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

from 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 by the dip has been been an effective strategy since the market bottomed in early march last year the approach has been especially successful in tech and even more so for those tech names that one were well positioned for the forced march to digital i sometimes call it i.e remote work online commerce data centric platforms and certain cyber security plays and two already had the cloud figured out the question on investors minds is where to go from here should you avoid some of the high flyers that are richly valued with eye-popping multiples or should you continue to buy the dip and if so which companies that capitalized on the trends from last year will see permanent shifts in spending patterns that make them a solid long-term play hello and welcome to this week's wikibon cube insights powered by etr in this breaking analysis we shine the spotlight on three companies that may be candidates for a buy the dip strategy and it's our pleasure to welcome in ivana delevco who's the chief investment officer and founder of spear alpha a new research-centric etf focused on industrial technology ivana is a long-time equity analyst with a background in both long and short investing ivana welcome to the program thanks so much for coming on thanks for having me david yeah it's really our pleasure i i want to start with your etf and give the folks a bit more background about you first you know we gotta let people know i'm not an investment pro i'm not an advisor i don't make stock recommendations i don't sell investments so you got to do your own research i have a lot of data so happy to share it but you got to understand your own risks you of course yvonne on the other hand you do offer investment services and so people before investing got to carefully review all the available available investment docs understand what you're getting into before you invest now with that out of the way ivana i have some stats up here on this slide your spear you're a newly launched female lead firm that does deep research into the supply chain we're going to talk about that you try to uncover as i understand it under-appreciated industrial tech firms and some really pretty cool areas that we list here but tell us a little bit more about your background and your etf so thanks for having me david my background is in industrial research and industrial technology investments i've spent the past 15 years covering this space and what we've seen over the past five years is technology changes that are really driving fundamental shifts in industrial manufacturing processes so whether this is 5g connectivity innovation in the software stack increasing compute speeds all of these are major technological advancements that are impacting uh traditional manufacturers so what we try to do is assess speak to these firms and assess who is at the leading and who is at the lagging end of this digital transformation and we're trying to assess what vendors they're using what processes they're implementing and that is how we generate most of our investment ideas okay great and and we show on the bottom of of this sort of intro slide if you will uh so one of the processes that you use and one of the things that that is notable a lot of people compare you uh to kathy woods are investments when you came out uh i think you use a different process i mean maybe there are some similarities in terms of disruption but at the bottom of this slide it shows a mckinsey sort of graphic that that i think informs people as to how you really dig into the supply chain from a research standpoint is that right absolutely so for us it's all about understanding the supply chain going deep in the supply chain and gather data points from primary sources that we can then translate into investment opportunities so if you look at this mckinsey graph uh you will see that there is a lot of opportunity to for these companies to transform themselves both on the front end which means better revenue better products and on their operation side which means lower cost whether it's through better operations or through better processes on the the back end so what we do is we will speak to a traditional manufacturing company and ask them okay well what do you use for better product development and they will give us the name of the firms and give us an assessment of what's the differences between the competitors why they like one versus the other so then we're gonna take the data and we will put it into our financial model and we'll understand the broader market for it um the addressable market the market share that the company has and will project the growth so for these higher growth stocks that that you cover the main alpha generation uh potential here is to understand what the amount of growth these companies will generate over the next 10 to 20 years so it's really all about projecting growth in the next three years in the next five years and where will growth ultimately settle in in the next 10 to 20 years love it we're gonna have a fun conversation because today we're going to get into your thesis for cooper snowflake and z scalar we're going to bring in some of our own data some of our data from etr and and why you think these companies may be candidates for long-term growth and and be buy the dip stock so to do that i hacked up this little comparison slide we're showing here i do this for context our audience knows i'm not a cfa or a valuation expert but we like to do simple comparisons just to give people context and a sense of relative size growth and valuation and so this chart attempts to do that so what i did is i took the most recent quarterly revenue for cooper snowflake and z scalar multiplied it by four to get a run rate we included servicenow in the table just for baseline reference because bill mcdermott as we've reported aspires to make service now the next great enterprise software company alongside with salesforce and oracle and some of the others and and all these companies that we list here that through the three here they aspire to do so in their own domain so we're displaying the market cap from friday morning september 10th we calculated a revenue run rate multiple and we show the quarterly revenue growth and what this data does is gives you a sense of the three companies they're well on their way to a billion dollars in revenue it underscores the relationship between revenue growth and valuation snowflake being the poster child for that dynamic savannah i know you do much more detailed financial analysis but let's talk about these companies in order maybe start with koopa they just crushed their quarter i mean they blew away consensus on the top line what else about the company do you like and why is it on your by the dip list so just to back up david on valuation these companies investors either directly or indirectly value on a dcf basis and what happened at the beginning of the year as interest rates started increasing people started freaking out and once you plug in 100 basis points higher interest rate in your dcf model you get significant price downside so that really drove a lot of the pullback at the beginning of the year right now where we stand today interest rates haven't really moved all that significantly off the bot of the bottom they're still around the same levels maybe a little bit higher but those are not the types of moves that are going to drive significant downside in this stock so as things have stabilized here a lot of these opportunities look pretty attractive on that basis so koopa specifically came out of our um if you go back to that uh the chart of like where the opportunities lie in um in across the manufacturing uh um enterprise koopa is really focused on business pen management so they're really trying to help companies reduce their cost uh and they're a leader in the space uh they're unique uh unique in that they're cloud-based so the feedback we've been hearing from from our companies that use it jetblue uses it train technologies uses it the feedback we've been hearing is that they love the ease of implementation so it's very easy to implement and it drives real savings um savings for these companies so we see in our dcf model we see multiple years of this 30 40 percent growth and that's really driving our price target yeah and we can i can confirm that i mean i mean just anecdotally you know you know we serve a lot of the technology community and many of our clients are saying hey okay you know when you go to do invoicing or whatever you work with procurement it's koopa you know this is some ariba that's kind of the legacy which is sap we'll talk about that a little later but let's talk about snowflake um you know snowflake we've been tracking them very closely we know the management there we've watched them through their last two companies now here and have been following that company early on since since really 2015. tell us why you like snowflake um and and maybe why you think it can continue its rapid growth thanks david so first of all i need to compliment you on your research on the company on the technology side so where we come in is more from understanding where our companies can use soft snowflake and where snowflake can add value so what we've been hearing from our companies is the challenge that they're facing is that everybody's moving to the cloud but it's not as simple as just send your data to the cloud and call aws and they're gonna generate more revenue for your solve your cost problem so what we've been hearing is that companies need to find tools that are easy to use where they can use their own domain expertise and just plug and play so um ansys is one of the companies we covered the dust simulation they've found snowflake to be an extremely useful tool in sales lead generation and within sales crm systems have been around for a while and they're they've really been implemented but analyzing sales numbers is something that is new to this company some some of our companies don't even know what their sales are even when they look back after the quarter is closed so tools like this help um companies do easy analytics and therefore drive revenue and cost savings growth so we see really big runway for for this company and i think the most misunderstood part about it is that people view it as a warehousing data warehousing play while this is all about compute and the company does a good job separating the two and what our their customers like or like the companies that we cover like about it is that it can lower their compute costs um and make it much easier much more easily manageable for them great and we're going to talk about more about each of these companies but let's talk about z-scaler a bit i mean z-scaler is a company we've been very excited about and identified them kind of early on they've definitely benefited from the move to cloud generally and specifically the remote work uh situation with the cyber threats etc but tell us why you like z-scaler so interestingly z-scaler um we like the broader security space um the broader cyber security space and interestingly our companies are not yet spending to the level that is commensurate with the increase in attack rate so we think this is a trend that is really going to accelerate as we go forward um my own board 20 of the time on the last board meeting was spent on cyber security what we're doing and this is a pretty simple operation that that we're running here so you can imagine for a large enterprise with thousands of people all around the world um needing to be on a single simple system z-scaler really fits well here very easy to implement several of our industrial companies use it siemens uses it ge uses it and they've had great great experience with it excellent i just want to take a quick look at how some of these names have performed over the last year and and what if anything this data tells us this is a chart comparing the past 12 months performance of of those four companies uh that we just talked about and we added in you know servicenow z scalar as you can see has outperformed the other despite your commentary on discounted cash flow snowflake is underperformed really precisely for the reasons that you mentioned not to mention the fact that it was pretty highly valued and you can see relative to the nas but it's creeping back lately after very strong earnings even though the stock dropped after it beat earnings because the street wants the cfo to say to guide even higher than maybe as mike scarpelli feels is prudent and you can see cooper has also underperformed relatively speaking i mean it absolutely destroyed consensus this week the stock went up but it's been off with the the weaker market this week i know you like to take a longer term view but but anything you would add here yeah so interestingly both z-scaler and koopa were in the camp of as we went into earnings expectations were already pretty high because few of their competitors reported very strong results so this scalar yesterday their revenue growth was was pretty strong the stock is down today uh and the reason is because people were kind of caught up a little bit in the noise of this quarter growth is 57 last quarter it was 60 like is this a deceleration we don't see it as that at all and the company brought up one point that i thought was extremely interesting which is as their deal sizes are getting larger it takes a little longer time for them to see the revenue come through so it takes a little bit of time to for you to see it into from billings into into revenue same thing with cooper very strong earnings report but i think expectations were already pretty high going into it uh given the service now and um and anna plan as well reported strong results so i think it's all about positioning so we love these setups where you can buy the deep in on this opportunity where like people get caught up in um short-term noise and and it creates good entry points excellent i i want to bring in some data from our partner etr and see if you have any comments ivana so what we're showing here is a two-dimensional chart we like to show this uh very frequently it's based on a survey of between a thousand and fifteen hundred chief information officers and technology buyers every quarter this is from their most recent july survey the vertical axis shows net score which is a measure of spending momentum i mean this it measures the net percentage of customers in the survey that are spending more on a particular product or platform in other words it essentially subtracts the percentage of customers spending less from those spending more which yields a net score it's more granular than that but basically that's what it does the horizontal axis is market share or pervasiveness in the data set it's not revenue market share like you get from idc it's it's a mention market share and now that red dotted line at the 40 percent mark on the vertical represents an elevated level in other words anything above 40 percent we consider notable and we've plotted our three by the dip companies and included some of their competitors for context and you can see we added salesforce servicenow and oracle and that orange ellipse because they're some of the bigger names in the software business so let's take these in alphabetical order ivana starting with koopa in the blue you can see we plotted them next to sap's ariba and you can see cooper has stronger spending momentum but not as much presence in the market so to me my influence is oh that's an opportunity for them to steal share more modern technology you know more facile and of course oracle has products in this space but the oracle dot includes all oracle products not just the procurement stuff but uh maybe your thoughts on this absolutely i love this chart i think that's your spot on this would be the same way i would interpret the chart where um increased spending momentum is is a sign of the company providing products that people like and we we expect to see cooper's share grow market share grow over time as well so let's come back to the chart and i want to i want to really point out the green ellipse this is the data zone if you will uh and we're like a broken record on this program with snowflake has performed unbelievably well in net score and spending momentum every quarter the dtr has captured enough end sample in its survey holding near or above 80 percent its net score consistently is has been up there and we've plotted data bricks in that zone it's been expected right that data bricks is going to do an ipo this year late last month company raised 1.6 billion in a private round so i guess that was either a strategy to delay the ipo or raise a bunch more cash and give late investors a low risk bite at the apple you know pre-ipo as we saw with snowflake last year what we didn't plot here are some of snowflake's biggest competitors ivana who also happen to be their partners most notably the big cloud players all who have their own database offerings aws microsoft and google now you've said snowflake is much more than a database company i wonder if you could add some color here yeah that's a very good point david uh basically the the driver of the thesis in snowflake is all about acceleration and spending and what we are seeing is the customers that are signed up on their platform today they're not even spending they're probably spending less than five percent of what they can ultimately spend on this product and the reason is because they don't yet know what the ultimate applications are for this right so you're gonna start with putting the data in a format you can use and you need to come up with use cases or how are you actually going to use this data so back to the example that i gave with answers the first use case that they found was trying to optimize leads there could be like 100 other use cases and they're coming up with with those on a daily basis so i would expect um this score to keep keep uh keep up pretty high or or go even higher as we as people figure out how they can use this product you know the buy-the-dip thesis on snowflake was great last quarter because the stock pulled back after they announced earnings and when we reported we said you know mike the the company see well cleveland research came out remember they got the dip on that and we looked at the data and we said mike scarpelli said that you know we're going to probably as a percentage of overall customers decelerate the net net new logos but we're going deeper into the customer base and that's exactly what's happening with with snowflake but okay let's bring up the slide again last but not least the z scaler we love z scalar we named z scaler in 2019 as an emerging four-star security company along with crowdstrike and octa and we said these three should be on your radar and as you see we've plotted z scalar with octa who with its it's its recent move into to converging identity and governance uh it gets kind of interesting uh we plotted them with palo alto as well another cyber security player that we've covered extensively we love octa in addition to z-scaler we great respect for palo alto and you'll note all of them are over that 40 percent line these are disruptors they're benefiting well not so much palo alto they're more legacy but the the other two are benefiting from that shift to work from home cloud security modern tech stack uh the acquisition that octa-made of of of auth0 and again z scalar cloud security getting rid of a lot of hardware uh really has a huge tailwind at its back if on a zscaler you know they've benefited from the huge my cloud migration trend what are your thoughts on the company so i actually love all three companies that are there right and the point is people are just going to spend more money whether you are on the cloud of the cloud the data centers need more security as well so i think there is a strong case to be made for all three with this scaler the upside is that it's just very easy to use very easy to implement and if you're somebody that is just setting up infrastructure on the cloud there is no reason for you to call any other competitor right with palo alto the case there is that if you have an established um security platfor if you're on their security platform the databa on the data center side uh they they did introduce through several acquisitions a pretty attractive cloud offering as well so they've been gaining share as well in the space and and the company does look pretty attractive on valiation basis so for us cyber security is really all about rising tide lifts all boats here right so you can have a pure play like this scaler uh that benefits from the cloud but even somebody like palo alto is pretty well positioned um to benefit yeah we think so too over a year ago we reported on the valuation divergence between palo alto and fortinet fortinet was doing a better job moving to the cloud and obviously serves more of a mid-market space palo alto had some go-to-market execution challenges we said at the time they're going to get through those and when we talk to chief information security officers palo alto is like the gold standard they're the thought leader they want to work with them but at the same time they also want to participate in some of these you know modern cloud stacks so i we agree there's plenty of room for all three um just to add a bit more color and drill into the spending data a little bit more this slide here takes that net score and shows the progression since january 2019 and you can see a snowflake just incredible in terms of its ability to maintain that elevated net score as we talked about and the table on the insert it shows you the number of responses and all three of these companies have been getting more mentions over time but snowflake and z scale are now both well over 100 n in the survey each quarter and the other notable piece here and this is really important you can see all three are coming out of the isolation economy with the spending uptick nice upticks shown in the most recent survey so that's again another positive but i want to close ivana with kind of making the bull and bear case and have you address really the risks to the buy the dip scenario so look there are a lot of reasons to like these companies we talked about them cooper they've got earnings momentum you know management on the call side had very strong end market demand this the stock you know has underperformed the nasdaq you know this year snowflake and zscaler they also have momentum snowflake get this enormous tam uh although they were punished for not putting a hard number on it which is ridiculous in my opinion i mean the thing is it's huge um the investors were just kind of you know wanting a little binky baby blanket but they all have modern tech in the cloud and really importantly this shows in the etr surveys you know the momentum that they have so very high retention is the other point i wanted to make the very very low churn of these companies however cooper's management despite the blowout quarter they gave kind of underwhelming guidance they've cited headwinds uh they've with the the the lamisoft uh migration to their cloud platform snowflake is kind of like price to perfection so maybe that's an advantage because every every little negative news is going to going to cause the company to dip but it's you know it's pretty high value because salutman and scarpelli everybody expects them to surpass what happened at servicenow which was a rocket ship and it could be all argued that all three are richly priced and overvalued so but ivana you're looking out as you said a couple of years three years maybe even five years how do you think about the potential downside risks in in your by the dip scenario you buy every dip you looking for bigger dips or what's your framework there so what we try to do is really look every quarter the company reports is there something that's driving fundamental change to the story or is it a one-off situation where people are just misunderstanding what the company is reporting so in the case we kind of addressed some of the earnings that that were reported but with koopa we think the man that management is guiding conservatively as they should so we're not very concerned about their ability to execute on on the guidance and and to exceed the guidance with snowflake price to perfection that's never a good idea to avoid a stock uh because it just shows that there is the company is doing a great job executing right so um we are looking for reports like the cleveland report where they would be like negative on the stock and that would be an entry point uh for us so broadly we apply by the deep philosophy but not not if something fundamentally changes in the story and none of these three are showing any signs of fundamental change okay we're going to leave it right there thanks to my guest today ivana tremendous having you would love to have you back great to see you thank you david and def you definitely want to check out sprx and the spear etf now remember i publish each week on wikibon.com and siliconangle.com these episodes they're all available as podcasts all you do is search breaking analysis podcasts you can always connect with me on twitter i'm at d vallante or email me at david.vellante at siliconangle.com love the comments on linkedin don't forget to check out etr.plus for all the survey action this is dave vellante for the cube insights powered by etr be well and we'll see you next time [Music] you

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 recent survey data from etr shows that enterprise tech spending is tracking with projected u.s gdp growth at six to seven percent this year many markers continue to point the way to a strong recovery including hiring trends and the loosening of frozen it project budgets however skills shortages are blocking progress at some companies which bodes well for an increased reliance on external i.t services moreover while there's much to talk about well there's much talk about the rotation out of work from home plays and stocks such as video conferencing vdi and other remote worker tech we see organizations still trying to figure out the ideal balance between funding headquarter investments that have been neglected and getting hybrid work right in particular the talent gap combined with a digital mandate means companies face some tough decisions as to how to fund the future while serving existing customers and transforming culturally hello everyone and welcome to this week's wikibon cube insights powered by etr in this breaking analysis we welcome back eric porter bradley of etr who will share fresh data perspectives and insights from the latest survey data eric great to see you welcome thank you very much dave always good to see you and happy to be on the show again okay we're going to share some macro data and then we're going to dig into some highlights from etr's most recent march covid survey and also the latest april data so eric the first chart that we want to show it shows cio and it buyer responses to expected i.t spend for each quarter of 2021 versus 2020. and you can see here a steady quarterly improvement eric what are the key takeaways from your perspective sure well first of all for everyone out there this particular survey had a record-setting number of uh participation we had uh 1 500 i.t decision makers participate and we had over half of the fortune 500 and over a fifth of the global 1000. so it was a really good survey this is the seventh iteration of the covet impact survey specifically and this is going to transition to an over large macro survey going forward so we could continue it and you're 100 right what we've been tracking here since uh march of last year was how is spending being impacted because of covid where is it shifting and what we're seeing now finally is that there is a real re-acceleration in spend i know we've been a little bit more cautious than some of the other peers out there that just early on slapped an eight or a nine percent number but what we're seeing is right now it's at a midpoint of over six uh about six point seven percent and that is accelerating so uh we are still hopeful that that will continue uh really that spending is going to be in the second half of the year as you can see on the left part of this chart that we're looking at uh it was about 1.7 versus 3 for q1 spending year over year so that is starting to accelerate through the back half you know i think it's prudent to be be cautious relative because normally you'd say okay tech is going to grow a couple of points higher than gdp but it's it's really so hard to predict this year okay the next chart is here that we want to show you is we ask respondents to indicate what strategies they're employing in the short term as a result of coronavirus and you can see a few things that i'll call out and then i'll ask eric to chime in first there's been no meaningful change of course no surprise in tactics like remote work and halting travel however we're seeing very positive trends in other areas trending downward like hiring freezes and freezing i.t deployments downward trend in layoffs and we also see an increase in the acceleration of new i.t deployments and in hiring eric what are your key takeaways well first of all i think it's important to point out here that uh we're also capturing that people believe remote work productivity is still increasing now the trajectory might be coming down a little bit but that is really key i think to the backdrop of what's happening here so people have a perception that productivity of remote work is better than hybrid work and that's from the i.t decision makers themselves um but what we're seeing here is that uh most importantly these organizations are citing plans to increase hiring and that's something that i think is really important to point out it's showing a real thawing and to your point in right in the beginning of the intro uh we are seeing deployments stabilize versus prior survey levels which means early on they had no plans to launch new tech deployments then they said nope we're going to start and now that's stalling and i think it's exactly right what you said is there's an i.t skills shortage so people want to continue to do i.t deployments because they have to support work from home and a hybrid back return to the office but they just don't have the skills to do so and i think that's really probably the most important takeaway from this chart um is that stalling and to really ask why it's stalling yeah so we're going to get into that for sure and and i think that's a really key point is that that that accelerating it deployments is some it looks like it's hit a wall in the survey and so but before before we get deep into the skills let's let's take a look at this next chart and we're asking people here how a return to the new normal if you will and back to offices is going to change spending with on-prem architectures and applications and so the first two bars they're cloud-friendly if you add them up at 63 percent of the respondents say that either they'll stay in the cloud for the most part or they're going to lower the on-prem spend when they go back to the office the next three bars are on-prem friendly if you add those up as 29 percent of the respondents say their on-prem spend is going to bounce back to pre-covert levels or actually increase and of course 12 percent of that number by the way say they they've never altered their on-prem spend so eric no surprise but this bodes well for cloud but but it it isn't it also a positive for on-prem this we've had this dual funding premise meaning cloud continues to grow but neglected data center spend also gets a boost what's your thoughts you know really it's interesting it's people are spending on all fronts you and i were talking in a prep it's like you know we're we're in battle and i've got naval i've got you know air i've got land uh i've got to spend on cloud and digital transformation but i also have to spend for on-prem uh the hybrid work is here and it needs to be supported so this spending is going to increase you know when you look at this chart you're going to see though that roughly 36 percent of all respondents say that their spending is going to remain mostly on cloud so this you know that is still the clear direction uh digital transformation is still happening covid accelerated it greatly um you know you and i as journalists and researchers already know this is where the puck is going uh but spend has always lagged a little bit behind because it just takes some time to get there you know inversely 27 said that their on-prem spending will decrease so when you look at those two i still think that the trend is the friend for cloud spending uh even though yes they do have to continue spending on hybrid some of it's been neglected there are refresh cycles coming up so overall it just points to more and more spending right now it really does seem to be a very strong backdrop for it growth so i want to talk a little bit about the etr taxonomy before we bring up the next chart we get a lot of questions about this and of course when you do a massive survey like you're doing you have to have consistency for time series so you have to really think through what that what the buckets look like if you will so this next chart takes a look at the etr taxonomy and it breaks it down into simple to understand terms so the green is the portion of spending on a vendor's tech within a category that is accelerating and the red is the portion that is decelerating so eric what are the key messages in this data well first of all dave thank you so much for pointing that out we used to do uh just what we call a next a net score it's a proprietary formula that we use to determine the overall velocity of spending some people found it confusing um our data scientists decided to break this sector breakdown into what you said which is really more of a mode analysis in that sector how many of the vendors are increasing versus decreasing so again i just appreciate you bringing that up and allowing us to explain the the the reasoning behind our analysis there but what we're seeing here uh goes back to something you and i did last year when we did our predictions and that was that it services and consulting was going to have a true rebound in 2021 and that's what this is showing right here so in this chart you're going to see that consulting and services are really continuing their recovery uh 2020 had a lot of declines and they have the biggest sector over year-over-year acceleration sector-wise the other thing to point out in this which we'll get to again later is that the inverse analysis is true for video conferencing uh we will get to that so i'm going to leave a little bit of ammunition behind for that one but what we're seeing here is it consulting services being the real favorable and video conferencing uh having a little bit more trouble great okay and then let's let's take a look at that services piece and this next chart really is a drill down into that space and emphasizes eric what you were just talking about and we saw this in ibm's earnings where still more than 60 percent of ibm's business comes from services and the company beat earnings you know in part due to services outperforming expectations i think it had a somewhat easier compare and some of this pen-up demand that we've been talking about bodes well for ibm and in other services companies it's not just ibm right eric no it's not but again i'm going to point out that you and i did point out ibm in our in our predictions one we did in late december so it is nice to see one of the reasons we don't have a more favorable rating on ibm at the moment is because they are in the the process of spinning out uh this large unit and so there's a little bit of you know corporate action there that keeps us off on the sideline but i would also want to point out here uh tata infosys and cognizant because they're seeing year-over-year acceleration in both it consulting and outsourced i t services so we break those down separately and those are the three names that are seeing acceleration in both of those so again a tata emphasis and cognizant are all looking pretty well positioned as well so we've been talking a little bit about this skill shortage and this is what's i think so hard for for forecasters um is that you know on the one hand there's a lot of pent up demand you know it's like scott gottlieb said it's like woodstock coming out of the covid uh but on the other hand if you have a talent gap you've got to rely on external services so there's a learning curve there's a ramp up it's an external company and so it takes time to put those together so so this data that we're going to show you next uh is is really important in my view and ties what we're saying we're saying at the top it asks respondents to comment on their staffing plans the light blue is we're increasing staff the gray is no change in the magenta or whatever whatever color that is that sort of purplish color anyway that color is is decreasing and the picture is very positive across the board full-time staff offshoring contract employees outsourced professional services all up trending upwards and this eric is more evidence of the services bounce back yeah it certainly is david and what happened is when we caught this trend we decided to go one level deeper and say all right we're seeing this but we need to know why and that's what we always try to do here data will tell you what's happening it doesn't always tell you why and that's one of the things that etr really tries to dig in with through the insights interviews panels and also going direct with these more custom survey questions uh so in this instance i think the real takeaway is that 30 of the respondents said that their outsourced and managed services are going to increase over the next three months that's really powerful that's a large portion of organizations in a very short time period so we're capturing that this acceleration is happening right now and it will be happening in real time and i don't see it slowing down you and i are speaking about we have to you know increase cloud spend we have to increase hybrid spend there are refresh cycles coming up and there's just a real skill shortage so this is a long-term setup that bodes very well for it services and consulting you know eric when i came out of college i somebody told me read read read read as much as you can and and so i would and they said read the wall street journal every day and i so i did it and i would read the tech magazines and back then it was all paper and what happens is you begin to connect the dots and so the reason i bring that up is because i've now been had taken a bath in the etr data for the better part of two years and i'm beginning to be able to connect the dots you know the data is not always predictive but many many times it is and so this next data gets into the fun stuff where we name names a lot of times people don't like it because the marketing people and organizations say well the data's wrong of course that's the first thing they do is attack the data but you and i know we've made some really great calls work from home for sure you're talking about the services bounce back uh we certainly saw the rise of crowdstrike octa zscaler well before people were talking about that same thing with video conferencing and so so anyway this is the fun stuff and it looks at positive versus negative sentiment on on companies so first how does etr derive this data and how should we interpret it and what are some of your takeaways [Music] sure first of all how we derive the data or systematic um survey responses that we do on a quarterly basis and we standardize those responses to allow for time series analysis so we can do trend analysis as well we do find that our data because it's talking about forward-looking spending intentions is really more predictive because we're talking about things that might be happening six months three months in the future not things that a lot of other competitors and research peers are looking at things that already happened uh they're looking in the past etr really likes to look into the future and our surveys are set up to do so so thank you for that question it's an enjoyable lead-in but to get to the fun stuff like you said uh what we do here is we put ratings on the data sets i do want to put the caveat out there that our spending intentions really only captures top-line revenue it is not indicative of profit margin or any other line items so this is only going to be viewed as what we are rating the data set itself not the company um you know that's not what we're in the game of doing so i think that's very important for the marketing and the vendors out there themselves when they when they take a look at this we're just talking about what we can control which is our data we're going to talk about a few of the names here on this highlighted vendors list one we're going to go back to that you and i spoke about i guess about six months ago or maybe even earlier which was the observability space um you and i were noticing that it was getting very crowded a lot of new entrants um there was a lot of acquisition from more of the legacy or standard entrance players in the space and that is continuing so i think in a minute we're going to move into that observability space but what we're seeing there is that it's becoming incredibly crowded and we're possibly seeing signs of them cannibalizing each other uh we're also going to move on a little bit into video conferencing where we're capturing some spend deceleration and then ultimately we're going to get into a little bit of a storage refresh cycle and talk about that but yeah these are the highlighted vendors for april um we usually do this once a quarter and they do change based on the data but they're not usually whipsawed around the data doesn't move that quickly yeah so you can see the some of the big names on the left-hand side some of the sas companies that have momentum obviously servicenow has been doing very very well we've talked a lot about snowflake octa crowdstrike z scalar in all very positive as well as you know several others i i guess i'd add some some things i mean i think if thinking about the next decade it's it's cloud which is not going to be like the same cloud as last decade a lot of machine learning and deep learning and ai and the cloud is extending to the edge in the data center data obviously very important data is decentralized and distributed so data architectures are changing a lot of opportunities to connect across clouds and actually create abstraction layers and then something that we've been covering a lot is processor performance is actually accelerating relative to moore's law it's probably instead of doubling every two years it's quadrupling every two years and so that is a huge factor especially as it relates to powering ai and ai inferencing at the edge this is a whole new territory custom silicon is is really becoming in vogue uh and so we're something that we're watching very very closely yeah i completely completely agree on that and i do think that the the next version of cloud will be very different another thing to point out on that too is you can't do anything that you're talking about without collecting the data and and organizations are extremely serious about that now it seems it doesn't matter what industry they're in every company is a data company and that also bodes well for the storage call we do believe that there is going to just be a huge increase in the need for storage um and yes hopefully that'll become portable across multi-cloud and hybrid as well now as eric said the the etr data's it's it's really focused on that top line spend so if you look at the uh on on the right side of that chart you saw you know netapp was kind of negative was very negative right but there's a company that's in in transformation now they've lowered expectations and they've recently beat expectations that's why the stock has been doing better but but at the macro from a spending standpoint it's still challenged so you have big footprint companies like netapp and oracle is another one oracle's stock is at an all-time high but the spending relative to sort of previous cycles or relative to you know like for instance snowflake much much smaller not as high growth but they're managing expectations they're managing their transition they're managing profitability zoom is another one zoom looking looking negative but you know zoom's got to use its market cap now to to transform and increase its tam uh and then splunk is another one we're going to talk about splunk is in transition it acquired signal fx it just brought on this week teresa carlson who was the head of aws public sector she's the president and head of sales so they've got a go to market challenge and they brought in teresa carlson to really solve that but but splunk has been trending downward we called that you know several quarters ago eric and so i want to bring up the data on splunk and this is splunk eric in analytics and it's not trending in the right direction the green is accelerating span the red is and the bars is decelerating spend the top blue line is spending velocity or net score and the yellow line is market share or pervasiveness in the data set your thoughts yeah first i want to go back is a great point dave about our data versus a disconnect from an equity analysis perspective i used to be an equity analyst that is not what we do here and you you may the main word you said is expectations right stocks will trade on how they do compared to the expectations that are set uh whether that's buy side expectations sell side expectations or management's guidance themselves we have no business in tracking any of that what we are talking about is top line acceleration or deceleration so uh that was a great point to make and i do think it's an important one for all of our listeners out there now uh to move to splunk yes i've been capturing a lot of negative commentary on splunk even before the data turned so this has been about a year-long uh you know our analysis and review on this name and i'm dating myself here but i know you and i are both rock and roll fans so i'm gonna point out a led zeppelin song and movie and say that the song remains the same for splunk we are just seeing uh you know recent spending intentions are taking yet another step down both from prior survey levels from year ago levels uh this we're looking at in the analytics sector and spending intentions are decelerating across every single customer group if we went to one of our other slide analysis um on the etr plus platform and you do by customer sub sample in analytics it's dropping in every single vertical it doesn't matter which one uh it's really not looking good unfortunately and you had mentioned this as an analytics and i do believe the next slide is an information security yeah let's bring that up and it's unfortunately it's not doing much better so this is specifically fortune 500 accounts and information security uh you know there's deep pockets in the fortune 500 but from what we're hearing in all the insights and interviews and panels that i personally moderate for etr people are upset they didn't like the the strong tactics that splunk has used on them in the past they didn't like the ingestion model pricing the inflexibility and when alternatives came along people are willing to look at the alternatives and that's what we're seeing in both analytics and big data and also for their sim in security yeah so i think again i i point to teresa carlson she's got a big job but she's very capable she's gonna she's gonna meet with a lot of customers she's a go to market pro she's gonna have to listen hard and i think you're gonna you're gonna see some changes there um okay so there's more sorry there's more bad news on splunk so bring this up is is is net score for splunk in elastic accounts uh this is for analytics so there's 106 elastic accounts that uh in the data set that also have splunk and it's trending downward for splunk that's why it's green for elastic and eric the important call out from etr here is how splunk's performance in elastic accounts compares with its performance overall the elk stack which obviously elastic is a big part of that is causing pain for splunk as is data dog and you mentioned the pricing issue uh is it is it just well is it pricing in your assessment or is it more fundamental you know it's multi-level based on the commentary we get from our itdms that take the survey so yes you did a great job with this analysis what we're looking at is uh the spending within shared accounts so if i have splunk already how am i spending i'm sorry if i have elastic already how is my spending on splunk and what you're seeing here is it's down to about a 12 net score whereas splunk overall has a 32 net score among all of its customers so what you're seeing there is there is definitely a drain that's happening where elastic is draining spend from splunk and usage from them uh the reason we used elastic here is because all observabilities the whole sector seems to be decelerating splunk is decelerating the most but elastic is the only one that's actually showing resiliency so that's why we decided to choose these two but you pointed out yes it's also datadog datadog is cloud native uh they're more devops oriented they tend to be viewed as having technological lead as compared to splunk so that's a really good point a dynatrace also is expanding their abilities and splunk has been making a lot of acquisitions to push their cloud services they are also changing their pricing model right they're they're trying to make things a little bit more flexible moving off ingestion um and moving towards uh you know consumption so they are trying and the new hires you know i'm not gonna bet against them because the one thing that splunk has going for them is their market share in our survey they're still very well entrenched so they do have a lot of accounts they have their foothold so if they can find a way to make these changes then they you know will be able to change themselves but the one thing i got to say across the whole sector is competition is increasing and it does appear based on commentary and data that they're starting to cannibalize themselves it really seems pretty hard to get away from that and you know there are startups in the observability space too that are going to be you know even more disruptive i think i think i want to key on the pricing for a moment and i've been pretty vocal about this i think the the old sas pricing model where essentially you essentially lock in for a year or two years or three years pay up front or maybe pay quarterly if you're lucky that's a one-way street and i think it's it's a flawed model i like what snowflake's doing i like what datadog's doing look at what stripe is doing look what twilio is doing these are cons you mentioned it because it's consumption based pricing and if you've got a great product put it out there and you know damn the torpedoes and i think that is a game changer i i look at for instance hpe with green lake i look at dell with apex they're trying to mimic that model you know they're there and apply it to to infrastructure it's much harder with infrastructure because you got to deploy physical infrastructure but but that is a model that i think is going to change and i think all of the traditional sas pricing is going to is going to come under disruption over the next you know better part of the decades but anyway uh let's move on we've we've been covering the the apm space uh pretty extensively application performance management and this chart lines up some of the big players here comparing net score or spending momentum from the april 20th survey the gray is is um is sorry the the the gray is the april 20th survey the blue is jan 21 and the yellow is april 21. and not only are elastic and data dog doing well relative to splunk eric but everything is down from last year so this space as you point out is undergoing a transformation yeah the pressures are real and it's you know it's sort of that perfect storm where it's not only the data that's telling us that but also the direct feedback we get from the community uh pretty much all the interviews i do i've done a few panels specifically on this topic for anyone who wants to you know dive a little bit deeper we've had some experts talk about this space and there really is no denying that there is a deceleration in spend and it's happening because that spend is getting spread out among different vendors people are using you know a data dog for certain aspects they're using elastic where they can because it's cheaper they're using splunk because they have to but because it's so expensive they're cutting some of the things that they're putting into splunk which is dangerous particularly on the security side if i have to decide what to put in and whatnot that's not really the right way to have security hygiene um so you know this space is just getting crowded there's disruptive vendors coming from the emerging space as well and what you're seeing here is the only bit of positivity is elastic on a survey over survey basis with a slight slight uptick everywhere else year over year and survey over survey it's showing declines it's just hard to ignore and then you've got dynatrace who based on the the interviews you do in the venn you're you know one on one or one on five you know the private interviews that i've been invited to dynatrace gets very high scores uh for their road map you've got new relic which has been struggling you know financially but they've got a purpose built they've got a really good product and a purpose-built database just for this apm space and then of course you've got cisco with appd which is a strong business for them and then as you mentioned you've got startups coming in you've got chaos search which ed walsh is now running you know leave the data in place in aws and really interesting model honeycomb it's going to be really disruptive jeremy burton's company observed so this space is it's becoming jump ball yeah there's a great line that came out of one of them and that was that the lines are blurring it used to be that you knew exactly that app dynamics what they were doing it was apm only or it was logging and monitoring only and a lot of what i'm hearing from the itdm experts is that the lines are blurring amongst all of these names they all have functionality that kind of crosses over each other and the other interesting thing is it used to be application versus infrastructure monitoring but as you know infrastructure is becoming code more and more and more and as infrastructure becomes code there's really no difference between application and infrastructure monitoring so we're seeing a convergence and a blurring of the lines in this space which really doesn't bode well and a great point about new relic their tech gets good remarks uh i just don't know if their enterprise level service and sales is up to snuff right now um as one of my experts said a cto of a very large public online hospitality company essentially said that he would be shocked that within 18 months if all of these players are still uh standalone that there needs to be some m a or convergence in this space okay now we're going to call out some of the data that that really has jumped out to etr in the latest survey and some of the names that are getting the most queries from etr clients which are many of which are investor clients so let's start by having a look at one of the most important and prominent work from home names zoom uh let's let's look at this eric is the ride over for zoom oh i've been saying it for a little bit of a time now actually i do believe it is um i will get into it but again pointing out great dave uh the reason we're presenting today splunk elastic and zoom are they are the most viewed on the etr plus platform uh trailing behind that only slightly is f5 i decided not to bring f5 to the table today because we don't have a rating on the data set um so then i went one deep one below that and it's pure so the reason we're presenting these to you today is that these are the ones that our clients and our community are most interested in which is hopefully going to gain interest to your viewers as well so to get to zoom um yeah i call zoom the pandec pandemic bull market baby uh this was really just one that had a meteoric ride you look back january in 2020 the stock was at 60 and 10 months later it was like like 580. that's in 10 months um that's cooled down a little bit uh into the mid 300s and i believe that cooling down should continue and the reason why is because we are seeing a huge deceleration in our spending intentions uh they're hitting all-time lows it's really just a very ugly data set um more importantly than the spending intentions for the first time we're seeing customer growth in our survey flattened in the past we could we knew that the the deceleration and spend was happening but meanwhile their new customer growth was accelerating so it was kind of hard to really make any call based on that this is the first time we're seeing flattening customer growth trajectory and that uh in tandem with just dominance from microsoft in every sector they're involved in i don't care if it's ip telephony productivity apps or the core video conferencing microsoft is just dominating so there's really just no way to ignore this anymore the data and the commentary state that zoom is facing some headwinds well plus you've pointed out to me that a lot of your private conversations with buyers says that hey we're we're using the freebie version of zoom you know we're not paying them and so in that combined with teams i mean it's it's uh it's i think you know look zoom has to figure it out they they've got to they've got to figure out how to use their elevated market cap to transform and expand their tan um but let's let's move on here's the data on pure storage and we've highlighted a number of times this company is showing elevated spending intentions um pure announces earnings in in may ibm uh just announced storage what uh it was way down actually so sort of still pure more positive but i'll comment on a moment but what does this data tell you eric yeah you know right now we started seeing this data last survey in january and that was the first time we really went positive on the data set itself and it's just really uh continuing so we're seeing the strongest year-over-year acceleration in the entire survey um which is a really good spot to be pure is also a leading position in among its sector peers and the other thing that was pretty interesting from the data set is among all storage players pure has the highest positive public cloud correlation so what we can do is we can see which respondents are accelerating their public cloud spend and then cross-reference that with their storage spend and pure is best positioned so as you and i both know uh you know digital transformation cloud spending is increasing you need to be aligned with that and among all storage uh sector peers uh pure is best positioned in all of those in spending intentions and uh adoptions and also public cloud correlation so yet again just another really strong data set and i have an anecdote about why this might be happening because when i saw the date i started asking in my interviews what's going on here and there was one particular person he was a director of cloud operations for a very large public tech company now they have hybrid um but their data center is in colo so they don't own and build their own physical building he pointed out that doran kovid his company wanted to increase storage but he couldn't get into his colo center due to covert restrictions they weren't allowed you had so 250 000 square feet right but you're only allowed to have six people in there so it's pretty hard to get to your rack and get work done he said he would buy storage but then the cola would say hey you got to get it out of here it's not even allowed to sit here we don't want it in our facility so he has all this pent up demand in tandem with pent up demand we have a refresh cycle the ssd you know depreciation uh you know cycle is ending uh you know ssds are moving on and we're starting to see uh new technology in that space nvme sorry for technology increasing in that space so we have pent up demand and we have new technology and that's really leading to a refresh cycle and this particular itdm that i spoke to and many of his peers think this has a long tailwind that uh storage could be a good sector for some time to come that's really interesting thank you for that that extra metadata and i want to do a little deeper dive on on storage so here's a look at storage in the the industry in context and some of the competitive i mean it's been a tough market for the reasons that we've highlighted cloud has been eating away that flash headroom it used to be you'd buy storage to get you know more spindles and more performance and you were sort of forced to buy more flash gave more headroom but it's interesting what you're saying about the depreciation cycle so that's good news so etr combines just for people's benefit here combines primary and secondary storage into a single category so you have companies like pure and netapp which are really pure play you know primary storage companies largely in the sector along with veeam cohesity and rubric which are kind of secondary data or data protection so my my quick thoughts here are that pure is elevated and remains what i call the one-eyed man in the land of the blind but that's positive tailwinds there so that's good news rubric is very elevated but down it's a big it's big competitor cohesity is way off its highs and i have to say to me veeam is like the steady eddy consistent player here they just really continue to do well in the data protection business and and the highs are steady the lows are steady dell is also notable they've been struggling in storage their isg business which comprises service and storage it's been soft during covid and and during even you know this new product rollout so it's notable with this new mid-range they have in particular the uptick in dell this survey because dell so large a small uptick can be very good for dell hpe has a big announcement next month in storage so that might improve based on a product cycle of course the nimble brand continues to do well ibm as i said just announced a very soft quarter you know down double digits again uh and there in a product cycle shift and netapp is that looks bad in the etr data from a spending momentum standpoint but their management team is transforming the company into a cloud play which eric is why it was interesting that pure has the greatest momentum in in cloud accounts so that is sort of striking to me i would have thought it would be netapp so that's something that we want to pay attention to but i do like a lot of what netapp is doing uh and other than pure they're the only big kind of pure play in primary storage so long winded uh uh intro there eric but anything you'd add no actually i appreciate it was long winded i i'm going to be honest with you storage is not my uh my best sector as far as a researcher and analyst goes uh but i actually think a lot of what you said is spot on um you know we do capture a lot of large organizations spend uh we don't capture much mid and small so i think when you're talking about these large large players like netapp and um you know not looking so good all i would state is that we are capturing really big organizations spending attention so these are names that should be doing better to be quite honest uh in those accounts and you know at least according to our data we're not seeing it and it's long-term depression as you can see uh you know netapp now has a negative spending velocity in this analysis so you know i can go dig around a little bit more but right now the names that i'm hearing are pure cohesity uh um i'm hearing a little bit about hitachi trying to reinvent themselves in the space but you know i'll take a wait-and-see approach on that one but uh pure and cohesity are the ones i'm hearing a lot from our community so storage is transforming to cloud as a service you're seeing things like apex and in green lake from dell and hpe and container storage little so not really a lot of people paying attention to it but pure about a company called portworx which really specializes in container storage and there's many startups there they're trying to really change the way david flynn has a startup in that space he's the guy who started fusion i o so a lot a lot of transformations happening here okay i know it's been a long segment we have to summarize and then let me go through a summary and then i'll give you the last word eric so tech spending appears to be tracking us gdp at six to seven percent this talent shortage could be a blocker to accelerating i.t deployments and that's kind of good news actually for for services companies digital transformation you know it's it remains a priority and that bodes well not only for services but automation uipath went public this week we we profiled that you know extensively that went public last wednesday um organizations they've i said at the top face some tough decisions on how to allocate resources you know running the business growing the business transforming the business and we're seeing a bifurcation of spending and some residual effects on vendors and that remains a theme that we're watching eric your final thoughts yeah i'm going to go back quickly to just the overall macro spending because there's one thing i think is interesting to point out and we're seeing a real acceleration among mid and small so it seems like early on in the covid recovery or kovitz spending it was the deep pockets that moved first right fortune 500 knew they had to support remote work they started spending first round that in the fortune 500 we're only seeing about five percent spent but when you get into mid and small organizations that's creeping up to eight nine so i just think it's important to point out that they're playing catch-up right now uh also would point out that this is heavily skewed to north america spending we're seeing laggards in emea they just don't seem to be spending as much they're in a very different place in their recovery and uh you know i do think that it's important to point that out um lastly i also want to mention i know you do such a great job on following a lot of the disruptive vendors that you just pointed out pure doing container storage we also have another bi-annual survey that we do called emerging technology and that's for the private names that's going to be launching in may for everyone out there who's interested in not only the disruptive vendors but also private equity players uh keep an eye out for that we do that twice a year and that's growing in its respondents as well and then lastly one comment because you mentioned the uipath ipo it was really hard for us to sit on the sidelines and not put some sort of rating on their data set but ultimately um the data was muted unfortunately and when you're seeing this kind of hype into an ipo like we saw with snowflake the data was resoundingly strong we had no choice but to listen to what the data said for snowflake despite the hype um we didn't see that for uipath and we wanted to and i'm not making a large call there but i do think it's interesting to juxtapose the two that when snowflake was heading to its ipo the data was resoundingly positive and for uipath we just didn't see that thank you for that and eric thanks for coming on today it's really a pleasure to have you and uh so really appreciate the the uh collaboration and look forward to doing more of these we enjoy the partnership greatly dave we're very very happy to have you in the etr family and looking forward to doing a lot lot more with you in the future ditto okay that's it for today remember these episodes are all available as podcasts wherever you listen all you got to do is search breaking analysis podcast and please subscribe to the series check out etr's website it's etr dot plus we also publish a full report every week on wikibon.com at siliconangle.com you can email me david.velante at siliconangle.com you can dm me on twitter at dvalante or comment on our linkedin post i could see you in clubhouse this is dave vellante for eric porter bradley for the cube insights powered by etr have a great week stay safe be well and we'll see you next time

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 cios in the most recent september etr spending survey tell us that they expect a slight sequential improvement in q4 spending relative to q3 but still down four percent from q4 2019 so this picture is still not pretty but it's not bleak either to whit firms are adjusting to the new abnormal and are taking positive actions that can be described as a slow thawing of the deep freeze hello everyone this is dave vellante and welcome to this week's wikibon cube insights powered by etr in this breaking analysis we're going to review fresh survey data from etr and provide our outlook for both q4 of 2020 and into 2021. now we're still holding at our four to five percent decline in tech spending for 2020 but we do see light at the end of the tunnel with some cautions specifically more than a thousand cios and it buyers have we've surveyed expect tech spending to show a slight upward trend of roughly two percent in 2021. this is off of a q4 decline of 4 relative to q4 2019 but i would put it this way a slightly less worse decline sequentially from q3 last quarter we saw a 5 decline in spending okay so generally more of the same but things seem to be improving again with caveats now in particular we'll show data that suggests technology project freezes are slowly coming back and we see remote workers returning at a fairly significant rate however executives expect nearly double the percentage of employees working remotely in the midterm and even long term than they did pre-covert that suggests that the work from home trend is not cyclical but showing signs of permanence and why not cios report that on balance productivity has been maintained or even improved during covit now of course this all has to be framed in the context of the unknowns like the fall and even winter surge what about fiscal policy there's uncertainty in the election social unrest all right so let's dig into some of the specifics of the etr data now i mentioned uh the number of respondents at over a thousand i have to say this was predominantly a us-based survey so it's it's 80 sort of bias to the u.s and but it's also weighted to the big spenders in larger organizations with a nice representation across industries so it's good data here now you can see here the slow progression of improvement relative to q3 which as i said was down five percent year-on-year with the four percent decline expected in q4 now etr is calling for a roughly four percent decline for the year you know i've been consistently in the four to five percent decline range and agree with that outlook and you can see cios are planning for a two percent uptick in 2021 as we said at the open now in our view this represents some prudent caution and i think there's probably some upside but it's a good planning assumption for the market overall in my view now let's look at some of the actions that organizations are taking and how that's changed over time you can see here that organizations they're slowly releasing that grip on tech spending overall you know still no material change in employees working from home or traveling we can see that hiring freezes are down that's that's positive in the green as our new i.t deployment freezes and a slight uptick in acceleration of new deployments now as well you see fewer companies are planning layoffs and while small the percent of companies adding head count has doubled from last quarter's you know minimal number all right so this is based on survey data at the end of the summer so it reflects that end of summer sentiment so we got to be a little bit cautious here and i think cios are you know by nature cautious on their projections of two percent up in 2021. now importantly remember this does not get us back to 20 20 19 spending levels so we may be seeing a kind of a long slow climb out of this you know tepid market maybe 2022 gets back over 2019 before we start to see sustained growth again and remember these recoveries are rarely smooth they're not straight lines so you got to expect some choppiness with you know some pockets of opportunity which we'll discuss here in this slide we're showing the top areas that respondents cited as spending priorities for q4 and into 2021 so the chart shows the ratings based on a seven-point scale and these are the top spending initiatives heading into the year end now as we've been saying for the better part of a decade cyber security is a do-over and i've joked you know if it ain't broke don't fix it well coven broke everything and cyber is an area that's seeing long-term change in my opinion endpoint security identity access management cloud security security as a service these are all trends that we're seeing as really major waves as a result of covid now it's coming at the expense of large install bases of things like traditional hardware-based firewalls and we've talked about this a lot in previous segments cloud migration is interesting and i really think it needs some interpretation i mean nobody likes to do migrations so i would suggest this includes things like i have a bunch of people answering phones and offices or i had and then overnight boom the offices are closed so i needed a cloud-based solution i didn't just lift and ship my shift my entire phone routing system you know from the office into the cloud but i probably pivoted to a cloud solution to support those work from home employees now my guess is i think that would be included in these responses i mean i do know an example of an insurance company that did migrate its claims application to the cloud during coven but this was something that they were you know planning to do pre-covered and i guess the point here is twofold again like i said migrations are hairy nobody wants to do them and i think this category really means i'm increasing my use of the cloud so i'm kind of migrating my my operations over time to the cloud all right look at collaboration no shocker here we've pounded you know zoom and webex to death analytics is really interesting we have talked extensively uh and have been covering snowflake and we pointed out that there's a new workload that has emerged in the cloud it's not just snowflake you know there are others aws redshift google with bigquery and and others but snowflake is the off the charts you know hot ipo and so we we talk a lot about it but it relates to this easy setup and access to a data layer with having you know requisite security and governance and this market is exploding adding ai on top and really doing this in the cloud so you can scale it up or down and really only pay for what you need that's a real benefit to people compare that to the traditional edw snake swallowing a basketball i got to get every new intel chip you're not dialing up down down you're over provisioning and half the time you're not using you know half most of the time you're not utilizing what you've paid for all right look at networking you know traffic patterns changed overnight with covet ddos attacks are up 25 to 40 percent uh since coven cyber attacks overall are up 400 percent this year so these all have impacts on the network machine learning and ai i talked about a little bit earlier about that but organizations are realizing that infusing ai into the application portfolio it's becoming really an imperative much more important as the automation mandate that we've talked about becomes more acute people you can't scale humans at this at the pace of technology so automation becomes much more important that of course leads us to rpa now you might think rpa should be a higher priority but i think what's happening here is i t organizations they were scrambling to plug holes in the dike rpa is somewhat more strategic and planful our data suggests that rpa remains one of the most elevated spending categories in terms of net score etr's measure of spending momentum so this means way more people are spending more than spending less in the rpa category so it really has a lot of legs in fact with the exception of container orchestration i think rpa is a sector that has the highest net score i think you'll see that in the upcoming surveys it's as high or even higher than ai i think it's higher than cloud it's just that it remember this is an it survey and a lot of the rpa stuff is going on at the business level but it had to keep the ship afloat when coveted hit which somewhat shifted priorities but but rpa remains strong now let's go back uh to the work from home trend for a moment i know it's been been played out and kind of beat on really heavily covered but i got to tell you etr was the very first on this trend it was way back in march and the data here is instructive it shows that the percentage of employees working from home prior to cor covid currently working from home the percent expected in six months and then those expected essentially permanently and this is primarily work from home versus yeah i don't work a day or two per week it's really the the five day a week i i work remotely as you can see only 16 percent of employees were working from home pre pandemic whereas more than 70 percent are at home today and cios they actually see a meaningful decline in that number over the next six months you know we'll see based on how covid comes back and you know this fall and winter surge and how will that will affect these plans but look what it does long term it settles in at like 34 percent that's double pre-covet so really a meaningful and permanent impact is expected from the isolation economy that we're in today and again why not look at this data it shows the distribution of productivity improvements so that while 23 of respondents said work from home productivity impacts were neutral nearly half i think it was 48 if you add up those bars on the right nearly half are seeing productivity improvements well less than 30 percent see a decline in productivity and you can see the etr quants they peg the average gain at between three and five percent that's pretty significant now of course not everyone can work from home if you're working at a restaurant you really you know unless you're in finance you really can't work from home but we're seeing in this digital economy with cloud and other technologies that we actually can work from pretty much anywhere in the world and many employees are going to look at work from home options as a benefit you know it was just a couple years ago remember that we were talking about companies like ibm and yahoo who mandated coming into the office i mean that was like 2017 2018 time frame well that trend is over now let me give you a quick preview of some of the other things that we're seeing and what the etr data shows now let me also say i'm just scratching the surface here etr has deep deep data cuts they have the sas platform allows you to look at the data all different ways and if you're not working with them you should be because the data gets updated so frequently every quarter there's new data there's drill down surveys and it's forward-looking so you know a lot of the survey data or a lot of the data that we use market share data and other data are sort of looking back you know you use your sales data your sales forecast that's obviously forward-looking but but the etr survey data can actually give an observation space outside of your sales force and no i'm not getting paid by etr but but it's been such a valuable resource i want to make it available and make the community aware of it all right so let's do a little speed round on on some of the the vendors of interest that we've talked about in the last several segments last couple years actually many years decade anyway start with aws aws continues to be strong but they they have less momentum than microsoft this is sort of a recurring pattern here but aws churn is low low low not a lot of people leaving the aws platform despite what we hear about this repatriation trend data warehousing is a little bit soft whereas we see snowflake very very strong but aws share is really strong inside of large companies so cloud and teams and security are strong from microsoft whereas data warehouse and ai aren't as robust as we've seen before but but microsoft azure cloud continues to see a little bit more momentum than aws so we'll watch that next quarter for aws earnings call now google has good momentum and they're steady especially in cloud database ai and analytics we've talked a lot about how google's behind the big two but nonetheless they're showing good good momentum servicenow very low churn but they're kind of hitting the law of large numbers still super strong in large accounts but not the same red hot hat red hot momentum as we've seen in the past octa is showing continued momentum they're holding you know close to number one or that top spot in security that we talked about last time no surprise given the increased importance of identity access management that we've been talking about so much crowdstrike last survey in july they showed some softness despite a good quarter and and we we're seeing continued to sell it to deceleration in the survey now that's from extremely elevated levels but it's significantly down from where crowdstrike was at the height of the lockdown i mean we like the sector of endpoint security and crowdstrike is definitely a leader there and you know well-managed company company but you know maybe they got hit with uh with you know a quick covet injection with with a step up function that's maybe moderating somewhat you know maybe there's some competition you know vmware freezing the market with carbon black i i really don't see that i think it's it's it's you know maybe there's some survey data isn't reflective of of what what crowdstrike is seeing we're going to see in the upcoming earnings release but it's something that we're watching very closely you know two survey snapshots with crowdstrike being a little bit softer it doesn't make a sustained trend but we would have liked to seen you know a little bit stronger this this quarter the data's still coming in so we'll see sale point is one we focused on recently and we see very little negative in their numbers so they're holding solid z scalar showing pretty strong momentum and while there was some concern last survey within large organizations it seemed that might have been a survey anomaly because z scalar they had a strong quarter a good outlook and we're seeing a strong recovery in the most recent data so it also looks like z z scaler is pressuring some of palo alto network's dominance and momentum heading into the quarter so we'll pay close attention to that we've said we like palo alto networks but they're so big uh they've got some exposures but they can offset those you know and they're doing a better job in cloud with their pricing models and sort of leaning into some of the the market waves uh sale point appears to be holding serve you know heading into the fourth quarter snowflake i mean what can we say it continues to show some of the strongest spending momentum going into q4 and into 2021 no signs of slowing down they're going to have their first earnings reports coming up you know in a few months so i i got to believe they got it together and and they're going to be strong reports uipath and momentum is is slowing down a bit but existing customers keep spending with ui path and there's very few defections so it looks like their land and expand is working pretty well automation anywhere continues to be strong despite comments about the sector earlier which showed you know maybe it wasn't as high a priority some other sectors but as i said you know it's still really really strong strong in terms of momentum and automation anywhere in uipath they continue to battle it out for the the top spot within the data set within the automation data set well i should say within rpa i mean companies like pega systems have a broader automation agenda and we really like their strategy and their execution databricks you know hot company once a hot company and still hot but we're seeing a little bit of a deceleration in the survey even though new customer acquisition is quite strong put it this way databricks is strong but not the off the chart outperformer that it used to be this is how etr frame that their analysis so i want to obviously credit that to them datadog showing the most strength in the application performance management or monitoring sector whichever you prefer but generally the the net scores in that sector as we talked about last week they're not great as a sector when you compare it to other leading sectors like cloud or automation rpa as an example container orchestration you know apm is kind of you know significantly lower it's not it's not as low as some of the on-prem on-prem infrastructure or some of the on-prem software but you know given datadog's high valuation it's somewhat of a concern so keep an eye on that mongodb you know they got virtually no customer churn but they're losing some momentum in terms of net score in the survey which is something we're keeping an eye on and a big downtick in in large organization acquisitions within the data so in other words they had a lot of new acquisitions within large companies but that's down now again that could be anomalies in the data i don't want to you know go to the bank on that necessarily but that's something to watch zoom they keep growing but etr data cites a churn of actually up to seven percent due to some security concerns so that was widely reported in the press and somewhere slower velocity for zoom overall due to possible competition from microsoft teams but i tell you it has an amazing stat that etr threw out pre-cove at zoom penetration in the education vertical was 15 today it's over 80 percent wowza cisco cisco's core is weak as we've said you've seen that in their earnings numbers it's it's there's softness there but security meraki those are two areas that remain strong same kind of similar story to last quarter survey pure storage you know they're the the high flyer they're like the one-eyed man in the land of the the storage blind so storage you know not a great market we've talked about that we've seen some softness in the the data set from uh in pure storage and really often sympathy with the generally back burner storage market you know again they they still outperforming their peers but we've seen slower growth rates there in the in in the survey and that's been reflected in their earnings uh so we've been talking about that for a while really keeping an eye on on on pure they made some acquisitions trying to expand their market enough said about that rubric rubric's interesting they kind of were off the charts in a couple surveys ago and they really come off of those highs you know anecdotally we're hearing some concerns in in the market it's hard to tell the private company cohesity has overtaken rubric and spending momentum now for the second quarter in a row you know they're still not as prevalent in the data set we'd like to see more ends from cohesity remember this is sort of a random sample across multiple industries we let the or etr lets the the respondents tell them what they're buying and what they're spending on you know but because cohesity has the highest net score relative to to compares like rubric like veeam you know i even threw in when i looked at nutanix pure dell emcs vxrail those are not direct competitors but they're you know kind of quasi compares if you will new relic they're showing some concerning trends on churn and the company is way off its 2018 momentum highs in the survey and we talked about this last week some of the challenges new relic is facing but we like their tech the nrdb is purpose-built for monitoring and performance management and we feel like you know they can retain their leadership if they can can pull it together we talked about elliott management being in there so that's something that we're watching red hat is showing strength in open shift really really strong ibm you know services exposure uh it's it's not the greatest business in the world right now at the same time there's there's crosswinds there at the same time people you know need some services and they need some help there but the certainly the outsourcing business so there's you know countervailing you know crosswinds uh within ibm but openshift bright spot i i think you know when i look at at the the red hat acquisition yeah 34 billion but but it's it's pretty obvious why ibm made that move um but anyway ibm's core business continues to be under under pressure that's why red hat is such an important component which brings me to vmware vmware has been an execution machine they had vmworld this past week uh we talked last month about the strength of vmware cloud on aws and it's still strong and and vmware cloud portfolio with vmware cloud foundation and other offerings but other than tanzu vmware is in this october survey of the first first look shows some deceleration really across the board you know one potential saving grace etr shared with me is that the fortune 500 spending for vmware is stronger so maybe on a spend basis when i say stronger stronger stronger than the mean so maybe on a spend basis vmware is okay but there seems to be some potential exposure there you know we won't know for sure until late next year uh how the dell reshuffle is going to affect them but it's going to be interesting to see how dell restructures vmware's balance sheet to get its own house in order and remember dell wants to get to investment grade for its own balance sheet yet at the same time it wants to keep vmware at investment grade but the interesting thing to watch is what impact that's going to have on vmware's ability to fund its future and we're not going to know that for a long long time but you know we'll keep an eye on on those developments now dell for its part showing strength and work from home and also strengthen giant public and privates which is a bellwether in the etr data set uh you know these are huge private companies for example uh koch industries would be one you know massive private companies mars would be another example not necessarily that they're the ones responding although my guess is they are it's it's anonymous but actually etr actually knows and they can identify who those bell weathers are and it's been a it's been a predictor of performance for the last you know better part of a decade so we'll see vxrail is strong um you know servers and storage they're they're still muted relative to last year but not really down from july so you know holding on dell holding on to it to to a tepid spending outlook they got such huge exposure on-prem you know so on balance i wouldn't expect you know a barn burner out of dell you know but they got a big portfolio and they've got a lot of a lot of options there and remember they still have the the still have they have a pc uh business unlike hpe which i'll talk about in in in a moment talk about now aruba is the bright spot for hpe but servers and storage those seem to be off you know similar to dell uh but but but maybe even down further i think you know dell is kind of holding relative to last quarter survey you know down from earlier this year and certainly down from from last year uh but hpe seems to be on a steeper downward trajectory uh in storage and service from the survey you know we'll see again you know one one snapshot quarter this is not a trend to make uh but again storage looks particularly soft which is a bit of a concern and we saw that you know in hpe's numbers you know last quarter um customer acquisition is strong for nutanix but overall spending is decelerating versus a year ago levels uh we know about the 750 million dollar injection uh from from bain capital basically you know in talking to bain what essentially they're doing is they they're betting on upside in the hyper-converged marketplace it's true that from a penetration standpoint there's a long long way to go and it's also true that nutanix is shifting from a you know perpetual model you know boom by the the capex to a in an annual occurring revenue model and they kind of need a bridge of cash to sort of soften that blow we've seen companies like tableau make that transition adobe successfully made that transition splunk is in that transition now and it's you know kind of funky for them but at any rate you know within that infrastructure software and virtualization sectors you know nutanix is showing some softness but in things like storage actually nutanix looking pretty strong very strong actually so again this theme of of these crosswinds uh supporting some companies whereas they're exposed in other areas you certainly see that with large companies and and nutanix looks like it's got some momentum in some areas and you know challenges in in others okay so that's just a quick speed dating round with some of the vendor previews for the upcoming survey so i just want to summarize now and we'll wrap so we see overall tech spending off four to five percent in 2020 with a slightly less bad slightly less bad q4 sequentially relative to q3 all this is relative to last year so we see continued headwinds coming into 2021 expect low single-digit spending growth next year let's call it two percent and there are some clear pockets of growth taking advantage of what we see is a more secular work from home trend particularly in security although we're watching some of the leaders shift positions cloud despite the commentary earlier remains very very strong aws azure google red hat open shift serverless kubernetes analytic cloud databases all very very strong automation also stands out as as a a priority in what we think is the coming decade with an automation mandate and some of the themes we've talked about for a long time particularly the impact of cloud relative to on-prem you know we don't see this so-called repatriation as much of a trend as it is a bunch of fun from on-prem vendors that don't own a public cloud so just you just don't see it i mean i'm sure there are examples of oh we did something in the cloud we lifted and shifted it didn't work out we didn't change our operating model okay but the the number of successes in cloud is like many orders of magnitude you know greater than the numbers of failures on the plus side however the for the on-prem guys the hybrid and multi-cloud spaces are increasingly becoming strategic for customers so that's something that i've said for a long time particularly with multi-cloud we've kind of been waiting it's been a lot of vendor power points but that really we talked to customers now they're hedging their bets in cloud they're they're putting horses for courses in terms of workloads they're they're they're not betting their business necessarily on a single cloud and as a result they need security and governance and performance and management across clouds that's consistent so that's actually a a really reasonable and significant opportunity for a lot of the on-prem vendors and as we've said before they're probably not necessarily going to trust the cloud players the public cloud players to deliver that they're going to want somebody that's cloud agnostic 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 action and the analytics these guys are amazing i always appreciate the comments on my linkedin posts thank you very much you can dm me at d vallante or email me at david.volante at siliconangle.com and this is dave vellante thanks for watching this episode of cube insights powered by etr be well and we'll see you next time you

from the cube studios in palo alto in boston bringing you data driven insights from the cube and etr this is breaking analysis with dave vellante over the past 150 days virtually everybody that i know in the technology industry has become an expert on covid in some way shape or form we've all lived the reality that covet 19 has accelerated by at least two years many trends that were in motion well before the virus hit the cyber security sector is no exception and one of the best examples where we have witnessed the accelerated change hello everyone and welcome to this week's episode of wikibon cube insights powered by etr in this breaking analysis we'll update you on the all-important security sector which remains one of the top spending priorities for organizations and i want to give you a shout out to my colleague eric bradley from etr who gave me some really good data and some macro insights as well as some anecdotal data from csos for this episode let's take a look at the big picture first now for many years we've talked about the shifting patterns in networking moving from what's often referred to as a north-south architecture meaning a hierarchical network that supports you know age-old organizational structures well today the network is flattening into what they often refer to as an east-west model and the moat or perimeter it's been vaporized the perimeter is now wherever the user is and users are at home or they're at their beach houses thanks to kovid now this is a bad actor's dream as the threat surfaced has expanded by orders of magnitude and as we've said in the past the adversary is well funded extremely capable and highly motivated because the roi of infiltration and exfiltration is outstanding the cso's job quite simply stated is to lower that return on investment now the other big trend that we see is that the cloud and sas are reducing reliance on hardware-based solutions like traditional firewalls because so many workers are now at home they're in their accessing sensitive data identity and endpoint security are exploding xdr or extended detection and response and zero trust networks are on the rise organizations are increasingly relying on analytics and automation to detect and remediate threats you know alerts just don't cut it anymore i need action and so to do so they're turning to a number of best of breed point products that have the potential to become the next great security platforms and this is setting up an epic battle between hot startups that are growing very very quickly and entrenched incumbents that really aren't going to go down without a fight finally while security is clearly a top spending priority customers and their cfos continue to be somewhat circumspect with respect to how much they allocate toward security budgets especially in the context of a shrinking i.t spending climate that we have said is dropping between five and eight percent in 2020. now security is critical but even in these times spending is governed by these tight budgets well cyber remains a top category in the etr taxonomy in terms of its presence in the data set what this chart tells us is that cios and i.t buyers have other priorities that they have to fund this data shows a comparison of net scores over three survey dates october of last year april and july net score remember is an indicator of momentum which is calculated by subtracting the percent of customers spending less on the technology from those spending more it's more complicated than that but that's that's the basics and you can see that at a 29 net score the security sector is just one of many priorities that i.t buyers face now remember this is the july survey and it's asking customers are you planning to spend more or less in the second half of 2020 relative to the first half and it's a forward-looking metric so what may be happening here is that the height of the lockdown and in the u.s anyway and the pivot to work from home organizations were spending heavily and are now fine-tuning those investments and maybe addressing other digital priorities let's look back and do some pre and post-covet assessments of various players within the etr data set i'm gonna go fairly quickly through these next slides but i want to give you a perspective as to how the security landscape and the vendor momentum has changed in the past eight months first i'm going to take you back to the january data set we actually originally did this exercise last year and then we updated it right at the beginning of 2020. the chart shows the top-ranked cyber security companies based on two metrics the left-hand side sorts the data and ranks companies based on net score or spending momentum and the right-hand side shows the ranking by shared n which is a measure of the pervasiveness of a company in the data set i.e the number of mentions that they get in the sector and what we did is we gave four stars to those companies that showed up in the top of both of those rankings and two stars to those that were close so you can see that microsoft splunk palo alto and proofpoint as well as octa and crowdstrike and then we added z scalar in january as new and then cyber arc software all got four stars then we gave cisco and fortinet two stars now this next chart shows the same thing at the height of the u.s lockdown now you may say okay what's the difference there's still microsoft palo alto proof point octa cyber arc z scaler and crowdstrike at four stars with cisco and fortnite having two star stars splunk fell off but that's it well what's different is instead of making the cut the top 22 which we did last time we narrowed it down to the top ten in order for a company to make that grade so if we had done that in january octa crowdstrike zscaler and cyberark they wouldn't have made the cut but in april they did as their presence in the dataset grew and we strongly believe this is a direct result of the work from home pivot crowdstrike endpoint octa identity access management z-scaler cloud security and they're disrupting traditional appliance-based firewalls now just to note we placed dell emc which was rsa and ibm in the list just for context now let's take a look at the most recent july survey now a lot of i'm out on a limb a little bit here because many of these companies they haven't reported yet so we don't have full visibility on their business outlook but we show the same data for the most recent survey the red line that you see there is the top 10 cutoff point and you can see splunk which didn't make the cut in april is back on the four-star list it's very possible buyers took a pause last quarter and focused attention on work from home but splunk continues to impress as it shifts toward the subscription model that we've talked about in the past splunk has a very strong hold on the sim space but everyone wants a piece of splunk especially some of the traditional firewall companies who they're seeing their hardware business dying so we're watching the competition from these players but also some other players like tennable now proof point fell off the four-star list because its net score didn't make the top ten crowdstrike cyber arc and zscaler also fell back because they dropped below the top 10 in shared in but we still really like these companies and expect them to continue to do well you know it could be some anomalies in the survey but we're trying to be as transparent as possible with you share the data listen to it interpret it and really adjust our models accordingly each quarter now let me make a few points and try to interpret what might be happening here first i want to point out octa pops to the top of the net score ranking overtaking crowdstrike's momentum from the last survey now one customer in the financial services sector told eric bradley on a recent then we're seeing amazing things from octa but the traditional firewall companies are stepping into identity they may not be best of breed but they have a level of integration and that's appealing to this individual this person also specifically called out palo alto and fortinet is trying to encroach on that space so keep your eyes on that now crowdstrike has declined noticeably which surprised us z z scalar is actually showing more momentum relative to the last survey so that's a positive palo alto and microsoft are consistently holding serve and continue to be leaders proof point and cyber arc are showing a bit of a velocity drop and sales point and tenable are also catching our attention in this survey and of course sales sale point which is identity management had a great quarter and reinstituted its guidance giving us the benefit of hindsight on its performance so it was actually pretty easy to give them two stars now just a side note by the way we've cut the data here with those companies that have more than 50 mentions in the sector we didn't do that the first time we did this we allowed companies with less than 50. so we're trying to tighten that up a bit so we still maintain strongly that you're seeing cloud endpoint and identity as the big security themes here csos need tools to be responsive they don't want to just get an alert secops pros would rather immediately shut off access and risk pissing off a user than getting hacked and companies are increasingly turning to ai to detect and they're relying on automation to remediate or protect and fence off critical resources let's now look at the two players or players in our two-dimensional view followers of this program know that we like to plot vendors within a sector across two of our favorite metrics net score or spending momentum which is a simple metric that tracks those spending more versus less on the technology and market share which measu measures a vendor's pervasiveness in the data set and it's calculated by taking the number of mentions a vendor gets within a sector divided by the total responses what we show here are the key security players that we've highlighted over the last several quarters let me start with microsoft microsoft has consistently performed well in the security sector as well as other parts of the etr taxonomy as you know they have a huge presence in the survey which is indicated on the horizontal axis and you can see they have a very solid net score which is shown on the y-axis impressive for a company their size now one interesting thing is you don't see aws in this chart and it's because aws and microsoft at least so far have somewhat different strategies with respect to security microsoft with its long application software history and sas presence across office 365 and sharepoint etc with active directory has been really focused on selling security solutions to directly protect its apps they have offerings like defender atp which is advanced threat protection sentinel which is microsoft sim cloud offering azure identity access management and the company's really going hard after this space now aws of course prioritizes security but they don't show an etr data set the same way microsoft does it's almost like aws is hiding in plain sight look aws has always put a great deal of emphasis on security and securing its infrastructure like the s3 buckets and it's you know it announced iam for ec2 way back in 2012. and last year at its reinforced conference you saw an impressive focus on security in a burgeoning security ecosystem in fact when you think of getting started in aws you really think about three things ec2 s3 and iam so i'd expect to see aws really become more prominent over time in the data set now i'll spend a minute talking about octa for the first time since we've been analyzing the security space with etr data octa has the highest net score at 58 percent it had consistently been crowdstrike with this moniker and the momentum lead the company though is dropped in this quarter survey and that's something that we're watching and by the way we're not implying that octa and crowdstrike are direct competitors they're not now as you can see nonetheless that crowdstrike z scalar and sales point sale sale point show very elevated net scores and we've plotted tenable here which is also showing some strength so you can see the respective positions of proof point and fortinet these are more mature companies they were founded in the early part of the century so you'd expect them to have somewhat lower net scores given their history and maturity and then there's cisco they've got a huge presence in the data and big in security cisco's doing really well in that space it consistently grows its security business in the double digits each quarter and it's a real feather in the cisco portfolio cap this is important because cisco's traditional hardware business continues to come under pressure splunk we talked about a lot and it's no surprise at their leadership position but i want to talk a little bit more about palo alto networks here's a company that we've talked about quite a bit in the past they are a tier one player in security they got great service csos want to work with them because they are thought leaders they're like a gold standard and have an impressive portfolio of great solutions but their traditional firewall business is coming under pressure for the reasons that we discussed earlier now palo alto has expanded its portfolio into the cloud and with prisma the company's suite of security services it will maintain a leadership position in our view but palo alto networks as we've discussed had some missteps with its product transition its sales execution and some of some challenges with its pricing models and it hurt their stock price but we've always said that they would work through these issues and that that was a buying opportunity the other thing about palo alto is you know they're considered the expensive choice you got to pay for that gold standard but that's what customers you know will tell us and so you're paying up for those top tier offerings but that's a sort of two-edged sword for palo alto here's an example why people often compare fortinet to palo alto and as we've shared in previous segments the valuation divergence between palo alto and fortinet where the the latter was making a smoother transition to its future and people often tell us that fortinet well you know maybe it's considered not as elite as palo alto they are a value choice their stuff just works and fortinet is a great alternative to palo alto and that has served them very well now let's take a closer look at the valuations of some of these companies we started off this segment by saying that the pandemic has affected every sector and especially cyber security so the next chart that we're showing here is the progression of key valuation metrics since earlier this year what we show are the valuations of nine of the companies in the sector since mid-february the data tracks their respective valuations their revenue multiples their growth rates in both value and revenue revenue growth is shown in the last column for the most recent quarterly report now the companies in red have yet to report the report any day now so he said i'm flying a little bit blind here and we'll have to take a look after the earnings to see how the survey data aligns with the actual results but let me make a few points here first here's the s p in nasdaq performance you see it in february in june and august pandemic recession what are you talking about you'd never know it looking at this data the nasdaq especially is up 14 said since mid february which is quite astounding next i want to come back to the discussion about palo alto and fortinet fortinet already has reported this quarter and palo alto has not but you can see based on the revenue multiples highlighted in red that the valuation divergence is starting to shrink a little bit and we'll see if that holds up after palo alto reports now the big eye popper in this chart is the valuation increases from february to august for octa crowdstrike and z scalar 52 67 and 104 percent increase respectively now you can't say we didn't warn you that these companies were all well positioned when we reported last year and in our january episode but i did say actually to be honest in the last episode that these three i thought were getting a little expensive that was a couple months ago and since then they've continued to run up so if you've been waiting for an entry point based on my advice well i'm sorry for that but look at the revenue multiples look at the expansion in the orange octa goes from 34x to 52x crowdstrike from 39x to 66x z scalar 25x to 43x i mean wow let's see what happens after these three report by this time i would have hoped that they'd taken a little breather maybe over the summer and you could have jumped in to these stocks but they just keep going up and despite the decline in net score for crowdstrike i still really like all three of these companies and feel that they're very well positioned from a product standpoint and customer feedback perspective and finally i want to mention sale point which we said last time was one to watch sale point crushed its quarter bringing in some large deals and providing forward guidance nearly a 50 percent valuation increase since february in a revenue multiple expansion from last quarter where the street last quarter wasn't really thrilled with their numbers but identity management is hot and so now is sales point from the streets perspective the last thing i'll say here is watch the growth rates expectations are very high for some of these companies and the street will cream any of them that misses now that may be your opportunity to jump in because i like these companies i think they're disruptors but as always do your research and watch out for the big whales trying to freeze the markets on these guys all right let's wrap up we've covered a lot of ground today and surf the landscape a little bit so look the trend is plain as day the move to sas is entrenched and by the way this isn't necessarily all good news for buyers cios and cfos tell me that the dark side of capex to opex is unpredictable bills but the flexibility and business value gained is outweighing the downside and every vendor in this space is transitioning into a sas and annual recurring revenue model we believe the remote work trend is here to stay organizations are re-architecting their business around work from home and we think that they're seeing some real benefits they've made investments and it's driving new modes of work and productivity they're not just going to throw away those investments why should they what just to go back to the old way it's not going to happen and if we as we've said previously look the internet it's like the new private network so you've got a question vpns and sd-wan they start to look like stop gaps and of course you know the cloud endpoint security cloud-based iam they are clearly winning in the marketplace you know we're also seeing new security regimes emerge where the cso and the secops team are not this island we we've seen even some csos falling back under the cio which used to be taboo he used to be thought of that's like the fox guarding the hen house but this idea of shared responsibility is not just between the cloud providers and the secops teams because security is a board level priority everyone in the business is becoming more aware more attuned and despite the millennials fascination with and undotted courage when it comes to tick tock i digress now the last two points are interesting i remember reading a post by john oltzek who was an esg security analyst and he predicted last year that integrated suites would win out over the buffet of point products on the market and you know generally i i agreed with that assessment but look at least in the near term and probably mid-term that doesn't seem to be happening as we we've seen these hot companies really take off the ones that we've highlighted now these companies have ambitions beyond selling products and they would bristle at me lumping them into point products their boards are going after platform plays so they're on a collision course with each other and the big guys this should be fun to watch because the big integrated companies are well funded they got great cash flow they got large customer bases and and i've said they're not going down without a fight so i would expect eventually there's going to be more of an equilibrium to what seems to be right now a bifurcated and unbalanced market today so you're going to see more m a activity expect that however at these valuations some of these companies that we've highlighted they're becoming acquisition proof as such they'd better keep innovating or they're going to be in big trouble all right that's it for today remember these episodes are all available as podcasts wherever you listen so please subscribe i publish weekly on wikibon.com we've added in the wikibon menu bar a breaking analysis link that has all the episodes in there i also publish on siliconangle.com so check that out and please do comment on my linkedin posts don't forget to check out etr.plus for all the survey action get in touch on twitter i'm at d vellante or email me at david.vellante at siliconangle.com this is dave vellante for the cube insights powered by etr thanks for watching everybody be well and we'll see you next time [Music] you

from the cube studios in Palo Alto in Boston connecting with thought leaders all around the world this is a cube conversation on June 23rd the Wall Street Journal reported that Dell is exploring strategic options for its approximately 81% share in VMware both Dell and VMware stocks popped on the news we believe that Dell is floating this trial balloon to really gauge investor customer and partner sentiment and perhaps send a signal to the short sellers that you know what Michael Dell has other arrows in his quiver to unlock in case you want to squeeze me I'm gonna squeeze you back who knows hello everyone and welcome to this week's wiki Bond cube insights powered by ETR in this breaking analysis we'll unpack some of the complicated angles in the ongoing VMware saga and assess five scenarios that we think are possible as it pertains to this story as always we're going to bring in some ETR customer data to analyze what's happening with the spending picture let's take a look at what happened and just do a quick recap The Wall Street Journal story said that Dell was considering spinning off VMware or buying the remaining 19 percent of VMware stock that it doesn't own the Journal article cited unnamed sources and said that a spinoff would not likely happen until 7 September 2021 for tax reasons that would mark of course the 5 year anniversary of Dell acquiring EMC and would allow for a tax free transaction always a good thing what's going on here and what options does Dell really have what does it mean for Dell VMware customers and partners we're gonna try to answer those questions today so first of all why would Dell make such a move well I think there's tweet from your own name Marc he's a portfolio manager at one main capital it kind of sums it up he laid out this chart which shows Dells market cap prior to the stock pop you know it's closer to 38 billion today and the value of its VMware owner which is over 50 billion since the stock pop but let me cut to the chase investors value the core assets of Dell which accounts for around 80 billion dollars in revenue when you exclude vmware somewhere south of negative 10 billion dollars why it's because Dell is carrying more than 30 billion dollars of core debt when you exclude Dell Financial Services and it looks like a conglomerate owning the vast majority of VMware shares Michael Dell has something like a 97 percent voting control Cordell is a low margin low growth business and as some have complained that Michael uses VMware as his piggy bank and many investors just won't touch the stock so the stock generally Dell stock has underperformed I've often said even going back to the EMC days that owning the stock of VMware's owner is actually a cheap way to buy vmware but that's assuming that the value somehow gets unlocked at some point so Dell is perhaps signaling that it has some options and other levers to pull as I said you may be trying to give pause to the shorts now let's have a look at some of the ETR spending data and value and evaluate the respective positions of Dell and VMware in the market place this chart here uses the core ETR methodology that we like to talk about all the time for those not familiar we use the concept of net score net score is a simple metric it's like Net Promoter Score sort of the chart shows element the elements of Dells net score so each quarter ETR goes out and ask customers do you plan to adopt the vendor new that's the lime green at 4% spend more relative to last year more meaning more than 6% that's the forest green and you can see that's at 32% flat spend is the grey meaning plus or minus 5% and then decrease spending by 6 percent or greater that's the pink and that's just 11% for Dell or are you replacing the platform to see that that's the bright red there at 7% so net score is a measure of momentum and it's derived by adding the greens and subtracting the Reds and he can see Dell in the last ETR survey which was taken at the height of the pandemic has a net score of 18% now we we colored that soft red it's not terrible but it's not great either now of course this is across Dells entire portfolio and it excludes vmware so what about vmware so this next graphic that we're showing you it applies the exact same methodology to vmware and as you can see vmware has a much higher net score at 35% which of course shouldn't surprise anybody it's a higher growth company but 46% of vmware customers plan to spend more this year relative to last year and only 11% planned to spend less that's pretty strong now what if we combined dell and vmware and looked at them as a single entity hmm wouldn't that be interesting okay here you go so there were nine hundred and seventy five respondents in the last ETR survey when we matched the two companies together and you can see the combined net score is 27% with 42 percent of respondents planning to spend more this year than they did last year so you may be asking well is this any good how does this compare to dell and vmware competitors well I'm glad you asked so here we show that in this chart the net score comparisons so we take the combined dell and vmware at 27% Cisco as we often reported consistently shows pretty strong relative to the enterprise data center players and you can see HPE is a kind of a tepid 17 percent so it's got some work to do to live up to the promises of the HP HPE split we also we also show IBM red hat at 14% so there's some room for improvement there also and you can see IBM in the danger zone as we break that down and red hat much stronger but you know what it softened somewhat in the EGR survey since last year so we'd like to see better momentum from IBM and RedHat it's kind of unfortunate that kovat hit when it did his IBM was just kind of ramping up its RedHat go to market now just for comparison purposes for kicks we include Nutanix nifty annex is a much smaller company but it's one that's fairly mature and you can see at 52% its net scores much higher than the big whales now we've been reporting for months on high fliers like automation anywhere CrowdStrike octa rubric snowflake uipath these emerging companies have net scores you know north of 60% and even in the 70% range but of course they're growing from a much smaller base so you would expect that now let's put this into context with a two-dimensional view that we'd like to show now as you know in addition to net score that metric we like to use so-called market share market share is a measure of pervasiveness in the data set or essentially market share in the survey and it's a proxy for a real market share so what this chart here does it plots several companies with their net scores on the y-axis and market share on the x-axis and you can see that we combine Dell and VMware together and we plotted them in that red highlighted box just for comparison purposes so what does this tell you about the competitive landscape well first everyone would love to be AWS Microsoft - we didn't plot Microsoft because they're so bloody dominant they skew the chart somewhat but they would be way way out to the right on the x-axis because they have such a huge number of products and mentions in the data set so we left them out now you can see vmware and cisco are kind of right on top of each other which is sort of ironic as they're you know kind of increasingly overlapping with their offerings in the marketplace particularly nsx and you can see the other companies and for context we've added a few more competitors like theme and CommVault and you know they're in a pretty strong position as well as the combination of Dell and VMware so let's start there Steve Phil analyst Brad Reebok was quoted in the market watch publication is saying the following we have long believed Dell would ultimately buy in the approximately 19% our 12 and a half billion of VMware that it does not own in order to gain full control over VMware's substantial free cash flow which is about four billion dollars annually and we still expect this to be the ultimate outcome huh you know I don't know I'm not sure about this on the one hand you can see from the previous chart this would be a better outcome for Dell from a competitive standpoint what it did is it pulls Dell up and to the right yeah but perhaps not so much for VMware as it went down and to the left adèle would have to raise a bunch more cash to do this transaction and what take on even more debt you know maybe it could get Silverlake to finance the deal you know then essentially Dell would become the Oracle of infrastructure you know it certainly would make Dell even more strategic to CIOs would that be good for customers well on the one hand I guess it would bring better integration between Dell and VMware yeah but I wonder if that's the critical issue for customers yeah and nearly and I think it would stifle VMware's innovation engine and a little bit further and I wonder how Pat Yeltsin here would react I mean my guess is he would call it a day and what about Sanjay Putin who was the obvious next in line for the CEO job at VMware what he becomes the president of Dells software division and what about the rest of the team at VMware yes they're a Silicon Valley stalwart and that would slowly morph into austin-based Dell with the debt burden growing you know it's gonna mean more of VMware's cash would go to paying down the debt meaning less for R&D or even stock buybacks what you know I'm not a huge fan of and I'm not a huge fan of this scenario for sure the the technology park partner ecosystem would be ice cold on such a deal although you know you could argue there are already less than lukewarm but here I want to explore some other options so the next on the list is Dell could sell VMware to a private equity firm mmm or a strategic it could basically wipe out its debt and have some cash left over to sail into the sunset that would be a big pill for someone to swallow even though Michael Dell has 97 percent voting power I think there's fine print that says he has a responsibility to protect the interest of the minority shareholders so to get approval it would have to sell at a premium you know that could be as high as you know almost seventy billion dollars Microsoft has the cash but they don't need VMware and Amazon I guess could pull it off but that certainly is not likely even if Google who has the cash we're interested in buying VMware Google be the most likely candidate you know it would give Google Cloud instant access to the coveted enterprise but it's really hard to conceive I mean same for a PE company 65 to 70 billion you know they get their money out in 15 to 20 years so I I just I just don't see that as viable all right what's next how about this scenario of spinning off VMware that the Journal reported so in this transaction Dell shareholders would get a bunch of vmware stock now there may be some financial wizardry that tom sweet dell CFCF owned his band of financial geniuses could swing I can't even begin to speculate what that would be but but I've heard there's some magic that they could pull off to maybe pull some cash out of such a transaction and this would unlock the value of both Dell and VMware by removing the conglomerate and liquidity hangover for Dell and it were to definitely attract more sideline investors into VMware stock and Michael Dell would still own a boatload of VMware stock personally so there's an incentive there so this is interesting and certainly possible you know I think in a way it would be good for VMware customers VMware we get full autonomy and control over its destiny without Delvaux guarding its cash so it could freely innovate Dell would become probably less strategic for customers so I don't think that for Dell EMC buyers you know the technology ecosystem partners like HPE IBM Napa cetera would would would they would like it more but they were already kind of down the path of looking to optimize VMware alternatives so you know think about Cisco but you know I think for VMware customers okay I think for for daily MC customers not so much now what about the do-nothing scenario you know I think this is as possible as any outcome Dell keep chipping away at its debt using VMware as a strategic linchpin with customers sure they continue to pay the liquidity overhang tax and they'll frustrate some shareholders who we're going to remain on the sidelines but you know that's been the pattern anyway now what about delivering some of the VMware ownership so the more I think about it the more I like this scenario what if del sold 20% of its VMware stake and let's say raised ten twelve billion dollars in cash that it could use to really eat into its debt burden a move like this combined with its historical debt pay down could cut its death debt in half by say 2021 and get the company back to investment grade rating something that Tom sweet has aspired towards this one dropped hundreds of millions if not a billion dollars to the bottom line and it would allow Dell to continue to control VMware what I don't know I don't know if there are nuances to this scenario in other words does this dropping ownership from roughly eighty percent to about sixty percent trigger some loss of control or some reporting issue I'm sure it's buried somewhere in the public filings or acquisition Docs but this option to me makes some sense it doesn't really radically alter their relationships with customers or partners so it's kind of stable with VMware maintains its existing autonomy and even somewhat lessens Dale's perceived control over VMware in an attacks Dells debt burden yeah it's still a bit of a halfway house but I think it's a more attractive and as I said stable option in my view okay let's talk about what to look for next you know it looks like the stock market is coming to the reality that we are actually in a recession although it appears that Nasdaq is trying to ignore this or maybe the the markets a little bit off because they're afraid Joe Biden is gonna win the election he's not gonna be good for the for the economy we'll see we'll see what the economic shutdown means for tech companies in this earnings season etrs next survey is in the field and they're gonna have fresh data on the impact of kovat going into the dog days of summer here's what I think let me give you my preview and you'll see in a few weeks you know how accurate is I believe that tech spending is going to be soft broadly I think it's gonna especially be the case for legacy on-prem providers and expect their traditional businesses to to deteriorate somewhat I think there's gonna be bright spots in text protect for sure the ones we've reported on cloud yes absolutely automation you know I'm really looking closely at the battle between the two top our PA vendors automation anywhere in uipath I think there's a really interesting story brewing there and the names that we've been pounding like snowflake the security guys like CrowdStrike and octa and Z scalar I think they're gonna continue to do very well with this work from home pivot we also expect Microsoft to continue to show staying power but because of their size you know they're exposed to soft demand pockets but I think that continue to be very very strong and threatening to a lot of segments in the market now for Dell I think the data center businesses continue to be a tough one despite some of the new product cycles especially in storage but I think dal is gonna continue to benefit from the work from home pivot as I believe there's still some unmet demand and laptops we're gonna see that I believe show up in Dells income statement in the form of their their client revenue I'd love to know what you think you could tweet me at Devante or you can always email me at david dot Volante at Silicon angle com please comment on my LinkedIn post always appreciate I post weekly on silicon angle calm and on wiki bond calm so check out those properties and of course go to e TR dot plus for all the survey action as I say e TR is in the field with the current survey they got fresh Cova data so we're excited the report on that in the coming weeks remember these episodes are all available as podcast wherever you listen this is Dave Volante for the cube insights powered by ETR thanks for watching everyone we'll see you next time [Music]

from the cube studios in Palo Alto in Boston connecting with thought leaders all around the world this is a cube conversation CIOs and CISOs of industries that have been hard hit see significant near term and many permanent shifts to their IT and security strategies this was the consensus of four technology executives at leading companies that are feeling the brunt of the corona virus pandemic welcome to this week's cube insights powered by ETR my name is Dave Volante and in this breaking analysis we want to accomplish three things first we want to tap into a new piece of research from ETR it involves an intimate focus group like set up via an open discussion with leading technology executives we interviewed Eric Bradley the managing director of et ours then program and we'll bring him into this discussion the next thing we want to do is we want to drill in to the various sector commentaries from the four leaders third we're gonna comment an hour take try to add some color and then share with you some of the specific vendor commentary that was called out by the executives let's start by looking at what et our event is et our van is a roundtable discussion it applies a tried-and-true methodology similar to a focus group or in-depth interviews what we sometimes in the research business call ID is ETR invites execs in from its community to participate in a private but open conversation et our clients get to listen in the names of the execs and their companies are transparent but the cube is only allowed to refer to them generically as shown on this slide now we can validate these participants they are legit CIOs and CISOs some and very well-known firms now what I want to do is summarize the CIO and seaso sentiment from this then discussion the overall budget impact for these four organizations is very very severe essentially large project projects are being put on hold although digital transformation initiatives remain a priority there were really four significant areas of emphasis that were cited by these execs cloud-first on-prem is losing out to cloud SAS and of course remote access solutions in fact the best comment on the panel was as a service is saving our SAS traditional networking is shifting to SD win especially rigid MPLS networks securing endpoints and zero trust solutions are the winners and there are a number of vendors rising to the occasion that will talk about it let's see how Eric Bradley of ETR summarizes the venn to summarize what we're seeing here was the real winners and losers are clear not everyone was prepared to have it work from home strategy not everyone was prepared to send their workers out there VPN wasn't didn't have enough bandwidth so there was a real quick uptick in spending but longer-term we're starting to see that these changes will be become more permanent so the real winners and losers right now we're going to see on the losers side traditional networking the MPLS networking isn't a lot of trouble according to all the data and the commentary that we see it's expensive it's difficult to ramp up bandwidth as quickly as you need and it doesn't support remote ok what I want to do now is I want to take a look at some of the verbatim comments and I'll just I'll read them from this slide all spending is shut down 70% of big projects are cut all next-gen projects have been shelled the relationship with our SAS vendor has been a miracle we're accelerating from MPLS to sd when on top of secure gateway technologies these will win this was interesting our business continuity plans were way too DR focused essentially we weren't prepared now let's unpack the cloud first commentary and give you some additional color I feel like all we do around here sometimes is talk about the cloud but it's clear from the data in the ETR data set surveys and the venn that in other data from the cube that that the cloud is only going to be accelerated we said this in 2008 in the 2009 downturns have been good to cloud one of the execs literally said I would like to see my data centers completely deleted Wow let's listen to Erik Bradley's take on this comment I was also shocked about that comment that gentleman also stated that his executives outside of the eyeteeth area the CEO the CFO had never ever ever wanted to discuss cloud they did not want to discuss work from home they did not want to discuss remote access he said that conversation has changed immediately so we've been talking a lot about those aspects of people and process and technology that might be permanent post kovat and clearly you see c-level execs as having a bit of an awakening for things like cloud and work from home not that they didn't see them before but these things are gonna accelerate in our view I want to spend a minute talking about networks SAS and bring cloud again into the discussion I gotta say the panel members really trashed MPLS networks in a big way let me explain MPLS stands for multi-protocol label switching you find this type of infrastructure in big telecom networks and it's there to route traffic and pls is used to create dedicated and and essentially reliable connections it enables things like VPNs quality a service management traffic engineering or shaping but well MPLS is definitely cheaper than t1 it's more expensive than Ethernet now I came into prominence well before the cloud and these execs see it is as outdated and inflexible and this is where SD wind comes into play software-defined wide area networks they're gaining popularity especially with the Sassa fication of applications and of course the general trend toward cloud here's Eric Bradley again explaining what the panel members said from his perspectives winners there or in the SD web space it's gonna be impossible to ignore that going forward and some of our CIO and even CISO panelists said that change will be also we're seeing at the same time what they were calling a on on SAS and cloud now we know these trends obviously were already happening but there be they're being exacerbated they're happening even more quickly and more strong and I don't see that changing anytime soon that of course is at the expense of network sorry data centers whether it be your own or hosted which has huge ramifications on from on from Hardware even the firewall providers so and it really seems as if as networking refresh starts to come up and it's coming up with a lot of large in writes when your network refresh comes up people are going to do an RFP for SD web they are sick and tired of paying MPLS network vendors and they really want to look at something else that was even prior to this situation now what we're hearing is this is a permanent change I particularly had one person say I wanted to find this quote real quickly by then but basically they were basically saying that from a permanency perspective the freedom from MPLS will reduce our network spend by over half while more than doubling or tripling or bandwidth now the challenge of course is customers have multiple MPLS contracts with several different vendors and often they just rubber-stamp the renewal but what customers are gonna start doing is layering in SD win and letting those agreements expire ok I want to talk about secure endpoints in this notion of zero trust solutions as I've said in the cube many many times the idea of digging a moat around the castle doesn't protect your queen anymore because the Queen ie the data has left the castle so companies that can secure gateways and secure endpoints they are going to have more momentum during and post kovat now in the panel Z scalar came up a lot in this context as well as fortunate who as I've reported has done a good job in getting its cloud products to market and of course the et our data shows that fortunate and Z scalar both have strong net scores or spending momentum and fort net especially has really strong pervasiveness in the et our dataset as I've reported previously I've also analyzed that there's been evaluation divergence between Palo Alto Networks and fortunate and house II scalar as well is a disruptor in this space I want you to listen to what Eric Bradley said specifically about Z scalar in Palo Alto Networks roll the clip yes it is and I'm glad you brought up Z scalar to very recently by client request we did a very in-depth research on Z scale and versus Palo Alto charisma access and they were very interested this is before all this happened you know does Palo Alto have a chance of catching up taking share from Z scalar and I've had the pleasure myself personally hosting J the CEO of Z scalar at an event here at City and I have nothing but incredible respect for the company but what we found out through this research is Z scalar at the moment their technology is still ahead according to their and there is no doubt however there doesn't seem to be any real secret sauce that will stop palo alto from inching up so if I had to choose that in a year from now Palo Alto might have had a better chance so in this panel as you brought up Z scalar was mentioned numerous times as just the wave of the future along with Cosby brokers right whether you're talking about a net scope or a force point they're all those people that also play in The Cosby space to secure your access zero Trust is no longer a marketing hype term it is real and it is becoming more real by the week now I personally agree with Eric that palo alto is is definitely going to be in the mix customers that we've talked to they want to work with palo alto networks but there's a sea change going on and it's being driven by sass and cloud and now accelerating because a co vid of course that the trend of remote workers is we think here to stay now i want to end by talking about some specific vendor mentions in addition to the ones we've talked about already and this chart shows some of the vendors and their logos that were called out as either being really really helpful during the this pandemic or super important to the CIOs and CISOs these executives really stressed how thankful they are to these companies and that the fact that these companies have worked very closely with them they've been flexible on pricing and payments and they also specifically mentioned how off-put they were by you know this notion of ambulance-chasing for example trials that required them to make some kind of commitment or swipe a credit card they just don't have time for that right now and then of the patience for it now let me call out a few of the companies that were cited in a positive light look at microsoft is all for the ETR data set in so many sectors Microsoft teams security solutions cloud really came up a lot on on this ven IBM was mentioned as being a great partner as what's oracle many many times we talked about fortunate and Z scalar already Cisco was called out as a strategic vendor was very helpful both the networking and with Cisco teams for collaboration CrowdStrike came up a number of times from CISOs as did Trend Micro and carbon black got a mention that's the VMware acquisition insecurity of course MobileIron that makes sense as well because they're securing and managing remote worker devices now finally interesting Lee Salesforce was brought up many times as a critical vendor one exec said that before coronavirus multiple workers could share a Salesforce license by you know sharing passwords but with the spike and work from home they had to purchase more licenses now one last thing that I want to bring up is start ups I got this question the other day from a client who said how a start-ups fair you might think that in this climate especially among for hard-hit customers that there might be risk-averse as it pertains to using startups once cio however said the following paraphrasing you always hear about the guy that says we'll pick three companies in the upper right hand corner the Gartner Magic Quadrant will test them out and this C so said that one of the things that he's always done is picked two from the upper right and one from the lower left one of the emerging techs and he gives them a shot let's listen to how Eric Bradley describes this dynamic roll the clip it's a great comment and honestly if you're in charge of procurement you'd be stupid not to do that not only just to see what the technology is but now I can play you off the big guys because I have negotiating leverage and I could say oh well I could always just take their contract so it's silly not to do it from a business perspective so it's really interesting and somewhat non-intuitive these comments on startups which of course means despite all the consolidation and acquisitions that you see in the industry you know there's still gonna be a lot of fragmentations a fragmentation especially as I've said many many times in the security space people still want best to breed and innovation and if it can drive business value they're gonna they're gonna go for it ok so look I realize that these are narrow comments from for CIOs and CISOs but they give us some added texture and flavor and color to the core ETR data set and we're going to continue to report on these trends and share more details as they become available both from the ETR data set and from other vents and remember we're gonna be digging into the latest ETR survey over the over the coming weeks as ETR exits its self-imposed quiet period so you can always check out ETR dot plus I publish weekly on wiki bang calm and on Silicon angle calm and of course our YouTube library has all these videos that's youtube.com slash silicon angle by the way these segments are also available as podcasts you can DM me or tweet me at devil ante and please by all means comment on my LinkedIn posts or email me at David Galante at Silicon angle com always appreciate the feedback thanks for watching everybody this is breaking analysis brought to you by the cube powered by ETR this is Dave Volante and we'll see you next time thanks for watching [Music]

from our studios in the heart of Silicon Valley Palo Alto California this is a cute conversation hi and welcome to the cube Studios for another cube conversation where we go in-depth with thought leaders driving innovation across the tech industry I'm your host Peter Buress every enterprise has to concern themselves with how they're going to go about ensuring the appropriate access to those crucial applications that run the business this is especially a key question in domains where the applications our seminal feature of the operations how can we set up IT so users see what they should see can access what they can access and that we have control over all about how these systems work and have that conversation we're here with Tony Ferguson an IT infrastructure architect at man energy solutions Tony welcome to the cube yeah thank you so Tony before we get into this crucial question about the appropriate level of visibility and the need for security between people users and applications tell us a little bit about man energy solutions yeah so we're a german-based company I'm working out of Copenhagen but we're part of the Volkswagen Group we have 16 thousand users globally across a hundred locations our company we we make large diesel entrants you also make smaller versions in our own factory and yeah in our company we have a course a lot of my irt on the actual engine and of course we have corporate IT and my job is to secure all of this infrastructure so specifically some of these big diesel engines as I understanding are being placed in locations and use cases that have an absolute requirements for security for example driving a ship is a major feature of the way that your engines are being used within the world so if I got that right yeah yeah that's correct and yeah and then the scale of this you know the number of engines and the number of vessels we need to access and the data we collect it is critical infrastructure we also have power plants so it's really important that we secure this infrastructure so it's a it's a it's a very it's an infrastructure that has very interesting physical characteristics but also has very interesting security characteristics as you went into thinking about how you're going to improve the applicability of the overall infrastructure that you use to drive your business use cases what were some of the issues that you find yourself struggling with yes so yeah a lot of issues actually one of the first things is that we wanted to authenticate the actual engineer and we wanted to make sure that the right people got to the right assets and we wanted to make sure that a thing dication was strong so like the two-factor multi-factor authentication and we wanted to show that the all the data between their engineer and the vessel was encrypted and another big problem for us is scale we need to scale the solution and one of the one of the things as these get brought for us is namespace routing we had the ability to really scale the system without using IP addresses were actually networking so this solved really a lot of problems for us and trying to get those engineers to all of the assets and the IOT on the engine now one of the things that you noted in your as you move forward was this notion of a black cloud where you could formalize the clock the types of relationships you wanted between your engineer users and other users and the Eric the applications you were running on a global scale basis to actually ensure the reliability of the product you had out in the field tell us a little bit about this notion of black cloud yeah so it ties it into a little bit around zero trust but how I see black cloud and how I would describe it is you know everything is dark right so if there's an attacker and he scans port scans of my infrastructure he won't see anything so so basically we would use their tech surface that means that there's no answer back and by doing this we we remove all these vulnerabilities all these zero-day vulnerabilities were remove this and in the same time we stall out that engineer to commit to their assets now how does that work in an environment that is as physically constrained as you know integrating or networking internet working with seagoing vessels yeah so of course a lot of this connectivity is over satellite and of course it's across the internet so it's important that we encrypt into end and it's important that we allow the right engineers to the right customers and we're able to access all these resources and to do Federation and make sure there's strong authentication for our customers we can we really tell them that this all the similar structure is completely secured dark and it's extremely difficult to to come into this black cloud so you've got a challenge the challenge that we've set up here is that you've got a use case that is constrained by the characteristics of the physical infrastructure where the security needs are absolutely paramount and still has to scale and very importantly be evolvable to allow you to be able to provide future classes of services that will further differentiate and improve your business that suggests that these decisions you had to make about the characteristics of the solution was gonna have an enormous impact ultimately on what you could achieve tell us a little bit about the thought process as you went through as you chose a set of sub technology suppliers to help you build out this black cloud and this application set yeah so we looked at a lot of different solutions but a lot of these solutions were based around the old knit work style right around VPNs around having files and around having ACLs and a lot of this is really network centric and what we were looking for is something that was more application centric something that moved up the stack and started to look at policy around what the user would want access to so putting those users and applications together and create meaningful policy based on the DNS rather than on the IP layer and this was really important for us to be able to scale and really make meaningful policy so in many respects it allowed you to not to necessarily de-emphasize but refocus your network design engineering and management efforts from device level assets and perimeter level assets to some of the assets that are really driving new classes of value the applications the users and the data that these engines are streaming and the models that you're using to assure optimal performance of them have I got that right yeah that's exactly right it's extremely important that that we don't have electrical movement you know we look today there's all sorts of were mobile malware attacks ransomware and you know you can imagine if something got into into this cloud that you wouldn't want to let remove so it's not just about the products but it's also about making sure that all these assets are designed from the ground up that that dark as well all right that even on the interns that they can't speak to each other all these very limited connectivity there Tony this has been a fascinating conversation about how you've taken this notion of a black cloud and applied it to a really crucial business case within man energy but I got to believe that this sets you up for a range of other use cases that the investments you've made here are gonna offer new classes of payback in a lot of different use cases how are you going to roll this black cloud concept using Z scalar out to the rest of the organization and the rest of the work that's being performed yeah it's a good question um so when we first looked at this technology we thought it was perfect for consultants because we could have very specific access policies and just allow them to the SS we will be required but then we also saw that there were so many other user cases here for example we are moving our applications from our data center to AWS and to Azura and as we move those applications the users need to connect to this so where would you have this black cloud and have the connectivity to it but we're not opening this to the Internet so you know as far as you're concerned I don't even have any resources or a service in AWS because it's black it's dark so there's a huge amount of security that we can add to this and then there's also a lot of other user cases like company mergers we had to buy a company so we could use this technology to to move to another company together because you don't need to worry about the network anymore you just worried about getting applications to users so I there's a number of great applications for this technology and I really see that this technology will really grow and I'm really excited about it so moving away from a physical orientation of the network to a more logical application and user oriented services or any care orientated a vision of the network has opened up a lot of strategic possibilities what's been the cost impact yes so it what's quite interesting we when you move to the cloud and move to a company like Z scalar is there a software company so forget about all the hardware you can imagine we have a hundred locations globally so we don't have to install all the hardware we don't have to have VPN concentrators we just have to have some software on the client some software the connectors in the cloud and then Z scalar do the magic so for the business they really love this technology because it is very simple it's sitting in the background they don't have to log on to the VPN all the time so it's very seamless for the user and for us we save a lot of money on buying hardware and appliances excellent Tony Ferguson I want to thank you very much for being on the cube Tony Tony Ferguson's the IT infrastructure architect at man energy solutions I'm Peter Burris once again until we have another cube conversation you [Music]