Narrator: From theCUBE Studios in Palo Alto and Boston, connecting with thought leaders all around the world, this is theCUBE Conversation. Hey everybody, welcome to this week's Cube Insights, powered by ETR. My name is Dave Vellante and we've been reporting every week really, on the COVID-19 impact on budgets. Sagar Kadakia is back in with me. Sagar is great to see you. Thanks again for having me Dave. You're very welcome. Sagar's, of course, the Director of Research at ETR, our data partner and man, I mean, you guys have just been digging into the data. Just to reiterate we're down roughly around minus five percent for the year. But the thing about what we're doing here, I really want to stress to the audience. That's going to change. The key point is we don't just do a placeholder and update you in December. Every time we get new information we're going to convey it to you. So let's get right into it. What we want to do today is do kind of part two from the takeaways that we did last week. So let's start with the macro. Guys, if you bring up the first chart. Sagar, take us through kind of the top three takeaways and just kind of reiterate where we're at. Yeah no problem, and like you mentioned what we're doing right now is we're collecting the pulse of CIOs. And so things change. And we continue to expect them to change in the next few weeks and next few months as things change with COVID. So just to kind of give a quick recap of the survey, and then kind of going through some of our top macro takeaways. So in mid-March we launched our technology spending intention survey. We had 1250 CIOs approximately take that survey. They provided their updated 2020 versus 2019 spending intensions, right. So affectively they first gave us those 2020 versus 2019 spending intentions in January. And then they went ahead and updated those based on what happened with COVID. And then in tandem with that we did this kind of COVID-19 drill down survey where we asked CIOs to kind of estimate the budget impact of COVID-19 versus what they originally forecast in the year.

So that kind of leads us to our first takeaway here where we essentially aggregated the data from all these CIOs in that COVID-19 drill down survey. And we saw a revision of 900 basis points. So down to a decline of five percent. So coming into the year the consensus was about four percent growth. And now you can see we're down about five percent for the year. Again that's subject to change and we're going to again remeasure that as we kind of get into June, July and we have a couple of months under our belt with the COVID-19. The second big takeaway here is you know the industries that are really indicating those declines in spend, retail, consumer, airlines, financials, TelCo, IT services and consulting, those are the verticals as we mentioned last week that are really seeing some of the largest pull backs in spend from consumers and businesses.

So it makes sense that they are revising their budgets downwards the most. And then finally the last thing we captured that we spoke about last week as well as a few weeks before that and I think that's really been playing out that last week and a half with earnings is CIOs are continuing to press the pedal on digital transformation, right? We saw that with Microsoft, with ServiceNow last night, right? Those companies continue to post good numbers, continue to see good demand. What we're seeing and where those declines that we just mentioned earlier are coming from it's the legacy, it's the on-prem, it's the pure-plays. There's such a concentration of loss and deceleration within some of those companies. And we'll kind of get into that more as we go through more slides. But that's really what we need to focus on is the declines are coming from very select vendors. Yeah, and of course you know we're in earning season now and we're paying close attention to that. A lot of people say oh, I just ignore the earnings here. You know you've got the COVID-19 mulligan. But that's really not right. I mean obviously you want to look at balance sheets, you want to look at cash flows. But also we're squinting through some of the data. Your point about IT services and consulting is interesting. I saw another research firm put out that services and consulting was going to be okay. Our data shows different and we're watching. For instance, Jim Cavanaugh on IBMs earning call you know was very specific about the metrics that they're watching. They're obviously very concerned about the pricing and their ability to book business there. We saw the cloud guys. Google was up in the strong 50s, the estimated DCP was even higher, up in the 80% range.

Azure, we'll talk about this killing it. I mean you guys have been all over Microsoft and its presence. You know, high 50s. AWS solid at around 34% growth from a larger base. But as we've been reporting, you know downturns they've been good to cloud. That's right and I think based on the data that we've captured, people are really pressing the pedal on cloud and SaaS. With this much remote work you need to have that structure in place to maintain productivity. Okay let's bring up the next slide now. We've been reporting a lot on this sort of next generation workload. Cloud 1.0, all about the storage and infrastructures, and service, and obviously some database. But there's a new analytics workload emerging. And it's kind of replacing, or at least disintermediating, or disrupting the traditional EDWs. I've said for years EDWs failed to live up to its expectations of 360 degree insights, real time data. And that's really what we're showing here is some of the traditional EDW guys are getting hit. And some of the emerging guys are looking pretty good. So take us through what we're looking at here, Sagar. Sagar: Yeah no problem. So we're looking at the database, data warehousing sector. What you're looking at here is replacement rates. So as an example, if you see a company with roughly 20% replacement, what that means is one out of five people who took the survey for that particular sector, for that vendor indicated that they were replacing. So you can see here for Teradata and Cloudera, IBM, and Oracle, they have very elevated and accelerating replacement rates. So when we kind of think about this space you can really see the bifurcation. Look how well positioned the Microsofts, AWS's, Google, Mongo, Snowflake, low replacements, right? Low consistent replacements and then of course on the left-hand side of the screen you're really seeing elevated and accelerating. And so this faces, it kind of goes with that theme that we've been talking about that we covered last week, bifurcation.

When you think about the declines that you're seeing in spend, yet it's very targeted as far as legacy vendors. And again we're seeing a lot of the next gen players, the Microsofts the AWS they need to post very strong data. So here looking within database it's very clear as to which vendors are well positioned for 2020 and which ones look like they're being ripped out and swapped out in the next few months. So this to me is really interesting. So you certainly reported on the impact that Snowflake is having on Teradata and some of IBM's business, the old business. You can see that here. You know it's interesting, during the Hadoop days, Cloudair and Horton work, when they realized they really couldn't make money on Hadoop they sort of tried to get into the data management and database. And you're seeing that is under pressure. It's kind of interesting to me. Oracle is still not what we're seeing with Teradata. Because they've got a stranglehold on the marketplace. That's right. So sort of hanging in there, right. But then Snowflake with no replacements is very impressive. Mongo, consistent performer. And then Google, AWS, Microsoft. AWS of course with Redshift. They did a one-time license with Excel which was MDP database. They totally retooled the thing and now they sort of, interestingly copycatting Snowflake separating from storage and doing some other moves. And yet they're really strong partners. So interesting things going on there. Yeah Redshift, they all look good. All these AWS products continue to screen very well in the data warehousing space. So yeah to your point there's a clear divergence of which products CIOs want to use and which ones they no longer want in their stack. Yeah, the database market is very much now fragmented. It used to be kind of Oracle, DBQ, SQL server. As you mentioned you got a lot of choices. Amazon, I think I counted 10 data stores, maybe more. Dynamo DB, Aurora, Redshift, on and on and on. So really interesting space, a lot of activity. And that new workload that I'm talking about taking analytic databases, bringing data science pooling into that space and really driving these real time insights that we've been reporting on. So that's quite an exciting space. Let's talk about this whole workflow, ITSM ServiceNow just announced. They've been consistently crushing it, theCUBE has been following them for many, many years. Whether from the early days of Fred Luddy, Bruce Luteman, the short-time John Donahoe, and now Bill McDermott as the CEO.

But consistent performance since the IPO. But what are we actually showing here, Sagar? You guys should bring up that slide, thank you. Sagar: So our key takwaway on the ITSM, IT workflow spaces, it's best in breed which is ServiceNow or some of the lower cost providers, right? There's really no room for middle of the pack. So this is an interesting chart. And so what you're looking at here, there's a few derivatives. So I'll kind of walk you through it and then I'll walk through the actual results. We're looking within ServiceNow accounts. So we're seeing how these companies are doing within or among customers that are using ServiceNow today. What you're looking at on the x-axis is essentially shared market share, or shared customers. And then on the y-axis you're seeing essentially the spend velocity of those vendors within ServiceNow's accounts, right?

So if a vendor was doing well you would see them moving up and to the right. That means they're having more customer overlap with ServiceNow and they're also accelerating spend. What you can see if you look at Zendesk, if you look at BMC, Samanage, you can see they're either losing market share and spend within ServiceNow accounts, or they're losing spend. And Zendesk is another example here. And what's actually interesting is, and we've had a lot of anecdotal evidence from CIOs is that look, they start with ServiceNow, it's best in breed. But a few of them have said look, it's gotten expensive. So they would move over to Zendesk and then they would look at it versus Atlassian and we had a few CIOs say look, Atlassion is a quarter of the price of Zendesk. And they moved away from Zendesk and subsequently went the Atlassion.

So it's interesting that during these times where CIOs are reducing their budgets that look, it's either best of breed or low cost. There's really no room in the middle. So it's actually kind of interesting in this space. It's an interesting dynamic and a theme. Usually it's best of breed or low cost. Rarely do you see both win. And I think kind of that's what makes this space a little interesting. Yeah, I've been following ServiceNow for a number of years. I'll just make a few comments there. First of all, Workday was the gold standard in enterprise software for the longest time. And company and I always considered ServiceNow to be part of that Silicon Valley mafia with Frank (audio skips). But what's happened is Sluman did a masterful job of identifying the total available market and then executing the team. And now his successors have taken it beyond there. ServiceNow's market cap is not quite doubled, but I mean I think Workday the last time I checked was in the mid-30s. ServiceNow's market valuation is up in the 60 billion range. I mean they announced just recently very interestingly they beat expectations. They lowered their guidance relative to consensus guidance.

But I think the street knows first of all they beat their number. And they've got that SaaS model, that very predictable model. And I think people are saying look, they're just leaving meat on the bones so they can continue to beat because that's been their sort of M.O. these last several years. So you've got to like their positioning. And you talk to customers, they are pricey. You do hear complaints about that. And they've got a strong lock spec. But generally Sagar, my experience is if people can identify business value and clear productivity they can work through the lock in. And they'll just fight it out in the negotiations. That's right, and two things on that. So with ServiceNow and even Salesforce, right? They are a platform like approach type of vendors, right? Where you build on them and that's what makes them such great companies. Even if they have little nicks and knacks here and there when they report, people see past that. They understand they're best in breed. You build your companies on the ServiceNows and the Salesforces of the world. And to the second point, you're exactly right. Businesses want to maintain consistent productivity. And I think that it kind of resonates with the theme right? Doubling down on cloud and SaaS. As you have all this remote work, as you have a questionable or deteriorating macro environment, organizations want to make sure that their employees continue to execute that. They generating consistent productivity and using these kind of best of breed tools is the way to go. Its interesting you mentioned Salesforce and Service. For years I've been saying they're on a collision course. We haven't seen it yet because they're both platforms. I still, I'm waiting for that to happen. Let's bring up the next chart and let's get into networking. We talked a couple of weeks ago about the whole shift from traditional MPLS, moving to SD Win, and this sort of really lays it out. Take us through the data here, Sagar, please. Yeah no problem. So we're just looking at a handful of vendors here. Really we're looking at networking vendors that have the highest adoption rates within cloud accounts. So what we did was we looked inside of AWS, Azure, GCP, right? We essentially isolated to just those customers. Then we said which networking vendors are seeing the best spend data and the most adoptions within those cloud accounts? So you can kind of see some themes here. SD Win you can see Moraki there. The MRMSX, you see some next gen load balancing on the CDN side, right? So you're seeing a theme here of more next gen players and you're not really seeing a lot of the NPLS vendors here. They are the ones that have more flattening, decreasing, and replacing data. So the reason I'm going over the slide is you know, when you just think about the networking space as a whole, this is where adoptions are going. This is where spend's going and you kind of categorize it into what we just talked about. Networking's such a fascinating space to me because you've got the leader in Cisco that's held two-thirds of the market for the longest time despite competitors like Arista and Juniper, and others trying to get in there. And of course NSX and the big Nasir acquisition it potentially disrupted that. But you can see Cisco, they don't go down without a fight. And they're hanging tough there. Let's take a look at the next chart on CDN. This is interesting. You'd think with all this activity around work from home and remote office this is a hot area. But what are with looking at here? Sagar: Yeah no problem, and that's right. You would think and so we're looking at CDN players here. You would think with the uptick in traffic you would see fantastic net scores for all the CDN vendors. So what you're looking at here, and again there's a few lenses on here so I'll kind of walk the audience through here. Is first we isolated only those individuals that were accelerating their budgets due to work from home. So we've had this conversation now for a few weeks where support employees working from home you did see a decent number of organizations. I think it was 20 or 30% of organizations that took our survey that indicated they're actually accelerating spend. So we're looking at those individuals. And then what we're doing is we're seeing how is Cloudflare and Akamai performing within those accounts? So we're looking at those specific customers. And you can just see within Cloudflare with information security and networking which is more the CDN piece, how consistent and elevated the data is.

This is spend intensity, not overall market share. Because obviously Akamai, you know they're the grandfather of CDNs. They have the most market share. And if you look at Akamai to the right now you can see the spend velocity is not very good. It's actually negative across both sectors. So we're not saying look, there's a changing of the guard that's occurring right now. Cloudflare is still relatively small compared to Akamai. But there's just a stark contrast here. And again it kind of goes to what we were talking about at our top macro themes, right? CIOs are continuing to invest in next gen technologies and better technologies. And that is having an impact on some of these legacy and grandfather providers. Well I mean I think as we enter this again, I've said a number of times. It's ironic that COVID hit coming into a new decade. And you're seeing this throughout the IT stack where you've got a lot of disrupters and you've got companies with large install basis, lot of on-prem or a lot of historical legacy. And it's very hard for them to show growth. They often times squeeze R and D because they've got to serve Wall Street. And this is kind of the dilemma their in. The only good news with Akamai here is they're less bad. Going it's a negative percent to a negative eight percent net score but wow, what a contrast. To your point, much, much smaller base. But still very relevant. We've seen this movie before. Let's wrap with another area that we've talked about which is virtualization, particularly the desktop virtualization, EDI, again a beneficiary of the work from home pivot. And we're focused here right on Fortune 500 net scores. But give us the low down on this chart. Sagar: Yeah, so this is something that look, I think it's pretty obvious to the market. You're seeing an uptick in spend across the board versus three months ago and a year ago in spend intensity. Among your desktop virtualization players there is that five, so that's going to be kind of your VPN. Obviously they reported pretty good numbers there. So this is an obvious slide but we wanted to kind of throw it in there to just say look, these organizations are seeing nice upticks in spend within the virtualization sector and specifically within Fortune 500. And again that's kind of that work from home spend that we're seeing here. Right, so I mean this is really 100% net score in the Fortune 500 for workspaces is pretty amazing. And I think the shared end on this was actually quite large. It wasn't single digits, many dozens. I remember when workspaces first came out it maybe wasn't ready for prime time. But clearly there's momentum there. And we're seeing this across the board. Sagar, thanks so much for coming in this week. Really appreciate it. We're going to be in touch with you, with ETR. We're going to continue to report on this. But Sagar, stay safe and thanks again. Thanks again, I appreciate it and looking forward to doing another one. All right, and thank you everybody for watching this CUBE Insights powered by ETR. This is Dave Vellante for Sagar Kadakia. Remember all these episodes are available as podcasts I publish weekly on wikibond.com and also on siliconangle.com. And don't forget, go to ETR.plus, check out all the action there. Thanks for watching everybody, we'll see you next time. (gentle music)