike was a bit of a concern because its net score dropped and its presence in the dataset kind of moderated. But the company continued to report strong revenue during its earnings calls and the stock remain a darling. So some mixed signals in the data, one quarter doesn't necessarily make a trend. But Okta, Microsoft, Cisco, Palo Alto, Splunk and several others, they remained very, very strong. Now let's go into the most recent October survey. So again, we continue to fine tune our presentation analysis here. And you can see there are two red lines. The top one is the top 10 cutoff. And the second line is the top 20. As we said, Elastic hit the radar for net score but still not pervasive enough in the dataset on the right to earn some stars with the shared Ns. So Okta in our view continues to hold that top spot for momentum and made the top 10 cut for shared N, two very positive signs. It's shared N, for example, jumped from 139 to 185. So more and more mentions, people are increasingly relying on Okta for identity access management. Now for the green arrows here, the momentum lines, we've tried to take into consideration the shared N. So even though, for example CrowdStrike's net score dropped from 50 down to 43%, it's shared N, or again, the number of mentions, it jumped from 119 to 162. So that's a 36% increase and you might be thinking, well, why is that significant? Well, CIOs and IT buyers in the ETR survey, they're asked to choose the areas with which they are most familiar and then they answer questions on which vendors they use. So the fact that companies like Okta and Palo Alto and CrowdStrike and several others that we've highlighted are increasing their presence in the data set and still maintaining a very strong net score is a really good signal in our view. That's why, for example, take Zscaler, we still give them two stars, even though on a relative basis, it didn't make the top 10 cut. It's net score held relatively firm and it's shared N jumped by 39%. So we continue to like names like Zscaler, Okta, CrowdStrike, CyberArk, Proofpoint Fortinet and of course Microsoft, which consistently shines brightly. Let's look at a comment that underscores the CISOs sentiment and I think the market overall. Here's a comment from a CISO of a global travel and hospitality company. It's a name you would recognize and obviously this individual's business was hit hard by the pandemic. So there's an inherent bias toward hope anyway, toward a return to the normal. But look at the comment, I'll read it. "I was a skeptic on the permanence of the changes due to COVID, but I've seen firsthand, there are legitimate structural changes that are taking place, and that's going to fundamentally shift where companies are investing in cyber. Building leases are expiring, people, they're productive working from home. Products that enable work from home and that are cloud first, that trend will continue and be permanent." And you know what? We agree. Okay, here's a chart that we've been updating since right before the pandemic and it compares the performance of the S & P 500 and Nasdaq with specific security companies that are public. And we've been tracking the revenue multiples on a trailing 12 month revenue basis over time to get a sense of how these companies compare. And we prefer to use forward looking revenue, but find TTM to be more consistent and frankly easier to access quickly. So that's what we're using. Now note that Splunk, Octa, CrowdStrike and Zscaler, those are the guys I've highlighted in red, they have yet to report as of this publication. A couple of points here are worth noting. First, we've been talking a lot about the divergence in valuation between Palo Alto and Fortinet and we'll show some more data on that in a moment but we want to share some CISO comments about Fortinet. People sometimes refer to Fortinet as Forti knife, as in Swiss army knife. They're a Swiss army knife of cyber, Forti everything is what one CISO called it. Fortinet is more price attractive, especially for mid-sized companies who don't have the resources of larger firms that might gravitate toward Palo Alto Networks. And the companies around for awhile and has earned the trust of CISOs because of their portfolio and their track record. Now, the other notable item in this data is the rise in value for Okta, CrowdStrike and Zscaler which have seen values increase 78%, 128%, 124% respectively in the time period we show here. You can see the very highly elevated revenue multiples compared to some of the more mature companies. Splunk, they're a bit of an outlier here 'cause we're showing negative growth in that right-hand column. And that's because of its transition toward a subscription model. That really messes up the income statement. And we just wanted to cite that. Splunk's been doing a good job communicating to the street. There are some concerns in the ETR dataset, which we've talked about. They've sort of moderated lately. There's also concerns about pricing that CISOs have mentioned, but generally there's a real bifurcation in the market in terms of valuations. And we think that while there's a lot of discussion about the so-called stay-at-home stocks and a shift back away from those when the pandemic subsides, we believe that the productivity benefits of remote work are becoming more clear and these next gen security companies are going to continue to thrive. Now let's take a moment to look at the relative performance of Palo Alto and Fortinet. Back in February of this year, we noted that there was a valuation divergence occurring between these two companies. And we cited three factors at the time for this gap. First, we said the Palo Alto was trying to cloud proof its business, and as such, it was in transition. And second, it had some challenges with regard to the pace of that transition, including sales incentives, actually that's part of the first point. That was kind of one A. Secondly, we said that the shift away from appliance-based firewalls was accelerating and that was pressuring Palo Alto's valuation. They were kind of underperforming in that segment. And finally we said the Palo Alto was facing some very tough compares in 2019 relative to 2018. And that was causing investors to pause as Palo Alto began shifting to an annual recurring revenue model. Now we said at the time that CISOs really, they really liked Palo Alto and we felt it would... the company would deal with these issues in 2020. And this chart really shows that and they've begun to reverse this trend. The yellow line is Fortinet. The blue line is Palo Alto and it's showing this sort of relative performance here. And you can see that gap coming into 2020 which extended into the meat of 2020. But now it's starting to compress, thanks to a nice earnings report that beat EPS on revenue this month, as we're talking about Palo Alto. So we continue to believe that Fortinet has done a good job and a better job of moving to the cloud model. And Palo Alto has largely relied on acquisitions to accelerate this trend. And we'll see if they can continue to thrive during this transition to cloud. But there's little doubt that CISOs want to work with Palo Alto networks and they remain committed to having a strategic relationship with the company. Alright, let's wrap. The shift to the subscription model is well underway in the cybersecurity space and it's buoyed by cloud and next generation SAS-based security players. Splunk is in transition. Cisco and Palo Alto emphasize the importance of this trend and virtually all historically on-prem players are being forced to respond. Survey data and anecdotal information from theCUBE community supports what the ETR Venn CISOs are saying, that the internet is becoming the new private network and these trends toward cloud-based and remote worker support are delivering benefits that CEOs and CFOs are going to continue to push to operationalize. CISOs, they got to continue to take a multi-layered approach to defending their data, their applications and their users. And it's such a fragmented market with specialists is going to continue for quite some time. Now, despite these clear trends, CISOs face a real challenge, the timing of the return to semi normal, it's really uncertain. And we still don't have a clear picture of what that future will look like. As such incumbent firms with hardened networks, they're going to have to remain in a hybrid holding pattern to accommodate whatever happens. Why is that important? Well, this means that budgets are going to be stretched. Look, while security remains a top priority, you can't expect an open checkbook going to SecOps team. Throwing money at the problem wouldn't really solve it anyway. Rather CISOs have to take a balanced portfolio of investments, continuing with automation and data analytics and of course, good security practice practices. That's going to be the pattern. Alright, well, thanks everyone for watching this episode of theCUBE insights powered by ETR. There are many ways to get in touch. @dvellante on Twitter, david.vellante@siliconangle.com. You can comment on my LinkedIn posts. I publish weekly on wikibon.com and siliconangle.com and always appreciate the feedback from our community. These episodes, by the way, are all available as podcasts. So you can listen while you multitask and don't forget to check out etr.plus for all the survey action. This is Dave Vellante. Have a great Thanksgiving, be smart, stay safe and we'll see you next time. (light melodic music)

(thoughtful electronic music) >> From theCUBE studios in Palo Alto and Boston, bringing you data-driven insights from theCUBE and ETR, this is Breaking Analysis with Dave Vellante. >> Enterprise applications are an enormous market, and they're enormously important to organizations globally. Essentially, the world's businesses are running on enterprise applications. Companies' processes are wired into these systems, and the investments that they make in people, process, and technology are vital to these companies' success. But it's complicated because many of these systems are decades old. Markets have changed, but the ERP system for example fundamentally hasn't. Hello everyone, and welcome to this week's Wikibon CUBE Insights, powered by ETR. This week, we're going to do a data download on the enterprise software space, and put forth some themes in our thesis around this very important segment. I'd like to do a shout-out to my friend Sarbjeet Johal, who helped me frame this segment, and he's a strategic thinker and he shared some excellent insights for this episode. What I'd first like to do is let's lay out the scope of what we're going to talk about today. So we're going to focus on the core enterprise apps that companies rely on to run their businesses. Talkin' about the systems of record here, the ERP, the financial systems, HR, CRMs, service management we'll put in there. We may touch on some of the other areas, but this is core that we're going to drill into. This is a big, big market. Customers spend many hundreds of billions of dollars in this area, you could argue about a half a trillion. And it's a mature market, as you'll see from the data. Look, it's good to be in the technology business today. This business is doing better than most, and within the technology business, it's better to be in software because of the economics and scale. And if you have a SaaS cloud model, it's even better. But the market, it is fragmented, not nearly as much as it used to be, but there are many specialized areas where leaders have emerged. ServiceNow and ITSM or Workday and HCM are good examples of companies that've specialized and then exploded, first as we saw ServiceNow blow past Workday's valuation. It was nearly 2x at one point. Now, that was before Workday crushed its earnings this week. It's up 15% today. ServiceNow took a slight breather earlier this month, but it's up on Workday sympathy today. Salesforce also beat earnings, and of course replaced Exxon Mobile on the DOW Industrials, can you imagine that? But let's bring it back to this digital transformation that you hear about. This is the big cliche from all the tech companies and especially software players. Now a lot of this DX, I sometimes call it, is related to old systems. It's especially true for the mega-caps like Oracle, SAP, PeopleSoft, JD Edwards, and even Microsoft. Take ERP and some of the mature products for example, like Oracle R12, or SAP R3 or R4. Many of these systems were put in place 15 years ago, and yeah, they're going to need to transform. They are burnt in. They were installed in what, 2005? It was before the iPhone, before social media, before machine learning and AI made its big comeback, and before cloud. These systems were built on the 1.0 of cloud. The businesses have changed but the software really hasn't. It happens every 10 to 15 years, companies have to upgrade or re-implement their systems, and optimize for the way business now runs, because they had to be more competitive and more agile. They can't do it on their old software. And God help you if you made a bunch of custom modifications. Good lucking tryin' to rip those out. And this is why pure play companies in the cloud like ServiceNow and Workday have done so well. They're best-of-breed and they're cloud, and it sets up this age-old battle that we always talk about, best-of-breed versus integrated suites. So let's bring in some of the other themes and feedback that we get from the community. Now we've definitely seen this schism play out between on-prem and cloud plays. And that's created some challenges for the legacy players. People working remotely has meant less data center, less on-prem action for the legacy companies. Now, they have gone out and acquired to get to the cloud and/or they've had to rearchitect their software like Oracle has done with Fusion. But think about something like Oracle Financials. Oracle is tryna migrate them to Fusion, or think about SAP R3, with R4, SAP pushing HANA. All this is going to cloud-based SaaS. So the companies that've been pure play SaaS are doing better, and I say quasi-modern on this slide because Salesforce, ServiceNow, Workday, even Coupa, NetSuite which is now Oracle, SuccessFactors which SAP purchased, et cetera, these are actually pretty old companies, the earlier part of the 2000s or in the case of Salesforce, 1999. And you're seeing some really different pricing models in the market. Things are moving quickly to an OPEX model. You have the legacy perpetual pricing, and it's giving way to subscriptions, and now we even see companies like Datadog and Snowflake with so-called consumption-based pricing models, priced as a true cloud. And we think that that's going to eventually spill into the core SaaS applications. Now one of the concerns that we've heard from the community is that some of the traditional players that were able to hide from COVID earlier this year might not have enough deferred revenue dry powder to continue to power through the pandemic, but so far the picture continues to look pretty strong for the software companies. We'll get into some of that. Now, finally, this is a premise that I talked to Sarbjeet about, the disruption perhaps comes from cloud and developer ecosystems. Y'know I remember John Furrier and I had a conversation awhile back with Jerry Chen from Greylock. It was on theCUBE, and it was kind of like, went like this. People were talking about whether AWS was going to enter the applications market, and the thesis here is no, or not in the near future. Rather, the disruptive play, and this is really Sarbjeet's premise, is to provide infrastructure for innovation, and a PaaS layer for differentiation, and developers will build modern cloud-native apps to compete with the SaaS players on top of this. This is intriguing to me, and is likely going to play out over the next decade, but it's going to take a while, because these SaaS players are, they're very large, and they continue to pour money into their platforms. Now let's talk about the shift from CAPEX to OPEX and bring in some ETR data. Of course, this was well in play pre-COVID, but the trend has been accelerating. This chart shows data from the August ETR survey, and it was asking people to express their split between CAPEX and OPEX spend, and as you can see, the trend is clear. Goes from 48% last year, 55% today, and moving to over 62% OPEX a year from now. It's no surprise, but I think it could happen even faster depending on the technical debt that organizations have to shed. And hence, the attractiveness again of the SaaS cloud players. So now let's visualize some of the major players in this space, and do some comparisons. Here we show one of our favorite views, and what we're doing here is we juxtapose net score on the vertical axis with market share on the horizontal plane. Remember, net score is a measure of spending momentum. Each quarter, ETR asks buyers, are you planning to spend more or less, and they essentially subtract the lesses from the mores to derive net score. Market share on the other hand is a measure of pervasiveness in the dataset, and it's derived from the number of mentions in the sector divided by the total mentions in the survey, and you can see each metric in that embedded table that we put in there. So I said earlier, this was a pretty mature market and you can see that in the table. Eh, kind of middle-of-the-road net scores with pretty large shared ends, i.e. responses in the dataset, but a lot of red. There are some standouts, however, as you see in the upper right, namely, ServiceNow and Salesforce. These are two pretty remarkable companies. ServiceNow entered the market as a help desk or service management player, and has dramatically expanded its TAM, really to the point where they're aiming at $5 billion in revenue. Salesforce was the first in cloud CRM, and is pushing 20 billion in revenue. I've said many times, these companies are on a collision course, and I stand by that, as any of the next great software companies, and these are two, are going to compete with all the mega-caps, including Oracle, SAP, and Microsoft, and they'll bump into each other. Which brings us to those super-cap companies. You see Microsoft with Dynamics, they show up like they always do. I'm like a broken record on Microsoft. I mean they're everywhere in the survey data. Now Oracle and SAP, they've been extremely acquisitive over the years, and you can see some of their acquisitions on this chart. I've said many times in theCUBE that Larry Olsen used to denigrate his competitors for writing checks instead of code, but he saw the consolidation trend happening in the ERT, ERP space before anyone else did, and with the $10 billion PeopleSoft acquisition in 2005, set off a trend in enterprise software that did a few things. First, it solidified Oracle's position further up the stack. It also set Dave Duffield and Aneel Bhusri off to create a next-generation cloud software company, Workday, which you can see in the chart has a net score up there with ServiceNow, Salesforce, and Coupa, and it also led to Oracle Fusion Middleware, which is designed as an integration point for all these software components, and this is really important because Oracle is moving everything into its cloud. And you can see that its on-prem net score, which puts it deep into negative territory. Now SAP, take a look at them, they have much higher net scores than Oracle, and you can see it's acquired SaaS properties like Ariba, Concur, and SuccessFactors, which have decent momentum. But you know, SAP, and we've talked about this before, is not without its challenges. With SAP, HANA is the answer to all of its problems. The problem is that it's not necessarily the answer to all of SAP's customers' problems. Most of SAP's legacy customers run SAP on Oracle or other databases. HANA is used for the in-memory query workload, but most customers are going to continue to use other databases for their systems of record. So this adds complexity. But HANA is very good at the query piece. However, SAP never did what Oracle did with Fusion, which as you might recall, took more than a decade to get right. HANA is SAP's architectural attempt to unify the SAP portfolio and get, (laughs) really get off of Oracle, but it's many years away, and it's unclear when or if they'll ever get there. All right, let's move on. Here's a look at a similar set of companies, but I wanted to show you this view because it gives you a detailed look at ETR's net score approach, and it tells us a few things more. And remember, this is a survey of almost 1,200 technology buyers. That's the N, that's the respondent rate. So this chart shows the net score granularity for the enterprise players that we were just discussing. Let me explain this. Net score is actually more detailed than what I said before. It comprises responses in four categories. The lime green is new adoptions. The forest green is growth in spending of 6% or more, the gray is flat spend, the pink is a budget shrink of 6% or greater, and the red is retiring the platform. So what this tells us is that there's a big fat middle of stay the same. The lime green is pretty small, but you can see, NetSuite jumps out for new adoptions because they've been very aggressive going after smaller and mid-sized companies, and Coupa, the spend management specialist, shows reasonably strong new adoptions. Now ServiceNow is interesting to me. Not a ton of new adoptions. They've landed the ship and really penetrated larger organizations. And while new adoptions are not off the charts, look at the spending more categories, it's very very strong at 46%. And the other really positive thing for ServiceNow is there's very little red. This company is a beast. Now Salesforce similarly, not tons of new adoptions, but 40% spend more. For a company that size, that's pretty impressive. Workday similarly has a very strong spending profile. At the bottom of the chart, you see a fair amount of red, as we saw on the XY graph. But now, let's take another view of net score. Think of this as a zoom in, which takes those bar charts but shows it in a pie format for individual companies. So we're showing this here for ServiceNow, Workday, and Salesforce, and we've superimposed the net score for these three in green, so you can see ServiceNow at 48%, very good for a company headed toward five billion. Same with Workday, 40% for a company of similar size, and Salesforce has a comparable net score, and is significantly larger than those two revenue-wise. Now this is the same view, this next chart's the same view for SAP and Oracle, and you can see substantially lower than the momentum leaders in terms of net score. But these are much larger companies. SAP's about 33 billion, Oracle's closer to 40 billion. But Oracle especially has seen some headwinds from organizations spending less which drags its net score down. But you're not seeing a lot of replacement in Oracle's base because as I said at the top, these systems are fossilized and many are running on Oracle. And the vast majority of mission-critical workloads are especially running on Oracle. Now remember, this isn't a revenue-weighted view. Oracle charges a steep premium based on the number of cores, and it has a big maintenance stream. So while its net score is kind of sucky, its cashflow is not. All right, let's wrap it up here. We have a very large and mature market. But the semi-modern SaaS players like Salesforce and ServiceNow and Workday, they've gone well beyond escape velocity and solidified their positions as great software companies. Others are trying to follow that suit and compete with the biggest of the bigs, i.e. SAP and Oracle. Now I didn't talk much about Microsoft, but as always they show up prominently. They're huge and they're everywhere in this dataset. What I think is interesting is the competitive dynamics that we talked about earlier. These kind of newer SaaS leaders, they're disrupting Oracle and SAP, but they're also increasingly bumping into each other. You know, ServiceNow has HR for example, and they say that they don't compete with Workday, and that's true. But y'know, these two companies, they eye each other and they angle for account control. Same thing with Salesforce. It's that software mindset. The bigger a software company gets, the more they think they can own the world, because it's software, and if you're good at writing code and you see an opportunity that can add value for your customers, you tend to go after it. Now, we didn't talk much about M&A, but that's going to continue here, especially as these companies look for TAM expansion and opportunities to bring in new capabilities, particularly around data, analytics, machine learning, AI and the like, and don't forget industry specialization. You've seen Oracle pick up a number of industry plays and as digital transformation continues, you'll see more crossing of the industry streams because it's data. Now, the disruption isn't blatantly obvious in this market right now, other than SaaS clouds going after SAP and Oracle, and it's because these companies are deeply entrenched in their customer organizations and change is risky. But the cloud developer, the open source API trend, it could lead to disruptions, but I wouldn't expect that until the second half of this decade as cloud ecosystems really begin to evolve and take hold. Okay, well that's it for today. Remember, these Breaking Analysis episodes, they're all available as podcasts wherever you listen so please subscribe. I publish weekly on Wikibon.com and SiliconANGLE.com, so check that out, and please do comment on my LinkedIn posts. Don't forget, check out ETR.plus for all the survey action. Get in touch on Twitter, I'm @dvellante, or email me at David.Vellante@siliconangle.com. This is Dave Vellante for theCUBE Insights, powered by ETR. Thanks for watching everybody. Be well, and we'll see you next time. (thoughtful electronic music)

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 while cloud computing is generally seen as a bright spot in tech spending the sector is not immune from the effects of covid19 look it's better to be cloud than not cloud no question but recent survey data shows that the v-shaped recovery in the stock market looks much more like a square root sign for it spending in 2020 and even the cloud is going to be negatively impacted albeit much less so than many other sectors hello everyone and welcome to this week's wikibon cube insights powered by etr i'm dave vellante and in this breaking analysis we want to update you on our latest data and thinking around the cloud computing market with an emphasis on infrastructure as a service we'll also update our latest quarterly estimates of the big three show you our typical trailing 12-month view of revenue let's start with the macro picture the reality is that the latest etr survey of nearly 1200 respondents shows that the vast majority of companies is the covet is hitting i.t budgets notably 59 of respondents have frozen hiring that's up from 26 in the last survey which was taken in march and april at the height of the u.s lockdown 24 percent have laid off employees that's up from four percent 41 percent froze new i.t deployments that's nearly double the percentage from the last survey now on the plus side there are some shops 23 percent that are accelerating i t deployments and that's up significantly from last quarter now as we've reported that's coming from the work from home and coveted tailwind segments and cloud computing is obviously one of those but these spending shifts are not enough to offset the overall outlook for 2020 and likely that's going to continue into 2021. because the big cloud players especially aws and azure are so large they're exposed to industries that have been hard hit by the pandemic as such we see pockets of spending deceleration even at these companies now the other piece of data that has our attention is the hybrid and multi-cloud market it's beginning to show some spending momentum this is particularly notable within vmware and red hat accounts and we've even seen a bit of momentum for oracle that we'll talk about in a moment now before we dig into the numbers let's hear the sentiment from some of the customers what we're showing here are some of the verbatim comments from etr customers one of the things i love about this survey is it includes quantitative and qualitative data that i can sort by industry so i've just pulled up a few examples that underscore some of the broad-based pain that companies are facing education minimum 15 cut across the organization engine energy and utilities we cut projects 10 15 across the board financials we've been asked to cut 20 out of our budget government hiring freeze larger constraints on spending health care and farmer much more scrutiny from upper management industrials materials and manufacturing slowing down is not all projects can be done remotely i.t telco head count and projects on hold and pushed into 2021 retail consumer budget cuts we lost three months of cash flow services and consulting all discretionary projects are frozen now these comments predominantly come from large companies that are big spenders now in fairness there are plenty of positives in the anecdotes but i have to say in squinting through the hundreds and hundreds of comments this pretty much sums up the sentiment now this is especially true in the all-important u.s market where we heard in cisco's earnings call this week the theme is uncertainty related to the pandemic and this is hitting i.t budgets now cloud spending remains at elevated levels but there's definitely pressure what we're showing here is the net score for the big three cloud players microsoft amazon and google in the three surveys of 2020 net scores etr's measure of spending momentum in each quarter etr asks buyers are you spending more or less on a particular platform and net score essentially subtracts the lesses from the mores it's a bit more complicated that but but that is really the essence and you can see the deceleration in all three big cloud platforms now it's important to point out that these are at elevated levels and they represent strength but there's clear pressure and headwinds on spending even in the cloud no sector is immune now there are pockets like video conferencing and security that are winning but even in these sectors it's bifurcated it's often a story of a firm that is well positioned to gain share like say a zoom or we've talked a lot about an octa or a crowdstrike or z scale or a sail point that we've highlighted in previous breaking analysis segments now this slide shows data from the etr survey the pies compare the spring survey to the summer asking buyers will covert impact your i.t budgets in 2020. in the latest covent survey 78 say yes now that's up from 63 percent see the bar chart below that answers your next obvious question which is how will your budget be impacted and can you see the distribution of the growth yes there it is you could see the decline 22 percent say no change but the red bars that decline are much bigger than the green bars and that's why we continue to forecast i.t spending declines of five to eight percent in 2020. we think this is even going to spill into the first half of 2020 who knows we'll see if it goes beyond now let's put the cloud in context despite my dire outlook we have to remember that it's all relative this chart shows you know one of our favorite views it plots net score or spending momentum on the vertical axis against the market share on the horizontal axis market share is a measure of pervasiveness in the survey and calculates the penetration of the sector as a percent of the overall survey so what this view tells us is the degree of spending momentum on the vertical axis cloud is elevated relative to other sectors that we're showing here and it shows the penetration of cloud in the data set on the horizontal axis so cloud shows spending momentum and high penetration relative to other priorities in i.t note there are dozens of other sectors but we've cherry picked a few here for context to wit other than containers ai and rpa cloud is outpacing all sectors shown for the net score and only analytics bi and big data is more pervasive so cloud very strong no doubt cloud is the place to be but the pandemic has created spending friction even in cloud and what we showed earlier the decline of the the net scores for the big three now again we're still holding here at elevated levels what this chart shows is the sectors of infrastructure as a service that show increasing next net scores relative to the last survey and you can see there are only five areas that show positive increase in net score this is out of dozens and dozens reading the bars left to right you see vmware cloud on aws with a very impressive net score of 66 percent that's up 700 basis points since the last survey next you see red hat open shift with a 44 net score that's up 600 basis points and then vmware cloud which comprises vmware cloud foundation and other hybrid and multi-cloud services from vmware it shows a net score of 42 which is up 400 basis points now after that is red hat openstack yes openstack with a 40 net score up 1200 basis points since the last survey red hat sells and supports its openstack distro now prior to the ibm acquisition red hat would frequently cite openstack as a growth business on its earnings calls and this data confirms that there's actually some momentum there as an example red hat is selling into the telco sector to service providers that want to stand up a private cloud why well the big cloud players may not have a local presence and there may be a data sovereignty requirement in that country you know that's just one example and then finally on the chart we have oracle now for sure there's some sas in there and you know oracle's net score is really not inspiring at 12 percent but it's up from the last survey so these are the only five areas showing net score expansion from the last survey we're talk which talks to the impacts of covid that we discussed earlier now let's take a look at a more granular set of data that cloud services and how they stack up what we show here are the top ten cloud services measured by net score or spending momentum this is for the july survey of respondents the first point is these are solid net scores so while i'm a bit of a davey downer today these are very strong relative to most other parts of the technology stack most companies would kill to have this type of momentum you see azure functions and azure platform they lead the pack but look at vmware cloud on aws we've seen this popping up showing strong in recent surveys and it's gaining presence and momentum in the data set then there's aws lambda you know functions or serverless this remains strong as you can see it does google functions and there's aws that's the aws overall and even though it's a bit off in net score terms from previous quarters as we'll talk about in a moment this is a 40 billion dollar business with net scores that remain elevated remember the net scores they can't grow to the moon they're going to fluctuate and the larger the base the harder it is to maintain high net score so this is very very impressive for aws google cloud platform is next and you know frankly i'd like to see stronger net scores from google gcp is around an eighth of the size of aws yet aws still maintains a notably higher net score in each survey google continues to struggle with selling into the enterprise now look at the last three in the chart you know cloud purists like aws might say that these hybrid or multi-cloud services aren't in a real cloud you know but to me this is a customer survey if the customer says their cloud i'm gonna go with that now forgetting about the semantics here the point is we've been talking about hybrid and multi-cloud for a while and we see vmware and red hat with openshift two companies that we've predicted are in a strong position to compete for hybrid and multi and they're showing up on customers spending radar i should also mention that microsoft is also a leader if not the leader in hybrid multi-cloud because it has a massive public cloud presence and numerous relevant services particularly in the hybrid space but they don't show up necessarily as discrete services in the etr taxonomy but they are in the numbers for sure probably just peanut butter spread over a number of categories now let's put this into context here's our old friend the xy graph it's one of our favorites this time we show specific named vendors in cloud on the x and the y axis axis is net score or spending velocity and the x axis is market share or pervasiveness so as usual we see aws and azure separating from the pac this is such a huge market it's really not a winner takes all space you know maybe not even a winner takes most and as you can see in the players that we've highlighted in the hybrid multi-zone you got you know google's kind of on that bubble but any player here with a net score above 40 percent in the green as you can see in the upper right hand corner is doing well red hat vmware cloud google and and look at vmware cloud on aws this service is getting a lot of traction and it better given the effort that both companies have put behind this aws has created a special bare metal instance to run this service on its cloud vmware talks about aws as its preferred partner this has been a winner for both companies aws gets access to a half a million vmware customers and vmware gets a really solid cloud play look where this goes in the future it's going to be interesting to watch when this service was announced several years ago it didn't take long for aws to also announce its vmware migration services but for now it's a win-win for the companies and a win for the customers now for context we've included both oracle and ibm cloud services and you can see where they stand relative to the rest they're not setting the world on fire but hey as i've said many times they at least are in the cloud game and importantly both companies are in a good position to migrate their customers mission critical workloads to their own respective clouds all right i want to wrap by looking at the big three performance this quarter as has been our custom we like to share our estimates of how the big three u.s cloud players stack up from a revenue standpoint this chart shows our is and pas revenue estimates for aws azure and google cloud platform the data shows 2018 19 2019 growth and the first two quarters of 2020 with a trailing 12-month view and here are the key points now as always remember aws reports clean numbers the others we have to squint through 10ks and 10qs and triangulate with survey data to come up with the reasonable apples to apple's estimate in comparison first point aws is now 40 billion wow combined the big three now account for nearly 70 billion dollars in is and pass revenue you know that's more than a sizable chunk of the data center business which is not all this hasn't been necessarily incremental growth to the it market there's been a share shift going on in other words that share shift is going from on-prem into the cloud now the third point is growth is strong but not surprisingly the bigger you get the slower the growth rate rate in 2018 aws revenue was 2.7 times greater than that of microsoft for the first time however aws revenue has dropped below 2x that of microsoft said another way microsoft's is revenue is now about 57 of aws's revenue google's growth rate at its size appears to be lagging where aws and azure's growth was at earlier points in their respective journeys for example when aws put up nearly 8 billion in 2015 in revenue it grew over 70 percent that year azure as you can see at 16 billion in 2019 grew at 65 percent now google grew 72 last quarter and 59 this quarter so you know it's no slouch but it's size with its but it's at its size with its resources we'd like to see google pick up the pace and you may have to wait until post covid but despite the coveted headwinds in the overall it market there's no question that this is a cloud world and we just happen to live in it [Music]

from around the globe it's the cube with digital coverage of Red Hat summit 2020 brought to you by Red Hat last year in 2019 IBM made the biggest M&A move of the year with a 34 billion dollar acquisition of red hat it positioned IBM for the next decade after what was a very tumultuous tenure by CEO Ginni Rometty who had to shrink in order to grow unfortunately she didn't have enough time to do the grille part that has now gone toward Arvind Krishna the new CEO of IBM this is Dave Volante and I'm here with Stu minimun and this is our Red Hat keynote analysis is our 7th year doing the Red Hat summit and we're very excited to be here this is our first year doing Stu the Red Hat summit post IVM acquisition we've also got IBM think next week so what we want to do for you today is review what's going on at the Red Hat summits do you've been wall-to-wall with the interviews we're gonna break down the announcements IBM had just announced its quarter so we get some glimpse as to what's happening in the business and then we're gonna talk about going forward what the prognosis is for both IBM and Red Hat well and Dave of course our audience understands there's a reason why we're sitting farther apart than normal in our studio and you know why we're not in San Francisco where the show is supposed to be this year last year it's in Boston Red Hat summit goes coast-to-coast every year it's our seventh year doing the show first year doing it all digital of course our community is always online but you know real focus you know we're gonna talk about Dave you know you listen to the keynote speeches it's not the as we sit in our preview it's not the hoopla we had a preview with pork or mayor ahead of the event where they're not making big announcements most of the product pieces we're all out front it's open source anyway we know when it's coming for the most part some big partnership news of course strong customer momentum but a different tenor and the customers that Red Hat's lined up for me their interview all talking you know essential services like medical your your energy services your communication services so you know real focus I think Dave both IBM and right making sure that they are setting the appropriate tone in these challenging times yeah I mean everybody who we talked to says look at the employees and safety comes first once we get them working from home and we know that they're safe and healthy we want to get productive and so you've seen as we've reported that that shift to the work from home infrastructure and investments in that and so now it's all about how do we get closer to clients how do we stay close to clients and be there for them and I actually have you know business going forward you know the good news for IBM is it's got strong cash flow it's got a strong balance sheet despite you know the acquisition I mean it's just you know raise some more you know low low cost debt which you know gives them some dry powder going forward so I think IBM is gonna be fine it's just there's a lot of uncertainty but let's go back to your takeaways from the Red Hat Summit you've done you know dozens of interviews you got a good take on the company what are you top three takeaways - yeah so first of all Dave you know the focus everybody has is you know what does Red Hat do for the cloud story for IBM OpenShift especially is absolutely a highlight over 2,000 customers now from some really large ones you know last year I interviewed you know Delta you've got you know forward and Verizon up on stage for the keynote strong partnership with Microsoft talking about what they're doing so OpenShift has really strong momentum if you talk about you know where is the leadership in this whole kubernetes space Red Hat absolutely needs to be in that discussion not only are they you know other than Google the top contributor really there but from a customer standpoint the experience what they've built there but what I really liked from Red Hat standpoint is it's not just an infrastructure discussion it's not OPM's and containers and there's things we want to talk about about VMs and containers and even server lists from Red Hat standpoint but Red Hat at its core what it is it they started out as an operating system company rel Red Hat Enterprise Linux what's the tie between the OS and the application oh my god they've got decades of experience how do you build applications everything from how they're modernizing Java with a project called Korkis through how their really helping customers through this digital transformation I hear a similar message from Red Hat and their customers that I hear from Satya Nadella at Microsoft is we're building lots of applications we need to modernize what they're doing in Red Hat well positioned across the stack to not only be the platform for it but to help all of the pieces to help me modernize my applications build new ones modernize some of the existing ones so OpenShift a big piece of it you know automation has been a critical thing for a while we did the cube last year at ansible fest for the first time from Red Hat took that acquisition has helped accelerate that community in growth and they're really Dave pulling all the pieces together so it's what you hear from Stephanie shirasu ironically enough came over from IBM to run that business inside a Red Hat well you know now she's running it inside Red Hat and there's places that this product proliferate into the IBM portfolio next week when we get where it I didn't think I'm sure we'll hear a lot about IBM cloud packs and look at what's underneath IBM cloud packs there's open shift there's rel all those pieces so you know I know one of the things we want to talk about Davis you know what does that dynamic of Red Hat and IBM mean so you know open shift automation the full integration both of the Red Hat portfolio and how it ties in with IBM would be my top three well red hat is now IBM I mean it's a clearly part of the company it's there's a company strategy going forward the CEO Arvind Krishna is the architect of the Red Hat acquisition and so you know that it's all in on Red Hat Dave I mean just the nuance there of course is the the thing you hear over and over from the Red Hatters is Red Hat remains Red Hat that cultural shift is something I'd love to discuss because you know Jim Whitehurst now he's no longer a Red Hat employee he's an IBM employee so you've got Red Hat employees IBM employees they are keeping that you know separation wall but obviously there's flowing in technology and come on so come on in tech you look at it's not even close to what VMware is VMware is a separate public company has separate reporting Red Hat doesn't I mean yes I hear you yo you got the Red Hat culture and that's good but it's a far cry from you know a separate entity with full transparency the financials and and so I I hear you but I'm not fully buying it but let's let's get into it let's take a look at at the quarter because that I think will give us an indication as to how much we actually can understand about RedHat and and again my belief is it's really about IBM and RedHat together I think that is their opportunity so Alex if you wouldn't mind pulling up the first slide these are highlights from IBM's q1 and you know we won't spend much time on the the the IBM side of the business although we wanted to bring some of that in but hit the key here as you see red hat at 20% revenue growth so still solid revenue growth you know maybe a little less robust than it was you know sequentially last quarter but still very very strong and that really is IBM's opportunity here 2,200 clients using red hat and an IBM container platforms the key here is when Ginni Rometty announced this acquisition along with Arvind Krishna and Jim Whitehurst she said this is going to be this is going to be cash flow free cash flow accretive in year one they've already achieved that they said it's gonna be EPS accretive by year two they are well on their way to achieving that why we talked about this do it's because iBM has a huge services organization that it can plug open shift right into and begin to modernize applications that are out there I think they cited on the call that they had a hundred ongoing projects and that is driving immediate revenue and allows IBM to from a financial standpoint to get an immediate return so the numbers are pretty solid yeah absolutely Dave and you know talking about that there is a little bit of the blurring a line between the companies one of the product pieces that came out at the show is IBM has had for a couple of years think you know MCM multi cloud management there was announced that there were actually some of the personnel and some of the products from IBM has cut have come into Retta of course Red Hat doing what they always do they're making it open source and they're it's advanced cluster management really from my viewpoint this is an answer to what we've seen in the kubernetes community for the last year there is not one kubernetes distribution to rule them all I'm going to use what my platforms have and therefore how do I manage across my various cloud environments so Red Hat for years is OpenShift lives everywhere it sits on top of VMware virtualization environments it's on top of AWS Azure in Google or it just lives in your Linux farms but ACM now is how do I manage my kubernetes environment of course you know super optimized to work with OpenShift and the roadmap as to how it can manage with Azure kubernetes and some of the other environments so you know you now have some former IBM RS that are there and as you said Dave some good acceleration in the growth from the Red Hat numbers we'd seen like right around the time that the acquisition happened Red Hat had a little bit of a down quarter so you know absolutely the services and the the scale that IBM can bring should help to bring new logos of course right now Dave with the current global situation it's a little bit tough to go and be going after new business yeah and we'll talk about that a little bit but but I want to come back to sort of when I was pressing you before on the trip the true independence of Red Hat by the way I don't think that's necessarily a wrong thing I'll give an example look at Dell right now why is Dell relevant and cloud well okay but if Dell goes to market says we're relevant in cloud because of VMware well then why am I talking to you why don't I talk to VMware and so so my point is that that in some regards you know having that integration is there is a real advantage no you know you were that you know EMC and the time when they were sort of flip-flopping back and forth between integrated and not and separate and not it's obviously worked out for them but it's not necessarily clear-cut and I would say in the case of IBM I think it's the right move why is that every Krista talked about three enduring platforms that IBM has developed one is mainframe that's you know gonna here to stay the second was middleware and the third is services and he's saying that hybrid cloud is now the fourth and during platform that they want to build well how do they gonna build that what are they gonna build that on they're gonna build that an open shift they they're there other challenges to kind of retool their entire middleware portfolio around OpenShift not unlike what Oracle did with with Fusion when it when it bought Sun part of the reason - pod Sun was for Java so these are these are key levers not necessarily in and of themselves you know huge revenue drivers but they lead to awesome revenue opportunities so that's why I actually think it's the right move that what IBM is doing keep the Red Hat to the brand and culture but integrate as fast as possible to get cash flow or creative we've achieved that and get EPS accretive that to me makes a lot of sense yeah Dave I've heard you talk often you know if you're not a leader in a position or you know here John Chambers from Cisco when he was running it you know if I'm not number one or number two why am I in it how many places did IBM have a leadership position Red Hat's a really interesting company because they have a leadership position in Linux obviously they have a leadership position now in kubernetes Red Hat culturally of course isn't one to jump up and down and talk about you know how they're number one in all of these spaces because it's about open source it's about community and you know that does require a little bit of a cultural shift as IBM works with them but interesting times and yeah Red Hat is quietly an important piece of the ecosystem let me let me bring in some meteor data Alex if you pull up that that's that second slide well and I've shown this before in braking analysis and what this slide shows in the vertical axis shows net score net score is a measure of spending momentum spending velocity the the horizontal axis is is is called market share it's really not market share it's it's really a measure of pervasiveness the the mentions in the data set we're talking about 899 responses here out of over 1200 in the April survey and this is a multi cloud landscape so what I did here Stu I pulled on containers container platforms of container management and cloud and we positioned the companies on this sort of XY axis and you can see here you obviously have in the upper right you've got Azure in AWS why do I include AWS and the multi cloud landscape you answered that question before but yesterday because Dave even though Amazon might not allow you to even use the word multi cloud you can't have a discussion of multi cloud without having Amazon in that discussion and they've shifted on hybrid expect them to adjust their position on multi-cloud in the future yeah now coming back to this this this data you see kubernetes is on the kubernetes I know is another company but ETR actually tracks kubernetes you can see how hot it is in terms of its net score and spending momentum yeah I mean Dave do you know the thing the the obvious thing to look at there is if you see how strong kubernetes is if IBM plus red hat can keep that leadership in kubernetes they should do much better in that space than they would have on with just their products alone and that's really the lead of this chart that really cuts to the chase do is you see you see red Red Hat openshift has really strong spending momentum although I will say if you back up back up to say April July October 18 19 it actually was a little higher so it's been pushed down remember this is the April survey that what's ran from mid-march to mid April so we're talking right in the middle of the pandemic okay so everybody's down but nonetheless you can see the opportunity is for IBM and Red Hat to kind of meet in the middle leverage IBM's massive install base in its in its services presence in its market presence its pervasiveness so AKA market share in this rubric and then use Red Hat's momentum and kind of meet in the middle and that's the kind of point that we have here with IBM's opportunity and that really is why IBM is a leader in at least a favorite in my view in multi cloud well Dave if you'd look two years ago and you said what was the competitive landscape Red Hat was an early leader in the kubernetes you know multi-cloud discussion today if you ask everybody well who's doing great and kubernetes you have to talk about all the different options that amazon has Amazon still has their own container management with ACS of course IKS is doing strong and well and Amazon whatever they do they we know they're going to be competitive Microsoft's there but it's not all about competition in this space Dave because you know we see Red Hat partnering across these environments they do have a partnership with AWS they do have you know partnership with you know Microsoft up on stage there so where it was really interesting Dave you know one of the things I was coming into this show looking is what is Red Hat's answer to what VMware is really starting to do in this space so vSphere 7 rolled out and that is the ga of project Pacific so taking virtualization in containers and putting them together Red Hat of course has had virtualization for a long time with KVM they have a different answer of how they're doing openshift virtualization and it rather than saying here's my virtual environment and i can also do kubernetes on it they're saying containers are the future and where you want to go and we can bring your VMs into containers really shift them the way you have really kind of a lift and shift but then modernize them Dave customers are good you know you want to meet customers where they are you want to help them move forward virtualization in general has been a you don't want to touch your applications you want to just you know let it ride forever but the real the real driver for companies today is I've got to build new apps I need to modernize on my environment and you know Red Hat is positioning and you know I like what I'm hearing from them I like what I'm hearing from my dad's customers on how they're helping take both the physical the virtual the containers in the cloud and bring them all into this modern era yeah and and you know IBM made an early bet on on kubernetes and obviously around Red Hat you could see actually on that earlier slide we showed you IBM we didn't really talk about it they said they had 23% growth in cloud which is that they're a twenty two billion dollar business for IBM you're smiling yeah look good for IBM they're gonna redefine cloud you know let AWS you know kick and scream they're gonna say hey here's how we define cloud we include our own pram we include Cano portions of our consulting business I mean I honestly have no idea what's in the 22 billion and how if they're growing 22 billion at 23% wow that's pretty awesome I'm not sure I think they're kind of mixing apples and oranges there but it makes for a good slide yeah you would say wait shouldn't that be four billion you added he only added two or three billion you know numbers can tell a story but you can also manipulate but the point is the point is I've always said this near term the to get you know return on this deal it's about plugging OpenShift into services and modernizing applications long term it's about maintaining IBM and red-hats relevance in the hybrid cloud world which is I don't know how big it is it's a probably a trillion-dollar opportunity that really is critical from a strategy standpoint do I want to ask you about the announcements what about any announcements that you saw coming from Red Hat are relevant what do we need to know there yeah so you know one of the bigger ones we already talked about that you know multi cloud manager what Red Hat has the advanced cluster management or ACM absolutely is an era an area we should look VMware Tong's ooh Azure Ark Google anthos and now ACM from Red Hat in partnership with IBM is an area still really early Dave I talked to some of the executives in the space and say you know are we going to learn from the mistakes of multi vendor management Dave you know you think about the CA and BMC you know exactly of the past will we have learned for those is this the right way to do it it is early but Red Hat obviously has a position here and they're doing it um did hear plenty about how Red Hat is plugging into all the IBM environments Dave Z power you know the cloud solutions and of course you know IBM solutions across the board my point of getting a little blue wash but hey it's got to happen I think that's a smart move right you know we talked about you know really modernizing the applications in the environments I talked a bit about the virtualization piece the other one if you say okay how do I pull the virtualization forward what about the future so openshift serverless is the other one it's really a tech preview at this point it's built off of the K native project which is part of the CNC F which is basically how do I still have you know containers and kubernetes underneath can that plug into server list order server let's get it rid of it everything so IBM Oracle Red Hat and others really been pushing hard on this Kay native solution it is matured a lot there's an ecosystem growing as how it can connect to Asher how it can connect to AWS so definitely something from that appdev piece to watch and Dave that's where I had some really good discussions with customers as well as the the Red Hat execs and their partners that boundary between the infrastructure team and the app dev team they're hoping to pull them together and some of the tooling actually helps ansible is a great example of that in the past but you know others in the portfolio and lastly if you want to talk a huge opportunity for Red Hat IBM and it's a jump ball for everyone is edge computing so Red Hat I've talked to them for years about what they were doing in the opened stack community with network function virtualization or NFV Verizon was up on stage I've got an interview for Red Hat summit with Vodafone idea which has 300 million subscribers in India and you know the Red Hat portfolio really helping a lot of the customers there so it's the telco edge is where we see a strong push there it's definitely something we've been watching from the you know the big cloud players and those partnerships Dave so you know last year Satya Nadella was up on the main stage with Red Hat this year Scott Guthrie you know there he's at every Microsoft show and he's not the red head show so it is still ironic for those of us that have watched this industry and you say okay where are some of the important partnerships for Red Hat its Microsoft I mean you know we all remember when you know open-source was the you know evil enemy for from Microsoft and of course Satya Nadella has changed things a lot it's interesting to watch I'm sure we'll talk more at think Dave you know Arvind Krishna the culture he will bring in with the support of Jim Whitehurst comes over from IBM compared to what Satya has successfully done at Microsoft well let's talk about that let's let's talk about let's bring it home with the sort of near-term midterm and really I want to talk about the long term strategic aspects of IBM and Red Hat's future so near-term IBM is suspended guidance like everybody okay they don't have great visibility some some some things to watch by the way a lot of people are saying no just you know kind of draw draw a red line through this quarter you just generally ignore it I disagree look at cash flow look balance sheets look at what companies are doing and how they're positioning that's very important right now and will give us some clues and so there's a couple of things that we're watching with IBM one is their software business crashed in March and software deals usually come in big deals come in at the end of the quarter people were too distracted they they stopped spending so that's a concern Jim Cavanaugh on the call talked about how they're really paying attention to those services contracts to see how they're going are they continuing what's the average price of those so that's something that you got to watch you know near-term okay fine again as I said I think IBM will get through this what really I want to talk about to do is the the prospects going forward I'm really excited about the choice that IBM made the board putting Arvind Krishna in charge and the move that he made in terms of promoting you know Jim Whitehurst to IBM so let's talk about that for a minute Arvind is a technical visionary and it's it's high time that I VM got back to it being a technology company first because that's what IBM is and and I mean Lou Gerstner you know arguably save the company they pivoted to services Sam Palmisano continue that when Ginny came in you know she had a services heritage she did the PWC deal and IBM really became a services company first in my view Arvind is saying explicitly we want to lead with technology and I think that's the right move of course iBM is going to deliver outcomes that's what high-beams heritage has been for the last 20 years but they are a technology company and having a technology visionary at the lead is very important why because IBM essentially is the leader prior to Red Hat and one thing mainframes IBM used to lead in database that used to lead in storage they used to lead in the semiconductors on and on and on servers now they lead in mainframes and and now switch to look at Red Hat Red Hat's a leader you know they got the best product out there so I want you to talk about how you see that shift to more of a sort of technical and and product focus preserving obviously but your thoughts on the move the culture you're putting Jim as the president I love it I think it was actually absolutely brilliant yeah did Dave absolutely I know we were excited because we you know personally we know both of those leaders they are strong leaders they are strong technically Dave when I think about all the companies we look at I challenge anybody to find a more consistent and reliable pair of companies than IBM and Red Hat you know for years it was you know red hat being an open-source company and you know the way their business model said it it's not the you know Evan flow of product releases we know what the product is going to be the roadmaps are all online and they're gonna consistently grow what we've seen Red Hat go from kind of traditional software models to the subscription model and there are some of the product things we didn't get into too much as to things that they have built into you know Red Hat Enterprise Linux and expanding really their cloud and SAS offerings to enhance those environments and that that's where IBM is pushing to so you know there's been some retooling for the modern era they are well positioned to help customers through that you know digital transformation and as you said Dave you and I we both read the open organization by Jim lighters you know he came in to Red Hat you know really gave some strong leadership the culture is strong they they have maintained you know really strong morale and I talked to people inside you know was their concern inside when IBM was making the acquisition of course there was we've all seen some acquisitions that have gone great when IBM has blue washed them they're trying to make really strong that Red Hat stays Red Hat to your point you know Dave we've already seen some IBM people go in and some of the leadership now is on the IBM side so you know can they improve the product include though improve those customer outcomes and can Red Hat's culture actually help move IBM forward you know company with over a hundred years and over 200,000 employees you'd normally look and say can a 12,000 person company change that well with a new CEO with his wing and you know being whitehurst driving that there's a possibility so it's an interesting one to watch you know absolutely current situations are challenging you know red hats growth is really about adding new logos and that will be challenged in the short term yeah Dave I I love you shouldn't let people off the hook for q2 maybe they need to go like our kids this semester is a pass/fail rather than a grid then and then a letter grade yeah yeah and I guess my point is that there's information and you got to squint through it and I think that look at to me you know this is like Arvin's timing couldn't be better not that he orchestrated it but I mean you know when Ginny took over I mean was over a hundred million a hundred billion I said many times that I beams got a shrink to grow she just ran out of time for the Gro part that's now on Arvind and I think that so he's got the cove in mulligan first of all you know the stocks been been pressured down so you know his tenure he's got a great opportunity to do with IBM in a way what such an adela did is doing at Microsoft you think about it they're both deep technologists you know Arvind hardcore you know computer scientist Indian Institute of Technology Indian Institute of Technology different school than Satya went to but still steeped in in a technical understanding a technical visionary who can really Drive you know product greatness you know in a I would with with Watson we've talked a lot about hybrid cloud quantum is something that IBM is really investing heavily in and that's a super exciting area things like blockchain some of these new areas that I think IBM can lead and it's all running on the cloud you know look IBM generally has been pretty good with acquisitions they yes they fumbled a few but I've always made the point they are in the cloud game IBM and Oracle yeah they're behind from a you know market share standpoint but they're in the game and they have their software estate in their pass a state to insulate them from the race to the bottom so I really like their prospects and I like the the organizational structure that they put in place in it by the way it's not just Arvind Jim you mentioned Paul Cormier you know Rob Thomas has been been elevated to senior VP really important in the data analytic space so a lot of good things going on there yeah and Dave one of the questions you've been asking and we've been all talking to leaders in the industry you know what changes permanently after the this current situation you know automation you know more adoption of cloud the importance of developers are there's even more of a spotlight on those environments and Red Hat has strong positioning in that space a lot of experience that they help their customers and being open source you know very transparent there I both IBM and Red Hat are doing a lot to try to help the community they've got contests going online to you know help get you know open source and hackers and people working on things and you know strong leadership to help lead through these stormy weathers so Stuart's gonna be really interesting decade and the cube will be here to cover it hopefully hopefully events will come back until they do will be socially responsible and and socially distant but Stu thanks for helping us break down the the red hat and sort of tipping our toe into IBM more coverage and IBM think and next week this is Dave alotta for Stu minimun you're watching the cube and our continuous coverage of the Red Hat summit keep it right there be back after this short break you [Music]

>>from Santa Clara, California. In the heart of Silicon Valley, it's the queue covering altitude 2020. Brought to you by aviatrix. >>Okay, welcome back. Altitude 2020 for the digital event for the live feed. Welcome >>back. I'm John Furrier with the Cube with Steve Mullaney, CEO aviatrix for the next panel from global system integrators of folks who are building and working with folks on their journey to multi cloud and cloud native networking Got a great panel. George Buckman with D XY and Derek Monaghan with W W t. Welcome to the stage. >>Okay, right. Yeah. Yeah. >>Okay. You guys are the ones out there advising, building and getting down and dirty with multi cloud and cloud native networking. We just heard from the customer panel You can see the diversity of where people come into the journey of cloud. It kind of depends upon where you are, but the trends are all clear. Cloud native networking, Dev. Ops up and down the stack. This has been the main engine. What's your guys take of the journey to multi cloud what you're seeing? No. >>Yeah, it's critical. I mean, we're seeing all of our enterprise customers enter into this. They've been >>through >>the migrations of the easy stuff, you know? Now they're trying to optimize and get more improvement. So now the tough stuff is coming on, right? And you know, they need their data processing near where their data is, so that's driving them to a multi cloud environment. >>We heard some of the edge stuff you guys are. You're seeing this movie before, but now it's >>a whole new >>ballgame. What's your take? >>Yeah, so I'll give you a hint. Our practices not called the cloud practice. It's the multi cloud practice. And so if that gives you a hint of how we approach things very consultative. And so when we look at what the trends are a little over a year ago, about a year ago we're having conversations with customers. Let's build a data center in the cloud. Let's put some VP sees that sort of firewalls. Put some DNS and other infrastructure out there, and let's hope it works. This isn't a science project, so we're trying to, We're starting to see is customers are starting to have more of a vision. We're helping with that consultative nature, but it's totally based on the business, and you got to start understanding how the lines of business are using the APS. And then we evolve into that next journey, which is a foundational >>approach to what are some of the problem statement that your customers are solving when they come to you? One of the top things that are on there, my house to the ease of use, agility, all that stuff. But what specifically they did, digging into >>some complexity? I think when you look at a multi cloud approach, in my view is network requirements are complex. You know, I think they are. But I think the approach can be Let's simplify that. So one thing that we try to do and this is how we talk to customers. Let's just like you. Simplifying aviatrix simplifies the automation orchestration of cloud networking. We're trying to simplify the design, the planning, implementation of infrastructure across multiple workloads across multiple platforms. And so the way we do it is we sit down. We look at not just use cases and not just the questions in common. We anticipate we actually build out based on the business and function requirements. We build out a strategy and then create a set of documents. And guess what? We actually build in the lab. And that lab that we platform built proves out this reference architecture actually >>work? Absolutely. We we implement similar concepts. I mean, they're proven practices. They work great. So, >>George, you mentioned that the hard part is now upon us. Are you referring to networking? What specifically are you getting? And Terrence is the easy part. Done that before the >>enterprises themselves, migrating their more critical APS or more difficult taps into the environments. You know, they just we just scratched the surface. I believe on what enterprises they're doing to move into the cloud, to optimize their environments, to take advantage of the scale and speed, to deployment and to be able to better enable their businesses. So they're just now really starting the >>you get. You guys see what I talked about in terms of the Cambrian explosion? I mean, you're both monster system integrators with, you know, top fortune Enterprise customers, you know, really rely on you for guidance and consulting and so forth and deploy their >>networks. Is that something that you have seen? Does that resonate? Did you notice a year and 1/2 ago. All of a sudden, the importance of cloud for enterprise shoot up. >>Yeah. I mean, we're seeing it in our internal environment. You know, we're a huge company or those customer zero r and D. So we're experiencing that internal, Okay? Every one of our other >>customers. So I have another question, but I don't know the answer to this. And the lawyer never asked the question that you don't know the answer to, but I'm gonna ask it anyway. DXC and WWD massive system integrators. >>Why aviatrix >>So great question, Steve. So I think the way we approach things, I think we have a similar vision of similar strategy. How you approach things, how we approach things, that world wide technology number one. We want to simplify the complexity. And so that's your number. One priority is let's take the networking, but simplify it. And I think part of the other point I'm making is we have ah, we see this automation piece as not just an afterthought anymore. If you look at what customers care about, visibility and automation is probably the top three. Maybe the third on the list and I think that's where we see the value. Now I think the partnership that we're building and what I would I get excited about is not just putting years in our lab and showing customers how it works is co developing a solution with figuring out Hey, how can we >>make this better? Visibility's a huge thing In security alone network. Everything's around visibility. What automation you see happening in terms of progression, Order of operations, if you will. What's the low hanging fruit? What are people working on now? What are you What are some of the aspirational goals around when you start thinking about multi cloud and automation? Yep. So I wanted to get back to answer that question. >>I want to answer your question. You know what led us there and why aviatrix, you know, in working some large internal I t projects and looking at how we're gonna integrate the solutions, you know, we like to build everything with recipes where network is probably playing catch up in the Dev ops world, but with a Dev ops mindset looking to speed to deploy support all those things. So when you start building your recipes to take a little of this, a little of that, and you mix it all together. Well, when you look around, you say, Wow, look, there's this big bag of 88. Let me plot that in. That solves a big part of my problems that I have to speed to integrate, speed to deploy and the operational views that I need to run. This. So that was the 11 years about reference architectures. Yeah, absolutely. So, you know, they came with a a full slate of reference architectures already out there and ready to go. That fit our needs. So it's very, very easy for us to integrate those into our recipes. What >>do you guys think about all the multi vendor interoperability conversations that have been going on? Choice has been a big part of multi cloud in terms of, you know, customers want choice didn't put a workload in the cloud that works. But this notion of choice and interoperability has become a big conversation. >>It is, and I think, the approach, and that's why we talk to customers. It's let's let's speed and the risk of that decision making process, and how do we do that cause interoperability is key. You're not just putting. It's not just a single vendor. We're talking, you know, many, many vendors. I mean, think about the average number of cloud applications. The customer uses a business and enterprise business today. You know, it's it's above 30. It's skyrocketing. So what we do and we look at it from the interoperability approach is how to things Inter operate. We test it out, we validate it. We build a reference. Architectures says. These are the critical design elements. Now let's build one with aviatrix and show how this works with aviatrix. And I think the important part there, though, is the automation piece that we had to it in visibility. So I think the visibility is what I see. Lacking cross >>industry today, Cloud native, that's been a big topic. Okay, in terms of aviatrix that you guys see them coming in, they're one of the ones that are emerging and the new brands emerging with multi cloud. You still got the old guard incomes with huge footprints. How are customers dealing with that kind of component and dealing with >>both of them? Yeah. I mean, where we have customers that are ingrained with a particular vendor. And, you know, we have partnerships with many vendors. So our objective is to provide a solution that meets that client. >>And you they all want multi vendor. They all want interoperability. Correct. Alright. So I got to ask you guys a question. What? We're defining day two operations. What does that mean? I mean, you guys are looking at the big business and technical components of architecture. What is day to operations? I mean, what's the definition of that? >>Yeah. So I think from our perspective, my experience, we, you know, day to operations, whether it's not just the, you know, the orchestration piece and setting up and let it lot automate and have some, you know, change control. You're looking at this from a data perspective. How do we support this ongoing and make it easy to make changes as we evolved. The cloud is very dynamic. The the nature of how the fastest expanding the number of features is astonishing trying to keep up to date with number of just networking capabilities and services that are added. So I think Day two operations starts with a fundamental understanding of, you know, building out supporting customers environments and making it the automation piece Easy >>from from, you know, distance. Yeah, and you know, taking that to the next level of being able to enable customers to have catalog items that they can pick and choose. Hey, I need this network connectivity from this cloud location back to this on Prem and being able to have that automated and provisioned just simply by ordering >>for the folks watching out there. Guys take a minute to explain, As you guys are in the trenches doing a lot of good work. What are some of the engagement that you guys get into? How does that progress? What is the what's what happens there? They call you up and say, Hey, I need a multi cloud or you already in there and >>take us through. Why? How >>someone can engage to use a global less side to come in and make this thing happen? What's the typical engagement look like? >>Yeah, So from our perspective, we typically have a series of workshops and a methodology that we kind of go along the journey Number one. We have a foundational approach and I don't mean foundation, meaning the network Foundation That's a very critical element. We got a factor in security. We got a factor in automation. So we think about foundation. We do a workshop that starts with education. A lot of times we'll go in and we'll just educate the customer. What is VPC share? You know what is a private Lincoln Azure? How does that impact your business? We have customers. I want to share services out in an ecosystem with other customers and partners. Well, there's many ways to accomplish that. So our goal is to understand those requirements and then build >>that strategy with them. Yeah, I mean, I'm one of the guys. It's down in the weeds making things happen. So I'm not the guy on the front line interfacing with the customers every day. But we have a similar approach. You know, we have a consulting practice that will go out and apply their practices to see what >>and when do you parachute in? >>Yeah, And when I say is I'm on the back end working with our offering. Development leads for the networking. So we understand are seeing what customers are asking for and we're in the back end developing the solutions that integrate with our own offerings as well as enable other customers that just deploy quickly to meet their connectivity needs. So the patterns air similar. >>All right, final question for you guys. I want to ask you to paint a picture of what success looks like. And you know, the name customers, you know, to get and reveal kind of who they are. But what does success look like in multi cloud? You paint a picture for the folks here and watching the livestream. If someone says, Hey, I want to be multi cloud. I have my operations agile. I want Full Dev ops. I want program ability. Security built in from day zero. What does success look like? Yeah, >>I think success looks like this. So when you're building out a network, the network is a harder thing to change than some other aspects of cloud. So what we think is even if you're thinking about that second cloud which we have, most of our customers are on to public clouds. Today they might be dabbling is you build that network foundation an architecture that takes in consideration where you're going. And so once we start building that reference architecture out that shows this is how to approach it from a multi cloud perspective, not a single cloud. And let's not forget their branches. Let's not forget our data centers. Let's not forget how all this connects together cause that's how we define multi cloud. It's not just in the cloud, it's on Prem and it's off Prem. And so, collectively, I think the key is also is that we provide them in HLD. You got to start with a high level design that can be tweaked. You go through the journey, but you got to give a salad structural foundation and that networking, which we think most customers think as not not the network engineers put as an afterthought. We want to make that the most critical >>element. Before you start the journey, George, from your seat had a success look for you. >>So you know, it starts out on these journeys often start out people not even thinking about what is gonna happen with what their network needs are when they start their migration journey to the cloud. So I want the success to me. Looks like them being able to end up not worrying about what's happening in the network when they move to the cloud. >>Guys, great insight. Thanks for coming on. Sharing a round of applause for the global >>system integrators, right? >>Yeah, yeah, yeah, yeah.

>>Locke from Las Vegas. It's the cube hovering AWS reinvent 2019 brought to you by Amazon web services and along with its ecosystem partners. >>Welcome back to the cube Lisa Martin with Stu Miniman and we are alive on the show floor at AWS reinvent 19 with thousands of people. Stu and I have one of our cube Olam back. Joining us, we've got Gail Habermann, senior director of cloud services from new chats. Welcome back. Thank you for having me. And you're on brand with your Nutanix pin for president though. Nutanix right here. All right, so here we are, day three of re-invent 65,000 or so folks here. This is show floor has been nonstop for days. Big theme as been about outpost and what outposts and what AWS is doing there. But Newtanics you guys have been talking about hybrid cloud for years. What does all of the buzz about outpost? What does that mean for you guys? >>Yeah, I think, uh, this GA really validates our strategy and what we've been hearing from customers for many years around the need for hybrid and more broadly, I think consistency, consistency across the environments as a way or means to actually adopt hybrid, uh, ineffective manner is a longterm strategy. And I think, uh, AWS now realizing that and working in this direction, we see that with outpost and with a weather announcing with local as well. The idea is that you really need to have a consistent way to manage across different environments and ideally same construct as well. And that's what they're doing specifically with outpost. Uh, the direction we're being taking is the same where our software can run both on-prem but also in public cloud and edge so that the same applications, whether traditional or modern can run in the same way. So that not only mobility is easy, but people can use the same skill sets that they've developed over the many years, uh, across different environments. >>Yeah. Kelly, it's been fascinating for me to watch the maturation of the market. Of course. Newtanics his original design was, let's take these hyperscale type of architectures and bring it to the enterprise. Now we're seeing the intersection of what's happening at the enterprise and the public cloud and the environment. But you know, tile back a few years. The first time Newtanics came to this show, it was right after the acquisition of a small company called XY on and it was like, okay, it was exciting, but the Newtanics and Amazon connection was, we're trying to all figure out how the dots go together. Fast forward to today, uh, you know, bring us up to, you know, how Amazon, Nutanix and those solutions work together for your customers. >>Sure. So the latest initiative that we've announced as early access is Nutanix clusters where we use our software not only on prem now, but also on AWS bare metal instances. So for those who know, our software for many years have collapsed storage and compute into a single pool of resources that customers can deploy very easily and scale out as needed on a variety of hardware platforms. Traditionally in their data centers. Now we use the exact same software but on AWS, Bermuda instances. And what that means is that the same applications as is can be used either on prem or public cloud. So it's really easy for customers, for their business and mission. A mission critical applications. >>Yeah. I want to highlight a thing you talked about there, that bare metal service from Amazon, which is a relatively new thing. My understanding that was designed for the VMware on AWS, but they're opening up for ecosystem partners to do. And you said Nutanix clusters, is that what I had heard about at dot. Nexen was called XY clusters before. >>Yes. As part of this early access, we've renamed this, um, to Nutanix lessors, but this is the same idea, uh, in the idea is really that customers can now use our software. Uh, in AWS you see other cloud vendors also starting to offer bare metal services for this exact reason. And we are really evolving our company as well, where our software itself is going to be portable. So customers know they deploy our software, for example, on prem today they have a direct path to AWS. And other clouds in the future because we have heard from many customers that perhaps replatform let's say to AWS now, they're not sure what to do if they ever wanted to go to another vendor. Right. Um, so what we were trying to do is have a single platform that can go, can support multiple clouds and also the software itself has to be portable. And so that's the path we're on. >>What about portability? What are some of the key use cases that it will enable customers to achieve? >>Yeah, so many, many times now we hear that the customers are not looking to manage their physical infrastructure anymore. And so in cases where perhaps they acquired multiple companies and they have kind of a data center sprawl, they want to consolidate, one option is to consolidate into a data SQL data center. But another option now would be to consolidate into AWS location near them or in the region that they need. But the key here in the case of clusters is that the same VMs, same third party integrations that have had daily practices cannot work simply managed on AWS as opposed to managing their own data center. So it eases the operational burden, but it does not require a big lift and replatforming to achieve that. >>Yeah. So I was hearing, sorry, so I was hearing one of the loud and clear when you were saying that operational efficiency seems pretty loud and clear as a key benefit. >>Alright. So kill what you're describing there really reminds me of what I'm hearing from customers when they're talking about one of the reasons that they're adopting Coobernetti's. Uh, of course Amazon has a, you know, various ways to leverage Kubernetes socially EKS day down to the far gate, uh, it being supported there. Um, I know has carbon two carbon Nutanix clusters, how does that go together in the whole group and Eddie's story? Yes. >>So when I talk about clusters, it's really the, the entire South of that that we have that can be used across the, across the environments in that software stack includes many aspects to it. Of course the core is does having very resilient infrastructure software that you can run applications on, but it has many other phases to it. And one of them is containers. So like you run virtual machines either on our hypervisor or third party hypervisors. You can also run containers on any Coubernetties or our Kubernetes that we support as part of that software. And that whole thing is portable. So really what I'm talking about here is very foundational and definitely supports carbon as well. So customers know that both traditional and modern applications can, can be poured across clouds. Give us some customer examples where you've seen a legacy enterprise that has to transform in order to stay in business. >>I was working with Nutanix to do just that. Yes. So we have many customers, especially on the high end of the market and to your point, pharmaceuticals with security concerns, financial services that want to modernize, but they have very heavy investments in their traditional and business critical applications. And now that their cloud journey is maturing, they want to address those workloads. Those workloads are very hard to migrate or to replatform specifically. So they're looking for this way to maintain all the investments that they've done over years, but also get the benefits of public clouds where it's appropriate either for migration or for bursting. And so having that same software that could run the same VMs as is across multiple environments is a perfect solution for them. You know, eliminating the need to utilize different cloud native services. Maybe they'll do that over time, but right now this really helps them save millions because we hear from many customers. To your point, the CIO has the mandate to do this transformation, but I can't do it. Or my teams have resistance to do it because of this investments. >>Yeah, kill. I'm glad. Glad you're hitting on that transfer nation note because Nutanix itself has gone through a bit of a transformation recently, all software, that model, it feels like we've kind of gone through that transition. What does that help Nutanix learn when when you're working with your customers that you know, transformation is not easy, that the keynote talked about, that you need leadership involved and this chest can't be an incremental thing. You need to take bold moves to move things forward. And Nutanix itself has gone through some own of its own transformation. Absolutely. >>As always with Nutanix, we were very aggressive with execution, both in product velocity and here also in terms of business models. So we've moved from hardware to software and now to subscription. We find that customers absolutely love the notion that they have a lot more flexibility in terms of subscription. And as I mentioned before, we're evolving this further to support multiple clouds. And because we believe the, the five to 10 years ahead of us are going to be all about cloud everywhere rather than just on-prem. Uh, we need to support that in terms of our motto. And so we're going through that transformation ourselves. >>One of the things also that was talked about this week is just, well, maybe not talked about as multi-cloud, right? That's kind of a four letter word for Amazon, but it is often an operating model that we see a lot of customers are in for various reasons. Maybe not strategic. Maybe it's more we've inherited this or an enterprise as acquired smaller companies that have myriad cloud solutions and this is more of a reality than anything else. Some of the many announcements that AWS has made this week. You talked about this sort of validating the direction that Nutanix has been going in, but from what is the signal to you in terms of of Amazon's own evolution? >>Yes, I think we are really seeing an evolution, you know, while resisting the change to some extent. So I agree with you. Moldy cows, absolute no-no hybrid was a no-no. Now, hybrid is embraced, I think for a hybrid. There really are trying to reach for greater adoption for, I think the hard part. Like I mentioned before, business and mission critical applications, that's the main thing. I think with multi there's still resistance, but it's absolutely critical. Like you're saying, every EBC meeting that I've been here, customers talk about multi cloud because of organic adoption or evolution or acquisitions and so it's absolutely critical to have tuning like our hybrid cloud services that support multiple clouds. So we have services that support governance across clouds, cost optimization, security, compliance, automation, self-service. All these things really help customers, customers drive towards a more unified or harmonized way of managing multiple environments. And it's absolutely critical. I agree. >>We look into like a magic crystal ball kind of in the spirit of evolution. We look at cloud one. Dot. Oh, John furrier talks a lot about cloud two. Dot. Oh no. What if you look, say down the road the next five years, what do you think the state of cloud is going to look like? >>Yeah, I think our vision has been, and I really see this materializing as cloud everywhere rather than thinking about cloud is a centralized place where that is the cloud. Uh, if you think about even, uh, edge requiring heavy local processing, real compute, real storage, uh, very sensitive in terms of latency for networking. Uh, maybe our car is even right, are going to be a little mobile data centers. And so there's going to be a need to have cloud everywhere while still offloading some stuff for centralized processing. So we really need to find a way to bring that cloud everywhere. And what we've been working at Newtanics is towards that division of bringing that platform that has strong resiliency, uh, uh, very good latency sensitive workloads everywhere we might need it, uh, in preparation for that vision. And I think it's going to be very exciting to see how all these vendors and customers evolve their environment over time. It's going to be, I think, very different from what we thought about 20 years ago for sure. >>Do you see any one industry in particular as really right for this to be able to do, not just bring cloud everywhere but to live it and really completely flip an industry on its head? Anything that really kind of pops into your mind? >>Um, I'm not sure. I think in terms of vision it's going to be across the industries, but the more you have applications that do require that edge processing to be, again, low latency and robust. So IOT use cases, for example, with cus with retail, uh, maybe manufacturing and so on. I think we're going to see these guys lead the, the wave here because they simply cannot offload everything to the cloud, but others are going to follow it because it just makes sense. And if it's not an anomaly, then they'll be more comfortable in that process. >>So much change to come, but also so much opportunity. Gil, thank you for joining Stu and me on the cube this morning. Great to be here. Thank you very much. Our pleasure for Stu Miniman. I'm Lisa Martin and you're watching the cube live from AWS, reinvent 19 from Vegas. Thanks for watching.

>>Live from Copenhagen, Denmark. It's the covering Nutanix dot. Next 2019 you by Nutanix. Hello everybody and welcome back to the cubes live coverage of Nutanix dot. Next here in Copenhagen, Denmark. I'm your host, Rebecca Knight, co-hosting alongside Stu Miniman. We're joined by Ken ring doll. He is the vice president global Alliance architecture at V. thank you so much for coming on the cube. It is your sixth time on the cube. So you are an illustrious I know. And then a ring and then a ring for is 10. We've got some sticks. Yeah, here you go. So you're here to talk about the partnership with Nutanix and, and uh, and, and mine. So why don't you tell us a little bit about this partnership and the mine ecosystem and, and how would what you see for the future? >>Yeah, absolutely. So a, you know, Nutanix is a really strategic partner for us. Uh, you know, I'd say we've been partners for quite awhile, probably five, six years. But I would say the, the real sort of tipping point for our partnership was when we committed to go integrate with HV. You know, we had supported vSphere from the beginning. That's, that's what VM was founded on. That's where the foundation of our success, we went and did hyper V and 2011 and we didn't do another hypervisor. We still haven't even done KVM yet, but we saw the value in the Nutanix partnership and we committed to doing HV and delivered that, you know, middle of last year. And we've seen, you know, good pickup on that. But that was really the tipping point when we sort of came in and sort of wrapped our arms around the Nutanix ecosystem. And really, you know, if you want to embrace Nutanix, you're in praise HV cause that's the core, right? That's, that's where they're going. That's their differentiation. Um, and so that was, that was sort of the tipping point. And of course, you know, we can certainly get into mine and everything else we're doing. >>That was, well Ken, first of all, it definitely was, you know, very much noticed in the industry. Uh, you know, Veeam, I remember back when hyper V support was announced and kind of a ripple went through the virtualization, uh, industry on that and Veem stepping forward and supporting HV was a, a real, uh, you know, speaking to not only the partnership but to the maturity of where Nutanix sits out there. Um, we know that the data protection space is quite hot and a question people have had from day one was, well, we'll Nutanix address that directly themselves. Uh, they had Veem rubrics here, you know, other partners are here. So it's how they are addressing that space and mine, uh, that, that is pretty interesting in different from, uh, you know, much of what we see out there. So, uh, bring us inside mine and you know, uh, Nutanix, it wants optionality to be there. So Veem is one of the partners, but also the, you know, uh, likely the most important first one. Uh, there. >>Yeah. So you know, this, there's a lot of similarities between Nutanix and Veem, especially when it comes to the general approach to partners. You know, where we're a software defined, uh, data protection platform. Nutanix, you're right hat an option, Hey, maybe we go build this ourself or we acquire and try to get that revenue, maybe the data protection revenue. And they've decided to partner just like we've decided to partner, you know, for secondary storage and everything else. And that, that really does lead us to mind because you know, a lot of our competitors do ship their software on white box hardware. Uh, some of the emerging startups are doing that and even some of the legacy players are all, you know, whether it's a Supermicro box and Intel box, we've taken a different approach and said, Hey look, you know, we, we, we know what we're good at and we know we want customer choice. >>And even, you know, Dheeraj and others at the keynote today talked about no vendor lock in. We're where we are. We have very similar approaches. And so, you know, we got together over a year ago, year and a half ago and said, Hey, look, you know, as Veem in a, we, we see some customers that are now asking for their data protection. You know, VM was founded on being simple and easy and there's even ways to take that to another level like mine, which is, Hey look, we want to now even simplify the day zero one the zero experience that even into the day one day two ops in terms of an integrated UI and other ways to to bring, you know, the infrastructure together with your data protection. And so it made perfect sense. We got together and it was like boom, a light bulb went off. We got on a whiteboard and we're like, yeah, we can do this. >>Like, you know, it's going to require joint development. And we've sort of made those commitments on both sides and it's been well received now. It's not in the market yet. It will be soon. Um, but the customer feedback has been incredible. We've done this very successful beta, we've got lots and lots of pent up customer demand. So it's like the sales teams are now saying, Hey, when can we, have you been talking about it for a while? When can we have this? Because we have customers ready to buy. So where we're there now that we're ready to bring this to market and excited about the opportunity together. >>So talk a little bit about the, the ins of that partnership. And you were just describing your ethos, which is making everything simple and easy, which is what we're hearing a lot here today. A. Dot. Next. So does that just mean that you attract the same kinds of employees, so then therefore they work well together in the sandbox? I mean, how would you describe the, the cultures coming together in this joint development process? >>Yeah, I think we're, we're similar companies, right? We're a similar size. We're a similar age. We're similar, you know, just, just all around, you know, our, our culture of innovation. So, you know, when we got together it was, it was pretty simple. Now, now doing development as two companies together is always hard. It's never easy. It's even hard to do it when it's one company on your own, right. And get a, get a product to market. Um, so I'd be lying if I said that weren't bumps along the way. There always are. Uh, but you know, we've, we've, we've worked through and we've, you know, we're, we're now, like I said at that point, and I think our, our, just our similarities and our cultures and really we have alignment at the executive level. And that's important, right. To, to get things done because, you know, well, well, you know, all of us that are sort of working on this thing, maybe a level or two, but when executive leadership is aligned, that's when things get done. And we have that between Nutanix and beam. >>Yeah. And Ken did the messaging that I'm hearing from Nutanix now reminds me of what I was hearing a couple of years ago from Veem specifically when you talk to cloud, uh, so a couple of years ago very much, I saw Microsoft up on stage, you know, living with AWS. What are you hearing from your customers and you know, do you see those parallel journeys or will the AHV integration mean that as Nutanix goes along that journey that Newtanics offerings will be able to live in these multiple cloud environments sometime too? >>Yeah. So I think a little bit of both, right? I think, I think the definitely be able to live out there. I mean, you know, you see VM-ware now wrapping their arms around all the hyperscale public cloud vendors. I mean, we heard about XY clusters and that was announced in Anaheim and we saw a demo of it today. And, and, and, you know, our goal is to support those workloads wherever they are. You know, we've, as I said before, we, we sorta made, made our hay and we were founded on attaching the vSphere then hyper V than HV and now AWS and Azure and all these other environments. And really, you know, the roots of it, we, we follow our customers along their journey, right? So, you know, this customers today that, that, you know, maybe smaller, newer companies that go straight to AWS, straight to Azure, they're born in the cloud and they're cloud only. >>You know, they may not be the best fit for Vien maybe a couple of years from now. Uh, they, they may just buy point solutions for the customers, the larger customers that have hybrid environments. That's what we're looking to attack. And you know, whether that's with Nutanix and VMware and those workloads that go, we, we want to make sure we attach here and give our customers the best experience and the ability to burst to the cloud and move around and workload portability, you know, we built features into the product. We've changed our, revolutionized our licensing to make that easier. So, so that's what we're after is is those hybrid customers solving those problems and those challenges they haven't building on our strength, which starts on prem but has moved into the cloud and, and, and spread quite a bit. Yeah. >>What do you see as some of the trends on the horizon? I mean, as you said, you just described your dream customer, which there, there's, there's a few of them out there so you'll be okay. So talk about some of the, the problems that you, that are keeping them up at night and how your solution solves them. >>You know, when it comes to data protection it, you know, everyone can say, Hey, my backups, they were 100% successful. It comes down to restore and reliability. And security, right? And we, you know, we've, we've built a lot into our product to give customers the peace of mind that, Hey, you know, when that call comes at at 11 o'clock at night and I need to recover assistant cause it's down, you know, we need to have hundred percent confidence that that will be there. And oftentimes when, you know, when we're converting customers over from maybe a competitor's product, that's what we hear the most is, is Hey, you know, it's the reliability and the confidence in the infrastructure and that's what we focus on most. And so, you know, we hear that a lot from customers and, and that's really where our focus is. We've got feet, as I said, features built into the product. >>You know, that, that that goes straight after that can, we've watched Newtanics really increased the breadth of what they're offering through through their software. Uh, they've been talking a lot. Files is one of the, you know, strong growth areas. There. Objects is another one that I, I expect would have some interaction with your environment. What are you hearing from customers? Where is Veeam moving with the HP support for some of these other solutions that Nutanix has? Yeah, so, so we've got a very big release coming, you know, in the next call it few months, quarter or so. Um, that is called V 10. You know, and if you guys read Vema on a couple of years ago, we've talked about V 10 and that was a number of features in there. NAS is a big one for us. Um, and it's one that that is probably the most asked for feature that we currently don't have. >>And so having support for files and we've already tested with the beta, you know, we know when we come out with that in a GA form that we're going to be successful with, with files. Uh, object storage is another one that was also part of the V tenet umbrella when we announced it, you know, while ago. Um, and it's been hugely successful for us. It's revolutionized, kind of the way that our customers look at longterm storage is, is, Hey, I can, I can move that to AWSs three or Azure blob or, you know, cloudy in or Swift stack or something else on pram or Nutanix objects. Um, you know, because again, customer choice, but, but we've, you know, we've embraced that because that's where customers are going. She asks, you know, what a customer that, that's, that's where, that's where they're going. They, they, they say, Hey, I want, you know, a lot of them want to get rid of tape, you know, and, and what's the best way to get in this is features of tape in object storage, right? There's object lock and ways to do, you know, uh, write once, read, read many times. So we're, you know, we look at object storage a little bit as, as the next generation of tape. Now it's, you know, it's not exactly that. There's lots of different use cases, but, but for us and for our customers, they're looking, they're looking to, to do the next generation data center. And that includes having object storage is a longterm tier. Uh, you know, for cost reasons, for manageability reasons, you know, of the light. >>Can you talk a little bit about the partner ecosystem and the evolution of it and particularly because the technology industry is, is changing so fast and you, you, you started this conversation by talking about how much your culture is aligned with Nutanix culture. How do you see, with, with these fast changing companies, fast changing technologies, how do you see five, 10 years from now, what will the technology landscape look like? >>Yeah, certainly. I mean obviously the, the push to cloud, that's big, right? Where we're making a lot of, a lot of changes on our site, where, where we're bringing out new products or bringing out new features that specifically take you to cloud. Um, you know, we, we were on with you guys at, at world and, and you know, there was, you know, project Tansu and all this other stuff about Cuba and it was, it was, that was the Coobernetti's conference. Right. And, and, uh, you know, I said earlier, you know, we want to move along at the pace that our customers want to go. So, you know, those, those sort of born in the cloud companies are going straight to Kubernetes, but we're moving along with our customers when it comes to Kubernetes and containers. So, so yeah, we're, we're paying attention to it. Do we have a product that can support every bit of, you know, Kubernetes and containers yet? >>No, but, but we're, you know, there's these things that we're working on and you know, in, in the way that Veem usually develops software, we're not usually first, but we usually come out with something that is rock solid, ready to go, customer ready. We have 355,000 customers we can't afford to and, and, and we're the stewards of their data. Uh, so when we come out with something yet, we may take slightly longer to do it, but you can be sure that it's rock solid, stable, robust, and that's, you know, that's our general approach. And so when you ask, you know, where our customers going, you know, they're definitely going to the cloud, they're going to Kubernetes, they're, you know, all these, all these new technologies, and, and, and, and we sort of like step back and we ask our customers, Hey, are you doing this? You know, what's your plan for this? Is it two years? Is it one year? Is it five years? Um, and we adjust accordingly. >>Yeah. Uh, can anything particular for your European customers that, that, that you can share? >>Yeah, I think, you know, when you think European customers and uniqueness from the rest of the world, I mean, you start with GDPR, right? That that was, you know, a huge thing that went into effect a year ago. Um, and we've, you know, we've, we've done things there, but they're, they're, they're very sensitive to, you know, that and, and being able to, you know, provide that capability for their customers. So, so I'd, I'd put that at the top of the list. I mean, cloud is a big one. You know, I think as we look at the hyperscalers in particular, AWS and Azure, you know, the U S is a big country. You don't need a lot of data centers to cover the country. But now you look at GDPR and some things need to stay in the, in the envelope of a, of a country. And Hey, this, you know, lots of countries in Europe and, and, and so more and more data centers. So the support of those public cloud vendors and the, the sprawl of, of the date and the sprawl of the data centers is, is really important. So having that coverage and being able to provide customer choice is incredibly important to European customers. >>Well, Ken, thank you so much for coming back on the cube. We always have a fun time talking to you. Right. Thank you. Next time I'll be here. Seventh, I'm Rebecca night for Stu Miniman. Stay tuned for more of the cubes live coverage of Nutanix. Dot. Next.

live from San Francisco it's the cube covering micron inside 2018 brought to you by micron welcome back to San Francisco Bay everybody this is the cube the leader in live tech coverage my name is Dave Valentin I'm here with my co-host David Floria we're covering micron insight 2018 really bring it together memory storage and artificial intelligence talking about AI for good talking about changing the way in which we work new workloads Raj to Lori is here he's the senior vice president and general manager of microns a booming mobile business unit rise I think it's the fastest growing business unit at micron at least of XY's and Keith crescent is here is the senior vice a senior vice president at Qualcomm Keith welcome thank gentlemen thanks for coming on the cube okay thank you so right let's let's start with you what are the big trends that you see that are driving that at 60% growth rate in your business yeah I mean we are finding now that you know mobile phones and use of memory in mobile phones and this is DRAM and also use of storage in mobile phones this is where we actually you know like flash both are growing inside a mobile phone you know we've seen people launch you know four and six gigabyte phones and now we have our customers talking about 8 and 10 and 12 gigabyte phones in the future and one of the big reasons is the applications you know a lot of machine learning and AI applications from the phones and those are driving the need for a lot of increased both storage and memory so we talked about what's changing in your business over the last several years I mean mobile obviously exploded onto the scene but now people are talking about AI and mobile and and and just increase use cases and applications so what's going on from your perspective yeah I think my handset perspective there's been some visual changes right the screens got a little bigger the bezels get smaller phones get a little thinner and so you see some of the visual cues but really the excitement of what's going on underneath the visual cues so the amount of AI processing is accelerating at a rapid pace a lot of advanced cameras you know moving from two three four and now their phones with five cameras cameras to recognize depth perception there's a voice recognition so there's a lot of AI processing and a lot of capability getting into the phone for a variety of applications okay so voice recognition that makes sense you'd use AI for that but you're talking about AI in in visual and in in the handset talk more about that explain how that all works yeah so so actually I would argue that today imaging is probably the primary application of AI so cameras used to be just capturing pixels but now it's about much more than capturing pixels it's about understanding what those pixels are so are they recognizing objects or food or something else or is it facial recognition for things like payments and biometrics and so the cameras now are much more intelligent and with multiple cameras you're adding depth information so then you start to get to much higher levels of realism for things like avatar and gaming and other areas where the camera is capturing and also perceiving so not a hot dog for you fans of the show Silicon Valley so but Raj what does this all mean for the the memory and storage requirements yeah I mean eyes keep mentioned I think you know the mobile phone you know with the process from Qualcomm and and other processor vendors has really gotten to have a lot more camera applications and a lot more AI applications now there's a there's a difference when you actually drive applications that need AI and machine learning versus other applications and the difference is that the compute paradigm in AI and ml is different in the sense that these are like complex neural networks that need a load of lot of data very close to the processor to achieve the result so as more AI applications come in we are actually finding that the customers which are Qualcomm customers and our customers are asking for more processing from the airside but they're also asking for more higher speeds higher density memory to kite to couple tightly with the process so they can realize these AI applications for the consumers and also storage because sometimes you want to store a lot of the images and videos on the card so both storage and memory are increasing as applications come in but I'd like to ask about the gaming side of things and the ante AR that seems to me that is is starting to improve to a level which is frightening linear reality what do you have to do to get it to that stage where you can have true VR and have games for example which exploit that sure so maybe first I'll talk about gaming specifically gaming obviously continues to grow a lot of money in gaming gaming tournaments and so forth the gaming certainly is getting more realistic with better graphics and so forth better displays multiplayer gaming very hot right multiplayer gaming requires you know very fast connections very low latency connections to another source so play multiple players can play at the same time also many times for games you'll have a play with partners maybe you're on a team of five but now in coming soon maybe that team of five you don't need to find that fifth person or that fourth person maybe there's an AI engine that's running similar to the human capability and you're actually playing with a simulated player right from teams so there's in that require opens up a whole new area of processing for the games and then I think for AR and BR AR is a little further out than VR err requires some more advancements with respect to optics and so forth VR is taking you know high-end displays and AI and graphics kind of packaging it all into one to really change the paradigm of how you interact with the computer how does 5g change things is it is it as much of a game changer as people think or is there just so much data that it sort of allows us to keep pace I wonder if you can talk about 5g yeah so so you know every ten years or so there's a G transition 3G and 99 4G in 2009 now 5g in 2019 so it's not a ten-year cadence and every time when you have a G transition you couple that with a transition in computing and it changes the paradigm so what's gonna happen is 5g is gonna bring a lot more capacity a lot lower latency at the same time AI is coming in and that together is going to create a pretty powerful platform for applications for the future and then of course there's just so much more data now how do you guys keep because the you mentioned you know you've been talking to the to the street and you mentioned this morning that the the rate of bit density that is is moderating so how do you guys keep up where are your investments that allow you to keep pace yeah I mean we have a so just maybe a little bit of comment on 5g I think as the bandwidth to the device gets faster and faster there's more and more data that comes in that you can imagine for example one of the things people out of people like to do you know is to you know download content if you look at Netflix if you look at Amazon Prime if you look at even DirecTV and I have all of those you can actually download the content now and watch them offline so as it happens and that content gets to be 4k and an even higher frame rates the amount of storage that's needed to download that is getting more and more like you know you know my wife upgraded her phone the other day and the first thing she said is I want an entire Netflix season on my phone when I'm in the gym so so you know there's simple things like that I've changed a lot you know that's one of the reasons why the storage is getting so much now when you go to 5g and the download speed gets higher you can download like a 4k video really quickly now you got to put it somewhere after you downloaded so that's actually driving the need for this so before people wouldn't like download a 4k video because where would you put it so as we increase storage that kind of stuff comes really fast because you couldn't you know take a long time to download before so as the bandwidth gets higher the storage requirements the memory requirements are getting higher now what we are doing on that front is we're investing a lot you know as Sanjay and Scott talked earlier both in our fab capacity is both in our technology transitions we have a lot of new interesting technologies like new emerging memories they're actually like 3d crosspoint we talked about that kind of blur the line between storage and memory so there's a lot of new interesting technologies that will actually take advantage of that super exciting time so going back to the image processing side of that one of the trends it seems to me is that the processing is going further and further to the edge itself and going inside the camera itself do you talk a little bit about that and what it's going to take to to put that that your memory technology or bandwidth right inside the camera itself sure so so there's no doubt that you want to maximize the capability on the edge as a first step and then you want to reduce the late as much as possible to the cloud as a second step so on the edge you know if you had something for example if I'm taking a picture of you and I want face recognition I don't want to take every frame and send it up to the clouds I'm gonna waste bandwidth so on I want that capability on device and that's true for a variety of different applications you want to maximize the capability on device and then focus on the fast connection so the cloud and the device from a latency and bandwidth perspective are much tightly more tightly coupled you know you think about the evolution of computing you know obviously everything was centralized and then you know pcs the world was about pcs back then it was kind of the the centralization with it was a bit blip on the screen compared to the pcs was everything remember that and then of course mobile drove cloud through the roof and now with the edge and cloud and and mobile you're seeing just this ubiquitous capability that senses now you bring in AI you bring in machine intelligence it what do you guys envision for the for the next 10 years in terms of what the world looks like centralized decentralized distributed intelligent I mean it's just mind-boggling what's your vision well I think if you look at client devices client devices certainly generate a lot of data maybe we get a little bit of data from a sensor and a bridge but maybe we'll get a lot of data from the car traveling across that bridge and what you need to do is you need to make sense of that data locally and then transmit it back to the cloud so you want the cloud to have the most useful data or sorted data right data that can then improve you know automated driving or reduce traffic accidents and so forth but you don't want all the data sent there so what's gonna happen is on the edge there's literally you know a device is going from smartphones where there's about one and a half billion a year to billions even trillions of IOT connected devices any device that has a computing element also is can have a connectivity element also is going to have an AI element so it's gonna be a much more connected world as opposed to just connected people yeah I mean I think kids keep explained it very well you know you know if you step back a little bit I think that the history of technology and evolution has been very similar right in industry for a while but we all remember the times when we said we just did month one mainframe and everyone needs dumb terminals right then we went on to say hey you know what I think distributed computing with everyone having a pcs that I think you do now we are back to maybe we should have everything in the cloud and the edge devices so I actually think in a world goes cyclical and the more you do at the edge the more it drives the need for the cloud and we call it the virtuous cycle and I think the best way to think about it is you want the HD devices to send information not data which means they need to be for data needs to be processed with memory and compute to become information and then you send the information to the edge yeah I guess my point was that you know I've been around a while too and you're going to see the pendulum swing I feel like the pendulum is not swinging anymore it's just exploded inside it's really an exciting time in our industry guys thanks very much for coming thank you appreciate thank you all right keep right there everybody we'll be back at micron insight from the Embarcadero you're watching the cube right back [Music]

(Caribbean music) >> Narrator: Live, from San Juan, Puerto Rico. It's theCUBE, covering Blockchain Unbound. Brought to you by Blockchain Industries. >> Hello, welcome back everyone. I'm John Furrier, co-host of theCUBE. Exclusive coverage here in Puerto Rico for Blockchain Unbound, it's a global conference where a lot of the leaders are coming together. It's our second day of wall-to-wall coverage. Talking to all the top people: government officials, entrepreneurs, investors, and tons of great action here. Our next guest is Marcus Levin who's the co-founder of XYO Network, xyo.network is the URL. Interesting opportunity really built from the ground up. No outside funding, although it does some interesting things with their community. Great IoT example, great use of the cloud, great example of how real entrepreneurs are working with crypto and blockchain to actually grow. Welcome to theCUBE. >> Thank you, John. >> So, tell me a little bit about what you guys do. Take a minute to explain to the audience what XYO Network is, how did you get here, what is it all about? >> Yeah, sure. So, XYO Network is the world's first decentralized location oracle. "Oracle" means data input into smart contracts. Now you have the problem that a lot of data sources are centralized and hackable or spoofable. So, if you make a bet, for example, you need to look at the results of the bet at a website, the website could be hacked, it could collude with someone to provide wrong data. The same problem exists with GPS. GPS is easily spoofable and hackable, like during the Pokemon Go craze, for example, all the kids just downloaded GPS spoofing apps, they get all the rare Pokemons. Or, allegedly the Iranians took down an American drone a few years back sending up a wrong GPS signal. The drone just landed. So, because of that, you can't do transactions based on location data. Today, most applications for location, GPS location, are navigational but not transactional. We solve this by providing a decentralized location data or network. We do this though IoT devices, mobile phone apps, and other types of partnerships. We are around since 2012. Started as an IoT company which provided location beacons, we call it XY Findit. We have about a million of them out there, and they can recognize each other's location. It's like us two taking a selfie together, we print out two copies, put our signatures on there. When we leave each other, we can prove that were here together. And it's the same thing with those devices. Our own devices but also with partnerships we build this mobile app distributors and IoT companies. What can you do with this? You could, for example, do payment up and delivery for e-commerce. So, you could put a chip, a small chip like an RFID chip into Amazon packaging tape. Once the package arrives at your doorstep, or even in your house, the payment gets triggered. It works by the doorbell, your Tesla in the driveway, your neighbor's cell phone, any type of connected device recognizing that the package is there. The payment automatically gets triggered. One third of Americans experienced porch theft in 2016. You don't know if it was a UPS driver, for example, scanning the package but taking it, or your neighbor took the package, or someone random came by. This way, you can prevent porch theft, or you can discover it. Or you could make sure your kids arrived safely at school, they arrived there with their friends and they took the path you wanted them to take. Or hotel review sites, for example, have the problem that they lose their users because they don't believe that the reviews are real anymore. But if you could prove someone flew from San Diego, that's where we're based, to Puerto Rico, has stayed at this hotel for tonight, and then flew back and wrote the review about it, suddenly you have a location-verified review. So, that's all today, but in the world, in five to ten years, full of AI, robots, self-driving cars, drones, smart cities, you need transactional location data and nobody's providing that today and we want to be the center of the future. >> Awesome. So, that's super-exciting, I got to ask you about the IoT piece because, do you need physical devices out there? Are you going to be deploying sensors? Are you leveraging pre-existing infrastructure? I love that selfie example. I can imagine we do a selfie, share it, it's a location-based opportunity. The phone's got location base. How do you guys interface with this? How does it work? >> Right now the network builds on top of our own devices. We are around since 2012, as I said, so we have a large network already. We are an existing company, it's a little rare in the blockchain space. >> Yeah. >> And we build partnerships now with IoT companies like certain light bulb division company, or fridges, all connected devices, mobile app distributors. >> So, you're providing your customers the IoT device folks who are proliferating out there. >> Yeah, we put our code basically out there. We can-- >> Open source? >> Open source, yeah. >> Okay. >> And you can plug it as an SDK into, let's say, your mobile app. Or you can use it as a monetization tool as well, because you earn tokens as you verify location, and this data is part an answer, and so you could earn XYO tokens, as you become-- We call them "sentinels", location verification device in our network. >> So, how do you guys tie this together on the token side? So, you reward, what behavior do you reward with a token? >> There are four components in our network. There's the sentinel, as I spoke about, which are the IoT devices or mobile phones which verify the location. Then you have bridges which relay the data. They relay it into something we call the archivist, which is a distributed computer system, if you are familiar with storage here in this space, for example, or the old system, like Sentient home from Berkeley, it works like that. So, the data's on people's personal computers. And then we have something we call the diviner algorithm, which provides the answers. It works like mining. So, you might want to ask, "Where's my package right now?" And the question gets sent to the network, a bunch of diviners, which works like mining, Ethereum, transactional things. A bunch of diviners will take the data from the archivist, the distributed computer system, and try to find the best answer and try to find as close as possible the consensus as they can. >> What about spoofing? I mean, people might want to spoof the location. >> Yes. >> How do you prevent spoofing? >> Yeah, that's a good question. So, we two could collude pretty easily. But if this entire room of people is who you usually don't know, it's very difficult to collude. So, one of them is scale. Then we build reputation over time. So, as your answers are probable, you build reputation. For example, if all us say we are here at this hotel right now, but you say, "No, we are in Shanghai," your answer is improbable and your reputation goes down. In addition to that, we disincentivize lying-- >> You're very data-driven. >> Extremely. >> This is big time analytics. >> Extremely data-driven. >> So, what are you guys doing for analytics and what chain are you using? 'Cause performance becomes an issue. >> Yep. >> How's the plumbing work? What's the analytics look like? Take a minute to explain that. >> Yeah, it's very beautiful. We have our own chain: the XYO main chain. So, we are an oracle which plugs into any type of smart contract. You know, you have Ethereum and about 19 other coins which have smart contracts. So, we build on our chain to lower the transaction costs, transaction times, and build a more reliable network for ourselves and then it plugs into all other smart contracts. >> So, you have your own chain to manage this? >> Yes. >> So, that's one of the reasons why you, from an operational standpoint, you want to lock that down. >> Yes. >> So you can control performance. >> Exactly. >> Latency, timestamps, security, whatnot. >> Exactly, that's right. >> The openness is for the smart contracts. Is that what you're saying? >> Yeah. >> I can do any smart contract I want. >> This is basically for old site developers it's like an API, you can plug into it-- >> Got it. >> We connect the real world with the blockchain. So, right now you have very limited applications for blockchain in a lot of cases because you can't take offline things and connect them to the chain. What we allow to do is, we call it the API to the real world, where you take location data, put it into the chain and make it transactional. >> So, I got to ask you a question. This is interesting, I love this, I want to get into more of the token sale and what you guys are doing raising money. In the IoT world, certainly with cloud computing, the big debate is, do you move compute to the edge where the data is, or do you move the data back to the centralized cloud? Here, since you're decentralized with the IoT device, is the data coming back to your central network, or-- >> No, it's not. >> Where is the processing at? At the edge? What's the edge equation? Explain that. >> So, everything is decentralized. We believe that our company doesn't need to necessarily exist in a few years and the network will live on and grow as we grow the community, so the community is very important to us. The devices are decentralized, you own your cell phone. The data storage is decentralized. So, you can define, like, 3% of my personal computing power goes to this, for example, you earn XYO tokens. The mining is decentralized like any mining is decentralized today, so us as a company, once people start to build on the platform, we don't need to exist, which makes it beautiful, right? This is what blockchain is all about. Decentralizing and building this platform layer where people can build on top of. >> So, there's a ton of Bluetooth and GPS out there. >> Yep. >> Talk about where you guys have got your traction. I want you to take a minute to explain. We kind of went off on a tangent on some IoT rant, there, I was interested in. But I want to take it back to mainstream. >> Okay. >> There's GPS out there, you've got Bluetooth, everyone's got Bluetooth devices. So, it's not like this is massive new, it's a requirement. >> Yeah. >> You guys did some interesting things how you funded your first token sale. >> Right. >> You have customers. You've been around for how long? >> 2012. >> 2012. You've been successful. No outside capital. >> Yeah. >> So, you bootstrapped. You made things happen. Had some revenue come in. How'd you do it? Take us through that progression. >> Yeah, so we co-founders worked in various ventures together previously and one of our co-founders, the main founder I would say, Arie Trouw, he started this company in 2012, and we bootstrapped it with seven million dollars of our own cash and one and a half million in venture debt. We really believe in what we do. >> You guys put up a lot of capital. >> Yes. >> Congratulations. >> We believe in what we do. We believe in our capabilities to attract the right teams, we have an amazing team. >> That's skin in the game. >> It's skin in the game and it's actually a low-risk investment for me because I know what we are capable of. >> You are underwriting your own competence. >> Exactly, exactly. >> Okay, so, you had seven million of your own cash. Did you pass the hat around, you all kind of contributed money in, or? >> It was mostly from Arie, actually. (laughs) But we all have skin in the game there. >> So, you have a community, then you launch your idea, what happened next? >> Exactly. So, then the VCs started to come. We did some outreach, VCs started to come, they're interested in our idea, you know, they love what we do. Platform is right, quite sexy right now. In blockchain we are a platform and you can build a lot on top of it. We pushed off the VCs and we said we want to take community money first. The reason is, we believe in building this strong community of evangelists, people who believe in us, who want to code with us. We went to all the developer conferences, not to, like, investor conferences, or something like that. And, so, we marketed to about 2,300 people, our token sale and a little under 500 people put some Ethereum into our token sale and 95% were under 5 ETH. That was a very global community. >> Was that a utility token sale? >> Yes. >> Outside the US, 'cause there's credited investors involved, or what was the-- >> It's clearly a utility token, because you can build on top of it. Last weekend, the city of San Diego and 120 hackers, a IoT company, were in our office to build on top of our chain, traffic flow and parking solutions for the city of San Diego. So, it's clearly a utility token but because of the uncertain regulatory environment we are actually running it like it's a security, so, we have a Reg A, Reg D, Reg S, whatever, we have 115 different jurisdictions we look at, I spoke during the whole process, I'm not lying, it's-- >> That's a lot of work. >> Yeah. 23 lawyers I spoke with. It's a lot of hours with lawyers on the phone. The most aggressive on of them, she suggested to me a structure with no taxes but 20% prison potential, I think. (laughs) On the other side-- >> It's a good cause. You're doing it right. So you spent a lot of money to make sure that your community was involved. >> Yes. And they weren't throwing a lot of money, like they're millionaires, they're like, let's throw a thousand dollars? >> Yep. >> That kind of numbers. >> Yes, exactly. >> So, it's not like you're breaking the bank but they feel ownership. >> Absolutely. If you look at our telegram channel-- >> And you've raised, what, a million, two million, three million, from that? >> One point seven. >> From the community? >> Only community, those 400 people. We had it open for five to six days. We closed it down. We didn't take any money anymore. And since yesterday, I started talking with institutionals again and now we are a sexy story so now they come again, right? (laughs) >> Platforms are sexy. >> Exactly. >> We know, we have one, too. >> (laughs) That's awesome. Love your project. >> Well, the thing about platforms is that, as you know, we talked about last night, is that the platform wars and the platform entrepreneurial thinking has radically changed. In the old days, it was, I've got a platform and I'm going to monetize my platform for my application. Look at Facebook. >> Right. >> They monetize their platform data for advertisers, not users. I am a Google search engine, I need to make the best search result so I can get better advertising. And search results, thats a part. But the new order is the platform value goes to the users or customers. >> Right, right. That's right. >> So not... >> We are not rent-seeking. >> This is an open model with platforming. >> 100% open. There is a lot of the platforms are rent-seeking, where a certain percent of each transaction goes to the company or to some founders or something. We don't have that at all. So, what we do, for every token we sell, we allocate one to the company and after the token sale there is not going to be ever more XYO tokens ever again. And we use our portion to build this network but we don't take any fees or anything there. >> How do you make money? >> Building partnerships with companies, helping them to build on top of the chain, building the community. >> At some point you need to take a small cut of something, right? >> Yeah, if we own half the tokens, hopefully there is some value. >> They could be-- okay, so you'll get the token opportunity? >> Yes. >> So, on the security token, do the investors, the community and now token holders, is that an equity security token, so they own the company through the tokens, right? Non-dilutive, non-voting equity, is that what you're thinking? >> Yeah, it's not an equity token. It's still in our mind a utility token but we do something very interesting. During the token sale event, we are going to launch an equity sale at the same time. So, you can decide if you are comfortable in the blockchain space, you know, all you want to be an equity investor. The disadvantage is you have less liquidity there but you have all the protections an equity gives you. We are a California-based company. It was audited financial since 2012. SEC-qualified and regulated, so equity in our case is a kind of sexy kind of thing. >> Yeah, and they have the long game. They're betting on acquisition or something else. >> Basically. >> Oh, well, they've got to get some revenue going. Well, what's next? What are you guys doing? Token sale done, is it working? What, is it going on now, let me just check it out. You've completed it? >> No, it's going to start on March 20th. It's going to run for two months until May 20th and so now it's a lot of travel, speaking with people, engaging. >> (laughs) >> Yeah, that's next. >> Well, congratulations. >> Thank you. >> So glad that Carrie on Facebook notified me of you guys. Super-impressed with what you're doing and we had a great conversation last night at the monetize roof party. Great to know you guys. I think IoT really needs this kind of model because there's a lot of real critical challenges around the role of data, the role of immutability. There's all kind of sensor devices out there, cameras, you can't go anywhere, digital cities are coming, smart cities. >> Right. >> Self-driving cars. It's going to be wired up, big time, so I think you guys got a good opportunity. Thanks for coming on theCUBE. This is John Furrier here in Puerto Rico for exclusive coverage of Blockchain Unbound. More after this short break. (electronic beats)