Europe turns to the CloudJuly 24, 2011
When the founders of Shutl, a British courier service that makes deliveries in 90 minutes in busy London, decided to set up a business that ran exclusively on cloud computing, they needed to get creative.
Data privacy laws in Europe restrict the transfer of information about individuals outside the 27-country European Union. That had prevented many companies on the Continent from moving to the cloud, where data may be stored on remote servers in Asia, the United States or elsewhere at a lower cost than what a company would pay for its own servers…
Yet despite the tricky legal landscape, Shutl, now a two-year-old start-up, has become one of Europe’s most avid users of cloud technology. The company carries out more than 1,000 deliveries a day over a cloud network operated by Amazon, the U.S. Web retailer.
Amazon.com, one of the world’s largest sellers of cloud services, helped clinch deals with Shutl and other European businesses, like the French railroad company S.N.C.F. and Bankinter, a Spanish bank, by effectively moving the cloud to Europe by setting up a data center in Dublin. Tom Allason, the Shutl founder and chief executive, said that the company planned to expand from London to all of Britain and Ireland. “Cloud computing helped make Shutl possible,” he said.
While cloud computing remains the exception, not the rule, in Europe, the trend is gaining momentum. According to Gartner, the research firm, annual sales of cloud services in Europe will rise 4.3 percent, to $29.5 billion, in 2015 from $24.7 billion this year.
Sales will still be only roughly half the level of revenue in North America, where remote computing was developed and its biggest sellers — Amazon, Salesforce.com and Microsoft — are leading an industry that Gartner says will generate $60 billion in sales this year.
But in Europe, the willingness of smaller companies like Shutl, and bigger clients like the European Space Agency and the Fraunhofer Institute of Germany, both Amazon clients, to use the cloud are signs that the outsourcing trend is reaching Europe’s shores.
“This is a tectonic shift in computing that is going to take many years to unfold,” said Adam Selipsky, a vice president at Amazon Web Services, the cloud computing arm of the online retailer. “Despite the challenges, on the ground, the cloud is happening in Europe.”
Europe is embracing the cloud despite the complexities of the bloc’s data protection laws. In addition to forbidding the transfer of data on European citizens outside the Union, there are many different versions of what is considered private information and how it is supposed to be handled. That makes it a legal headache to develop standards that satisfy all member states.
For European businesses, cost savings are the cloud’s biggest attraction. Cloud data centers are typically vast collections of computer servers and supporting equipment run by businesses that specialize in wholesale data processing. The centers are designed to provide the most efficient use of all storage and computing power, avoiding costly downtime and lulls typical of smaller businesses.
Mr. Selipsky said that Amazon customers typically saved 25 percent to 30 percent of costs by using its global cloud network instead of maintaining their own computing systems. Amazon allows its clients to store their information at any of its global data centers.
Mr. Allason, the Shutl founder, said that using Amazon’s cloud services had saved him from having to spend £100,000, or $160,000, to set up an internal computing system. He said he had used the savings to build his business, which aggregates and links delivery orders from British retailers like Argos and Oasis to hundreds of local courier services.
Cloud computing could get a lift soon from Brussels, where lawmakers are reviewing the European Union’s data protection directive, which governs how personal information travels within and outside the 27-nation bloc. Viviane Reding, the European commissioner overseeing the revisions, plans to make a proposal this autumn.
Ms. Reding, in an interview, said that businesses and consumers would both benefit from revisions in her proposal, which must be approved by the European Parliament and the Council of Ministers, which is made up of officials designated by each country to represent its interests. The process is not expected to conclude until next year. The Union’s existing data protection directive was adopted in 1995. “The rules are still valid, but the application of the rules must be modified to reflect the realities of the Internet age,” Ms. Reding said.
Businesses with a stake in the cloud, which include newcomers like Oracle, Cisco Systems, SAP, Apple and Google, are all lobbying lawmakers to streamline the Continent’s fragmented national data protection laws. In January, Brad Smith, Microsoft’s general counsel, spoke to the lower house of the French Parliament, the National Assembly, urging lawmakers to streamline French law to lower cloud barriers.
Ron Zink, the chief operating officer for E.U. affairs at Microsoft, said businesses needed legal certainty and harmonized rules to expand the sale of cloud services across the bloc. The rules from 1995 are too rigid and inflexible to accommodate the reality of modern data flows, he said. “Cloud computing is a really cost-effective way of getting a lot more computing power and data storage without buying a lot of new equipment yourself,” Mr. Zink said. Microsoft, like Amazon, also operates a data center for European cloud clients in Dublin.
Karl Deacon, the chief technology officer for global services at Capgemini, a London-based company that assists businesses on technology matters, said that Europe needed to revise its data laws to permit more European technology companies to sell cloud services. Most of the major suppliers, Mr. Deacon said, are U.S.-based tech companies.
“The legal landscape is not conducive to cloud computing in Europe,” Mr. Deacon said. “Cloud computing is already dominated by the Western tech firms out of America. There is not much European excellence there.”
Mr. Deacon said standards organizations like the Open Data Center Alliance, a group developing an open-standards platform for cloud data centers, could give European companies a new way to break into the cloud services market.
In the absence of legal reforms, companies like Amazon and Microsoft will continue to set up local data centers to comply with European law, said Ben Pring, an analyst at Gartner in Boston. That may help spur sales locally but could also increase costs by duplicating computing nodes, which will make cloud computing a more expensive proposition in Europe.
A continued prohibition on foreign cloud centers could pose challenges for smaller companies like Newtek Business Services, a New York seller of cloud services under the brand name the Small Business Authority. Yet Barry Sloane, the Newtek chief executive, said he was confident that the cloud model would eventually take hold in Europe.
“The cloud is going to spread globally,” Mr. Sloane said. “The cloud makes sense. It is more cost effective and more efficient as well. The biggest driver today is dollars.”