2022-11-28 Customer Believes Cost and Flexibility Are The Reasons Companies Move To A Public Cloud Company

Customer Believes Cost and Flexibility Are the Reasons
Companies Move to a Public Cloud Company

Customer Vertex Pharmaceuticals - Senior Director, Data Science and Data Platforms |
Architecture (Current)
Interview Date: 11/28/2022
TABLE O F CO NTE NTS

Expert Bio Employment History
1. Structural change to the main public cloud
players Expert was previously a Principal Data Science
2. Spend on 2 cloud configurations as opposed to Architect and Enterprise Architecture at AGCO
overlaying Corporation, responsible for building machine
3. Percentage spend on Snowflake or Databricks learning, AI, and analytical systems for the
4. AWS and Azure growth despite loss in revenue company. Expert worked directly with the CIO and
5. Redshift functionality versus Snowflake in terms CEO
of ROI
6. Accessing data on-prem versus on the cloud Show More
interface
7. Secular headwinds in the cloud providers' space
8. Budget spend on cloud versus on-prem in Senior Director, Data Science and Data Platforms |
enterprises Architecture | Vertex Pharmaceuticals | 9/2020 to
9. Reasons why people move to the cloud Present (Public)
10. Price and consumption algorithm for public
cloud Co-Founder | Trikal Technology Solutions Private
11. Cost benefit of going with a public cloud Limited | 6/2020 to Present (Private)
company
12. Consumption-based model to cap spend on Director, Head of Data Science | Enterprise
cloud Architecture | Honeywell | 1/2020 to 9/2020 (Public)
13. Switching storage or compute cost
competitiveness Principal Data Science Architect | Enterprise
14. Oracle Cloud Infrastructure overview Architecture | AGCO Corporation | 5/2018 to
15. OCI autonomous database offering overview 12/2019 (Public)
16. Spend versus the ability to switch between on-
prem and cloud Lead Data Scientist | Data Science Manager |
17. Metric at which a company starts to examine Cotiviti | 9/2016 to 4/2018 (Private)
their spend
Show More
Show More
Analyst With that in mind, and I think you touched on a little bit of it, but I think the key
00:00:00 question for us is, is there anything out there that you think structurally has changed
in the last 12-24 months that somebody should need to rethink the structure of the
main public cloud players that represent a real true secular headwind that wasn't
there prior to the last couple of years?
Expert Just so that I am clear, when we're talking about public cloud providers, we're talking about
00:00:32 Azure, Amazon, GCP, OCI, etc.?
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Analyst Correct.
00:00:43
Expert We're not talking about niche players who use cloud like Snowflake database of the world,
00:00:46 etc.?
Analyst Correct. Our area of focus is on the big three. Oracle to a lesser extent, but we can
00:00:55 get on that on a separate basis if we have the time.
Expert I think when we're talking about the public cloud, the big three, in the last couple of years,
00:01:08 obviously, the spend in public cloud has grown tremendously. A lot of that has been
because of a lot of new companies and the new project being funded in many companies,
and many of those projects essentially leverage cloud significantly. That has happened.
Expert I think given the current situation, where we are now in 2022 and likely well into 2023, if I
00:01:36 understand the budgeting environment in these companies correctly, the spend on cloud is
going to be reduced. It is going to be concentrated in a few areas that are necessary for
operations and then focused on other areas that are more value-added like analytics, AI,
and machine learning.
Expert Apart from those, there aren't any secular headwinds, firstly, for these public cloud
00:02:01 providers that have just come up in the last couple of years. I think we are seeing a pullback
in demand and more around consolidation in terms of, where do we need to spend money
to get the best value from the companies perspective?
Expert If you take the last couple of years, that piece as a fact of the way, I think the thing that
00:02:22 people start seeing with these public cloud store as time passes are two things. One is, as
organizations start adopting public cloud more and more, as they become major users of
public cloud, the expense increases to a level where they start looking for a hybrid cloud
option or a private cloud option. I have noticed that significantly in many companies.
Expert The second thing I think I mentioned in the previous call, there are other vendors who do
00:03:03 what these public clouds do, a part of it. I mentioned Snowflake. It does the data part of it in
their own cloud, which takes away market share from what Azure sign ups or Amazon of
things like Redshift would have in a way. That's essentially a market share that these cloud
providers will not be able to capture back.
Analyst I'm sorry. Could you go through that again? I'm not sure that I quite understood that.
00:03:36
Expert Sure. What's happening is, if you think about Azure, if you think about AWS or GCP, they
00:03:42 essentially allowed you to do a lot of common data analytics AI software tasks on the cloud.
They had spun up off things like Amazon Redshift or Google BigQuery or Azure sign ups
ass a data analysis, and then they had spun up things like SageMaker or cognitive services
on Azure site for AR machine learning and another set of tools such as well for DevOps and
software engineering.
Expert Their approach was, "Hey, instead of doing these things on-premises, now you can do them
00:04:21 on the cloud." People just prefer to do them in the cloud. What happens is, yes, you can do
them in the cloud but the user experience in terms of using it in the cloud is not miles better
than what you had on on-premise and that was the gap which now the big players, others
like what I call as software-as-a-service or platform-as-a-service vendors who are cloud
focused like database and Snowflake, etc. They are into those markets and they are
competitors of AWS, Azure, GCP, etc., in that particular domain.
Expert If you take data warehouse as an example, you would notice that many customers who use
00:05:06 AWS's version of that Redshift, Azure version of sign up, they are essentially switching data
and moving the entire spend on to something like Snowflake or something like Databricks.
Once they do that, they are also trying to use as much of that for other adjacent task. It
might not be very data warehouse related, but very adjacent to that and they try to use
Snowflake for that.
Expert Which means that part of money that AWS was getting or Azure was getting is now going to
00:05:38 Snowflake and that money isn't going to come back. I don't see that coming back. That's
the headwind that more and more these SaaS companies come in and they provide a
better user experience, they will take away a portion of the share. That share isn't coming
back much.
Analyst Just to restate that in my own words because I'm not familiar about Snowflake, I
00:06:07 believe Databricks is similar, but Snowflake's obviously a bigger more well-known
entity. I'm not quite sure I understand why, but it was my understanding that
Snowflake will win in a certain reason because if you have a hybrid cloud and you
want to get a business analytics or data warehousing view of all the data that you
have in multiple clouds, that they will win.
Analyst You seem to imply at that level, meaning they may still domicile the data, AWS and
00:06:46 Azure for instance, if people have a two cloud AWS, Azure configuration. You're
seeming to imply that they'll actually take away some of the spend at a deeper level
as opposed to just spending more on Snowflake and overlaying the two. Is that
distinction clear?
Expert Yes, that distinction is clear. Just so that I understood you right, what you're saying is we
00:07:21 have heard the use case where people have multiple cloud. They have Hybrid cloud
environment and they have data in both of those clouds and they use Snowflake as a place
where they bring data from multiple places and do the analytics and data engineering and
whatever. That essentially is an additional spend beyond what they were spending in AWS
or Azure. If I understood you right that's what you said. Is that right?
Analyst Yeah, because it was my understanding that Snowflake wasn't really a competitor at
00:07:58 really any level other than for these difficult multi-cloud analytic environments. I
could be wrong. I've been talking to the company directly, but that was from all the
research that I've done on them. That was my understanding. You seem to be
implying that they're actually taking spend away from those guys which is news to
me.
Expert What you described as one of the use cases of Snowflake when an organization has
00:08:26 multiple cloud providers, they leverage something like Snowflake to bring it all together.
That's one use case. There is the second use case where an organization is just single
cloud provider. Let's take Amazon as an example. They essentially use Amazon's offering
of a data warehouse called Redshift. Essentially, they spend a bunch of money on Redshift.
A typical example is somewhere to the tune of anywhere between $250,000-$500,000 a
year.
Expert What they have found is, the user experience of using Redshift is not that good and the
00:09:12 management is significantly high and they have essentially migrated that over to Snowflake.
Which means that $250,000-$500,000 is now spent on Snowflake, not spent on AWS.
That's one of the types of use cases like data warehouse. There are other types of use
cases as well which are also moving away.
Analyst Can I just ask, what percentage of the spend do you think that represents typically,
00:09:41 that's going away because of Snowflake or Databricks or whoever it is?
Expert I would say at this point of time, it's only big players who take that spend I would say
00:09:53 probably about 20% roughly.
Analyst Of total spend or the spend away at that particular functionality?

00:10:06
Expert I would say total spend. About 15% to 20% of total spend.
00:10:12
Analyst If that's the case, I'm just curious, how are they able to grow? They're still growing. If
00:10:24 I look at Azure and AWS because they are much bigger and more mature than
Google. They're still growing at these very high rates in the mid 20%-30% range. How
are they growing at those rates if they're losing up to 20% of their revenue
permanently every quarter?
Expert Yeah, sure. Let's say they're losing about 20% of the revenue annually every year. What's
00:10:54 happening is these cloud providers, they are also gaining more and more customers. That
is essentially definitely adding to the revenue. The second piece that they are doing is that
as they are releasing more and more services, they are focusing on more value-added
services.
Expert Azure, as an example, it gives you something called a data lake to put all the data in the
00:11:26 lake, but it also gives you cognitive services which allows you to build chat bots and other
stuff. Cognitive services are much more expensive than using the data lake as a service.
They are essentially marketing more and selling more of those. That is leading to the higher
growth.
Analyst I'm a little curious as to what you believe is, just to maybe isolate Snowflake because
00:11:53 it is interesting, absent the multi-cloud option, which I totally understand, because if
you have two clouds you want a neutral third-party vendor that can integrate the data
because the other clouds don't really want to do that for you.
Analyst What's the competitive advantage of Snowflake in a single cloud instance? I get the
00:12:15 user interface, but it seems like the amount of money that people spend on
Snowflake is quite high just for a better user interface. That would seem there would
need to be some greater degree of ROI there in order for somebody to bring on an
additional vendor. Just from a friction and whatever else standpoint. Is the
functionality of Redshift that bad and Snowflake that good to warrant all the
headache of bringing in another vendor?
Expert Yes to that question, but I think the reason why people try to bring on vendors is to provide
00:12:48 economies of scale and to reduce the amount of infrastructure management. What happens
with Azure or AWS over GCP is they provide building blocks of services. You'll get a bunch
of building blocks and you have to connect all of them together to build a solution. What
these other vendors provide, the SaaS solutions are the entire solution in a box.
Expert What that means is you need less people to manage the platform or manage the solution in
00:13:23 the Snowflake case versus when you need it in Azure case. I know that because I very well
know the operations cost of managing something with Snowflake versus managing
something in Azure is significantly different. That's one piece.
Expert The other piece I think which is relevant is, these other platforms, they provide some
00:13:44 additional capabilities which are functional benefits that other solutions don't provide. For
example, Snowflake provides you the ability to get to very fast real time performance.
Redshift cannot do that. Which is very valuable for banks as an example.
Expert It also provides you the ability to get data set through a marketplace which Amazon or
00:14:10 Azure doesn't provide you. Which is significantly beneficial if you are trying to build together
a data market to serve your customers internal, external. There are some functional
benefits they provided as well, not just ease of use. That helps people to essentially
leverage them and move much faster.
Expert Now, smaller organizations, I think, there's one caveat that should be clear, not every
00:14:38 organization adopt Snowflake right out of the bat. You need to get to a certain maturity level
in your primary cloud provider whether it's Azure or AWS or GCP before you think about,
"Okay, now I think I can do Snowflake." Nobody says, "Okay, I'll go start with Snowflake and
then think about what my primary cloud provider is." That use case doesn't exist. Which
means every cloud provider have a runway of a year or two at the very minimum before
they face that competition.
Analyst Right. I think you've answered the question or at least validated my understanding of
00:15:16 Snowflake is that if you don't have a certain critical mass of your data in one of the
three big public cloud providers, you're not really a valid potential user for Snowflake
because you have to make that intermittent transition first before you can do what
you just said.
Expert Yeah.
00:15:45
Analyst Okayyou had a question?

00:15:46
Analyst Yeah. Can I ask this? I think it's going to be a same type of question but maybe you'll
00:15:49 ask a little bit different way. I'm just going to do a quick recap. A company decides
they're going to put a lot of data in Redshift and they make a commitment. That's
step one. Step two is, they adopt a vendor like Snowflake. What Snowflake allows
them to do is basically create, I want to say, fungibility. That they can basically
access the data pretty equally, whether it's on-prem or in the cloud and the interfaces
allow them to do that.
Analyst It sounds to me the outcome of that is from an investment decision it actually makes
00:16:32 it easier for an enterprise then to invest on on-prem solutions, that maybe they can
control their CapEx or their spend a little bit more efficiently because it doesn't
matter so much where the state is living now because Snowflake allows them to
access it in either place. Is that what's going on here? They don't have to commit the
next place they're going to stick data. They don't have to commit to Amazon or to
Redshift as much because they can reuse some of their existing on-prem
infrastructure. Is that what's happening here?
Expert Not exactly. Snowflake allows you to access the data which is on-prem. I think the data has
00:17:18 to be in cloud and Snowflake business model is, it takes the data that you have, whether it's
in Amazon or Azure and puts it in its own cloud. It takes the data and the compute on that
you do on the data as well.
Analyst Okay.
00:17:41
Expert Its business model is different. That's why I said that because your data goes away along
00:17:44 with the compute, it's very hard for that to come back.
Analyst Got it. Okay. Makes sense. I've always assumed what you just said to be true. That
00:17:55 makes sense. Okay. Thank you.
Analyst Maybe just to clarify why you believe it will never come back is once you get to that
00:18:05 analytical layer, remember this being the case the old BI software names back in the
day. That once a company starts standardizing its C-level executive reports on the
analysis software, they get used to it, they build it, the queries are the same. They
need the consistency and then assuming that there's also this economic savings that
you're pointing to with regard to managing the service, it's just really hard to come
back from that. That the user interface has been locked in and they don't want to go
back. So far, we haven't seen why they would, and maybe said a different way, but is
that what you're trying to point out?
Expert That's correct. I think there's an implicit assumption of trust. Now that they have built all of
00:18:56 that in an environment like Snowflake and you trust that, and you use that for CEO
reporting or CX reporting, going and taking all that back into another environment and
building all of that out, how much would you trust that? There's this element of trust. You
know this environment works and it works really well. Unless there are any fundamental
concerns you wouldn't go and re-implement it something else.
Analyst Right.
00:19:33
Expert On the point just so that we're clear. When I'm talking about Snowflake is good, in terms of
00:19:38 certain types of use cases. I'm not saying that all types of data use cases would move to
Snowflake.
Analyst Sure. That brings up the next because your response is a little surprising but
00:19:53 thinking back through what you said on the prior transcript that we read, I'm trying to
remember and interpret what you said. It's a little different than what we were hearing
and thinking but I'll ask the question maybe in a different way.
Analyst When you think about the tiering of services, I think what you're talking about is
00:20:20 Snowflake, and this has been my understanding is that they're skimming the very
high-level cream of services. Once you have a C-level reporting structure that's very
clear and easy to use and people have standardized on, it's really hard to go back
through and displace. That's like when you think of the building of data to everything
to the very last reporting structure, that's the high end of everything, what everything
builds up to.
Analyst It is a little surprising. I think what you're pointing to is that the very, and this is why
00:20:57 people really love Snowflake is that it does represent some of the most strategically
important operations of a company. If you lock the C-level executives into it, good
luck trying to get them out of it.
Analyst When we talk about the secular headwinds, I think what we're more concerned about
00:21:15 is maybe not the opposite, but certainly when you think about the same concept of
companies getting to a certain level of spend, a critical mass of spend, then being
competed away with either one of the other companies like Google who has been
linked to the race and looking to catch up and maybe offering more aggressive deals,
or maybe somebody who's even a little more recent in terms of entrants in Oracle.
Analyst Is there anything like that that you think, as opposed to Snowflake? You took the
00:21:52 conversation in a direction that I've wondered about it but it's not where the main
source of my concern is. I think it's more around what I just described, which is just
mainstream, "Hey, we're hitting a bit of a growth plateau and now we're just going to
go after each other." Or if it's a new entrant that's good looking that's going to break
up the three-company oligopoly into a four-company oligopoly. Maybe if you could
talk about that with regard to secular headwinds.
Expert Sure. Absolutely. The way I think about that problem is in two parts. The first is, when you
00:22:31 are growing significantly and you have a large spend with any of the three major players,
the company thinks of two things. One is, "Hey, I'm spending too much and this cloud
provider, is there any other cloud provider, maybe a fourth entrant or GCP who can provide
me the same quality of service at a lower price or should I shop around?" That's one
headwind in terms of new entrants or current entrants offering a better price point.
Expert The second is, I spend a lot on my cloud and I spend so much that instead of spending so
00:23:13 much on operational budget, I made a capital expenditure. I bought a bunch of hardware
and I run this internally within the company which as a capital expense and the depreciate
would essentially result in lower expense. That's the other thing that companies think about.
I think of those two.
Analyst I'm sorry. Could you run through that second one again? I didn't quite catch what
00:23:48 you were pointing to. You lost me on it.
Expert Building your own data center or enhancing your own external data center. That's what I'm
00:23:54 saying.
Analyst Okay. I'm not connecting the dots. You lost me on why that would represent a
00:24:03 headwind.
Expert What would happen is, in that case once you are spending a lot of money on the cloud and
00:24:14 you figure out that, "Hey, I can build my own data center." At that point you wouldn't really
be spending money on any of the cloud providers, you as a company. Any customer would
not be spending money on the cloud provider. They would look at how much they spend in
the cloud provider and try to take some of that workload and do it in their on-premise data
center. That's a headwind because at this point essentially the cloud provider is going to
lose money and it's not going to be shared across any one of them. It's money gone back.
That money is not spent in cloud anymore.
Analyst I'm not quite sure I understand how that would work. It's my understanding that
00:25:05 almost under most circumstances if you've decided to go to the cloud and you go
that route that it just doesn't become competitive, especially if you're sub-scale to
run it yourself. Unless I'm misinterpreting what you're saying. If you had 10 data
centers and you went to five, your ability for you to run the five is inherently less
than your ability to run the 10 so you start to really start to run into a scale issue. You
seem to be pointing to the opposite.
Expert No. Let me work out a chronological timeline of what would happen. Let's say I'm a
00:25:51 customer for Azure. I started day one, I said, "Okay, let's start using Azure and let's move
my whatever workload that I do on-premise right now." Let's say on Oracle infrastructure,
let's move that to Azure. What is going to happen is the next year, two-year, three-year,
whatever that time that migration happens, I'm going to start spending on Azure and Azure
growth will start going up.
Expert At some point I'm 100% on Azure and now I'm running all the operations on Azure. Which
00:26:24 means I'm not doing much on my on-premise data center that I owned before I started with
Azure. Now, you're [very] essentially, first it went up significantly very quickly with Azure and
then now it's going up but going up steadily because you are signing up operations and
adding work on Azure. At some point you reach a limit where you see, "Oh, my bill at this
point is much higher than what I had initially anticipated when I started." You would
essentially say, "Okay, I'm spending all of my operations money that I have, I'm spending
maybe 20%, 30%, 40% on cloud. I need to cut back."
Expert You'll see, "Okay, are there other cloud providers who offer a better deal?" In this case,
00:27:09 GCP is something I would consider because GCP can provide comparable services but at
cheaper prices. If I wanted to go to something like OCI, it would provide even lower prices
but maybe not as comparable services. That's my first price point to see if I could
essentially make the switch.
Expert It's not just a price point because essentially saying that "Okay, I'm going from Azure to
00:27:34 GCP," is not as easy as just saying it. That's a migration project of one to two years.
Switching cloud is not as complicated now, but still since everything is on cloud, it takes
time. That's my first decision point that will help me to reduce expense.
Expert Other thing I could do is I could go to Azure and say, "I'm reaching my limit I cannot spend
00:27:56 more than this. The growth rate is too much so you must provide volume discounts." Which
means that the growth that Azure will get from this customer will be lower than maybe some
other customers who are still growing.
Expert The third decision point what might happen is, let's say four, five or six years down the line
00:28:17 you're very mature. You spend a lot of money on the cloud, but then now you switch to GCP
or still on Azure, at that point you might decide I process a lot of data, heavy amounts of
data. Processing this heavy amounts of data on the cloud doesn't make a lot of sense
because I'm spending a lot of money just on data processing at this point.
Expert It would be much easier instead of spending everything on OpEx, whichever cloud
00:28:46 expenses are, I could buy a lot of these servers, put them in my company server zone and I
can do a lot of these data processing in-house and only do some of the things that cloud
truly value in the cloud. Which means [I'm more close] to my internal data center and that
process that on-premise. That would essentially lower my expense in the cloud. That's the
journey that I'm talking about.
Analyst Got it. I think embedded within in what you said, that you've seen it firsthand, that at
00:29:21 some point enterprises do scrutinize their cloud budgets both on an absolute and
relative basis. Meaning that they just see the dollar amounts go up and it just starts
to just draw attention, period, because maybe it's the biggest or second biggest or
just through the normal budgeting process, it's a big number and you have to look at
it.
Analyst Second, I think you mentioned this and we've heard this elsewhere, but I'm not sure
00:29:56 if I'm catching it. That at some point you compare it to what you've been spending
on-prem and it may not look favorable. I'm getting that part. Am I catching that
properly?
Expert Yes. One is you do a comparison of how much are you spending on cloud as compared to
00:30:17 everything else in a given year? If that number is very high you obviously want to figure out,
what am I going to do about it? The other is, if you came from an on-prem onto the cloud,
you're always doing a comparison and saying, "How much am I spending on the cloud as
compared to what it would have taken to do an on-prem?" You're doing that comparison
too.
Analyst Right. Just implicitly along that line, it seems hard for me to imagine that the
00:30:47 economics would change so dramatically. I think the...
Expert I think if you look at companies like Intel, they actually have moved from cloud, fully on the
00:31:02 cloud to moving some of that work to their data center because they process extremely
huge amounts of data.
Analyst Okay. That's an example. If we think about the original reasons why people move to
00:31:22 the cloud, and the prevailing evidence is that it's hard for most companies to be best
in breed in managing diverse, complex infrastructures. If you look at the overhead
from personnel standpoint in particular that you can save, it's always generally
proven to be quite dramatic. People have done that and they've generally gotten
really good savings, if nothing, and a certain amount of flexibility in terms of paying
for what they consume.
Analyst Now, do you believe that this analysis about what they're spending on-prem, there's
00:32:06 a couple of elements like this. One, I get it that perhaps certain pieces of technology
are deflationary and so that equation will go down over time. Maybe with their budget
with the cloud vendors is not tracking to that. Okay, I can get that server costs
generally on a unit of compute basis go down, same with networking, etc. The real
equation that I think everybody was really having a difficult time was the personnel,
the headcount part. That's where I'm struggling a bit with.
Analyst Are you sure that that analysis include that? I say that because a lot of times people
00:32:52 forget the soft costs and the start-up costs and the investment costs of getting stuff
to work right. It sounds great on paper, but if you were to go back, I don't know, it
just seems you'd be double incurring a lot more costs than you originally think.
That's generally the case of all IT projects.
Expert Not 100% true. There's obviously the one time project to move things, and then there is the
00:33:18 idea that you move some of that into on-premise. There are two parts that have to be true.
First is, the amount of money that you're spending on cloud has to be significantly high. Not
all companies fall in that. Most of the companies will not spend that much amount of money
where they will feel like, "Okay, it's justified that I need to be able to go back to on-premise
for some of my workload." In many companies that situation would not arise.
Expert The second piece is, when you are trying to move some workloads to on-premise, that's
00:33:56 that. You're trying to move some of the workloads. You're not trying to move 100% of the
workload because the moment you start doing that you have a lot of people expenses. You
have a lot of management expenses which you don't want to handle. That's why you
choose and figure out which are these pieces that are taking a significant amount of spend
in the cloud that can be done in-house?
Expert Compute is a very common example. Especially compute using graphical plus GPUs. What
00:34:26 you've heard is correct. I'm just talking about the other end of the extreme. It's not
something that you'll find happening with most companies or happening anytime soon with
a company that starts in the cloud journey.
Analyst Got it. This next question it relates to what we were just talking about in the sense
00:34:53 that, in general, compute doubles every two years at the same price. Meaning that
the cost per unit of compute goes down about 50% every year. Let me see if I get that
right. Goes down 25% a year or something like that. You double it, that's your 50%
discount.
Analyst In general, what we saw early days of the public cloud is that pricing on a like-for-like
00:35:29 basis was coming down on that curve, but consumption was always offsetting it. Say
in the case to get to a 50% growth, you would see a 25% reduction in cost.
Everybody gets it but everybody would raise their consumption 75% so you'd get net
50% growth and spend. There's a lot of stuff like new customers, etc., that flow in
there but to simplify it, it's along those terms. The demand was very elastic for it.
Analyst Do you think that that algorithm still stands or, as you point out, is companies get so
00:36:12 big and maybe as the incumbents, the three big public cloud bidders maybe are
looking to more heavily monetize their platforms aren't adhering to that? Is there
something changed in that? What would you say that that algorithm in terms of price
and consumption for public cloud is and do you think it's still there?
Expert I'm not 100% sure I fully understood the question. Could you maybe just repeat that? Are
00:36:40 you saying that...
Analyst What are the problems with say a legacy vendor like HP or Dell or whoever, maybe
00:36:49 IBM? I don't know who you want to throw in there. They would charge you more and
more every year, but they wouldn't really give you much. Tough to say. People would
know that in general Moore's Law says that, computing doubles every two years.
Meaning that every one year the price per unit of compute goes down roughly 25%
so that in two years it's down 50%.
Analyst In general, I remember the early days of AWS, the storage service, generally the like-
00:37:24 for-like pricing for storage because it was an easy one to monitor was going down
roughly 20%, 25% a year on a like-for-like basis. People always consumed more
because they couldn't get that deal, certainly not from any other vendor and certainly
not doing it on their own. That is what compelled them to do that.
Analyst Now, the same was for the reason why they named the service Elastic Compute was
00:37:49 exactly that. The pricing kept coming down. People just bought more of it because
there was no better deal in town. People got into this mode of, if you want to simplify
it, the compute and storage costs would come down on a like-for-like basis 20%, 25%
every year but demand would go up 50%+ for every year. Everybody was spending
more every year because it was the best deal in town.
Expert Okay.
00:38:24
Analyst You never thought of it that way in any of the positions you looked at or?
00:38:26
Expert Keep going.

00:38:37
Analyst No, it seems like it's implicit in some of the analysis you probably did on a cost
00:38:38 benefit basis. I'm curious as to your understanding of the basic benefit of going with
a public cloud company, was that ever something you've encountered or thought of
or looked at?
Expert The way that we look at going to cloud and what benefits it offers, offer the couple of
00:38:58 different factors. Cost, absolutely. That's a factor. I think you're absolutely right. When we
looked at going to cloud, we look at the cost of storage. How much money would it take for
us to store X amount of data and what if that amount of data grew by twice or grew by 4X or
5X? How much would that look like? We definitely did, and we essentially did the
comparison across the years. We did that. It's very obvious because Amazon's bid itself
gives you volume discounts and stuff.
Expert The second part, the reason why we did that was because of flexibility, because the on-
00:39:45 premise infrastructure you need to size the infrastructure. You buy hardware from HP and
you have to say, "Okay, I'm going to buy 5 PB of storage because I think I'll need 5 PB in
the next five years. What if you start generating 20 PB? That's the flexibility and elasticity
comes 100% into that.
Expert The third piece was the value-added services. Things like, "Yeah, you can buy all of this
00:40:12 from HP, but would you go and build your next SageMaker yourself? Of course not. Would
you go build your own data warehouse? Of course not. Amazon offers that as a service.
You don't need to buy this one thing from Oracle, one from HP, one from IBM and connect it
all together. It gives that.
Expert Took all of that into perspective. I think the cost is a big factor because if cost equation did
00:40:35 not work out, everything else was. The finance organization is not letting us go into cloud.
Cost I think is the biggest factor and flexibility comes very close second.
Analyst Got it. Okay. You never encountered this idea that "Look, when we were buying
00:40:56 storage from Dell, the price was always the same. They never took it down. We kept
paying the same amount and we never felt like we were capturing the real true
deflationary cost nature of storage or compute or whatever." These costs should be
coming down every year and they're not. We're not getting more functionality either.
One has to change. One or the other. If we go to Google or Microsoft or Amazon,
we're going to get that. We're going to capture that benefit. Maybe it's just at a very
basic level. That never factored into your decision making?
Expert I think it does but not at that level because what happens is when you go and buy anything
00:41:44 from, let's say Dell or HP, you don't sign a 20-year contract to buy something for two years,
three years, and then you go back and buy the next piece in another two or three years.
You get the inflationary impact. The other factor is, even if you buy something from IBM or
Dell, now you lease it. When you're looking in the company perspective, in many cases you
just lease it and you get that benefit when you start leasing.
Analyst Got it. Okay. It's still I think on net wasn't as good as what, and the point you've
00:42:21 mentioned about flexibility, is that you shifted to it. Predicting what your internal
usage is going to be is difficult and so you're more than likely always going to
overbuy and therefore you're always going to overspend. Versus you can do a
consumption-based model which has much more flexibility with regards to adjusting
payments relative to consumption.
Expert That's right. I think when you look at most of the companies, when they look at these buying
00:42:54 decisions of what they're going to buy, they rarely make it just based on, how much storage
am I going to need? They look at, "Okay, what use case is it going to solve and what is the
value proposition for this hardware?"
Expert It's not as easy to say, "Okay, I'm going to buy this HP hardware and the value proposition
00:43:10 is storage." Unless you buy HP hardware plus a bunch of software on top of it and a few
other things and say, "Okay, this is going to give me all the reporting." It's not an easy
purchase even. Just by buying all of the different sets of software plus the hardware puts
you significantly more at that one time purchase cost as what you would start spending that
on AWS.
Analyst Got it. Maybe it's along the same lines. You've already mentioned, I wouldn't call
00:43:43 them technology. I should call them companies, the Snowflakes and Databricks of
the world that are skimming off the top of the demand. They've, I would say, beat the
existing guys to the premium service punch with regard to data and analytics.
Analyst You've already mentioned them, but getting back to this more basic fundamental
00:44:16 level like being able to dynamically switch storage or compute or whatever
workloads or your data warehouses or any technology that you see that allows for,
and I would highlight maybe something like IBM and Red Hat's doing with OpenShift.
Is that having an impact or is there anything like it that you think is making this back-
and-forth arbitrage of a more basic level costs fundamentally more competitive than
what it was two or three years ago?
Expert I'm just saying that arbitrage of cost within the cloud provider or across. Are you saying
00:45:00 things like an OpenShift coming from Red Hat as an example, or something like IBM...
Analyst Yeah, has the ability to move back and forth. You've come from an organization that
00:45:20 had a dual cloud structure. It seemed like you didn't try to arbitrage the cost between
them that much but you do have some exposure there. I was just curious through
your experience, has it become easier to switch back and forth or more difficult to
switch back and forth, especially if you look to arbitrage cost?
Expert That's a two part question, I would say. It has definitely become easier to switch back and
00:45:47 forth. If I think about 2018 when I had to build an entire data platform using primarily
Amazon Cloud, I had to leverage Amazon for almost everything because many of these
other solutions did not exist. Now these other solutions, they solve tactical problems, do
exist and you can essentially arbitrage [advantage] they do part of this workload in this
other solution part of the workload and other solution. That actually can happen now. You
can do that. This process has become easier.
Expert That being said, from a technology perspective as an integration perspective, it has become
00:46:38 easier. The management of our solution that you are optimizing for arbitrage in terms of
spending is just much more than any arbitrage savings that you will get by working in
multiple solutions. Anytime you go with more than two or three, you are essentially looking
for people who are experts in those two or three technologies who can manage those
couple of technologies who are working with the product roadmaps of those two or three
things and making them work together. It's not as simple and ends up costing you more.
Analyst Got it. I'm trying to...

00:47:27
Analyst Maybe just to recap that, yes, you can optimize pricing for any given workload, but
00:47:32 as soon as you start adding these different clouds, it just cost you so much more to
manage all the different architectures that's not really worth it. It's what you're
saying.
Expert Yes. I'll give you a very clear and easiest example. You could use Amazon Cloud for
00:47:48 everything except to say, "I just want to use Google's BigQuery engine for my data
warehouse." I'll just moved my data to BigQuery, do that processing because BigQuery is
much cheaper than Amazon's version of Redshift. That thing of data egress from one to the
other cloud and then having two separate sets of engineers understanding how Google
works and how Amazon works, figuring out the cross billing between them, figuring out
product roadmaps as in vendors, that should become better than BigQuery. You need too
many people to manage that, and you just lose the benefits of doing this small optimization.
Analyst Yeah.
00:48:37
Analyst With the time we have left, you're one of the few folks that I think has mentioned the
00:48:38 Oracle Cloud Infrastructure. What's your perception of them?
Expert I have a biased perception because my perception is based on the features that I've seen in
00:48:49 my space, which is data software and computing space. I don't know their capabilities in
networking and other things. I would say that I am aware of, I think they are behind the
curve in terms of their capabilities, the types of offerings that they'll offer and the quality of
those offerings.
Expert Their services are not as reliable as what you would say as an Amazon that gets to use
00:49:17 seven nines or 13 9s in terms of S3 as what you'll get with OCI. You don't have as much of
value-added services like SageMaker, analytic services or AIML services that you would
have with Azure or AWS and you don't have as many developer focused DevOps
capabilities on that part out.
Expert They're still behind the curve behind the three and I would say it's far behind the two or
00:49:49 behind the three. That being said, they're actually catching up fast in all organizations which
are legacy and have a lot of Oracle infrastructure because they offer a significant amount of
discount to move from the Oracle on-prem to Oracle cloud.
Analyst Yeah, are you familiar with their autonomous database offering?
00:50:13
Expert Is this the time sequence?

00:50:20
Analyst No, that's okay if you're not. It's one of the things that they're very high on in terms of
00:50:24 trying to offer the value pitch to their existing install base is that, one of the things
that people don't want to do is upgrade because the upgrade is expensive, period. It
doesn't matter what you're going to.
Analyst The new stuff, the Oracle OCI, if you do it on-prem world through Oracle OCI, the new
00:50:55 upgrade contains autonomous database which they say eliminates a lot of the
database managers. You can reduce some of the headcount materially. It sounds like
it's an area where that part of the world is headed. They seem to be ahead of the
curve but if you are not familiar with it that's fine.
Expert Yes, I haven't heard of this particular product name but I do know that they are pitching for a
00:51:37 cloud version of their extra data, which is their on-prem data warehouse onto the cloud and
automatically migrating it and making that both SQL and NoSQL. I do know that they have
that as an offering. Perhaps the same as their database is a different one. To say they
simplify the migration and it's one-stop shop for all different types of data.
Analyst Yeah. Embedded with all this, you mentioned in the last transcript we read that you
00:52:10 put out there this idea that you wouldn't really move material amounts of your
existing spend unless you saw a discount on the order of magnitude of 50%. You
point out that there is a switching costs and that switching cost it seems like it's a
10%, 15%, maybe 20% and so you got to cover that right off the bat and then you got
to have a materially lower ongoing perpetual time savings to justify this switch.
Expert That's accurate. Absolutely true. It's very easy to overlook the switching cost but the
00:52:54 switching cost is not only, there's an actual physical amount of money that exchanges
hands because you have to essentially pay all the vendors and everything. Also there's the
fact that they have to test all the different workflows and make sure they work as expected.
It is the essential part. Absolutely true.
Expert Switching cloud vendors, especially after year two of your journey with a given cloud vendor
00:53:22 is very challenging. You can do it in the first couple of years because you are still trying out
different capabilities, you haven't gone operational, but once you go beyond that and you
start using it for a lot of your operational workload, it's extremely challenging.
Analyst Would you say it gets non linearly, meaning it doesn't just go up linearly, it gets non-
00:53:48 linear, it gets parabolic? I say that because you seem to have earlier said the other
way, that as your spending goes up you evaluate your budget more but at the same
time you just said that as you get more spend, your ability to switch gets less. Those
two run at odds with each other. I'm curious if [inaudible] to that.
Expert That's why there's a sweet spot, at some point. That's why nobody starts thinking about
00:54:23 switching one cloud vendor to another or even one cloud vendor to on-premise until they
are much further down the line where the spend is significantly high. That's a really sweet
spot. At the moment you get into the cloud you would never switch from one vendor to
another vendor, period.
Expert We know that's not true. There are organizations that I have seen that switch vendors and
00:54:49 after a high amount of time that they're spent with them. I feel like this non-linear in the first
few years that, if you've spend time with a given cloud provider, you have a very high
stickiness to that. At some point if it's essentially an inflection point where you look at the
spend and you decide, "Okay, now I'm not going to move on this exponential non-linear
curve, I'm going to move something that is a slower pace of increase." A parabolic at a
smaller slope. Now at some point after that the parabola is going to slope down you say,
"Okay, what should I do now?" There are inflection points in this curve.
Analyst Got it. I know we're up against our limit. Do you want to finish it off?
00:55:40
Analyst Is there a magic number, I want to make up something, 30% of a company's

00:55:50 operating expenditures are going to a cloud vendor? Is there some number like that
that's becomes this magic point where companies really start to examine what their
long term spend looks like and they start doing some of these things that you were
talking about today, where they're looking to minimize the growth of that spend going
forward? I'm sure it varies, but is there a big picture, a metric that we should think
about?
Expert I don't think there's a magic number, but there's one metric that I've heard more often than
00:56:30 not being used, which is percentage of your total IT spend being spent on cloud expenses.
This is just the cloud expenses, not the vendors who do development on the cloud or any SI
part of anything. This is just the cloud expense. When that percentage becomes definitely
more than about 30%-40%, and this is for a big company, that's where this conversation
happens.
Analyst When the cloud expenses are 30%-40% of your total IT costs, that's a good rule of
00:57:08 thumb of when these conversations happen.
Expert Right, because now at this point you're spending 40% on infrastructure and that is not just
00:57:19 adding value, that is base cost essentially. Something that you have to keep year over year
as operational costs. You're only using 50% for additional value. That's when people start
thinking about, is that too much?
Expert I think one area where you might want to focus more is the growth of the, what I would say
00:57:42 as IoT and advanced analytics, the AIML services. I think that's the area of cloud that's
growing significantly.

2022-11-28 Customer Believes Cost and Flexibility Are The Reasons Companies Move To A Public Cloud Company

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2022-11-28 Customer Believes Cost and Flexibility Are The Reasons Companies Move To A Public Cloud Company

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Customer Believes Cost and Flexibility Are the Reasons

Companies Move to a Public Cloud Company

Interview Date: 11/28/2022

TABLE O F CO NTE NTS

Analyst Of total spend or the spend away at that particular functionality?

Analyst Okayyou had a question?

Expert Keep going.

Analyst Got it. I'm trying to...

Expert Is this the time sequence?

Analyst Is there a magic number, I want to make up something, 30% of a company's

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