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

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 five publicly traded u.s based companies have market valuations over or just near a trillion dollars as of october 29th apple and microsoft topped the list each with 2.5 trillion followed by alphabet at 2 trillion amazon at 1.7 and facebook now meta at just under a trillion off from a tie of 1.1 trillion prior to its recent troubles these companies have reached extraordinary levels of success and power what if anything could disrupt their market dominance in his book seeing digital author david micheller made three key points that i want to call out first in the technology industry disruptions of the norm the waves of mainframes minis pcs mobile and the internet all saw new companies emerge and power structures that dwarfed previous eras of innovation is that dynamic changing second every industry has a disruption scenario not just the technology industry and third silicon valley broadly defined to include seattle or at least amazon has a dual disruption agenda the first being horizontally disrupting the technology industry and the second as digital disruptors in virtually any industry how relevant is that to the future power structure of the digital industry generally in amazon specifically hello and welcome to this week's wikibon cube insights powered by etr in this breaking analysis we welcome in author speaker researcher and thought leader david michela to assess what could possibly disrupt today's trillionaire companies and we're going to start with amazon dave good to see you welcome thanks dave good to see you yeah so dave approached us about a month or so ago he was working on these disruption scenarios and we agreed to make this a community research project where we're going to tap the knowledge of the cube crowd and its adjacent communities and to that end we're initiating a community survey that asks folks to rate the likelihood of seven plus one disruption scenarios so we have a slide here that sort of shows what that survey structure is going to look like and so as i say there's seven plus another one which is kind of an open open-ended and we're going to start with amazon as the disruptee so dave you've been writing about the technology industry for decades and digital disruption and china and automation and hundreds of other topics what prompted you to start this project yeah it's a great question you know as you said that the whole history of our business has been you know every decade or so you have a new set of leaders ibm digital microsoft the internet companies etc but when i started looking at it you know that seems in some ways to have actually stopped that you know microsoft is now 40 years old amazon is what 1995 is getting towards 30. you know google's been a dominant company for 20 years and you know apple of course and facebook more recently so so whatever reason this sort of longevity of these firms has been longer than we've seen in the past so i sort of say well is there anything that's going to change that so part of it and we'll get into it is what could happen to disrupt those big five but then the sort of second question was well maybe the uh disruptive energies of the of the tech business have moved elsewhere they've moved to crypto currencies or they've moved to tesla and so you start to sort of broaden your sense of disruption and when you talked about that dual disruption agenda that whole ability of tech to disrupt other sectors banking health care insurance automobiles whatever is sort of a second wave of disruption so uh we started coming out all right what sort of scenarios are we really looking at over say for the 2020s what might shake up the big five as we know them and how might disruption spread to sort of more industry specific parts of the world and that was really the the genesis of the project and really just my own thinking of all right what scenarios can i come up with and then reaching out to companies like yourselves to figure out okay how can we get more input on that how can we crowdsource it how can we get a sense of of what the community thinks of all this it's great love it and as you know we're very open to do that so we're going to crowdsource this we're going to open it up to virtually anyone and use multiple channels so let's go through some of the scenarios all of them actually and explain the reasoning behind their inclusion the first one the govern government mandated separation divestment and or limits on amazon's cloud computing retail media credit card and or in-house product groups it probably no coincidence that this was the first one you chose today but why start here well i think the government interest in doing something to get back at big tech is is pretty clear and probably one of the few things that has bipartisan support in washington these days and also government interventions have always been an enormous part of the tech industry's history the the antitrust efforts against ibm and att in particular and more recently microsoft a smaller one but it's it's always been there there's a vibe to do it now and when you look at all the big ones but particularly amazon you can see that potential divestments and breakups are sitting there right in front of you the separation of retail and aws uh perhaps breaking out credit card or music or media businesses these sorts of things are all on the surface at least relatively clean things to do and i think when you look at the formation of an alphabet or a meta those companies themselves are starting to see their own businesses as consisting of multiple firms yeah so i just want to kind of drill into the cloud piece just to emphasize the importance of aws in the context of amazon amazon announced earnings thursday night after the close aws is now a 64 billion revenue run rate company and they're growing at 39 percent year over year that's actually an accelerated growth rate from q3 2020 when the company was grew at 29 it's astounding think about a company this size moreover aws accounted for more than actually but 100 of amazon's operating profit last quarter so the aws cloud is obviously crucial as a funding vehicle and ecosystem accelerant for amazon and i just wanted to share some data points dave before we move on to these other scenarios yeah and just on that uh i think that is the fundamental point it's very easy to see aws on its own as a powerhouse but i think you know if you figure how much freedom aws money has given the retail business or the credit card business or the music businesses to launch themselves and to essentially make no money for very long periods of time uh you see that you know if you're a walmart trying to compete with amazon as a retailer well that money from aws is is an awful big problem and and so when they look at separation that's the sort of stuff people talk about right so i just want to i want to put that into context just in in terms of the the cloud business so this chart is one from our etr surveys that isolates the four hyperscale cloud providers and adds in oracle and ibm we both own public clouds but don't you know don't have nearly the the scale we don't have apple or facebook they have clouds as well and we can talk about that in a moment but the chart shows net score or spending momentum on the vertical axis and market share or pervasiveness in the survey on the horizontal axis it's it's really mentioned share not dollar market share but it's an indicator and the red line is an indicator of elevated spending momentum and you can see azure and aws they're up and to the right i mean amazon is 64 billion you know uh azure will claim larger because they're including their application business but just their their their i asked business obviously smaller than amazon's but you can see in the survey the respondents define cloud they include that sas business so they they both impressively have this high spending momentum on the vertical axis well above that 40 line despite their size google obviously well behind those to the left and then alibaba which has a small sample in the etr survey it's you know it's not as prominent in china but even though it's ias cloud businesses larger than google's by probably a couple billion dollars now the point is these four hyperscalers and there really are only four in my view anyway they have a presence that allows them to build new businesses and disrupt ecosystems and enact that dual disruption agenda should they choose to do so at least in the case of amazon oracle and ibm are not in a position to do that it's not part of their agenda they don't they don't have that scale but dave can you talk about your dual disruption scenario very clearly amazon fits in there and i would think alibaba as well but what about microsoft facebook apple google yeah i mean you know people often say what's the biggest difference between microsoft and amazon from from a cloud point of view and the answer is pretty clear that microsoft goes out of its way to assure its customers that it really doesn't have any interest in competing directly about them so you don't see microsoft going into the retail business or the banking business or the healthcare business all that seriously in contrast that's really what amazon is all about is taking its capabilities to essentially any industry it likes and therefore as one is as great as the service aws provides it's often being provided to people who amazon is actually competing with at least some degree or another and you know that's a huge part of microsoft's sales pitch and it's certainly a potential vulnerability down the road uh it's very hard in the end to be an essential supplier and a direct competitor at the same time but so far they've managed to do that yeah so we put together just another sort of aside here this little thought experiment to see what aws would look like as a separate entity and so it's a chart that looks at a number of tech companies and lays out their revenue run rate the growth rates gross margin probably should have done operating margin might have been more relevant but market cap and revenue multiple again given the size of aws at 64 billion run rate and accelerating growth trajectory it's just it's remarkable and so we we figured this out based on industry norms and today's valuations it's not inconceivable that aws could be you know in the trillionaire club or close to it so based on that discussion we had earlier amazon amazon's dual disruption agenda being funded by empowered by aws as we just discussed dave yeah and just keep in mind nothing that you or i are saying are predictions or saying that anything is going to happen they are possible scenarios of what might happen that seem to make some plausible sense so that when amazon is making the sort of profits that it's making aws naturally that's going to attract other companies because there's margin to to be had there and similarly you know look at uh you look at microsoft for all those years the profits it made in windows or in office software allowed it to do all kinds of other things and essentially that's what amazon is doing today but if a google or a microsoft could cut into those profits through some sort of aggressive pricing and perhaps we'll talk about that you know that would have a lot of impact on amazon as a whole all right so let's quickly go through the other description scenarios and maybe make some comments the next one sort of major companies increasingly choose to do their own cloud computing and or sell their products directly for competitive cost security or other reasons so dave i saw this and look at a company like walmart and others no way they're going to run their business on aws walmart as we know is building out its own cloud and maybe it doesn't have the size of a hyperscaler but it's very large it's got the technical chops it can most likely do it a lot cheaper than renting cloud space what was your thinking in this scenario yeah the broader thing here is essentially one of that computing paradigms have been proven to go in cycles you know a long time ago people shared computers and called timeshare and then people ran their own and now they're sharing again through the cloud and who knows it's possible that the cycle could shift again through some innovation and you know a lot of companies today look at the bills they're getting for cloud or for various sas services and some of them are pretty high and a lot of them will look at and say hey maybe we actually can do some of this stuff cheaper so the scenario is that essentially the the cycle shifts once again uh and it makes more sense to do stuff in-house again that's not a prediction but uh certainly something that's happened before and couldn't plausibly happen again yeah there's a lot of discussion about that in the industry of martine casado and sarah wong wrote that piece about the you know the trillion dollar basically sucking sound basically saying the the scenario was the the the premise rather was the that that sas companies their cost of goods sold are increasingly going to be you know chewed up by cloud costs and then of course mark andreessen says every company is going to be a sas company so as the sassification of business occurs that's something to consider okay next scenario is environmental policies raise costs change packaging delivery recycling rules and or consumer preferences can you comment dave on your thinking on this scenario yeah first i'll just back up a bit we're used to thinking of technology is the great disrupter and clearly that's still important but there are now other forces out there china which will talk about uh the environment uh various cultural forces and and here with the environment you see all kinds of things that could change that you know if you look at amazon and its model of very high levels of packaging lots of delivery vehicles and all the things it is doing are those necessarily the best environmentally and will there potentially be various taxes carbon metrics or things that might work against that model and tend to favor more traditional stores where people go to pick them up that seems to be a plausible scenario and i think everybody here knows that desire to do something in the in the climate environmental spaces is pretty strong and you know if you look at you know just throws aside the recycling industry itself has arguably been quite a failure in that much of what is so-called recycled is basically put in tankers and shipped to the third world which no longer wants it uh and so the backlog of packaging and concerns about packaging and uh what to do with all that you know those those issues are rising and and will be real and i i don't know whether amazon has a good answer to that they're you know they obviously are very aware of it they're working very hard to do everything they can in that space but their fundamental model of essentially packaging every good in its own little box or envelope or whatever is arguably not the greenest way of doing business got it thank you so okay so the next one is price in slash trade wars with the u.s and or china cloud and e-commerce giant so protectionism favors national players so we talking here about for example google bombing prices or alibaba or trade policy making it difficult for amazon to do business in certain parts of the world can you add some color on this one yeah all those things and i would just start with with china itself you know you could argue that covet has been the biggest disruptor of the last couple years but if you look out the next five or eight you had to look at all these things you'd probably say china the size of the chinese market the power of its vendors players like alibaba clearly can rival amazon in many different ways uh you know it's no secret that it'd be hard for amazon to they're not going to be a big success in china uh but you can see it in harder ways that you imagine across asia or other markets where alibaba is strong and you're in today's sort of environment where there's scarce goods and maybe certain products well maybe they go chinese may probably go to alibaba first and you want to buy that product well amazon doesn't have it but alibaba has it you know those sort of scenarios if you get into a sharp trade war with china or even if the current tensions continue it's quite easy to see how that could uh play some havoc with amazon's supply chains in many ways the whole amazon retail model is based on a steady flow of goods manufactured in china and that clearly is not as stable as it was right got it the next one actually caught my attention and this is a big part of the reason why we want to survey the community to see how plausible folks think this is in its its technology related scenario so that would potentially disrupt aws and by fault by default hit amazon so that's major computing innovations such as quantum edge machine machine would obsolete today's cloud architectures okay so so here what you're thinking just as aws changed the game in i.t some future innovations or new business models that we haven't conceived yet could disrupt the prevailing cloud computing model right yeah absolutely i mean you know again we'll go back to where we started that new technologies have always been the main disruptors and here we're looking at some potentially very powerful uh new technologies you know your guess is good in mind about what's gonna happen with quantum is clearly a very different way of computing quite possibly led by other vendors possibly even led by china which would be a huge issue you look at the cloud well cloud's not very good at sort of edge stuff or machine to a machine stuff or sort of near field things out cars in the highway talking to each other uh you know again amazon's totally aware of these things and they are working on it but they have a huge investment in other ways of doing things and historically that inertia that need to protect existing bases of activity and practices has made it difficult for a lot of companies to adjust to new things and so that could happen again uh and there's certainly a puzzle but yeah in all these cases so far amazon has been aware of it is trying to do it but you can still see the scenario playing out and in a truly disruptive technology it's not always possible for the incumbent to effectively cope with it okay the next scenario speaks to i think some of the work that you've done in automation and related areas software replaces centralized warehouses as delivery services are directly connected to suppliers and factories so dave this is like cut out the middle man right software and automation changes the nature of the route absolutely i mean you know in a world of ubiquitous delivery services and product standardization metrics and products being built and shipped from all over the world the concept of running them all through a centralized warehouse is at least at a minimum uh seems like something that might be uh obsoleted and replaced and you know imagine if google built a significant taxonomy of of core products that could be traced directly to where they are either manufactured supplied or brought into the country from whatever company that tries to sell them and the delivery service connected directly to that uh and so that model has always been out there i think at various times people have looked at it it hasn't happened so far and i think amazon itself is is is looking at this particularly as it gets more into food that the idea of shipping all fresh food any sort of centralized warehouse is a pretty bad idea uh and so you know that model of software essentially replacing giant automated warehouses uh is out there and and seems to me uh likely and i just say that you know alibaba for the record doesn't really use that warehouse model it uses a network of suppliers and does it that way and and there do seem to be uh some efficiencies that would likely come with that the next one is was really interesting from a historian's perspective and it's the penultimate uh scenario and that's the proverbial self-inflicted wound and you and i certainly remember ibm's you know fateful decision to outsource the microprocessor and operating system to intel and and and and and microsoft sorry ibm's decision to do that lotus you might recall it refused to allow 123 to run on windows back in the day novell buying word perfect jim barksdale a lot of young people the audience won't of course remember this but jim barksdale poo-pooing microsoft's decision to bundle internet explorer into the operating system all those were kind of self-inflicted or blind spots so this one is complacency arrogance blindness abuse of power loss of trust so much more than the examples i gave consumer and or employee backlash you're seeing some of that at facebook now and i guess this is taking their eye off the customer ball losing the day zero in amazon's case forgetting that customer obsession formula they're working backwards culture and i think this is a big reason why andy jassy was put in charge so this wouldn't happen but we've seen time and time again as the examples i just gave blind spots have absolutely killed companies haven't they dave absolutely he listed many of the most famous but perhaps my favorite of all was kennels and the founder of digital equipment corporation one of the great tech visionaries of his time who stated over and over again why would anybody want a home computer or eunuch's snake oil was his other beautiful all of those things and and so there's the blindness uh there's the area ibm who just came to the view that they and att both came to the view that they were invincible and nothing could ever crack their control of their customer base so we've seen all that i think uh more recently i think some of these things can actually go from the bottom up and you know what's happening to facebook today well they're being hurt by former employees speaking out uh you know this never really happened too much to in the ibm and t days but people calling into question amazon's work labor practices and such things is certainly a possible scenario and the whole sort of you know in the end you know people talk about a cultural backlash against technology i'm not sure i believe it'll happen but it certainly is possible that people will start to rebel against these firms you see it more likely with facebook is fairly well along there uh amazon's still popular but you know in the end and as you i think you said the the core thing that companies routinely fail on is they lose their customer focus and they get caught up in other things their financial numbers their their power inside their position of their company but they they lose track of staying close to the customer has need and terrific job of staying close to the customers over the years uh so if anyone you know was maybe less vulnerable that they they would be well along that that line but it can happen to anyone and new management is often you know one of the real tests and there's many examples of that through history when a new executive comes in will they have that same focus that same thing particularly you know as the first generation's employees get wealthy and retired in a new set of people come in you know you look at microsoft the new people who came in well they're not going to be multi-millionaires they may have missed the great runs they're there to work and and the culture of companies changes when you get to that state the m is not that there yet but you can envision that comings soon enough so you know cultural issues have always been a factor and it's hard to imagine there won't be some sort of factor going forward well and you know you talk about that the the succession of founders and ceos i mean that's what to me makes microsoft so astounding because during the bomber years it was unclear that they were ever going to become relevant again and so nadella has done a masterful job but of course they had the margins from the pc software business that allowed them to buy that time but look at intel and the troubles it's going through uh and so many other examples of companies that just sort of said all right well we're going to pack it in and either sell the company or which is again what i think makes think companies like oracle and dell which you know founder-led ceos not ceo in the case of oracle but still running the business uh so quite uh significant yeah yeah and you know we've talked a lot about things that might hurt answers but you gotta recognize how in many ways how amazing they are and most tech companies a lot of them anyways have essentially been one trick ponies i mean google still makes overwhelming amount of its money selling ads and the things it's tried to do in cars and healthcare and various things you know they've often struggled you know apple still makes the core of its money around it's it's cell phone platform amazon's one of the few that continually generates entirely new huge businesses and and you have to give them an enormous amount of credit for that you know microsoft uh was a they failed repeatedly over and over again with internet stuff and phone stuff and all these things and it really wasn't until you know satya came in and really focused on their customers and their need for enterprise services that he that he really got the company on the right track so you know amazon has always been good listeners customers and if they continue to do so it bodes well but history says other stuff comes along okay and the last scenario is open-ended dave included uh you know what did we miss is there another scenario that we haven't put forth that you could feel it could be disruptive to amazon right i mean you've got to have the at least what'd we miss yeah i mean you know these are things that me and you and i just sort of made up the top of our head these are things we see that that might happen but you know in your huge audience of people in this community every day i'm sure there are other people out there who have thoughts of what might shake things up or even doing things that might shake things up already uh and you know one of the things you do for you guys is get this sort of material out there and and see what ideas surface so hopefully people will uh participate in this and we'll see what comes out of it all right so what happens from here is we're going to publish the the link to the survey in this video description and in our posts we ask you to take the survey please tell your friends we're going to publish the results as always we do in an open and free david michelle thanks so much for putting your brain power on this and collaborating with us i'm really excited to see the results and and and run through the other giants with you as well once we see what this survey says yeah thanks david great and yeah if we can make this one work be fun to do it for for google and microsoft and facebook and apple and see where it all goes thanks a lot all right okay that's it for today remember these episodes are all available as podcasts wherever you listen just search breaking analysis podcast i publish each week on wikibon.com and siliconangle.com etr.plus is where all the cool survey data lives they just dropped their october survey with some great findings so do check that out you can reach me on twitter at d velante he's at d michelle or comment on my linkedin post or email me at david.vellante at siliconangle.com this is dave vellante for dave michelle thanks for watching thecube insights powered by etr be well and we'll see you next time