25 Sep ECA Series: Professor Justus Haucap presents research paper on the economic impact of cloud in Europe
On 14th September, Professor Justus Haucap, Director of the Düsseldorf Institute for Competition Economics and partner of DICE consult, presented a research paper on the economic impact of cloud in Europe.
By revolutionizing how companies and government agencies access and use resources, cloud technology has the potential to be one of the most transformative economic innovations of the twenty-first century. This is one of the most striking findings of the research led by Professor Justus Haucap.
Europe’s cloud computing market is growing fast. In 2020, it was estimated at 53.9 billion euros – by 2025, it is expected to grow to 135.9 billion. Boosted by the wave of digitalisation unleashed by the pandemic, European companies are increasingly adopting the cloud, with just 18 percent of all European companies using cloud services in 2014, compared to 41 percent in 2021.
But there remains a significant untapped growth potential. This is clear not only in Europe’s sectors with low cloud penetration like manufacturing, transport or aerospace-defence, but also more generally across several EU countries. In a number of Eastern European member states, as well as France, less than 30 percent of companies use cloud services, while Germany, Spain, Portugal and Czechia also see relatively low adoption rates of between 31 and 49 percent. The EU average is 41 percent.
The huge untapped growth potential for the EU through the use of cloud computing becomes particularly clear when looking at SMEs. These represent 99 percent of all businesses in the EU and are responsible for over half of the GDP of the European Union. This makes them a key driver of European economic growth and the backbone of the European economy. However, their adaption rate is just 40 percent.
Adopting cloud services brings several important benefits to companies. One is cost saving and improved scalability, as enterprises no longer need to buy and maintain expensive infrastructure, needing only to pay for the cloud services they require at any one time. It also improves energy efficiency by replacing classic on-premise IT infrastructure which is often underutilised.
Another benefit is promoting innovation. Lower costs for computing capacities enables more companies to develop products and services, while reducing risk. And companies can develop their own digital products based in the cloud – a prominent example is Netflix, which has great computing and storage requirements but does not have its own infrastructure.
SMEs especially stand to benefit from the improved innovation, scalability and flexibility offered by cost-effective access to the latest technologies, which were only available to larger companies in the past. Market entry barriers are also lowered as companies no longer need to make costly upfront investments in servers or computing power, promoting the emergence of new start-ups. Meanwhile, large established companies can use cloud computing to outsource their IT to better focus on their core business, as well as allowing employees to be more flexible and facilitating cooperation within and beyond the company.
Realising these benefits of cloud computing necessitates a large investment volume in the necessary infrastructure. The large-scale rollout of data infrastructures by cloud Hyperscalers (Amazon, Microsoft and Google), which have years of experience in their development and operation, has resulted in a win-win situation for the European economy. In terms of direct impacts, Google’s investments in Europe boosted economic activity by 8.8 billion euros between 2007 and 2018, creating 115,200 jobs, while estimates reveal that by 2025, Microsoft’s ecosystem partners in Europe will generate eight dollars in revenue for every dollar generated by Microsoft itself. Estimates for the European economy as a whole suggest that cloud computing created 1.6 million new jobs between 2008 and 2020 and enabled the creation of 303,000 start-ups between 2015 and 2020.
The result is that continued investment and increased use of cloud will strengthen Europe’s competitiveness, innovation potential and economic growth. Its companies can become more efficient, innovative and flexible, while market entry barriers can be lowered, and the competitiveness of SMEs in particular can be increased.
It is therefore vital that the EU and its member states work to build a supportive policy environment for investments in cloud computing. Key steps include retiring capital incentive policies that promote investment in physical capital instead of digital services, and addressing disparities in fast broadband coverage.
Europe’s greatest challenge, however, isn’t building the cloud infrastructure, but ensuring its widespread adoption. EU policymakers know this: that’s why European Commission set a target for 75 percent of EU companies using cloud by 2030. Realising this ambition means making the most of the synergies between cloud hyperscalers and European businesses seeking to become more efficient and competitive. EU leaders must prioritise addressing the starkly different rates of cloud adoption that currently exist across member states. Only then can Europe’s full potential be realised in the cloud.