A few weeks ago, European Commission Executive Vice-President Margrethe Vestager and Commissioner Thierry Breton announced the European Commission’s 2030 digital compass, or, in other words, “the European way for the digital decade”. This comes in a moment of profound economic transformation and acute geopolitical instability, where EU leaders seek to define new cardinal points for an EU trajectory throughout the upcoming decade.
Highly interesting political debates are currently taking place at European level, on such issues as: promoting digital and technological sovereignty, open strategic autonomy, revising industrial and trade policy objectives combining open economy with sustainable and fair globalization principles, EU resilience and competitiveness, level-playing field or reciprocity.
While all these debates have obvious implications going far beyond the digital sector, it is important, in our view, to make Scaleway’s alternative vision heard. We remain convinced that our concrete two-decade-long experience as an alternative, sovereign, and sustainable leading French and European cloud player can usefully enrich ongoing policy discussions.
European cloud service providers and their global competitors don’t play by the same rules
However hard it may be to hear, cloud services markets are substantially not characterized by free, full and open competition, even if these services are supposed to be covered by WTO rules. If we look at past and ongoing practices in the main superpowers, on the contrary, we tend to observe captive market dynamics, at the benefit of dominant cloud players.
A McKinsey report from July 2018 found that in China, 64% of public cloud spending was channeled towards Chinese CSPs, while only 22% went to international vendors. Although reliable data is not easily available, some reports suggest that Alibaba Cloud gets half of the market share in IaaS, followed by Tencent Cloud and China Telecom, with Microsoft Azure and AWS only catching a marginal fraction (about 5% each). In China, foreign CSPs are subject to strict regulations, making it harder for them to operate in the country. For example, non-Chinese companies are not allowed to set-up data centers in mainland China. They are obliged to contract local Chinese companies, and provide services through them (which is what Microsoft Azure and AWS are doing). Similarly, cybersecurity laws impose strict data localization requirements, making it complicated for non-Chinese CSPs to operate in the country. Prescriptive approaches concerning data localization and applicable jurisdictions can also be found in India, Brazil or South Korea.
In the USA, public procurements, especially defense research & innovation funding (through DARPA inter alia), have played a key role in the expansion of the Silicon valley players. In a position of “anchor customer”, the US administration has been indeed leveraging its bulk purchasing power to favor the development and early adoption of technologies, products and services - providing the US cloud industry with a critical mass of revenues on large, captive-like markets, quite a significant advantage when addressing export markets with aggressive price policies. Thus, as of 2010, the US administration implemented its first cloud-first policy, followed in 2017 by a new “cloud smart” policy. Interestingly enough, the latter was based on three pillars, a specific effort being focused on procurement. This is not a cloud-specific consideration but, in this context, legislations such as the Buy American Act or the Small Business Act make it extremely difficult for European actors to access such markets.
Cloud services adoption has also been an integral part of the national defense strategy, and of the US Department of Defense’s (DoD) digital modernization strategy for years already. This has been supported by concrete, massive investment efforts, illustrated e.g through the JEDI (“Joint Enterprise Defence Infrastructure”) contract, awarded to Microsoft: $10Bn ceiling, over 10 years...The CIA is also reported to spend in the “tens of billions of dollars” to follow-up its initial intelligence cloud contracts with a new procurement, launched about two years ago for multi-cloud services.
Needless to say that such bids are not accessible to non-US providers.
Lessons learnt for Europe: let’s dare to aim for reciprocity!
The European situation is of course specific, both at national and EU levels, defense budgets being significantly lower in terms of GDP %, when compared with the USA or China.
In response to the ongoing practices depicted above, public procurements enabled by EU and national budgets are to be integrated into a wider industrial policy strategy: more than ever (the EU Recovery & Resilience Fund (RRF) dedicating 20% of its amount to supporting digital transition), public procurements should be used as a lever to:
- Channel funds and priorities towards smart cloud adoption by EU businesses and the modernization of administrations (local, regional, national and EU level).
- Lead by example when public institutions procure for their own needs, to promote offer requirements based on transparency, innovation, security, data sovereignty and climate neutrality.
From our standpoint, concrete reflections should be undertaken to translate our “Buy European instinct” into hard law. Indeed, the actors of the European cloud industry are mostly small to medium-size start-ups or scale-ups: competing on an equal footing with the big tech giants is therefore made extremely difficult (all the more when anti-competitive practices are rampant - we will dedicate another post to this soon).
Knowing their current size, and the market conditions they face back home, there are in addition no level playing field conditions for European actors. Considering that cloud infrastructures are proven to be increasingly strategic and critical utilities for the functioning of our digital societies and economies (to a similar extent as water, energy, and transport infrastructures), the issue of non-dependence on non-European cloud technologies, assets or services would clearly deserve to be covered by European lawmakers.
Implementing a legal instrument enabling access to public procurements to be restricted for non-European players coming from countries where European actors face asymmetrical access to local public procurements would be a concrete way to unlock vast market opportunities for the European cloud industry, whilst, at least partially, levelling the playing field. The European Commission has been initiating trade policy-related reflections and legislations going in this direction and we encourage such orientations. Positive externalities could be massive for the software and technology industry.
Another method to be considered could consist in setting-up a ranking of a given perimeter of institutions/large scale companies, about how much they use European cloud infrastructure services (e.g.: entities covered by the NIS directive or the directive on the resilience of critical entities), and the evolution of this over time. This would not only highlight the relative importance and progress of European actors’ footholds, but it would also provide further transparency overall. Under such conditions, given the dynamism of our ecosystem and the diversity of the available offers, a target set by EU institutions could be to supply if not 90% just 30% of European cloud-related needs through domestic providers. Setting such a humble target would be a phenomenal achievement.
In conclusion, let’s be crystal clear: we, at Scaleway, have a strong entrepreneurial DNA. We firmly believe in free trade and fair competition. We are neither requesting preferential policy treatments for the sake of it, nor a source of guaranteed income through privileged local markets access. This is not about getting better conditions than our international competitors, rather about ensuring increased loyal, fair and sustainable competition based on reciprocal practices at a European level!