Europe’s Cloud Computing Market: The Oligopoly and the Challenge
As businesses worldwide adapt to a digitally transformed landscape, cloud computing continues to be essential for companies in all industries. Europe, in particular, has an enormous market for cloud computing, with projected revenue estimated to reach €70 billion by 2025. Despite this potential, four companies – Amazon, Microsoft, Google, and IBM – hold over 75% of the regional public cloud computing market.
evroc, a Swedish company backed up by EQT, aims to shake up the industry by constructing two hyperscale data centers for €3 billion. However, the potential of the cloud-computing market in Europe means that the oligopoly of US tech giants will be challenging to overcome.
The Challenges of Cloud Computing Oversight
New regulations such as the EU General Data Protection Regulation require cloud computing service providers to store data, creating a surge in cloud services demand. While companies can use private cloud services, public services’ sharing efficiency across users is more appropriate for larger organizations. These public services’ scalability highlights the criticality of Hyperscale data centers owned by European companies like evroc, instead of the dominant US-based tech companies.
Nevertheless, experts warn that the lack of a comprehensive application platform interface, similar to those provided by big tech companies, hampers European vendors’ growth. This disadvantage especially affects smaller companies, such as French OVHcloud, which mainly has hardware experience.
OVHcloud’s Challenging but Growing Business
Founded in 1999, OVHcloud initially started as a web hosting service. Currently, it is the largest European vendor in cloud storage services, with 120,000 physical servers across over 30 data centers worldwide. However, OVHcloud only has a small public cloud business, which grew 24% in H1 2021, recording revenues of €74 million.
OVHcloud’s struggle to compete against American cloud service providers is evident from the company’s adjusted EBITDA margins in the public cloud falling 7% to 43% in H1 2021, resulting in its shares dropping by half since its 2021 IPO. The reason behind this disadvantage is the lack of technology backing, as OVHcloud primarily focuses on hardware production, unlike its American counterparts.
The Opportunities and Challenges for Europa’s Hyperscale Cloud Computing
evroc’s decision to invest in constructing hyperscale cloud storage centers presents a formidable endeavor for the firm, and the European cloud computing industry stands to gain significantly from the Swedish firm’s ambition.
Europe’s cloud storage market offers a chance for European vendors to profit based on the following:
1. The EU’s regulations and GDPR increase the need for cloud storage services to comply with data-privacy laws.
2. The region’s stable political climate and robust data-protection laws guarantee a reliable and secure environment for data storage.
3. Europe’s growing demand for cloud services indicates positive growth in the industry.
4. Investing in green and renewable electricity options will optimize the use of renewable energy to cut down on emissions and costs.
However, a few challenges come with constructing hyperscale data centers:
1. Considering the amount of data generated and require by the multitude of companies adjusting to digital transformation, a lot of capital is required to establish hyperscale data centers.
2. The time consumed in adapting to a new digital system could take longer than expected and may lead to increased costs.
3. Competing against established U S.-based tech companies like Amazon, Microsoft, Google, and IBM is problematic.
Additional Insights
Europe’s cloud computing industry is vital to organizations across all sectors, and the impact of Hyperscale data centers is particularly critical. A few other factors complicate the European cloud-computing market, including competitor costs, heavy investment requirements, and slow adoption rates due to inconsistent Application Platform Interface access.
However, the industry is expanding, and Europe must not take a backseat to the US technology oligopoly. European service providers need to do the following:
1. Have sufficient capital to fund advancement and meaningful market share gains.
2. Develop Application Platform Interface (API) access in partnership with the European Foundation for Cloud Services and Data Infrastructure (CSDI).
3. Innovate to slice European-based cloud computing services’ operational costs through renewable energy and materials.
4. Form partnerships among European service providers to resist price undercutting from US-based competitors.
As the tech-world continues to evolve, companies from outside the United States need to ensure that the U-S tech giants don’t dominate the vast opportunities presented by Europe’s cloud computing industry.
Summary
The article analyzes the current state of Europe’s cloud computing industry and the challenges posed by US tech giants holding over 75% of the regional market. Swedish firm evroc’s investment in constructing hyperscale data centers presents an opportunity for European vendors to penetrate the market. The industry challenges include slow adoption rates, the oligopoly of US tech giants, and heavy investment requirements. The article concludes with the opportunities provided by the European market and five suggestions for European firms to compete with US-based tech companies.
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In Europe, the power of large datasets rests with a remarkably small group of companies. Together, Amazon, Microsoft, Google and IBM control more than three-quarters of the regional public cloud computing market. A European champion is long overdue. But great ambition is required.
Private equity stepped in to help. With the venture capital backing of listed PE firm EQT, Sweden’s evroc wants to rise to the challenge. The goodwill plans to build two hyperscale data centers for a total cost of 3 billion euros over the next few years. He has only invested millions of seeds so far.
Blame data oversight. The EU General Data Protection Regulation obliges to rely on archiving or private cloud services to comply by collecting and storing lots of bits. Demand for cloud services growing by about one-fifth annually highlights the opportunity. Companies can buy their own (private) cloud network or rent a public service from a provider.
Scale is vital. Unlike private clouds, public versions more efficiently share processing power among many users. In this way, evroc can shift demand to its European servers to optimize the use of renewable electricity.
A capability in software underpins the public cloud dominance of US big tech. Developers want an online ecosystem to quickly and easily test, launch, and run cloud-based applications. Most of the European vendors come from a hardware background.
Take French OVHcloud, which started out in web hosting. It has a small but rapidly growing public cloud business. Segment revenues increased by 24% in the first half of the year to 74 million euros. Despite being the largest in Europe, OVH’s market share is paltry compared to its US competitors.
The competition is understandably fierce. OVH’s adjusted EBITDA margins in the public cloud fell 7 percentage points to 43% in the six months to February. As a result, the shares have halved since the 2021 IPO.
Dealing with such a strong oligopoly will take a lot of time and capital. Amazon and its rivals have little to fear.
https://www.ft.com/content/b3e5f193-c577-4c2b-9ae7-c80b039da753
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