Data Center and Cloud Adoption in Europe: Why, What and How (Part 1)

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Spend Matters welcomes this guest post form Kaushik Yathindra, business consultant, procurement analytics, at HSBC.

This article is the first of a series exploring the data center/cloud-based infrastructure market in Europe. The first part focuses on the primary question organizations are still looking to understand why procurement organizations need to move to cloud or invest in data centers, and provides insights on why organizations today are faced with the task of including cloud-based solutions in their IT strategy.

What is Causing this Adoption?

Based on data from BroadGroup Consulting, Europe is expected to double its cloud adoption growth by next year.

The primary reason behind this increased adoption is the regulatory constraint on data privacy that is pushing organizations to the edge on their concern of privacy liability.

Until recently, U.S.-based multinational organizations have continued to store data in their own U.S.-based servers or in SuccessFactors’ U.S. data centers. Now, one of the E.U.’s eight “enforceable principles” for privacy protection is that data should not be transferred without any legal protection as earlier last year the court had ruled out that the E.U.-U.S. Safe Harbor agreement is invalid.

If this new challenge persists, along with the new regulation in Russia (since Sept. 1, 2015) and similar rules across the globe, it would lead to the requirement of a geographically distributed storage of personal data in the future. Since cloud solutions (most noteworthy are cloud vendors with a strong data center infrastructure established in Europe and across the globe) much better positioned to deal with it than individual on-premise systems, this would have a deep impact on organizations that are not investing in cloud or data center infrastructure.

Are Alternate Options not Viable?

Alternatively, the change in regulatory standards has indeed provided other options to multinational companies. One is the usage of European-model contracts, and the other is the adoption of binding corporate rules. However, the major challenge with the former is that such contracts come with real obligations and give individuals the right to sue. With the latter, the challenge is that the route could be onerous and expensive.

Hence, organizations are investing in data centers or cloud-based infrastructure, as it provides more certainty in the long run by reducing any privacy liability. While the data center facilities are equipped with mainframes, servers, network equipment and databases, in order to serve as a central repository for enterprise data, cloud-based solutions are already enhancing enterprise workflows, enabling CapEx-to-OpEx transformation and providing improved data storage reliability.

Evidence from Buyer/Supplier Community of Adoption

Based on a recent survey conducted by Deloitte, data centers and cloud-based interfaces have had their maximum adoption in the IT/ITES, BFSI and technology sector, with the next level of adoption expected to come from the retail, government and pharmaceutical industries.

According to the Wall Street Journal, Google, Microsoft, Apple and Amazon are housing large data centers in Europe, and some of them are expanding their infrastructure exponentially. Internet giants such as Amazon seem to hold the majority market share of the EMEA public cloud market, despite many M&A events unfolding last year both from a consolidation and investment perspective. One initial case example is eBay, which has developed a data center model, which enables their IT operations to be highly reliable and 50% less expensive to operate.

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