After Brexit - is the cloudy sky still falling?

Profile picture for user slauchlan By Stuart Lauchlan July 10, 2016
Summary:
The sky might be falling, but nowhere near as fast as the Brexit armageddon pedlars were insisting a couple of weeks ago, while the likes of Amazon are planning to carry on investing.
Chicken LIttle
Chicken Little

As we’re now a few weeks into ‘Life After The Brexit Vote’, some more reasoned analysis of the likely fallout in tech and cloud terms is starting to emerge, a contrast to some of the more ‘sky is falling’ scenarios in the immediate aftermath. 

While there are still the inevitable armageddon pedlars - who, yes, before anyone points it out,  may yet be proved right to some degree or another - there are more positive and pragmatic noises being made.

At last week’s Amazon Web Services (AWS) Summit, for example, there was a welcome declaration of commitment from the the firm to continue to build out its UK regional plans.

Gavin Jackson, the managing director of AWS in the UK and Ireland, stated:

We will continue our path to launch a UK region at the end of this year or at the beginning of next year. Our message to the people in this room is to keep calm and carry on innovating with AWS. Post Brexit vote, I wanted to reassure our customers we see the UK as a fast innovator, a huge talent pool and a fast adopter of technology trends.

In fact, Amazon went further, announcing that it would add a further 1000 jobs to its existing intention to create 2,500 new roles in the UK this year. 

With so such negativity around since 23rd June, I was interested to see the views of Paul Miller, Senior Analyst Serving CIOs at Forrester Research, who in a blog posting makes a strong case for ‘business as usual’ when it comes to public cloud business in Europe.

Miller argues that the post-Brexit environment needs to be considered in three separate contexts:

  • companies wishing to serve customers in the UK.
  • companies wishing to serve customers in the remaining 27 EU member states (the EU27).
  • companies wishing to serve customers in the EU27 from a base in the UK.

He makes the point that the UK’s economy is still one of the largest in the world, despite slippage in the past weeks, and notes:

As such, it's a market that UK, EU27 and global businesses will wish to serve. Pre-Brexit solutions for serving UK customers remain as valid as before the referendum. Companies only interested in serving the UK market may even find that their regulatory burden decreases.

Pointing to the existence of local data centers within the UK, he observes these will continue to serve UK customers, while EU27 data centers can do everything they did pre-Brexit. Miller argues:

Plenty of businesses run workloads related to UK customers from public cloud infrastructure in another European country. The use cases for which those EU27 data centres were chosen remain valid, and there is no pressing need to bring workloads on-shore.

Finally, EU27 services delivered from EU27 data centers can carry on as they are, says Miller:

Those services often were (and still are), also offered to the UK, and those customer records will be stored alongside records on citizens from the EU27.

But he cautions:

It would be sensible to evaluate the ease with which UK customer data might be separated from that of EU27 customers. A situation requiring this separation may never arise, but take the time to prepare and work through any issues now.

The bottom line though is that the cloud-based models already in place aren’t destroyed by a Brexit, just potentially made a bit more complex on the buy-side. But Miller concludes:

If those cloud-based workloads are valuable enough to the business, they will survive Brexit.

There will, of course, be bumps in the road, according to Miller’s analysis, observing that:

A US company offering EU27 services from the UK may find itself in the unenviable position of having to comply with three contradictory regulatory regimes; those of the US, the UK, and the EU27. Technically possible, but a constant drag on the sales pipeline.

Short-term implications

That said, a new report from Techmarketview - Brexit implications: UK Infrastructure Services - from Research Director for InfrastructureViews Kate Hanaghan,  finds that while she is hearing from suppliers that customers are asking for guidance on Brexit implications, she hasn’t heard of any large cloud deals being cancelled as yet, adding:

Indeed we heard of buyers who were keen to ‘sign on the line’ because at least this would provide some certainty against a very chaotic economic and political backdrop. One online retailer, which is in the midst of creating a hybrid cloud environment, told us, ‘It would be really dangerous for us to pull back on delivering our digital transformation agenda as this is key to delivering growth’.

Hanaghan argues that in the short term, Brexit will be a potential complicating factor in decision-making on both buy and sell sides, but will not necessarily derail plans. She points to Amazon’s UK commitment as a case in point:

While it’s possible potential AWS customers might be uncertain about whether they should commit to using an AWS UK data center, AWS cannot ignore the undoubted opportunities in the market more broadly. The company has ambitious growth plans, and it needs to take a balanced approach to risk to ensure those plans stay on track.

Chicken Little

Both Miller and Hanaghan offer a pragmatic analysis that is good to hear in light of some of the ‘sky is falling’ rhetoric we’ve heard of late. On the sell side, Stephen Kelly, CEO of Sage, has had enough of the Chicken Little mentality as well, posting in a blog that it’s time to calm down:

Chicken Little causes mayhem and hysteria when he is convinced that an acorn falling on his head is the sky falling in. He runs around the village persuading others than disaster is imminent, and – depending on which version of the fable you read – either becomes the hero of the village or leads the hysterical crowds to a terrible end.

One thing is for sure –prolonged hysteria and uncertainty helps no-one. And since the UK voted on June 23rd, we have seen a similar ripple effect in the commentary of economic prospects.

He adds that he is disappointed in some big businesses which have leapt to blame Brexit for business problems :

These announcements – without a clear view of how the coming months and years will pan out – only serve to add to the confusion and anxiety.

But in the real economy, nothing has changed apart from sentiment and the value of the pound, and…with a cheaper pound, history suggests inward investment in UK will increase. I would call on businesses to focus on their customers and employees rather than destabilise loyal long-term employees into worrying about their location, future and families.  And we must avoid a rush to ‘Blame Brexit’ for everything.

Big businesses set the tone for mainstream commentary and should be leading the way, using their voice and clout to spread positivity and certainty where reasonable – not to perpetuate fears that the sky is falling in.

In fact, it will be a different kind of sky fall, suggests Mark Raskino, VP and Gartner Fellow in the CEO Research group, arguing:

To some extent the economic sky is actually falling, but it's falling slowly.

Raskino argues that the new UK Prime Minister won’t be in office until September and will then need a team and a strategy in place before involving Article 50 to trigger the likely 2 year process of formal Brexit negotiations. This will lead to a period of uncertainty:

The combination of unknown unknowns will probably get worse – during the exit negotiations – before it gets better.  After all, the UK is placing 40 years of complex negotiated regulation on the table for reconsideration – everything from distance selling to data privacy to patent protection could be up for change.

But he adds that while Brexit was a ‘Lehman moment’, the analogy doesn’t work completely:

This time we knew when and where it would come. It could have turned out to be a Y2K ‘false alarm’ – but it wasn’t. We had time to brace ourselves a bit better, but that didn’t stop it happening.  Just like the banking crisis, the effects will run deep and they will run on for years.

But what that’s likely to mean is a pragmatic response from business, he suggests:

After they place big decisions on ice, I think many UK business leaders will ‘head off to the beach’ for the summer. There’s not much positive action to take yet. They know there will be a huge amount of work ahead to reset strategies and reorganize companies – so best rest and recharge now.  They know that work can’t really commence until the politicians get their act together and start at least sketching out what a post-Brexit landscape will look like.

He concludes:

CIOs and other business executives with significant UK business technology-related project plans should expect strategy change impact to start from this Autumn. Expect a difficult budget planning season.  Sadly I fear, the economic sky is indeed falling – but this time its in slow motion.

My take

Impressively pragmatic analyses from Miller, Hanaghan and Raskino of the Keep Calm and Carry On variety. I imagine Sage’s Kelly would find little to argue with there.

After Brexit, I noted that the cliche of the day (and the weeks) was ‘nobody knows what happens next’. Given the dramatic events underway in UK political circles literally as I write this, that fundamentally remains the case.

But heading off to the beach to charge up the batteries sounds like a sound plan to me.