AI will now add superpowers to every triggering buzzword, hence the title of this week’s post. Look past the buzz and you’ll find substance somewhere. The spring conference season is kicking into high gear, so it’s a time to get serious and extract the signal from the event noise. This week we’ll see Microsoft Build, which will no doubt volley shots back from the messaging at Google I/O. Two other big events will take place this week, Red Hat Summit / Ansible Fest in Boston and the annual Dell Technologies World in Las Vegas. theCUBE will be covering both of these shows and we want to take this opportunity to update you on the state of hybrid multi-cloud…what we call supercloud.
In this Breaking Analysis we examine some of the key infrastructure players in hybrid multi-cloud with a focus on Red Hat and Dell Technologies, two firms that increasingly are partnering with each other as VMware’s future evolves. We’ll share recent ETR survey data on the position of several other hybrid/cross-cloud players including Cloudflare, Equinix, HPE, IBM, Oracle, VMware and others. We’ll also share what we expect to hear at Red Hat Summit and Dell Technologies World this year.
Positioning the Hybrid, Cross-Cloud Players
Here’s a quick snapshot of some key players that, over the past decade, have worked hard to create their own version of cloud platforms. With mixed results. These firms have different levels of cloud maturity and varied strategies but they all are impacted by the public cloud and are working to both complement and compete with the hyperscalers, as well as each other.
The chart above shows Net Score on the vertical axis, which is a measure of spending momentum on a platform. The horizontal axis shows the overlap and presence within 1,171 accounts in the ETR survey that self-select as cloud computing customers. So we’re measuring these dimensions in the context of how well correlated they are with cloud computing customers. We’ve drawn a red dotted line at 40% which indicates a highly elevated Net Score. And we’ve purposely excluded the hyperscalers from this data.
Oracle’s presence is notable as they were probably the first to introduce a same:same architecture for on-prem and public cloud. This has become the north star of hybrid cloud and has taken a decade to mature. VMware Cloud is also prominent. Note this data excludes VMware Cloud on AWS and only signifies VMware’s hybrid and private cloud offerings.
We’ve highlighted Equinix because they are a leader in data center colocation and are a go to partner for virtually all infrastructure players. By provisioning resources in strategically located Equinix facilities, hybrid cloud partners can provide services that offer control advantages relative to public clouds, while at the same time substantially preserving the cloud experience without customers owning and operating a data center. As we’ll see later, Equinix is a leading indicator of hybrid cloud activity.
Cloudflare isn’t really a hybrid cloud. It’s more like the everywhere cloud. They’ll front end hybrid clouds, private clouds, public clouds and edge locations to secure and harden connections across the supercloud. In fact Cloudflare is in many ways what multi-cloud should have been. Note that in this group they are the only player above the 40% Net Score line.
Next let’s turn to Red Hat. We highlight above their OpenStack and OpenShift offerings and we’ll talk about Ansible later on. Red Hat OpenShift is a supercloud enabler in that it allows developers to build consistent experiences between on-prem to any cloud and across clouds. Whereas OpenStack is more of a private cloud play but as we heard during Supercloud 2 with Walmart’s Triplet model, it definitely can support hybrid operations. Walmart’s supercloud (Walmart Cloud Native Platform) is purpose built by Walmart but many telcos for example use Red Hat OpenStack to manage their internal clouds.
Next we’ve highlighted Dell and HPE. These two companies have launched their own versions of cloud. Dell with APEX and HPE with GreenLake. From the survey data they still have not gained the prominence that the marketing would lead you to believe…but they are now on the radar of customers and they’re showing up in the ETR data…progressing to the right. As you can see the spending velocity is still not there but be aware this is not pure play APEX and GreenLake data. Those platforms are growing fast from smaller bases…but they’re both becoming meaningful businesses. HPE has said GreenLake surpassed a $1B run rate and it continues to put all the wood behind that arrow.
Dell meanwhile takes a more balanced in its approach and as such is not as focused solely on as-a-service the way HPE is. More on this later.
And you can see we’ve sprinkled some other names in the mix as they are either supporting players, like HashiCorp, DXC and Digital Realty, which is another colo. And we’ve plotted IBM’s cloud which is really only a special situations cloud…like a mainframe cloud.
The Repatriation Index Breaks a 3-Year Trend
A couple weeks back we shared that we felt the Platformonomics Repatriation Index would break a 3-year trend and that’s exactly what happened.
Our friend Charles Fitzgerald created this metric. He gets grief for taking such a simple approach to measure repatriation – i.e. he takes the combined revenue of (Equinix + Digital Realty) and divides by that of AWS. But it’s an indicator and it reversed trend this past quarter as the growth rate of AWS is dropping and these two colos are growing in the low to mid teens.
Fitzy posted a picture of a calm ocean and sarcastically said “surfs up.” So we know where he stands. But is this really a blip or a long term trend? It’s a good question.
Is the Cloud Market Reaching an Equilibrium?
Data suggests well over 10% of workloads are in the public cloud.
Our premise is that the market is approaching an equilibrium state. It’s not there yet and we expect cloud growth to continue to outpace on-prem and hybrid but there are some wildcards and assumptions worth revisiting.
Not to beat a dead horse as we shared this graphic above a while back. It’s data from an ETR survey asking customers their percent usage between public and private cloud over time. Over half the customers said most of their workloads are on-prem but that number averages out to 57% and is expected to drop under 50% by 2025. So it’s nowhere near the 90% figure we hear thrown around all the time.
And the other tell on this chart is only 14% of customers say they’re all in on public cloud and that number is sticky. There are three takeaways here:
- Low hanging lift and shift workloads are more scarce than generally believed;
- Customers are finding their balance between cloud and on-prem and as incumbents like Dell, HPE, IBM, Red Hat, Oracle and others catch up with cloud native technologies that balance is more comfortable for many in the form of hybrid cloud;
- New public cloud growth will come from new workloads like data apps, new industry solutions like robotics, telecoms and edge and foundation models like GPT will drive new growth that may not all go to the public cloud.
Further Evidence that the 90% Figure is Questionable
It’s good practice to question fundamental assumptions if there’s reason to suspect a change. The claim that 90% of today’s workloads are still on customer premises is one of those assumptions. We hear this repeated over and over by AWS in particular but also pundits on TV, analysts and journalists. Is this really more cloud marketing that suggests there’s plenty of upside left in cloud? Or is it true?
While we believe there is plenty of upside in cloud, we think it’s going to come from new innovation, new workloads and new industry solutions rather than lifting and shifting the remaining on-prem workloads. In fact we think it will become harder and harder for hyperscalers to move the work that hasn’t moved yet. Notably mission critical applications that are working just fine on prem.
Below is some additional data from Statista that further supports this assertion.
The above graphic shows the percent of customer workloads running in the cloud. Note that this is data from Statista and we don’t currently have access to the source data. But it’s based on 2021 data forecast through the latter part of 2022. So with that caveat in mind, the data sends a strong message that 60% of organizations in 2021 had more than 25% of their workloads in the cloud. And that number jumps to over 80% in the forecast period. Even back then well over half expected to have most of their workloads in the cloud by now.
And the other checksum is the revenue from the hyperscalers as compared to the broader market. Think about it. If the four big hyperscalers are approaching $200B in annual revenue – a 10% penetration level would suggest the market for on-prem infrastructure is approaching $2 Trillion. It just doesn’t hold water that the market for servers, storage, networking, database and PaaS is currently that large. Now if we put telecoms into the mix it becomes a different discussion but if we’re talking about mainstream IT it’s not 90%.
Telco is a different animal and it may be that’s the way you get to the 90%. But many questions remain as to the likelihood that those workloads end up in the public cloud. While many workloads including the OSS and BSS can run in the public cloud, much of the infrastructure in telco will be installed at the edge. And it’s unclear that telcos will look to cloud players for those services. At the same time cloud players can perhaps bypass traditional telcos with their own networks, including satellites.
Now by the way – this isn’t an “I told you so” moment for what Fitzy calls the “re-patriots” – i.e. those folks who believe the cloud has failed and customers are retreating from the cloud in droves. They’re not. Cloud churn rates for AWS, Microsoft and Google are 2%, 1% and 4% respectively. So customers are staying put…they may be doing a little rebalancing but we think cloud will continue to meaningfully outpace on-prem. And the telco business is a huge wildcard and open question.
Supercloud is Another Opportunity – Especially for Hybrid Vendors
There are growth opportunities in cross-cloud services and edge that incumbent vendors are in a good position to attack. Below is the perspective of one IT decision maker who heads IT for a medium-sized city.
We made sure that we adopted a multi-cloud provider strategy. We’ve set up with a number of key players, Microsoft Azure, AWS, Google Cloud, & Oracle…So we have the ability to use any of those for pretty much anything that we need to use them for, based on a set of requirements and evaluation criteria.
So that’s the good part. But there’s a flip side.
So then if you do the balance on the people out of it, many organizations like ours, we can’t have experts and senior people in three or more cloud technologies, so we have to pick probably two that we want to focus on and really gear our investments towards those, mainly from a skill set perspective more than anything.
This person is saying we like having multiple clouds to tap best of breed (and presumably hedge their bets) but at the same time it’s too complicated to really take advantage of multi-cloud to the degree they’d like without engaging outside talent.
That’s an opportunity. That’s supercloud – i.e. a mesh of multiple clouds that are interconnected and managed as a single entity. And that should include on-prem / hybrid in our view. And we think this is an opportunity for the likes of Red Hat and Dell Technologies and other players with an on-prem heritage, including VMware, HPE, Cisco and many others.
So while these companies don’t use the term supercloud – well Cloudflare does – but they all have cross cloud ambitions. They believe, correctly in our view, that the sentiments of that individual we quoted earlier suggest that cross cloud simplification is needed and will deliver business benefits in terms of getting more done with less, faster and more securely.
Red Hat’s Position in Infrastructure Software
Let’s take a look at Red Hat’s position in infrastructure software and we’ll then take a look at Dell’s portfolio which is obviously more hardware-centric since spinning out VMware.
Above we show the same ETR XY chart with Net Score on the vertical axis and Overlapping N’s with 1,171 cloud accounts in the ETR data set. So we’re measuring the affinity these platforms have to cloud computing and their relative positions. You can see the dominant position of Red Hat generally on the far right. The strong presence of Ansible relative to Chef and Puppet. And of course the prominence of OpenShift. All three Red Hat offerings are leading the pack and while none of them is over the red dotted elevated 40% line, they’re all very respectable. And we threw Turbonomic in the mix for kicks.
The point is when it comes to hybrid, multi-supercloud, Red Hat is well-positioned. Throw AI into the mix and it will only strengthen the company’s outlook in our view.
Digging into Dell’s Portfolio Performance
Let’s take a different look at Dell’s portfolio.
Below we choose a new view that we’ve not shown before. It depicts Dell’s Net Score across a selected portion of its portfolio over time, relative to the overall Net Score in each sector shown. So starting on the left, we show Dell’s Net Score in Laptops relative to the survey average for laptops over three survey periods, April last year, January 2023 and April 2023. The nuance is that while laptops are well off their pandemic highs, Dell’s position in the sector is up significantly with that ratio jumping from 180% to over 230%.
You can see VxRail’s relative momentum dropped but it’s still well above the average. Storage, which was well below average last year in the spring has jumped up to 140%, which is always good for margins. Meanwhile servers is scratching out a slightly above average relative Net Score performance.
Dell’s cloud is presumably a mix of APEX and whatever else customers think of when they think of Dell’s cloud. So as you can infer from this data and the first graphic we showed, Dell has some work to do in terms of customers really understanding and adopting its APEX strategy….and customers will want proof points that it’s a safe bet.
And we threw in Dell’s Desktop relative Net Score which is below the sector average as well.
What we Expect at Red Hat Summit / Ansible Fest
Let’s end by taking a quick look at what we expect to hear at the combined Red Hat Summit + Ansible Fest and then Dell Tech World.
AI enablement is going to be a big theme we think. Thats no surpise but since Red Hat is all about cloud native and enabling hybrid environments we think that will be an important theme.
Ansible will also be a big area of focus. And the AI story will be weaved in here as well we think. As John Furrier has pointed out many times, Red Hat’s acquisition of Ansible has paid off as they took over the top spot from Chef and Puppet as we showed you earlier.
At IBM Think earlier this month, Red Hat and IBM tipped their hand and showed WatsonX and the Ansible Watson Code Assistant. You may have heard of Ansible’s Project Wisdom, which is a Red Hat initiative developed with IBM Research to inject AI into Ansible. You can think of this as Ansible’s version of GitHub Copilot for DevOps. We talked to Rob Strechay who is hosting Red Hat Summit with John Furrier and he feels like this is a clear direction that makes sense for the company. This is next gen automation powered by AI.
And of course OpenShift. As we showed you earlier it’s in a strong position and following up on Red Hat’s acquisition of StackRox last year we fully expect to hear a lot about container security and shift left. Security is always a hot topic at Kubecon and we’d expect some focus from Red Hat next week on this topic.
A Preview of Dell Tech World 2023
Finally let’s take a look at what to expect next week at DTW 2023.
You have to believe Dell will be aggressive about sharing its point of view on generative AI. Michael Dell is an industry luminary and he’s not going to miss this chance in front of nearly 10,000 customers to share his thoughts on the topic. But it will be interesting to hear how Dell will apply AI to its infrastructure business, how it will help customers do the same and finally what the infrastructure of AI and data of the future will look like.
As we said, APEX needs some proof points and maturity and there’s little doubt that Dell will make some news here. HPE with GreenLake got out to the lead and Dell is still playing catch up. It has a harder task because HPE’s Antonio Neri essentially burned the bridge on the past and removed all uncertainty as to where the company’s focus lies. Whereas Dell’s position is more balanced – i.e. they’re moving with the market and letting customers tell them how they want to consume. And Dell is mapping to that customer demand model, whatever it is.
In reality, HPE will do the same but it definitely leads heavily with GreenLake, more so than Dell does with APEX in our view. But both companies are making as-a-service a priority, as our others like Lenovo. Regardless, Dell is serious about APEX and will kick that into high gear next week in our view. They have to.
Now last year Dell announced Project Alpine which is a storage supercloud – our words not theirs. But it’s a cross cloud abstraction layer that creates a consistent experience for customers. So will they announce Alpine as a product? Or, like many EMC projects of the past will it get buried? Dell is better at doing what it says than EMC was in its last ten years of its existence so we would expect more clear progress, not veiled references.
Same with Project Frontier, which is edge infrastructure management and application orchestration. It got a lot of reference at MWC23 in February and Dell has hired an army of folks to go after edge and telco. So with that type of investment they have to get product to market and we would expect news on that front.
And as has been the trend we expect to see more and more ecosystem partner affinity. Beyond just VMware. We’ve seen Dell do deals with Red Hat and we’ve been encouraged to see them move up the stack with partners like Snowflake and Starburst in data management. Dell’s data management strategy is still unclear and they’re still trying to figure it out. A good way to do that is partner with like-minded companies, go to market, sell some stuff and learn.
No doubt you’ll hear a lot about sustainability and ESG. The reality is $100B companies like Dell not only understand that ESG is good business and increasingly a customer mandate, but it’s also the responsibility of a large player like Dell to set an example. And you can be sure they will.
theCUBE at Red Hat Summit and Dell Technologies World
theCUBE will be at both events – Red Hat Summit in Boston – John Furrier, Rob Strechay and Paul Gillin covering that show while Lisa Martin and this author will be on the show floor all week broadcasting from Mandalay Bay in Las Vegas.
So if you’re at either of these events please do stop by and say hello to your friends at theCUBE.
Keep in Touch
Many thanks to Alex Myerson and Ken Shifman on production, podcasts and media workflows for Breaking Analysis. Special thanks to Kristen Martin and Cheryl Knight who help us keep our community informed and get the word out. And to Rob Hof, our EiC at SiliconANGLE.
Remember we publish each week on Wikibon and SiliconANGLE. These episodes are all available as podcasts wherever you listen.
Email david.vellante@siliconangle.com | DM @dvellante on Twitter | Comment on our LinkedIn posts.
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