Leading global tech analysts Patrick Moorhead of Moor Insights and Strategy and Daniel Newman of Futurum Research are front and center on The Six Five analyzing the tech industry’s biggest news each and every week and also conducting interviews with tech industry “insiders” on a regular basis.
On this week’s show we will be talking:
- IBM Earnings
- Slimmer Chips Act Passes Senate
- Intel Gives a Sneak Peek of its Intel Arc A750 & A770 Desktop GFX
- SAP Earnings
- Alexa Live 2022
- Microsoft Digital Contact Center Platform
- Oracle and Azure DBaaS
For a deeper diver into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.
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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
Patrick Moorhead: Hi, this is Pat Moorhead with Moor Insights & Strategy. And we are here for another Six Five podcasts this Friday morning. I’m doing exactly what I want to be doing, my favorite part of the week with Daniel Newman, Futurum Research. Daniel, how’s your Friday?
Daniel Newman: It’s going good. It’s the typical ups and downs, but at least I figured out how to get the lighting in this room right so I don’t look like a grape tomato anymore. That’s one of the fun things about doing the production here, Pat is we all have our studios where you’re sitting, we get ourselves pretty right. And then you have these situations where you and I are recording from a bunker in an undisclosed location, and we’re trying to make due on the road. Let me just tell you that hybrid equipment has come a long way, but it ain’t perfect yet.
Patrick Moorhead: No, it’s not and until it makes me look like a 25 year old bachelor, then it’s just not doing its job.
Daniel Newman: Well you saw Snap’s earnings. I don’t know if you did, but their earnings were terrible. The stock went down like 40%. And the only reason I’m saying that is maybe you and I could buy them. So we could have some way to add a pretty filter onto our bases so that we could not only be most influential and provide the best analysis on tech, but we could also be good looking. That would really help us.
Patrick Moorhead: Yeah. So if you’re new to the Six Five, we cover six topics for five to 10 minutes each. And we talk a little bit about tech news and the context, but it’s really all about analysis. We also talk about public companies, but please don’t take any of this as investment advice, just be entertained and educated and that’s about it.
Daniel Newman: What am I drinking?
Patrick Moorhead: I don’t know. I can’t say, I mean, they’re not a sponsor yet, but maybe hopefully in the future.
Daniel Newman: We’ll get them on. We do talk about sometimes because we do have a pretty good longstanding relationship with Oracle and Oracle is a big sponsor of Red Bull Racing. And so COTA, the Austin Grand Prix is coming soon. By the way, just something I’m kind of excited about. It’s not big news yet, but Pat, are we going to be back at the Grand Prix this year?
Patrick Moorhead: I think we need to be. Once again, I have not planned anything and I have no tickets. I’ve told you, I only beg for one sporting event and that’s F1. So to all the tech companies out there, if you have Paddock Club tickets and are looking for people to fill those seats, you know where to go, we’re right here.
No, in all seriousness, hey, we have a great show for everybody today, we’re talking IBM SAP, little bit of CHIPS Act. Intel getting on the discrete gaming graphics. We’re going to be talking Alexa Live and Microsoft had Inspire where they made a couple really interesting announcements. So Daniel let’s jump into IBM earning.
So gosh, the pent up demand and the fear of inflation and all the horrible things that are going on. Well, what happened? Well, IBM basically beat on the top and they beat on the bottom. I mean, constant currency revenue is up a mind boggling 16%. Wait a second. Are we talking about Salesforce here? Are we talking about IBM? Right? EPS was up 43%. Pretty incredible. One financial metric that the street really looks at for IBM is $3.3 billion in free cash flow year-to-date. Interestingly enough, some people said that wasn’t enough, which I think could have led to the decrease in the stock price.
But listen, I’m not an equities analyst. I’m a tech industry analyst. So let me stick to the content that I know really well. So every division, by the way, I’m really loving the new simplified model. What does IBM do? They have software, they have consulting and they have infrastructure. That’s it. Sure they do a couple cuts across the cloud line, but it’s super, super simple. Software was up 6%, 12% constant currency. Red Hat was only up 12%, which I got to tell you, man, I really want to see that number with a two in front of it. But with that said, Tom and company had a great quarter over there. Consulting up 10%, almost 20% in constant currency. And it is amazing the delta between constant currency now with how strong the dollar is, heck it’s better than one-to-one on the Euro.
Daniel Newman: Never seen it, never seen it.
Patrick Moorhead: I know maybe it’s time for a trip to Europe. You can finally afford something like that, but hey, the star of the show for the quarter was Infrastructure up an eyeball popping 25% constant currency. Two weeks ago, Dan, I got a pitch from an agency that said the mainframe was dead and I replied and I said, you really need to do your homework. The mainframe actually isn’t dead. In fact, the z16 brought an absolute 69% year-over-year increase. Now, was that a surprise? Probably not because this thing comes in cycles and a year from now that number’s going to be really low, but it pops two or three quarters every few years. And, here we are. So overall Daniel, a very impressive showing even under, I would say the tough reality of constant currency, where basically if you’re in Europe or you’re in Asia, the dollar, goods are going to be more expensive because you can’t buy as much as you did before. So here we are, hats off.
Daniel Newman: Yeah. So you covered a lot of ground. One thing to add about Z though, only one month of the new Z cycle actually went into that number. So there is even more. So that 69% should be bigger next quarter.
Patrick Moorhead: God, could it possibly be triple digit, Daniel?
Daniel Newman: It could be, there is a realistic chance. It could be triple digit. And of course that carried the day for the infrastructure number. The Red Hat- I totally agree with you- that the Red Hat opportunity is significant. And if there was probably one thing that I wanted to dig into a little deeper is why that isn’t growing faster because as IBM has been aggressively expanding to not only its own cloud, but working with the likes of AWS, Red Hat is a facilitator of that growth. And Red Hat, by the way, does not require companies to do anything with the rest of IBM. So it’s just an overall, if we look at the cloud market growth and we’re going to say that IBM has a play in the whole public and hybrid cloud growth, Red Hat is such a massive opportunity. So to your point, seeing up in the twenties, really looking to see a track alongside what the hyperscalers are growing would be a really, really impressive point, but it is something to work towards.
The FX was really what drove a little bit of the sentiment the wrong way, Pat. I mean, essentially the FX is scaring people. Earlier in the week, Bill McDermott went on and talked about deals slowing across Europe as the dollar strengthened because companies are saying, well, we want to see the dollar weaken a little bit before we start deploying our money to new projects, because we’re going to get less for our buck. And so to your point here, if we’re going that way, we’re going to get a lot more for our money, but as money comes back, it is not as good. And so companies have big global exposure, because it’s not just the Euro, it’s the dollar all over the world. So you look at different markets, and again, big tech companies all have big global exposure.
The guidance basically stayed on pace. A little bit of curiosity, kind of when he says something along the lines of “still expecting high single digits with constant currency”, are people doing the math in their head and saying, “well, that’s almost zero in year-over-year”? And given that the growth in the last two quarters has been closer to 10% year-over-year without constant currency, are people doing the back math and saying, so the rest of the year may be sort of offset? Is that kind of what he was saying? I wasn’t able to fully garner and appreciate that, but something spooked the investors and it couldn’t have been the results because the results, Pat, were really good.
Patrick Moorhead: Yeah. You think it’s unfair to want that 20% number? I know VMware and Red Hat are different companies, but VMware they grew whopping 3% last quarter, right?
Daniel Newman: Yeah. Well, and Pat, by the way, VMware this was one of the reasons why when the deal got done with Broadcom and everyone’s talking about what a travesty and tragedy it is, and I’m kind of looking at it like they’re not growing that fast. It hasn’t been that impressive. It’s been Steady Eddy 10%, 10% now it’s fallen to even a lower number. And frankly, and I’m not knocking and I know this Tanzu is not the topic nor is VMware Pat, but hybrid cloud here is kind of the topic. A lot of the stuff I read on Tanzu, which by the way is why I think Red Hat should be growing even faster. So is that this is opportunistic. This is an opportunistic moment.
Patrick Moorhead: Yeah. So Dan let’s move to an unrelated topic here. But I think a really important one that quite frankly, you’re all over. I think you’ve been on every major news TV network talking about this, Daniel. So hey, the Senate actually passed something, a slimmer package, but they passed something.
Daniel Newman: Let’s be clear. They didn’t really pass a slimmer package. They passed the CHIPS Act. So when you throw all the numbers around Pat, we always heard, $52 billion was the number we kept hearing $52 billion. That’s what they’re passing is the $52 billion. So in the style that only our government knows best through the additions of pork coming from both sides, I mean, trust me, Pat, in the moment when our policy makers see bipartisan support, that is like a spending spree in their brain. They go, “Oh my God, everybody wants this. This is going to pass. Let’s just load it up with crap.” And so I believe the expanded bill went from $50 billion to almost $250 billion. Pat, these numbers don’t even feel real to me, the way we just throw numbers around like $250 billion. So they packed about $200 billion in stuff that wasn’t really part of the CHIPS Act.
So I think what effectively happened is with a lot of pressure from the SIA and from the other semiconductor industry organizations with a lot of influence from the top CEOs of most of the big tech world with quite a bit of posturing about national security, technology leadership, of course, supply chain resiliency, it sort of came back to, well, we got to do something. I mean, Europe passed a bill. We saw our friends at Global Foundries partnering with SD Microelectronics to do some expansion. Pat, the numbers are something like 40 shovel-ready projects for semiconductors or planned projects for semiconductors in China, 20 in Taiwan and only five in the USA. Now I don’t think that counts the Samsung’s potential bringing 2 nanometer here to the US. You and I shared that yesterday. And by the way, where are they going to do that, Pat?
Patrick Moorhead: Austin, Texas, baby.
Daniel Newman: I mean, where else would you do that? But overall, that’s still a Korean company in the US expanding manufacturing which of course we have great relationships and partnerships, but we have to have some level of control of our own destiny. 0% of leading edge done here in the US 0%. Now, Pat having said that $52 billion bill, I don’t think it’s big enough. Even if it’s going to take multiple years, it’s primarily focused on only manufacturing, which isn’t going to necessarily offset some of the technology leadership, the R&D. We’re up against China, Pat. I feel like I talked like Trump when I said that, and that’s not my intent, but we’re up against China, which will spend any amount of money to lead in a market. They will build cities where no one lives and they will spend money to try to take the leadership.
I saw something this morning, by the way, about the TikTok thing, it’s a little bit of a sidebar, but about basically that they purportedly lied in front of Congress about the data going back to China. And all I’m saying is it’s a relentless cycle of their ambition. It’s a relentless cycle of their ambition. And yet in the meantime, we were showing no ambition on our end so long and short: Ohio’s going to go forward, Intel is going to be the largest beneficiary of all the chip companies of this act, the fab companies are going to be looking for more dollars to be put behind them to drive more R&D and innovation and technology leadership. And the consumer will benefit when we create a level of resiliency where if there’s a COVID shutdown in China, if there’s a China Taiwan issue where there is at least some capacity to manufacture some, I think we’re trying to get to parody. I think parody the goal. And I think even getting to 20 or 25%, at least that doesn’t leave us in a situation where we could be completely blacked out.
Patrick Moorhead: Yeah. So over the last five years, actually the last eight years, China has injected a couple hundred billion dollars into its own manufacturing and design capabilities and that started in 2014. So they just complete to pile on. And if you take a step back, not only are most electronic products is final assembly done in China. But when you look at the semiconductors, like you said, is it’s dominated by Taiwan and it’s dominated by South Korea. So Tai Pei or Taiwan, actually Taiwan is 100 miles from the mainland of China and planes are buzzing. Warships are moving in there. And you can imagine probably the first thing that China would do is take out TSMC. Now I don’t mean destroy it, I just mean take it over. And that seems very plausible given today’s discussion.
And then let’s talk about Seoul is 35 miles from North Korea where I think North Korea has popped off missiles into the ocean at least one every month and could pretty much destroy all of Samsung’s facilities with its rockets pretty easily. If we get into issues like this, does this mean just making chips in the US solves that? No, because all the final production is done in China of these units. But what it does do is the longest pull in the supply chain are semiconductors. So at least we would be able to have the semiconductors built here for critical infrastructure. And if we had to, I think if we were forced to do some final assembly here – actually let me step back- final assembly for military is already done on us soil. I actually did a site visit of Jabil’s factory in China and Raytheon cruise missile guidance systems, but for critical infrastructure, let’s even say for servers that go into a bank right here in the United States, most of those PCBs are done in Taiwan or China. So this is why it’s important. I don’t believe this is saber rattling for the sake of saber rattling.
Daniel Newman: Never heard that term.
Patrick Moorhead: Yeah. I listen to what China is saying. And I look at what China is doing. And then I look at what North Korea is doing. And I think it’s very plausible that we could be in a serious military conflict with both of these countries. So hats off for us. I don’t know, God. Hats off for doing the right thing, but late. Golf clap. I mean, I can’t believe we pay these clowns taxes, but we do, and this is our money. So Daniel, what, what needs to come next, now?
Daniel Newman: I think we’re going to talk about Intel. Speaking of Intel, let’s talk-
Patrick Moorhead: Sorry, sorry, go back. I mean, on the CHIPS Act, what needs to happen now?
Daniel Newman: Well, I mean, I think it’s all about moving forward, bringing back capacity and taking steps, but being diligent that we didn’t just solve the problem. We spent a trillion dollars sending money to businesses that didn’t need money randomly during the pandemic, because we didn’t really know how or want to go through the effort to manage that process. And now we’re looking at this saying, oh, we fling $52 billion at semis to add some plants that are going to take what 2, 3, 4 years to build. By the way to build a fab, you need to have the supplies to build. And I don’t know if anybody’s been paying attention, but we’re struggling to do that too right now because of the supply chain. And then on top of that, we’ve got a lot of issues with our immigration policy and most of the people that are actually going to have the level of qualification to work in these fabs, aren’t all here.
And so we need to have a plan to train and educate people to be the, these are PhD level. It’s not a huge number of employees, but they’re very specifically qualified to do this kind of work. And we’ve had a problem where we’re not managing, we have a lot of immigration, but we’re not managing where that immigration’s coming from particularly well. So there it’s a snowball Pat. It’s not really straightforward. It’s not like, “Oh we’re going to pass the bill. We’re going to build some fabs. We’re going to get to parody. We’re going to have plenty of chip supply here.” And by the way, I think the one thing a lot of the economists are potentially getting wrong is the amount of demand for semiconductors. People that think that this fed the rate hikes are going to crush demand. I see it on some of the discretionary stuff, but I don’t see it across the enterprise.
Enterprises are not going to stop investing in tech right now to shore up their businesses. They will probably slow hiring. They will even possibly stop hiring and maybe even shrink their workforce. And then they will look for tech to actually enable the next wave of growth more efficiently. So it goes back to a book I wrote called Human Machine, but we will need fewer humans when we have more machines the unfortunate will be those humans, but the semiconductor industry will be at the foundation of running all that software.
Patrick Moorhead: Yeah. And the ROI of automation goes up when you’re increasing wages. So I expect a lot more of that.
Daniel let’s move to another topic here, which is Intel giving a sneak peek of its new desktop Intel Arc A750 gaming. I want to do a build here. I want to build up. So there’s two different types of graphics when it comes to computers there’s integrated and those graphics are smaller, a little bit less capable, more power efficient that sit inside the SOC. And then there are discreet, which is could be a giant PCIE card or a slim PCIE card that goes into desktops and workstations. Intel is very much a player in integrated. In fact, the latest JPR had Intel is the market share leader at 60% of the overall graphics market, including discreet and integrated.
But in Q1 ’21, Intel had a whopping 0% market share for discrete desktop and workstation graphics. And in comparison NVIDIA right now has 78% market share and AMD has 17%. So how big of a business is this? So for NVIDIA, it’s about $4 billion a quarter. So let’s say $16 billion. And then let’s add 20% to that. Let’s call it a $20 billion market between AMD and NVIDIA. So this is a brand-new business that Intel is getting into. And quite frankly, that’s the way that I look at it is, is this net edge. So what Intel did is they gave their first sneak peek out there, Intel’s Ryan Shrout did a video on this kind of showing how their 750 did in direct X12 on certain benchmarks. And from that you gain the positioning:
First of all, it was against the NVIDIA.3060. And that is at Best Buy it’s a $399 card. But what it showed was that the A750 outperformed the 3060 by about 15% on direct X12. Actually, five game GME was 13%, but I’m liking the way that they’re putting this information out, because quite frankly, if they did a normal product launch, not a normal, but a traditional. And they put the big dog at the top, which is the A770 and it didn’t beat the 3090 or something like that from NVIDIA.. People would be like, “What’s wrong with you Intel?”
So what I like about this is they’re showing their positioning. They’re taking control of the messaging that goes in there as opposed to doing it the way that companies have done the past 20 years. Ryan and Tom Peters, also did a pretty fun video with Linus that I thought was, by the way, he’s always entertaining, that showed how good the performance was on direct X12, but it also showed the work that Intel has to do with ISVs on direct X11.
So that was another thing to learn and to know that when you’re looking at benchmarks Intel and the ISVs are optimized for direct X12, and not yet direct X11 and makes total sense because Intel just got into the discrete gaming business. So I believe Daniel, that healthy markets always have three competitors and strong competitors. And it’s funny, markets with only two strong competitors we see pricing dominance and pricing power, and quite frankly, a lack of competition and a little bit of innovation.
I’m not saying that NVIDIA. and AMD are innovating and pushing it. But do you know the last time that NVIDIA. brought out a new consumer discrete graphics card, it’s been a while. Okay. And where did NVIDIA. put their brand new architecture? They took it to the data center, not to the gamers. So I’d like to see Intel be a strong player in the market. I think that’s good for markets. Markets of three are better for consumers and we’ll see better innovation. And exactly, as I said three years ago, Daniel, I said Intel, their first out will be a strong mid-range. Now mid-range is more like $150. And $399 is kind of the bottom end of premium. But they’re exactly where I thought they would be.
Daniel Newman: Yeah. It’s interesting Pat, I love what you said about the three, because that’s really what I think we are looking at here is Intel has identified that there’s a clear market opportunity to play a meaningful part in this graphics game, AMD and NVIDIA have sort of controlled the market. The competitions both entertaining, unlike CPUs, the fan, I’ll call them the fan people to be a little safer today, tend to be on sides. And it’s only those two sides.
Patrick Moorhead: Red team and green team.
Daniel Newman: Red team, green team. And it’s going to be very interesting to see if there becomes, would it be a blue team? Because it’s not that Intel’s been completely out of this business, but hasn’t ever really created that sort of affinity that the others have created. And now, as they’re really putting the full court press into their discreet graphics business for desktops and client, and then PC, you have to think that this is seen as a major market opportunity for the company. And if you look at Pat Gelsinger’s whole strategy, breaking this out, creating it more as a division. I even know Pat, in our case in AR we’re getting someone dedicated to focus on this, which haven’t had in the past. So I haven’t spent as much time in it as you, but the real question for me is the market ready for a third competitor?
And if so, how quickly can Intel scale this up and start to really become red team, green team, blue team. It sounds to me from your assessment that this is something that has some legs, but the question now is you got to go on the sub stacks you got to go on the Twitters and you got to see someone going to start tweeting blue team anytime soon. Having said that, I know this is an important project to the company. I know that there’s a lot of investment going on behind it. And hopefully over the next 12 to 24 months, the revenues start to show that the adoption is growing.
Patrick Moorhead: Yeah. And I guess my macro thing, I’ll just end a little boomerang with don’t judge the company’s progress in totality with their first announcement, give it a few years. That’s the patience that I’m taking and you know what they did exactly what I thought they would do. They’re going to have a strong mid-range even when NVIDIA comes out with their new stuff, Daniel, let’s move to the next topic.
SAP earnings. European company, did we see the opposite effect on currency?
Daniel Newman: We sure did, Pat. We saw a company that showed strong revenue, a beat on the top line, but missed on the bottom line. And boy, it was a bit of a surprise. I don’t think, and that’s exactly where this whole FX- and then of course this prolonged and high pressure dealings with the extraction of revenues and businesses from the Ukraine and Russia war are starting to show their what did I say? Rear their ugly head, Pat. And so it was again, beat on the top, miss on the bottom, but here, Pat, I don’t want to hyper focus on that. I think you said in the first segment, we’re not equities analysts. So let’s look at what the technology story is behind these numbers. And the technology story is people want to see SAP move to the cloud. They want to see that there is more ambition, growth and adoption there.
And I think that’s what we got in their Q2 2022 numbers, Pat, you saw big backlog growth. Their cloud backlog growth was up 34%, cloud revenue match, SaaS revenue up 35%, their PaaS revenue up 50%. So you’re seeing more projects, more users adopting and moving and migrating. I think they said something like they got now about 2,258 companies that are in transition to the cloud. And they’re scaling, they do some infrastructure, but they’re really scaling on a platform at $1.3 billion in revenue there, 40% growth. They’re seeing really strong growth across their BUs. And they of course are seeing the cloud revenue accelerate, something like 24% is what they’re showing.
So kind of a quick breakdown, Pat, 24% on cloud revenue, 72% on S4 cloud revenue, their backlogs up 25%, their S4 HANA backlogs up 87%.
And then of course they still have that big chunk of Qualtrics that’s showing 39% growth. And I think Pat, that’s the underlying story you look at like SAP and Oracle, Oracles going at it a little differently with their own IaaS SAP does this on a custom type basis, but largely is in the partner. Azure sees a lot of SAP workloads. AWS sees a lot of SAP workloads. And I think what SAP is trying to do is use the clouds that are most highly adopted, which are those two at this juncture. Despite Oracle’s really impressive recent growth, as well as Google and try to make it the whole rise program, making that transition pretty smooth, pretty seamless. And I think the company’s accomplished that, but these numbers are good. The fact is the missing on earnings was something that is 100% associated to FX. This huge strength of the dollar totally offset what the company expected.
And by the way, this all happened during the quarter. This whole dollar movement was not something that was going to be fully predictable. So with all that in mind, my take Pat is it was a pretty good number and your tweet by the way, one of the best out there. So everybody check out @PatrickMoorhead. I write articles about earnings. Patrick writes bomb-ass tweets about earnings. And so he’s got a multi slide, fully fleshed out data driven slide deck that he put on Twitter. That if you just want the cliff notes, it’s a great place to get it.
Patrick Moorhead: I appreciate that Daniel, but I do read your articles though. But not to create my tweets. I’m not plagiarizing, I promise.
No, listen, Daniel. I think my big takeaway was continuing progress in the cloud. And I just love that the company has the courage to literally put out IaaS, SaaS and PaaS numbers. If you look at the drill down the supplementary deck, these folks aren’t hiding anything. So when they decided to truly lean into the cloud, they also did that with the opacity of a company with confidence or sorry, the transparency of a company that has confidence, even though their strategy, they are not trying to be good at IaaS, in fact, they’re really not doing that. They’re working primarily through partners to do things like lift and shift.
So what I want to focus on is I think for me, the bottom line is they’re executing to their strategy. What did Christian and the board tell investors? They said they were initiating the ERP transition to cloud. Well, we talked about their backlog. I think it’s at 87% S4 HANA current cloud backlog. They’re scaling as a platform company. I talked about the PaaS number PaaS revenue is over $1.3 billion and PaaS revenue growth is 40%. Christian also promise to deliver growth across cloud LOBs, essentially leveraging business between the groups where they’ve had double digit revenue growth and a bunch of big wins out there.
They talked about growth. Some big growth areas with Signavio SAP business network and the cloud for sustainable enterprises. Those are the long ball that they’re throwing on there. And finally they said we’re re-accelerating cloud revenue growth and we were at 24% at cloud revenue. So net net, the company is executing on what they said, and it was a shame that they missed their bottom line. And by the way, I didn’t do as much of the double click on that as you did, but it sounds like it was because of FX.
Daniel Newman: Well, FX and Ukraine. I mean, the transition for companies that are trying to do that rapidly is costly. And so those were the two items that the CEO Christian Klein actually highlighted. So I can only take a little credit, Pat.
Patrick Moorhead: I appreciate that. Daniel let’s move on to Alexa Live. So Amazon, as you know, has multiple businesses. And one of them is an intelligent device business, which is slowly turning into a services business, particularly when you look at what they’re doing in terms of security. And this was their once a year big event to bring new announcements essentially to their developer community. And gosh, I think they brought out 15 of them. But I think the one that I want to focus on, because I think it’s the most important, is this Alexa Ambient Home Developer Kit. So right now there’s multiple APIs for multiple disparate uses and they’re not talking to each other. Okay. So for instance, security is not necessarily talking to the matter API, which is more of a, I would say an industry standard security API is not talking to the state of the home API. Meaning is it vacation? Is it dinner time? Is it time to go to sleep?
So what this new ambient home dev kit did is unified across home state APIs, which I talked about, safety and security, which takes Alexa Guard features, and this is its home security services capability, API for credentials, which ties into matter and eliminates the need for thread, which was the previous protocol, API for device and group organizations, which enables you to sync group names between Alexa and apps -and that’s for instance, a third party app that might have a certain name for a device like “front yard camera”-and automatically synchronize that into Alexa, and finally multi admin simple setup for Matter, which gives the same admin capabilities to admin for Matter devices. So it may sound like a lot of gobbledygook, but if you’ve played around with Alexa, I think I have 27 Alexa devices across a few properties and it got complex. And when you add Matter, which is basically allowing you to talk to some Apple devices and Google devices, it just got infinitely more complex, but Amazon is trying to alleviate that with this new ambient home dev kit.
Daniel Newman: You hit that pretty well. And I agree with you, that was probably the most important thing. Another thing that’s going to be super important for Amazon Alexa is going to be the continued growth of the developer community, is building a more interest, making it more lucrative. The Apple Store and the Google Play Store have been wildly successful because you develop apps for it and it creates a big revenue. A lot of companies have been created in these app ecosystems. The ecosystem for Alexa is going to be equally important in time, is that there’s enough development going on. And so this is where the Alexa skills updates I thought were also pretty interesting. They created a skill developer acceleration platform, a skill quality coach, but really the increased revenue share I thought was interesting is that I think Amazon knows the ecosystem, the importance of development and what it’s going to play.
So it actually upped. So this is kind of the opposite, everybody loves to have Amazon derangement syndrome about everything that Amazon did wrong. Like when Amazon bought Amazon one medical yesterday, they’re just stealing healthcare data as if that’s the way they would need to get it. Because people just post all their stuff online anyway. But the lower revenue, smaller skill developers, it means if you’re making under a million, they actually increased the revenue share at 80/20 which it was 70/30. So they’re getting 10% more incentive. And that means developers can make more money, which by the way, is an incentive to build better apps. So yes, I think to your point, what was most important? The simultaneously entirely connected ecosystem that everything you bring into your house that’s connected should work together. Historically, Pat, this takes me back to my younger years, but it’s the Crestron and the AMXs and the Control4s and these control systems that used to need in your home to make lighting, shades, drapes.
And of course this was before you had things like commerce on your display. And I don’t know if you remember, they used to have a, I can’t remember- Kaleiescape is what it was called. It was a movie DVD management system that enables you from a touch panel to pick from your entire assortment of videos and be able to watch a movie in your little theater. And this was really, this was a several hundred thousand dollars product designed for the uber wealthy.
Well, of course now on Alexa with prime, you have all the content, all the videos, you can feed the content, it could talk to your smart TV or your smart speaker, or whatever, your lighting system, drapes, shades. But the one thing, reason these houses, because really every house should be able to be a smart house now, but that compatibility has held us back, making it more seamless, making it more compatible will be the difference. So it’s a good step forward. And of course having that ecosystem of developers building cool apps, cool integrations, that tends to make these things move faster. So I feel like that’s what the company is betting on.
Patrick Moorhead: Someday we’re going to get there. I think we’re in the second inning of this, the stuff is super hard, but yeah. Yeah. And I think people are, it’s so hard that people are banking on it for really simple stuff. Like wake me up. Who’s at my front door, where’s my package? But let’s move forward. Daniel, let’s move to the final topic at Microsoft Inspire their channel conference. They brought out a new digital contact center platform.
Daniel Newman: Yeah. This is really interesting with Teams and with Power Platform and automation. One thing that Microsoft hasn’t really been vocally participating in it has been that kind of contact center experience. They that’s been kind of left to others. If you are down the legacy path, it’s more Genesis or Cisco or Avaya. And if you’re in the more modern, it might be Nice or TalkDesk or Five9, now Zoom. And so I think Microsoft, always exploring revenue streams that the company is missing, said, we can do this and we can actually do this pretty well because we can take our acquisition of Nuance, Dynamics 365, Power Platform, Microsoft Teams. And then of course run everything on Azure and give people a pretty comprehensive customer contact center platform. So it was a really interesting move to make, but I want to point out first from a platform standpoint, what can it do?
It can take AI, it can do in intelligence self-service it can be productivity driven and it can do the 360 view of customers that are required in the context center again and take all these softwares. It can do it in a fully integrated manner and take if you have this Microsoft ecosystem, it becomes extremely friendly. Now having said that, I was kind of at first thinking when I heard this update, oh, so Microsoft’s going after everybody. They’re going to take out all these companies. And so that isn’t what they’re doing. What they’re basically doing is they’re saying this is sort of building blocks. So if currently you are running on a T-Tex or you’re working with Accenture on your call center, they’ve got integration. This is stuff that can be integrated at the SI level. And this is stuff that can be integrated at the technology level where you could still work with your cloud-based contact center though.
And you’re going to make it extensible to some of the technologies in nuance or some of the technologies in your Dynamics ERP, 365 ERP or if you want to integrate Teams in a more comprehensive manner. So it’s kind of, if you think about we’ve talked a lot about building the car of the future is going to be building blocks. Well, the contact center of the future, what Microsoft’s saying here, is also going to be building blocks. So by the way, just to be totally transparent, I always admire the way that Microsoft is able to sort of deliver a solution that can do everything. But at the same time always be somewhat accommodating to the fact that the partner ecosystems are really rich. And of course, most companies aren’t going to go 100% into any stack or any one technology. They tend to always have a smattering, especially in things like a Martech or a contact center stack.
And so I think that Microsoft did a good job of building for that here. But the long run, Pat, is I think there’s a gap to be filled. I think ERP CRM data, combined with Teams and content and customer experience integrations, combined with AI running on Azure is a pretty powerful stack that I do think Microsoft will be very competitive. And of course the way Microsoft tends to make things available to its customers tends to be very low barrier entry initially, and then it spreads and then it becomes extremely sticky. So kind of like I said, it’s the whole continuum of Brownfield to Greenfield, but it was a smart move into an industry that’s going to only get more important as more and more commerce is done remote. And as more and more customer interactions are handled digitally.
Patrick Moorhead: Good analysis Daniel I’m surprised it took Microsoft this long, but it just must not have been a priority for them, the opportunity to glean and infer and get more intelligent about contact centers are just in incredible. Just when you thought audio is dead, audio becomes super important based on all of the things that you can do with it. Microsoft is very capable and what I actually say Microsoft, when it comes to audio processing and intelligence, they’ve been doing this for over 30 years and I am going to just infer from that they’re going to be really, really good at it. And then when you layer video on top of that for even increased intelligence makes sense. I have to admit though this does remind me a lot of AWS contact center, where it’s API driven as opposed to a turnkey product here.
The incremental value I can see, let’s say if you’re a customer looking at to whether you adopt Microsoft or AWS, is you have integration with killer tools like Teams. And you have low code and no code and a lots of code environment that Microsoft brings to the table. That doesn’t say that AWS doesn’t have low code, no code. I would just say that Microsoft’s is more mature and is used more than AWS is and used more by enterprises out there. So lots of value. I’m glad to see it. I don’t fully understand why it was announced at this show, I guess it’s because it’s partner letter. Maybe Microsoft had to make a product announcement at a show, otherwise you and I certainly wouldn’t be satisfied. Well, they did.
Daniel Newman: No, I’ll just say they did talk a little bit about how the Avanade, EY, HCL- so these are the Channel Right partners- would all be able to benefit from this and scaling their contact center deployments.
Patrick Moorhead: Hey, one final thing we didn’t talk about. Maybe we can put this in, but one of the other bigger announcements they made at Inspire was they partnered with Oracle on basically Oracle database as a service, which you could be running an Azure application that was hitting an Oracle database, essentially a turnkey multi-cloud capability. They’re doing peering high performance networking. So you’re not necessarily experiencing that lag, but there’s literally Oracle infrastructure inside of the Azure cloud, which I think is pretty cool.
Daniel Newman: Swear to goodness, Pat, we have the same brain because I legitimately had that up on my screen and was going to say, can we do a quick Seven, Five? Can we maybe not do the full five here? But by the way, I love seeing that the press release was Austin, Texas, and Redmond, Washington. But Pat, I think the thing here too, is that this is a story in which multi-cloud, this is a true example of the power of multi-cloud of if you kind of look at how these things can work together, it doesn’t require extraordinary expertise on both platforms it’s designed for simple integration. I’ve read some of the comments from Clay Magouyrk, this SVP of that business he basically said and it’s an acknowledgement by the way that this public to multi thing is a real deal, that effectively, they talked about clients like AT&T and Marriott, just some of the world’s biggest companies that they want both because they’re running Oracle database and they’re running workloads in Azure.
And basically these companies coming together and saying, let’s solve this, let’s solve this for our customers. Let’s make this more accessible. Let’s make this simpler to deploy. And so I was impressed by that. I was almost going to figure out how to fit this in as one of the six, but there was just so much news this week. It was just one of those busy, busy weeks.
Patrick Moorhead: Yeah, it was. And it’s interesting. And I don’t know if you’ve been getting hints out there in the industry, but birdies are whispering into my ears, “Hey, check out the new Gartner MQ, where there’ll be more of focus on multi-cloud.” So here we are, man.
Daniel Newman: Gartner, Gartner.
Patrick Moorhead: Gartner. Yeah, I know.
Daniel Newman: I’ve heard of them.
Patrick Moorhead: It’s so funny. Somebody asked me if, “Hey, do you have a subscription there?” I’m like, “Are you crazy?” Short answer is no, but Daniel, I think we’re going to see a lot more communications about multicloud in the future. And once again, I think our two companies are in the lead in talking about that. I mean six years ago, we were talking hybrid cloud and some companies were saying it’s not real and it’s not valuable. And here we are today, multicloud: is it important? Is it not important? I think we’re going to have a lot to talk about. We both acknowledge that multicloud is hard, with you need a data fabric, you need a security fabric. You need a, yeah, networking security and data fabric to pull it off seamlessly. But when you look at deals like this, and then you talk, well, you look at what Walmart did, where it’s arbitrating between three clouds and they built their own DevOps layer between it all gets pretty interesting.
So Daniel, I could talk for another hour on multicloud, but I think we got to go here. We got to call time here, but I just want to thank everybody for coming out and supporting the show. You know where to find us on Twitter. Good comments to me. Bad comments to Daniel. And anyways, have a wonderful, wonderful weekend. Take care, everybody. Bye-bye.
Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio