Looking at the cloud through European eyes

Phil Wainewright Profile picture for user pwainewright October 13, 2015
Summary:
From a European point of view, the cloud seems to be dominated by US providers and everything the European Commission does just seems to make things worse

© marqs – Fotolia.com
When Europeans buy goods and services online, 43 percent of those purchases are from suppliers in their own country. 4 percent are from suppliers based in another European Union country, while 52 percent come from US suppliers. In other words, Europeans are more than twelve times more likely to buy online from a US supplier than they are from a supplier in a neighbouring European country.

This statistic, compiled in research earlier this year for the European Commission, was quoted frequently at last week's EuroCloud Forum of European cloud providers in Barcelona. It underlines just how far Europe has to go to achieve its grand ambition to create a single digital market. Among the many barriers to cross-border cybertrade in Europe, the Commission's policy makers in recent years have focused on the lack of harmony in data protection rules. With work still in progress there, they are now looking at a new set of priorities, including work on Europe-wide rules for e-commerce.

But while the representatives of Europe's cloud industry who gathered in Barcelona carefully watch such initiatives, the main obstacles they face to cross-European digital trade are far more prosaic. Business on the Web — and thus in the cloud — is mostly conducted in English. When non-English speakers draw a blank when searching in their own language, their next step is to look at English search results.

US vs Europe

This is not because Google promotes its own products and services at the expense of indigenous competitors (although that's a line of enquiry the Commission has investigated). It's simply that the highest-ranked results in Google (or in Bing for that matter) are in English. US suppliers are further boosted by a simple numerical advantage: they operate in a country of 300 million people and one-and-a-half trillion dollars of economic output. This makes it easy for them to outrank European competitors in link volume ('pagerank' in Google's terminology), simply because of the number of links from their compatriots to the same English search term.

The European Union is much the same size as the US, both in population and gross domestic product (Europe as a whole is even larger). But the EU is divided into 28 countries whose populations do business in 23 different languages. To trade across borders, European companies have to surmount those language barriers, which adds substantial expansion costs for a growing company. Or they can promote themselves in English, and find themselves overwhelmed by the stronger tide of US-based suppliers.

The largest American suppliers also have deeper pockets that allow them to localize their offerings for each European country. These costs are just as high as from any other country, and it's true that they slow the progress of many US-based business application providers as they pause to localize products, open local sales offices and build out European datacenter infrastructure. But US companies can grow substantial revenues (or raise massive funding) in the domestic US market before having to face such costs, whereas European providers must fund their advance into the next country from a much smaller starting point.

Unseen barriers

Other unseen barriers to cross-border trade in Europe include a patchwork of national parcel delivery networks and tariffs, and even the lack of support for multi-language, multi-country websites from e-commerce and web publishing platforms — most of these originate in the US, where such considerations are an afterthought rather than built in to the architecture from the start.

No wonder then that the majority of European cloud startups, no matter which country they start from, look next to the US market for expansion. If they must face the cost of selling cross-border, why not sell into the most lucrative single market of all? Those that become successful enough to attract venture funding end up obliged to reincorporate in the US. By the time they are ready to enter other countries in Europe they have themselves become US companies.

So from European eyes, the cloud appears a largely US-dominated phenomenon. European companies find it hard to compete on even terms with American competitors. Local language and culture gives them an advantage in their home country, but as soon as they seek to go beyond those national borders, they find themselves outgunned by their US rivals.

European cloud policy

Since the launch of its first cloud strategy in 2012, the European Commission's approach has been to break down barriers to cloud adoption across Europe. But if your chosen tool is policy making, then it's natural that the solution to every problem seems to be to nail a policy to it. A lack of standardization has been seen as the main obstacle to cloud adoption, and therefore the focus has been on a single data protection regulation and on building a common framework of cloud standards.

The main concern has been to drive faster uptake of cloud solutions, which are seen as lowering costs and encouraging innovation by European enterprises, especially smaller businesses. But at the same time as removing barriers to adoption, standardization also further lowers the barriers to market entry for US cloud providers. It was interesting to see how little anyone in Barcelona was bothered last week by the demise of Safe Harbor, an instrument whose main purpose was to give US cloud providers an instant passport into every European country. European providers didn't care either way because it changed little for them.

That the Commission was criticized by the European Court for allowing Safe Harbor in the first place is symptomatic of another problem for the European Union: there are many competing power bases. The harmonized data protection regulation, which originally was hoped to be in place by the end of last year, is still being hammered out. The final decision will be made in the Council of Ministers, where the national leaders of European countries inevitably engage in horsetrading to settle their differences. The final outcome may not be as neat and tidy as the Commission's original proposals.

A further problem for Europe is that much of the lobbying comes from established businesses, or from politicians whose constituency is loyal to the established order. These are the very organizations that are being disrupted by the advent of cloud, and to add insult to the perceived injury, the purveyors of cloud platforms are largely US companies. This makes it easy for unscrupulous politicians and lobbyists to drum up nationalistic resistance to measures that favor cloud providers — even if obstructing cloud provision harms the very small businesses and innovative startups that Europe relies on most of all for its future economic welfare.

My take

Winding up last week's conference, EuroCloud Europe president Bernd Becker appealed to delegates that Europe should not try to win lost battles against today's established cloud providers, but instead foster new innovation where it is strongest.

Europe needs to rely on our own strengths. We should have enough self confidence in what we do in Europe to cover our own market.

One of those strengths is the ability to operate in a diverse, multi-cultural landscape across many different languages and approaches. Europe does face challenges in building world-beating cloud businesses, but the technology exists today to overcome those challenges. I believe the answer lies not in policy (though harmonization of national variations would help) so much as in applying technology to breaking down those barriers to cross-border trade.

Disclosure: The author is volunteer chair of EuroCloud UK and a co-founder of EuroCloud. I paid my own travel to attend the conference in Barcelona.

Image credit: National flags against a blue sky © marqs – Fotolia.com

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