Most significantly, the move to establish country-centric data centers has set something of a precedent that, if replicated, in government cloud programs across other major economies, could have a corrosive effect on the inherent customer benefits of the cloud model.
In its announcement on 14 May, Oracle revealed it was planning to bring a new data center on-stream in the Thames Valley in July — a facility that would be wholly dedicated to running cloud applications for UK government departments (both Oracle’s own applications and those of a select group of smaller vendors). That followed only a week after Salesforce.com confessed that its hunger for a slice of UK government business had encouraged it to site its sixth global data center just outside London. In both cases, the message the companies were getting from the UK government was unambiguous: if you want any of our future business then your cloud services have to remain strictly within our jurisdiction.
Glass half full
Not surprisingly, Salesforce was quick to characterize its future facility (which is being build by Japan’s NTT but is not due to come online until 2014), as its “first European data center.” The company has long maintained that the high levels of security, reliability and performance it maintains — whether using facilities in the US, Singapore or Japan — render the location of the processing of customer data irrelevant to all but a small minority of users.
But there is little doubt that the company would have continued to rule itself out of the fast-emerging wave of UK G-Cloud contracts had it chosen, say, to site the data center elsewhere in the EU – say, in France, or indeed Bulgaria or Cyprus. With the UK government having mandated a ‘cloud-first’ policy for new IT purchases, that choice of location was not an insignificant factor.
“To date we haven’t done a lot [of business] with UK Plc,” Steve Garnett, Salesforce’s European chairman said at the announcement. “Effectively, [that means] we currently aren't addressing about 50% of the UK IT marketplace.” But a UK data center would change that: “The UK government is really coming alive around G-Cloud, around the opportunity to use multi-tenanted architectures such as Salesforce.com. And [a UK-based data center] really puts an extra seal on it.”
While there are obviously customers in other sectors — healthcare, financial services, pharmaceuticals and elsewhere — that do have legitimate concerns about data residency and data movement, the Salesforce data center move was motivated primarily by the needs of the UK government. “In government there are regulatory requirements that stipulate that certain data cannot go outside the EU or outside of geographical boundaries, [and those] regulatory requirements have prevented us from addressing certain impact levels that the UK government calls for and limited our ability to break into providing our services to UK government,” Garnett outlined.
It is also no coincidence that the only customer voice in the Salesforce announcement happened to be that of UK government COO, Stephen Kelly (the former IT industry executive whose decade at Oracle included a stint as head of the company’s UK government business). In his words: “The UK is in a strong position to support fast-growing companies in delivering… cloud services to customers here and globally.”
Whether other governments around the EU will be happy for their national cloud services to be delivered from a UK-based Salesforce data center remains to be seen. But certainly, there are signals coming from Salesforce rival, Oracle, that the UK is by no means a special case, with the pattern going forward likely to be that major governments and regional economic groups around the world will expect their strategic suppliers to create specific cloud data centers within their borders.
Oracle president Mark Hurd has no issue about its new UK data center having a customer target audience of one: “We’re putting [this new] data centre in the UK so we can serve the government. As the cloud evolves and develops, you've got a lot of issues that come up – security concerns, data sovereignty issues, regulatory issues, issues about the location of data. So we have to be local in the deployment of our [cloud] capabilities in many cases.”
“We’re globalizing [that cloud] capability, moving our capabilities close to the customer," he adds. We certainly have significant capabilities in the US. But we've opened data centers in Latin America, in Asia, in Europe, and you should expect that to continue as our [cloud] business continues to scale up.”
Clustering cloud innovation
Although it does not break out any numbers, Oracle’s revenue from the British government accounts for a large proportion of its overall UK business. (Government CTO Liam Maxwell suggested last year the annual figure was “north of £200 million” ($303m).) And to protect that, the company has felt compelled to act.
The head of Oracle in the UK, Dermot O’Kelly, acknowledges the government need to switch a chunk of that Oracle functionality to a cloud environment: “Is there a risk [for us]? Of course. All our customers have free choice. If they think something is better value then they’ll do that. The reason we are one of the biggest IT supplies to [the UK] government is because of the strength of our product set. But we don’t want to be complacent about that and think we are going to be there forever. The government is challenging [us] and they are right to do so, because they are using taxpayers’ money to buy IT.”
Another of Oracle’s aims with its “ring-fenced” data center is to support UK government policy to bring more start-ups and SMBs into government contracts. “We’ve stated we’d like to support SMBs in helping them [with a] platform that accelerates them into government and enables them to get scalability very quickly,” says O’Kelly.
“Rolling thunder” of announcements
Hurd, meanwhile, makes no secret of the fact that Oracle is on a ramp up of cloud data centers around the globe. “We have a budget for [data center] investment but we’re not giving any idea of what that is. Our strategy is to take this — market-by-market. We’re making decisions that we think are most appropriate, by industry, by geography – you’ll see a rolling thunder of announcements.” For Oracle, “it’s about investment in the local environment,” he says. “We’re showing up with capital, putting our money where our mouth is. At [customer events such as] Oracle CloudWorld, our voice may be in the room, but our money is going into a data center so we can deliver the [cloud] capabilities we’re talking about.”
What such a local focus ultimately means for the cloud model – at least in government environments – is up for debate. If each major cloud vendor is obliged to build and manage cloud data centers in scores of countries around world in to order qualify for government business, then the economies of scale, the flexibility, the redundancy, the robustness of multi-tenanted, globally-spread cloud architectures are diluted. But, as is evident here, some customers are just so large (the UK government's own reports show it spent an estimated £6.9 billion ($10.5bn) on information and communications technology in 2011-12) that they can demand whatever cloud model they so desire.
Image courtesy of NASA