Talking SAP, Windows, AWS, IBM, T-Mobile, Apple and Amazon

By Patrick Moorhead - October 2, 2023

On this episode of The Six Five Webcast, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The handpicked topics for this week are:

SAP New GAI assistant, “Joule”
Windows GAI Copilot Released to Billions
AWS GAI Update
T-Mobile First SIM-Based SASE
IBM Granite GAI Watsonx Goes GA with Indemnity Protection
Apple iPhone 15 Defects?
Amazon FTC

For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.

Watch the episode here:

Or listen to the audio here:

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 ask that you do not treat us as such.

Transcript:

Patrick Moorhead: Hey, there. We are live, The SixFive on a Friday afternoon. Dan and I are incredibly rested. We’ve been home for almost a week. I don’t even know what it’s like, but it’s good to sleep in my own bed. Lots and lots of stuff has gone on this week. Daniel, are you rested? Are you refreshed?

Daniel Newman: I don’t know. I think that’s all BS, Pat Moorhead. Being home just means more hours for me to work. I don’t know. I told my team, I said, “I’m on a half day program now. I just don’t know which 12 hours I’m working every day.” And when you’re trying to cram seven hours of sleep, and it just doesn’t leave much time. It’s really funny. A lot of days I get done with work and I’m like, “Well, it’s time to start getting ready for bed.” And you get up and do it again. Now in the era of the commute, I could almost make sense of that. When you’re commuting a couple of hours each way, you come home, eat dinner, get tired, go to bed, get up. But when you’re actually working from home, it is amazing. We’re not actually all that much more effective, Pat. We just work more.

Patrick Moorhead: Yeah. It’s amazing how the calendar filled up. My advisory clients. I give them access to my calendar and they love it. But I’ll walk in one week, I’ve got 20 hours open, and then within a couple hours, half of those are filled up. It’s good to be popular. I mean, I always tell people, the analysts you need to worry about are the ones who aren’t in demand, who people don’t want to talk to. You’re probably not going to get the best advice from them.

Daniel Newman: I want you to want me, Pat.

Patrick Moorhead: Yeah.

Daniel Newman: Can I sing it?

Patrick Moorhead: Yeah. Was that cheap trick?

Daniel Newman: I don’t know. But I need you to need me.

Patrick Moorhead: Yeah. No, no, keep going.

Daniel Newman: It makes me feel good. I love you. You love me? All right. It’s good.

Patrick Moorhead: No, we are so much more refreshed. I mean, last week I was kind of a train wreck. There were so many better things I could’ve said last week, so I’m going to make it up this week. And with that said, we have-

Daniel Newman: Did you listen back? Did you do your typical where you watched it on your big screen and sat there and cheered?

Patrick Moorhead: No, no. I couldn’t.

Daniel Newman: We should start sharing that. The weekly photo of you and Pearl and Ernie cuddling on the couch.

Patrick Moorhead: Yeah. Yeah, we do sit on the couch on Saturdays and listen to the pods.

Daniel Newman: Can I just say, this episode is in honor of my amazing pooch, Dempsey. I know you’re up there in heaven smiling down on me.

Patrick Moorhead: Yeah.

Daniel Newman: Miss you, buddy.

Patrick Moorhead: We should’ve done a moment of silence. I feel bad. We should’ve-

Daniel Newman: Nah, he don’t need a moment. I mean, he’s smiling. He’s probably probably rolling in the grass right now eating anything and everything.

Patrick Moorhead: No, I do believe dogs go to heaven just for the record, and I’m going to be a complete basket case when Pearl and Ernie go there. Dogs are just so amazing.

Daniel Newman: Someone said to me, Pat, they said, “The reason you feel so sad when your dog dies is because dogs are pure love. So when you lose them, you feel pure grief.” And I said there’s something to that. It was very profound. Very profound. Because they said even humans, we have our ups and downs, we have the complexities, but dogs, all they do is love you. That’s pretty cool. Anyway. All right. Enough about that.

Patrick Moorhead: The first part of the show has been brought to you by dogs.

Daniel Newman: First part of the show been brought to you by Dan sharing his feelings. This is the second time in so many weeks that I’ve opened up. People tell me I don’t open up much. I need to open up more. Well, there you go.

Patrick Moorhead: Dan. I get the real Dan all the time.

Daniel Newman: Don’t expect this as a regular thing. It’s not going to happen. I’m going to get back to being a workaholic, emotionless, cold… Anyway. Just kidding. You know I’m sweet. You know I’m sweet.

Patrick Moorhead: All good. Hey, let’s move forward. Hey, if you’re new to the SixFive, I need to ask you what your problem is. We’ve been doing this for a long time, but we do appreciate you stopping by. Tell your friends, family, your dogs, everybody that you can, if you like the show. But we have an action packed one for you. It started off kind of boring, but we have seven topics. Seven. I went outside of the lines. The big risk. Dan, I don’t know if the show is going to come to a complete screeching halt, but we’re talking SAP’s new generative AI assistant, Joule. As in the unit of energy. Windows GAI went to over a billion people this week. AWS did some generative AI updates. T-Mobile introduced some cutting edge security, IBM generative AI tools go GA and they also added indemnity protection, which I think is a big conversation out there.

Daniel Newman: They are going to pay your lawsuits.

Patrick Moorhead: That’s right. I’ve seen that on TV before. We’re going to be talking about potential iPhone 15 defects related to heat, but others. And we’re going to follow up, we’re going to end this show unless everything blows up because we’re doing seven topics talking about the FTC officially launching a lawsuit against Amazon. So hey, let’s-

Daniel Newman: On the other hand, I think we just need to talk about that because… Actually, that was what inspired me, our buddy John Ford, I watched his On the Other Hand, and it was the most lopsided, single-sided argument I’ve ever seen him make, which was essentially how dumb the FTC is. But I think we’ve been collectively talking about that all year. Pat.

Patrick Moorhead: We have, I think Lina Khan and team is like O four 10 at this point.

Daniel Newman: Don’t know, but if they were playing in the major leagues, they’d be in the minors now.

Patrick Moorhead: Totally.

Daniel Newman: And if they were in the minors, they’d be playing in the bush. And if they were in the bush, they’d be basically sent back to little league. So maybe there’s a little league coaching job for her somewhere.

Patrick Moorhead: Gosh, are we doing this topic already? Is this the first topic, Dan?

Daniel Newman: I’m just having fun, dude. Look, predictability is great for the simple people, but for us in our provocative audience of geniuses, we need to keep people on their toes.

Patrick Moorhead: You do, yeah. Simps. We don’t detract simps. If you’re a simp, we don’t want you to be one.

Daniel Newman: I don’t even know what that means, but I see it online.

Patrick Moorhead: Pico’s my son and he calls me a simp…

Daniel Newman: Does he? He’s trying to go after you, right? He’s really trying to…

Patrick Moorhead: Oh, man. He’s the best.

Daniel Newman: Where does he want to work when he grows up, by the way?

Patrick Moorhead: I don’t know. I mean, he’s talking Google, Microsoft Futurum Group.

Daniel Newman: Can’t blame the kid. I mean, he’s brilliant.

Patrick Moorhead: I mean, he is 21. I mean, his brain’s not fully formed yet, okay? He’s got three years to go.

Daniel Newman: I know.

Patrick Moorhead: Hey, Dan, what do you say we jump in.

Daniel Newman: Yeah, let’s do it.

Patrick Moorhead: The first topic, and this is SAP on the generative AI bandwagon with an assistant called Joule. What’s happening here, Daniel?

Daniel Newman: It is Joule, right?

Patrick Moorhead: Yes. Like the unit of energy, Joule.

Daniel Newman: Yeah. No, no, but with it being a European German company, it’s like I hope I’m pronouncing that correctly.

Patrick Moorhead: They’re a global company.

Daniel Newman: 300 million enterprise users. 300 million enterprise users are leveraging SAP solutions. Look, we’re going to talk a lot about generative AI this week because what else is there to talk about? But we’ve been waiting through this motion of what is every company going to be doing? And of course, with BTP and SAP in the cloud, we had no doubt that SAP intends and it actually has announced partnerships with the likes of Microsoft and Google and others. It’s very much building a ecosystem friendly approach to enabling generative AI. But when you have that much data, that much capability, and you’re that critical to running an enterprise’s application, having your own digital assistant leveraging the power of generative AI is going to be a thing that is going to be required. And it’s a thing that SAP needs to have embedded into its platform. So what has it done? Well, it’s done just that.

And this week I had a wonderful opportunity, I think you’ve had it in the past, to sit down with the CEO, Christian Klein to talk a little bit about the company’s strategy. And the company’s going through a pretty massive transformation right now. AI is putting this company at this inflection where many of its users… And this is something a lot of people might be aware of but don’t really know is SAP has done a really nice job of moving companies to the cloud, but it still has a humongous set of its customers on-prem. So we’re kind of talking Joule, I’m kind of talking cloud migration, and I’m kind of talking AI all at once. But again, this is not a news show, people. So if you’re waiting to read the news, you can read the link below. I’m going to give you some analysis here.

SAP needs to move its customers to the cloud or it needs to have its customers running its applications in the cloud, and here’s why. In order to get the best functionality and features in the generative AI era, companies are going to increasingly make it a priority to develop the continuous improvement of applications to be run in a continuously updateable manageable sandbox. Well, guess what? Having your highly customized code on-prem is going to be impossible for enterprises to successfully leverage the benefits of AI. And this is a lot to do with what I was talking with Christian about, but this is also what Joule is all about. Joule for a company to get the benefit, whether you’re running a finance ERP tool or an HR application, will not be able to be continuously upgraded to give optimum performance and capabilities to its customers if it’s asked to be custom coded into every different variant and iteration of SAP.

So right now, I mean, because you’re not only talking about SAP’s ERP, you’re talking about success factors, you’re talking about Ariba, we’re talking about procurement, we’re talking about HR, we’re talking about ERP, we’re talking about CRM, and marketing tools. So this is a transformational moment where we’re moving from a conceptual hype to enterprise wide deployment, and you have so much valuable data sitting inside your SAP instance, we need to get the most out of it. So this is where Joule being embedded across the SAP ecosystem is going to be important. And it’s also going to be important for the company to make sure that it wins the battle to this cloud transformation and doesn’t attract… Let’s say third party companies that are saying, we can overlay enterprise-wide workflow capabilities that can then be managed using a generative AI tool and you can leave your hardware on-prem.

It won’t work as well. People will try it. But you can be sure that this is where Joule is going to end up winning out. Now, of course, you need to be able to see these reports, the flexibilities, the capabilities. It needs to be very natural language, it needs to be easy to use, it needs to be central to the business’s performance because here’s the one thing every one of these companies in this space, whether it’s Salesforce, Microsoft, SAP need to be thinking about… And Pat, stick with me here just one more second.

Patrick Moorhead: I’m with you buddy.

Daniel Newman: I know, but I want you to know I’m feeling it today.

Patrick Moorhead: I can tell.

Daniel Newman: There will be a reckoning in the fact that not every single application in your enterprise can have its own digital assistant. Meaning at some point we’re going to want the digital assistant of digital assistants. And so we’re going to have some competition across the cloud, SaaS, ERP, productivity, collaboration. Where do we actually engage gen AI? Who’s going to be the leader and then who are going to be the secondary robots that are going to play fetch? Like the pooches we started talking about that are going to get all that data and bring it back to us in one centralized environment? So Pat, I think it’s a good move.\, It’s on the right track, this cloud migration is very important. I think SAP is doing what it has to do, but it has to migrate its customers. It has to win that frontline of being the source of truth and generative truth. And that’s what I think SAP is setting out to do.

Patrick Moorhead: Yeah. So this generative AI launch from SAP really closes the circle of enterprise generative AI, right? You saw the IaaS folks come out and then… Which if you want to do your own applications around that, you can. And then we saw the front end of the office with folks like Salesforce, and now we’ve got the back end of the office, the HCM, HRM, SCM, ERP, and NCX are coming full circle here. And it is interesting, Daniel, to your point, if the need for a uniform or a unified one generative AI bot, right? There’s two ways to get there. The first way you can get there is to go all in on an end-to-end, a NetSuite or an Oracle Fusion. The other way, obviously, is through APIs and custom data integration where you can train a lot of these bots if they have the data to have that come back.

We’ve always fantasized about a single pane of glass to manage IT, but there’s never in the history of glass that there’s been a single pane of glass. It’s really about reducing those panes of glass. So I do think the reality is we are going to have multiple chatbots out there for certain… And like we’ve seen in IS, you have your primary and then you have your secondary stuff. To your comment about the cloud, a hundred percent agree with you. SAP customers need to get there. And I think SAP has been one of the most patient companies when it comes to old style IT and supporting that. I think Christian said he’s going to let no customer behind, which I admire. I also know the reality of product development. And this hearkens back to Windows probably a decade ago when Microsoft was spending over 50% of its R&D on stuff like drivers, right? For old hardware.

And Apple, right? Was pretty much abandoning customers left and right on the MAC platform to get to, I’ll call it common core, okay? SAP has a common core too. And even if it’s common core, doesn’t mean it’s one way of doing IT, right? There’s three to four different flavors of SAP common core that a lot of its customers can. SAP needs to very quickly move off of customers who quite frankly are holding the rest of the pack behind. We saw this with Oracle and Oracle’s on-prem apps, Oracle app… Was it PeopleSoft was one of the big ones? And Oracle had to do a sharp right turn, and they acknowledged that they needed to get people onto a common core. Did they anger some customers? Absolutely. And I think SAP is going to have to bite the bullet and move this forward. It’s not just about SAP, but it’s about all of the rest of SAP customers that have moved the cloud.

I do also acknowledge the worst and first movers who moved via VMs. And these aren’t laggards, these are big companies who move stuff into IaaS that will need to figure out, because they’re not on common core, how to take advantage of this. But these are very sophisticated companies. They’ll grumble a little, but they’ll move forward. Now we’re going to hear more about that in October. SAP has multiple events. They’ve got Connect Live and they have Experience Live, and they have TechEd all throughout October and November. But it’s great to see in what I will call mission critical applications, whether your risk is very high that SAP is moving into this generative AI future. This isn’t their first launch, right? They did some announcements about their ecosystem, Western Europe’s Aleph Alpha, Anthropic, Cohere, and a lot of third party partnerships with Microsoft, Google Cloud, and IBM.

So this isn’t their first generative AI or AI announcement, but I think it is a big one. So let’s move forward in other generative AI news. Windows copilot went to GA. And this is a huge deal, folks. This is not in preview, you can go and do a Windows C and the copilot comes up. Now it is a preview copilot. If you do want to do preview and see all the cool features that are inside things like Windows photos, the new Outlook, right? Instead of mail, you get a, I would call a mini version of Outlook. It’s not the enterprise version, but adds all these generative AI tricks. Heck, if you want to do some of the generative AI magic tricks in Clipchamps, for instance, you want to take a video and take it 16 by nine, put it in a portrait and slam it into Instagram for a reel. Yeah, for real. With a Instagram reel, you can do that.

So the amount of users is daunting. I would say there’s probably 1.5 billion Windows users. And then when you slide on Microsoft 365, you’re probably going to have 2.x billion users on this. Scale matters, Daniel. And what’s happening is because Windows is the preferred operating system for a computer, I believe it has 90% market share, everybody who knows how to use the Microsoft copilot will then go to work and know how to use the Microsoft 365 copilot, the one for Dynamics 365, the one for GitHub. So there’s not going to be this massive retraining that you might have if Microsoft didn’t have this on Windows. And while I hate to use the word democratizing generative AI, this is about as-

Daniel Newman: Why do you hate that?

Patrick Moorhead: I don’t know. It sounds political, but I like the idea of expanding generative AI to literally everybody on the planet. So faster than I thought, Microsoft said it was going to be out, they telegraphed this, the New York event that we covered with The Six five, but it’s great to see it’s there. I downloaded the preview as well, the lower risk version of the preview, and I urge you to do that as well if you want to get all of these generative AI goodies.

Daniel Newman: That was pretty quick, but I guess we did cover this one last week indirectly, right?

Patrick Moorhead: Yeah.

Daniel Newman: I’m peeping Melody Brew’s article, more insight strategies expert analyst. She quoted you in it. That’s pretty cool. So what you do now is you have your analysts cite you.

Patrick Moorhead: Well, I mean, I tell them to cite the smartest people out there. I didn’t tell them to choose me.

Daniel Newman: Was my phone line busy? What happened?

Patrick Moorhead: Possibly. Dude, you’re in corporate meetings. Executive level meetings.

Daniel Newman: Hey look, it’s a race to a billion, what can I say? The world’s largest independent research and analysis firm. Don’t you love how that sounds?

Patrick Moorhead: It is. And I’m the world’s largest independent analyst firm in downtown Austin.

Daniel Newman: Yeah. Right. Wait. I got an office down there. Anyway.

Patrick Moorhead: That’s right…

Daniel Newman: You got to love Fridays, people. You got to love Fridays. So listen, pick up your mail. Occasionally, get down there.

Patrick Moorhead: All right.

Daniel Newman: So, here’s the thing with the co-pilot, and I’ve said this for a while, I started to allude to it in the SAP. What Microsoft is doing really well is Microsoft understands the way a worker or a consumer is going to want to experience and interact with its apps, okay? And in this world, we basically want a ubiquitous experience, starting with the millennial generation,- Pat, but definitely into these Gen Zs. There’s no reading instructions anymore. There’s no interest in any sort of tutorial. We want to be able to pick… I say we as in me because you’re old, but we want to be able to just use-

Patrick Moorhead: Ouch, buddy.

Daniel Newman: I know. I know. It hurts, hurts.

Patrick Moorhead: I am old. No, listen. I’m not going to hold your lack of experience against you, ever.

Daniel Newman: Thank you.

Patrick Moorhead: Okay?

Daniel Newman: I appreciate that. That’s very sweet of you.

Patrick Moorhead: By the way, that was Ronald Reagan debating… God, I even forget. Maybe Jimmy Carter. No, no, no. Not Jimmy Carter. I don’t know the guy who lost.

Daniel Newman: Whoever that was. That was before I was old enough to… Actually, I wasn’t alive. But anyways, the point here though is ubiquity, simplicity, and the fact that as you go from copilot to copilot… I asked this question, Pat, and you banged me on it a little bit because it was something that’s kind of in motion. But the truth is, and I said this about SAP, we’re going to have a copilot for copilots, we’re going to have an app for apps, and a gen AI for gen AI. And your point of never being a single pane of glass is true. Having said that, the idea of ETL and APIs and calls and SDKs has existed for a long time. And why do those things exist? It exists because people don’t want to have to go into every single unique tool to be able to get the benefit of gen AI. Okay?

So if you want to be able to generate an image in Bing image generator, truth is in the long, should you have to go to Bing forever? Or should there be a digital assistant that you could say, look, create an image and it would know that what you’re asking is something that gets done in Bing. So Microsoft is not entirely there yet, but I think what they’re showing directionally is they’re trying to create a ubiquitous, seamless experience that goes across copilots. I admire that. I think it’s going to take some time, I think it’s going to take some work, but I think they’re on the right trajectory. The only other company I think that’s got a likely path to doing that is Apple. Will Apple do that? I have no idea what Apple’s doing with AI. I prefer to pick on them for the things they do wrong rather than prognosticate the things they may eventually get right. But having said that, Apple doesn’t have productivity apps that people use heavily. Yes, I do know they have a Word document thing, but does anyone use that?

Patrick Moorhead: No, no.

Daniel Newman: Not in the enterprise, for sure. And so it’s not really a thing, but my point of more of having that ubiquitous front end. I mean, that’s what Siris kind is supposed to be. It just doesn’t really do that well yet. All right. Anyways. That’s all I got to say about that.

Patrick Moorhead: Oh, I appreciate that. That’s good adders.

Daniel Newman: Thanks.

Patrick Moorhead: Hey, and because we can’t get enough generative AI here, Amazon AWS brought a multitude of generative AI updates. Dan, what’s going on here?

Daniel Newman: Well, for more information on that, please follow Patrick Moorhead on x.com, because he probably put out one of the better tweets. It got exactly two likes.

Patrick Moorhead: I think got 40. What are you talking about?

Daniel Newman: No, no. I clicked on the one that you shared. It shows two. I don’t know. Am I wrong? Anyway.

Patrick Moorhead: Well, Dan, it’s not all about the likes.

Daniel Newman: I don’t know. My children told me it is. So sometimes when I post stuff, they’re like, “You’re verified, but only five people like your tweets.” It’s not very nice. My kids are kind of mean. But I can say that here because I know they’ll never listen to my podcast.

Patrick Moorhead: Yeah.

Daniel Newman: By the way. They won’t read my books either. You think the one person you could count on to read your books would be… All right.

Patrick Moorhead: Disappointing.

Daniel Newman: So in the gen AI world, we are going to talk quite a bit about GA this week. And another bedrock, which is the managed service for the various foundational and large language models offered by AWS. And Pat, you know what I said in my tweet? Amazon is further democratizing the ability for enterprises and users to be able to implement and scale their artificial intelligence and generative AI ambitions through making and democratizing these foundational models and large language models. So if you’re already running your data and running your compute in AWS, it’s a shortcut to being able to simplify and implement your Gen AI ambitions. So you saw that, they have their Titan, which is a bunch of search and personalization engines that are going to be made GA as well. They’ve now decided to quickly adapt Llama 2, and then they’ve got a few other things that they came out with.

Probably the most important thing, Pat, that I noticed in this week’s announcement is they’re starting to want to communicate that hey, we have big companies, big customers that are committed to and leveraging AWS and Bedrock to take their gen AI strategies to market. So they put this in here and Pat, that’s why I said I loved your tweet because it was a nice consolidation of these thoughts for me. But big companies like BMW, big companies like LexisNexis, Rocket Mortgage, PGA Tour and many others are basically saying they’ve already committed to building generative AI on top of AWS Bedrock. Amazon Bedrock. Is it AWS Bedrock or Amazon Bedrock?

Patrick Moorhead: I don’t know. I always get confused there. I think Amazon confuses folks with that.

Daniel Newman: Okay well, the fact is, whichever one it is, this is being built on top of Bedrock. And I think what the company is doing right now is really twofold. One, they are really leaning into we are the open… It’s interesting, Pat, because AWS for a long time being the no hybrid, no multi-company has kind of 180 this whole Gen AI thing and said, “Look, we’re not going to try to build it in terms of ground up doing all the big large language model and then centralize it. We’re going to use all Anthropic and Cohere and we’re going to use Llama and we’ll… Whatever it is, you can use it.” And they’ve created that very open approach, which I think in Gen AI is good, as I do believe some of these bigger language models that were initially moats aren’t really going to be moats long-term. The foundational models, the smaller models, the industry specific models, that’s where it’s going to be at. We’re seeing it somewhat here. We’ve heard it from SAP, we’re hearing it from Oracle, we’re seeing it from other companies. Good progress from Amazon, AWS in terms of gen AI offerings.

Patrick Moorhead: All right. I’m glad you took all my content off my notes.

Daniel Newman: Your team was so good. I mean, look, as long as I gave you a pat on the back, I get to steal all your ideas.

Patrick Moorhead: You do. And sometimes I’ll steal your ideas and not give you any credit, so I appreciate you giving me the credit there.

Daniel Newman: I know, dude, I know.

Patrick Moorhead: So listen, I’m going to hit this maybe from a tangential angle, which was the meme out there was that AWS was way behind in generative AI. And that was issued by people that I respect out there. And so I really put my nose to the grindstone to say, what does late mean? They were the last one to announce, they were the last big one to go GA. But then again, they also have the largest enterprise AI estate out there of anybody. So I’ve also said, and we said this even right after the first Microsoft launch, that this is a marathon and not a sprint. If you’re not too far behind to go GA and getting customers on this, but AWS came out with all guns ablaring and they listed out 21 customers. And these are not just web folks who do nothing but share content, right? You have financial folks out there, legal folks out there, right? You’ve got Intuit, you have LexisNexis, NatWest, you have pharmaceutical companies like Merck, Rocket Mortgage.

So these are not just a bunch of folks who are going to jump off and take these massive risks without having payback. So I think that counts for something. One thing that I didn’t hear is Titan Embeddings is something that there was no description on what are the data sources? And not only do I not know the data sources, Amazon is not at least publicly indemnifying people if there’s something in there that have a copyright on it or not be owned by Amazon. So to be interesting as we jump into the IBM one and you cover that, I think it’ll talk about more of the why. But folks, AWS is very much going to be an IaaS and a PaaS play with generative AI. Don’t convince yourself that they’re not. They’re the largest purveyor of ML services for IaaS.

I’ve never measured that on PaaS, but it’s just a fact. And while generative AI technologically is very different from machine learning and deep learning and analytics, the type of things you’re trying to get out of it are very similar. Generative AI just does it better and more accurately. One final editorial here, I wish they didn’t have separate names for generative AI, Bedrock versus SageMaker. I know that technologically, SageMaker is a machine learning basically a complete IDE end-to-end process flow, but I think AWS will confuse people by having those things as separate. Out of the other side of my mouth, I’ll say that Bedrock is an AI service, not an ML service as defined. So yeah, maybe it deserved a different name. I just think it’s confusing. So hey, let’s move to the next topic. Guess what? It’s not generative AI-

Daniel Newman: Can we take one off before we get back to it?

Patrick Moorhead: Can you believe that? We will get back to generative AI. Don’t you worry folks, but no. Next topic here is T-Mobile. So SASE is a fancy way of combining four different security technologies into one. I believed it was coined by Gartner. That doesn’t mean it’s right or it’s accurate, but I do think this one is. And there’s multiple ways to do SASE. Which essentially protection on everything on the edge. One way is to have a software agent out there. And that is the predominant way of doing it. That software agent is on phones, it’s on PCs. Heck, you can put that software inside to a router everywhere. And essentially, you want to make sure that what is coming in is exactly what it says, and it only gets access to the data and resources that it’s enabled for.

What T-Mobile has done, which is a first on a worldwide basis. I didn’t know if it was on a worldwide basis. I guess that matters or doesn’t matter because T-Mobile operates here only in the United States and it’s basically Deutsche Telekom outside, but they’re doing hardware based SIM SASE. And anybody who knows anything about security… And listen, everybody’s a security expert in one shape or form, but every single thing that I’ve seen in the last 15 years that if it’s hardware-based security, it’s fundamentally harder to crack because software is inherently full of holes. And essentially, anything with one of these SIM capabilities enables you to get a higher degree of authentication and essentially telling the services and the software that you are who you are and you can get access to what you want to get access to. So congratulations to the team out there at T-Mobile at AT&T and Verizon do not have this capability. And I think this just shows the uncarrier for businesses that T-Mobile is executing so well on.

Daniel Newman: Yeah. I don’t have a ton on this one to add, Pat. But look, I think T-Mobile made a really great case. It’s that, A, it doesn’t seem to be if anymore, your data’s going to get breached, it’s really when. And that the cost of a data breach is really growing at an exponential rate. The ability to add more security around the perimeter, both through private and secure internet access gives enterprise businesses users a level of protection that should add layers of abstraction from the ability for bad actors to get at the data. And so it’s innovation. It’s innovation that doesn’t exist in the competition. And when you talk about business and government, it really is their responsibility to do everything in their power to reduce risk of being breached. And so I like what you said at the end, Pat, it’s probably my most prudent and important argument I’ll make here, but they do it and everyone else doesn’t.

So if you’re a business customer and you’re running on a competition that does not offer these additional layers of protection and then something goes wrong, you genuinely know that you could have done something to potentially have reduced the risk of being a victim of a data breach. So what happens next, Pat? Do the competition invest in catch up? Can they invest in catch up? And if so, how quickly? But we know SASE architectures have been heavily adopted. We understand that outside of enterprise is one of the biggest risks for breach and we know that T-Mobile is thinking about its customers and it’s thinking about how to be more secure than its competition. And these are all good things.

Patrick Moorhead: Yeah. The final loop back here is they’re implementing this through what’s called a security slice. And while we’ve talked about different slices and different levels of quality for 5G streams, you couldn’t do that without SA. So they’re doing this through an entirely new way of doing this, which shows off the power of standalone 5G. So to make a long story longer, in the 4G world, even if you didn’t need the throughput and the latency and the speed, it still cost you the same. With 5G it’s scalable, right? You want to stream with high latency, low performance, you can do that. It’s essentially virtualizing a network. So let me move forward, close this one out, Dan. Guess what? We’re talking about generative AI again. IBM came out with it. It’s Granite foundational models, goes GA with that and they added a level of protection for their customers. What’s going on here, Dan?

Daniel Newman: Well, you kind of said it already, but thanks. No. But you and I have talked quite a bit about IBM Watsonx. We’ve talked quite a bit about the, it was Watsonx AI data governance, and now we’ve seen the company further establish its approach, which is enterprise centric to act as market leaders in terms of what it’s doing to enable… And Pat. The word democratize? Further democratize?

Patrick Moorhead: You can throw that out, dude, as much as you want.

Daniel Newman: I’m just having a little fun here. But further enable the enterprises to not only approach AI and data, but also drive governance. And the other thing that I liked about this announcement around Granite was really about the fact that we know increasingly, and this is what we keep saying about the proprietary data and its value versus commoditized large language models is that IBM from the very onset under the leadership of Arvin Christian as I understand it, that AI is not going to be the same for every company. And so this whole thing with Granite models is all about being delivered in different sizes with different levels of customization, so that companies can basically get to the specific needs and insights that they are looking for and not looking at every model offering the same set of capabilities to every company.

IBM has further really added that it’s not only going to focus on its own foundational models, but it’s also going to open the door for third parties. So it’s got Llama, it’s got Hugging Face… Which Pat, we’ve talked a lot more… It’s funny because remember when Hugging Face was the name everybody always mentioned and lately it’s been more Cohere and Anthropic. But it’s really the three of those and then others. And the other thing is that the company has come out now really explaining, IBM has an immense and incredible… You like the word incredible. Incredible set of data that has been able to train models on. They talk about their five domains, Pat. Academic, internet, code, legal finance. But it is training and curating these models so that what people are starting with Granite is something that’s got a lot of what they need, but then like you said, they’re making it very open so you can add your proprietary data and you can do it in a way that includes the important governance, so that you get the most and maximize the value and the return on your AI investment running Watson.

This is what I’ve always liked about the Watsonx strategy from the beginning was that it’s enterprise centric, it’s customizable, it’s foundational model focused, and it’s open both internally to what IBM has created, but also externally to the larger open source models that all seem to offer a little bits of disparity in terms of their value. So you can bring together Daisy Chain, STACK to get the most value. Pat, probably the biggest piece of news here with something that we’re hearing more and more about, and this is what IBM referred to as it’s contractual protections for AI models. Given the fact that we know there’s a lot of questions and concerns around responsible AI governance, privacy and data, is that how does intellectual property get protected when you’re building this out, trying to do it very quickly and you’re picking different horses, proverbially speaking, to which technologies you want to use.

Well, if you’re using IBM, what they basically come out with in this announcement is they’re providing IP indemnity or AKA contractual protection for the use of its foundational models. This allows customers that are now committing to working with IBM and Watsonx to know for sure that what’s being created, that they are not going to get sued or have to deal with legal ramifications for leveraging IBM’s foundational models. This is very important. Now something that I think is always going to be the caveat as these open source things get brought in external and internal models, so the protections do they sit if you’re using your data plus their data or do you have to use exclusively their foundational models? These are some of the questions I’m still curious about. But I have to imagine it’s set up in such a way that it allows for all the data, your own data plus the model data, just as long as you’re not using any data that’s technically not your data.

But this, Pat, was really big news and I think this is going to be a fast following announcement from IBM where we’re going to see others come out in this space aggressively offering something similar. But companies can be very fast and very dynamic and very efficient and very productive through the utilization of generative AI. But when we’ve seen some of the risk factors of data ending up in the wrong hands, model is being trained on data that isn’t owned, isn’t protected, companies have to say, hey, if this information is going to get to our customers, if it’s going to enable our users, customers, ecosystems, partners, vendors to interact with this data and this data factually inaccurate or even hallucination or ends up leading to a decision that costs has a big financial downside, for instance, to a company, where does the accountability lie?

And so this is a big step for IBM to basically say we believe 100% in what we do. We are going to back the customers that make this investment. But it will be very interesting to see how this plays out and if things like this, if this contractual protection ever even becomes a thing or if they’re able to really bet a thousand in terms of making sure it’s only the right data and only the right outcomes.

Patrick Moorhead: I view this as a major milestone for IBM, but also a good time to sit back and reflect on what the company has done in generative AI. They were one of the first to come out strong with a new generative AI platform with Watsonx. Three parts of that, AI, data, and basically the content protections. And IBM was first going GA, they were GA before Google, GA before Azure, GA before AWS. And we talked about that on the show and I do think that counts for something, right? Where IBM may not… They were first with Watson and Health, I think overall stubbed their toe a lot. It was based on analytics, not machine learning so it’s probably the wrong technology, but here they are, right? And I feel very comfortable if you’re an enterprise regulated industry that IBM has your back on this. If you want to train it at IBM, they’ve got their own Vela supercomputer. And in fact, this is where this specific model was trained, Granite, right? And the amount of information that they shared was really unprecedented. Neither OpenAI or LlAMA will tell you where they got their data from, okay?

So I think that is a little bit suspect to be honest, but also understand that it could be also viewed as part of their intellectual property. But if you go to the white paper, you can actually see right there the 14 sources that IBM pulls this from. And then they go through, and other people do that, that they talk about how much data they started with, which was 6.4 terabytes of data, took out 4.9 of dedupe, 3.79 terabytes of hatred, abuse, and profanity, which left you with a two terabyte model that’s ready for tokens. So the amount of detail is extraordinary here and I think IBM should be applauded for this by the way. The other thing is when you get the data set down to a meaningful, a smaller data set, guess what? The cost to do inference against it is less expensive and that’s a good thing.

I think this is also a really good model. And by the way, this is not a tiny model, right? It’s 13 point billion parameters, but it’s not this gigantic monolith that I think we’ve seen before. The other thing that I like, pricing. There’s freaking pricing right on the website. This is $.005 per 1000 tokens. Where have you seen pricing before on a website? I haven’t seen it anywhere. I’m sure the salespeople have it and they’re selling it, but it’s right there on the website. A final thing, a little twist up on the indemnity, just to give you an idea how far this is from other things. When you use Llama, Daniel, you have to sign a document indemnifying Meta, okay? From being sued as part and partial to a lawsuit against you. But here IBM is actually not guaranteeing a win, but guaranteeing that they’re going to pay for your legal bills on this.

Daniel Newman: That’s the whole thing about a real enterprise solution versus a consumer toy, right?

Patrick Moorhead: Keep going. Just fixing my earpiece.

Daniel Newman: It’s fine. I was just saying the big difference between a toy, a consumer product, and an enterprise product is if you want an enterprise, it’s kind of an ERP or any other solution, you want them to go big with your enterprise solution, you better be willing to back that your stuff works. You know what I mean? And this unfortunately, or fortunately, because it works at such a pace, there is literally no way to validate and fact check every single one of these generated assets at scale. So if you can’t do that and you can’t guarantee it, you can’t use it. This is like setting the standard. It’s a bit of a requirement. I don’t see how it isn’t a requirement going forward that these companies are going to say, look, we commit that what we’re generating is right.

Patrick Moorhead: Yeah. And listen, I’m just going to throw this out there. I asked AWS what their list of sources through their models were, and they said they don’t share that information for Titan. So it’s going to be interesting folks, right? And by the way, public indemnification of an entire program doesn’t mean that special people aren’t being indemnified. I’ll just throw that out there as well. Wow. Great show so far. Hey, let’s jump into Apple iPhone 15. Right, Dan? We talked a little bit about the Honor that it was probably the most exciting thing that came out of that announcement was controlling your Apple Watch with your fingers. By the way, every time we laugh, but Apple will sell billings to these things. But here’s the thing, there have been reports out there from very credible sources. The first one was Wall Street Journal and also Bloomberg talking about the potential issues with the iPhone 15 related not just to heat, but other things, right?

So for instance, there were some people who tried to go from an old phone to a new phone and it completely bricked their phone. And then Apple had to put out an emergency patch out there, iOS 17.0.2, but bricked a lot of folks. People are starting to run benchmarks on this and it’s essentially throttling on CPU related benchmarks and throttling for those who might be familiar with the term, but not familiar with the term when it comes to silicon. Is when silicon gets hot to make sure it doesn’t burn up inside of the phone. You pull back on the voltage and the frequency for it to generate less heat. There have been cracks, right? Titanium, right? Is the name of the game. It’s one of the hardest materials on earth that you could make a phone for. But when you surround with a glass, hey, it tends to be a little bit more rigid.

And while I’m not a mechanical engineer, my dad has a degree in that, it doesn’t make me as smart of that. But I do know that you wrap something with less give, for instance, aluminum versus titanium and you wrap it in glass, it is going to be more prone to break. So people are really upset and they’re contacting Apple support about the phone overheating under certain instances. And Dan, the only thing I can think of here is that it’s a silicon issue. Or actually, let me step back. Some of the puzzle pieces didn’t come together in a way that holistically Apple had expected. And I think this really points out that the way that Apple works, which is they keep teams secret. For me, even each other to lessen the likelihood that information would leak out.

And by the way, there are many pluses in that, but the minuses are that the teams are expecting something to come down the pike. They’re not talking and it shows up and it’s like game day or let’s say all the information is available a couple months beforehand and you don’t have time to react. So you have titanium, which is introduced into the equation, which has different thermal properties and there’s aluminum that’s inside of that. But my guess, again, after being a creator of devices and servers and chips for over 20 years, Daniel, is that it’s the SOC. And it’s likely related to TSMC 3E and we’re going to get a patch that’s likely going to under clock, which will make your iPhone underperform what it was doing before. Apple, you’re too big for this, you’re too good for this, I feel like you’re taking advantage of your monopolistic position that you have in your app store and with iMessage and not sharing that and democratizing that, Daniel. And it’s just sad for this to happen for a company that is the “innovator.”

Daniel Newman: Well, first of all, I mean we should talk antitrust at some point. Maybe next topic. Maybe on our SevenFive podcast, we can quickly hit on some antitrust. Having said that, Pat, I mean, look, you called out some things. But yeah. I mean look, they’re announcing things fast, they’re launching things quickly, they’re looking to create more and more super cycles. They’re creating what I would call very small incremental changes to try to convince a huge number of customers to spend tons of money for a device that does really nothing that the last device can’t do.

Pat, I won’t lie, I will upgrade the phone because I always do. I make fun of myself about it even though there’s not a lot of value in it for me. But I’m still on a 13 Pro Max and to be honest with you, I haven’t been compelled by either of the last two updates to actually buy a new one. And these are part of the reasons why. So I’m going to wait and hold and reserve comments in terms of my actual own experience to when I get one. But look, are you surprised material changes often lead to problems?

Patrick Moorhead: Yeah. I mean, look at the modem, right? The modem disaster story, we-

Daniel Newman: It’s true. They can’t even build a modem.

Patrick Moorhead: Well, no, last week and when you look in, part of the reason was the different people, they didn’t share information with each other because so freaking secretive. It’s hard to build a system in secrecy. And Dan, at what point are people going to say, “Oh, this sucks.” Or, “This was a mistake, but we’ll buy a billion of them,” right? If that doesn’t shriek monopoly, I don’t know what else doesn’t. Or it’s okay to screw up two out of 10 times and you knock it out of the park. I mean, I was thinking yesterday, the only thing unique right now that Apple brings out related to mobility is AirPods and the Apple Watch. Those are truly unique products. I want to congratulate the Apple engineering teams, but when it comes to iPhone, it’s just a complete snoozer. Complete snoozer.

Daniel Newman: Been a snoozer for a long time. It’s behind on everything. I mean, I can see what they’re trying to do with VR and XR. There’s a path there. And then the typical form of letting Meta spend a hundred billion on it and then they’ll come into the market and just do… Because they’re not always the early, they tend to be the disruptor. But Pat, I think the one thing, maybe the most profound thing you said in that whole thing is that the real antitrust eyeballs maybe should be going here and they seemingly continue to go places that they shouldn’t go. And maybe we could wrap up the show talking about that.

Patrick Moorhead: Yeah, let’s do that. Big announcement from the FTC related to Amazon.

Daniel Newman: We’ve heard this for a while, but the FTC is now going after Amazon’s commerce business and Lina Kahn is going to fail miserably here. Prediction. Not sir. But the idea that Amazon is a monopoly of what they call an online superstore, which is its own subcategory that doesn’t actually exist. They’ve made up now. So Amazon has something like 35% of ES ecommerce. And what they did was they looked at the four biggest though and then determined that Amazon has 80% of the four biggest, which is Target, eBay, Apple, Walmart on top of Amazon. And then they decided that maybe people only and exclusively are able to buy their goods and services from these four particular competitors in Amazon. And then they made a case based upon that. And effectively, Amazon is forcing people to use their marketplace, which they’re not. And then they’re forcing people to use their logistics and other services if they use their marketplace, which maybe there’s some required service utilization there, but no one’s requiring to use their marketplace in the first place.

And in that case, Amazon’s always able to be more price competitive than those selling in its marketplace. Now here’s the other problem though with their entire argument is, Pat, I’m pretty sure you don’t have to buy toothpaste online. You can buy your hair products or your favorite supplements or whatever you want to buy, I swear, Pat, there’s a CVS ans a Walgreens on a few corners in town. You can go to the H-E-B, the HEB here in Texas, but there are quite a few places that you can buy, including Walmart stores, Target. You can actually go in and buy all this stuff on your own. So the fact is, the argument is being filtered down, Pat, into little small bifurcations of the market so that somehow they can convince that Amazon has this monopolistic power. And frankly, they just don’t. If I go onto Amazon and I see the hair product that I need is more expensive, I have the right to get in my car and I can drive over to Walgreens or I can go to Target or Walmart and I can buy it there.

I can also by the way, shop it around online and look at other stores. I can look at eBay and look at Target. I go to other online stores and say… So I’m not forced to buy anything. So this definitely doesn’t cut the consumer harm metric. Then the second question is, does it cut the competition harm? And the truth is, Amazon is doing nothing more, but really driving and forcing innovation. They’re forcing innovation on speed of delivery, they’re forcing innovation on the online marketplace innovation, but there’s plenty of choice, Pat. Like I said, it’s 37% of the US ecommerce market, much less than that on a global basis. And people have choice. So people have choice. And I mean this as businesses and as consumers. Meaning if you’re a business and you want to sell online, you have plenty of options of where you want to sell.

Is Amazon among the biggest and best, do you want to participate there? Does Amazon have some rights for actually spending all the time, money, and effort to develop a marketplace? This is not Apple. I mean, they are not beating people over the head and saying, look… And this is why maybe I get so frustrated about the Apple thing. I’m going to stop here so you can chime in. But the Apple thing, you have two choices of where your app goes. I mean, that’s really it. It’s either going on Android or it’s going on iOS. And they don’t think that is worth putting some effort to figure out if there’s monopolistic behaviors of abusive power, Pat.

But if you’re an online seller, how many places could you list your stuff, including on your own site if you want? Tens, hundreds, thousands of different options, Pat? I just simply don’t get it. I don’t get why this is the choice. This is the thing that the FTC and US taxpayer dollars wants to focus on, when in the end, consumer is largely winning. And if you’re a business, you have enough competitive choice of where you want to put your time and effort. And if Amazon’s charging you too much, sell it somewhere else.

Patrick Moorhead: Yeah. So Amazon dominates US retail. I don’t think anybody can argue that. And Amazon, I think, so-

Daniel Newman: Do you think that’s the right word? Dominates? I mean, I’m asking. You think it’s dominate?

Patrick Moorhead: Dan, ask your neighbors, ask your family. Where’s the first place they go for online commerce? And 99 out of a hundred of them will say Amazon. You did cite the 37%.

Daniel Newman: That’s what I found.

Patrick Moorhead: It’s not over 50%, but it is a dominating force.

Daniel Newman: It’s a very strong brand.

Patrick Moorhead: They do have competition. Now while Lina Khan has whiffed so many times, statistically speaking, the next lawsuit will have a higher degree of success. Those are just statistics And it’s like a batter getting up to bat.

Daniel Newman: You well balanced. I love it.

Patrick Moorhead: Well, we’re kind of doing the John Ford thing here.

Daniel Newman: On the other hand.

Patrick Moorhead: Yeah. And there are some emails that sound like smoking guns. If you can go in there and look through them, and I did, and they’re not pretty. So who knows? This one might end up a little different. I think that this one’s going to come down to market definition. When you look at the grand retail, Amazon has very small market share, right? When you look at online retail, it’s very large. And if Lina Khan and company can essentially go in and put up that market definition, come up with some smoking gun emails about how they’re treating marketplace and if they do find evidence or Amazon took marketplace information and used it to manipulate their own pricing to get themselves in advantage, then they’re going to be in trouble.

The breakup was not floated here, so I don’t think that that might be something on there, but if found guilty could be penalties, there could be maybe a separation between marketplace and the rest of the commerce group. But yeah. If you’re a big company and you’re really successful, yeah, you’re at risk under the current FTC and the administration. Wow. Antitrust is always fun, Dan. And I don’t know which way this case is going to go. I do wish that FTC would spend more time on companies like Apple where it’s literally black and white than Amazon when it’s more shades of gray. But hey, I want to thank everybody for tuning into The SevenFive here and hope you’ll tell us what you think. If we sucked, let us know. If we were awesome, let us know, and we’ll do absolutely nothing to change the show based on that feedback.

Daniel Newman: We do what we want.

Patrick Moorhead: I’m just kidding, folks. This is our one outlet each week to pretty much do whatever we want and say what we want. But we appreciate you for reals and have a great weekend. Daniel, take care, bestie.

Daniel Newman: See you, buddy.

Patrick Moorhead
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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.