The Digital Economy

Europe's ambivalence on the cloud

Tyson Barker / Jan 2017

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William Ford Gibson, the science fiction writer who coined the term “cyberspace,” once wrote, “the future is already here – it’s just unevenly distributed”. Nowhere is this more evident than online and, particularly, in Europe’s adoption of “the cloud.” Cloud computing will be one of the strongest Schumpeterian forces in the next decade pooling digital services, platforms and infrastructure has the potential rewire all economic, political and social life. But European cloud adoption varies from super adopters like Finland (51 percent) and super laggards like Romania (5 percent). Why is this so?

One of the most interesting cases (and some might say problematic for Europe’s future digital transformation) is Germany. According to 2014 Eurostat data, Germany’s cloud adoption rate hovers at 11 percent. Not only is that below the EU average; if you look at it relative to economic performance, GDP and digital competitiveness, Germany is the EU’s poorest performer.

If SMEs are an economic bellwether, the German Mittelstand tells an interesting story of what is holding the country, and perhaps the EU, back from higher cloud adoption rates. The first is economic uncertainly. 2016 has not been a reassuring year. China’s slow down, sanctions on Russia, the Syrian conflict, the Eurozone crisis, Brexit, and Trump’s victory in the U.S. have made the German Mittelstand less willing to invest in capital intensive IT upgrades. Add to that a declining confidence in German information and communication technology infrastructure. German business has shown itself disinclined to invest– including those areas with long term payouts like cloud computing – given the uncertainly that 2016 brought with it.

Second, organizational and management culture. German SMEs are more likely than small businesses in other countries to have an in-house IT department. Only 4 percent of German SMEs rely on external IT staff to manage their systems. And these specialized computer scientists are more likely to make IT decisions for the company than business owners or executives. In fact, there seems to be a more pronounced “set it and forget it” approach to IT systems for German SMEs in general. A full 36 percent of German SME management are unfamiliar with their IT expenditures completely. This hands-off approach is combined with a willingness to protect legacy models of in-house IT support rather than rely on public cloud services that could transform Germany’s small business and Mittelstand. In-house IT specialists often have direct incentives to avoid transition to the cloud because it could render the need for in-house IT staffs less necessary.

Finally, the Snowden overhang. The spectre of global surveillance and data breaches has become a fixture in German media in the wake of the Snowden revelations—a reality demonstrated by the fact that Snowden was on the cover of Spiegel Magazine more times than Angela Merkel and Barack Obama combined in 2013. 83 percent of German SMEs believe that in-country storage is a “must have” to even consider cloud computing. German concerns have spurned the Merkel government to push for so-called “data sovereignty” including data localization requirements, centralized applications and procurement and a territorially based Bundescloud for public services. Companies have responded by relocating servers in German and European territory and creating trustee relationships with German providers like Deutsche Telekom.

But the fear of state-sponsored surveillance is still there and Russia’s cyber attacks on the DNC, the German Bundestag and some German political institutions certainly will not help. In fact, they have helped to draw the paradox of cloud computing into high relief. On the one hand, the titans of digital industry have seemingly limitless resources to protect their users. On the other hand, the pooled data, services and infrastructure offer a more enticing target for cyber criminals, hacktivists and nefarious states. Just as a bank is more attractive for robbers because that’s where the money is, the cloud is more attractive to hackers because that’s where the data is. 

The EU has rolled out an ambitious €4.7 billion European Cloud Initiative with a kind of “If you build it, they will come” mentality. Its focus is building out infrastructure for larger data loads and processing and making big data related to research and science more accessible across disciplines and sectors, while at the same time socializing cloud technology in the scientific community. But these are primarily supply-side policies rather than demand-side efforts. The EU does little to allay concerns about state surveillance, bolster trust in the global nature of the cloud, and raise awareness and socialize usage through public procurement. Ultimately, cloud adoption rates will be predicated on the European users’ trust. Without it, the forecast will not be bright for Europe’s much vaunted digital transformation.


Tyson Barker

Tyson Barker

January 2017

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