Europe wants to know – what do cloud companies stand for? – Chapter 3: Economic growth

Europe wants to know – what do cloud companies stand for? – Chapter 3: Economic growth

Europe needs growth. Only growth can revitalize lagging industrial sectors and distressed rural regions, reduce long-standing inequities in youth employment and pension arrangements, and preserve Europe’s standing in the global economy alongside the United States and China. 

Many factors contribute to the growth of a diverse and complex region like Europe, but there can be no doubt that what EC President Ursula von der Leyen has called the “twin transitions of green and digital” are at the top of the list. The environmentally sustainable digital transformation of Europe’s national economies and its enterprises (both large and small) is likely be the single greatest contributor to European GDP growth over the coming decade.

As cloud computing becomes ubiquitous and evolves into the essential motor of digital transformation, the obligation of cloud providers to contribute to the economic progress of the countries where they operate grows. This contribution can flow through many channels, but it is useful to group them into three broad types:

  • primary impact of cloud services on economic activity 
  • secondary impact through ecosystems
  • tertiary interventions that deliver benefits outside the technology itself or its commercial ecosystem

The primary impact of digital technologies on GDP growth arises from the use that customer organizations make of these technologies to enable and expand their own activities. It is difficult to measure this impact precisely, but it clearly enormous. A study published by the European Commission in 2020 found that digital technologies could contribute an additional €2.2 trillion to the EU’s GDP by 2030. Another study by McKinsey estimated that Artificial Intelligence could lead to the creation of US$13 trillion in new value in the global economy by the same date. And these primary benefits will not be limited to large multinational corporations. Eurostat reports that cloud adoption among European Small and Medium Businesses is growing at three times the rate of the European economy as a whole.

The secondary impact of digital technologies on national economies arises from the ecosystems that technology providers create around their operations in a country or region. Cloud providers like OVHcloud, SAP, AWS (the cloud arm of on-line retail giant Amazon), and Microsoft hire employees, pay taxes, build data centers, and create business opportunities for their partners. It is difficult to find precise country-by-country statistics for the local impact of the ecosystems of large global technology providers, but we can find some rough indications.

One very basic metric that most cloud providers publish is the number of data centers they operate in Europe. Microsoft currently operates data centers in fifteen European countries, Google and AWS in six each, OVHcloud in four. Local data centers offer faster response times for in-country customers and make it easier for them to meet data localization requirements imposed by national regulators on certain industries such as banking, healthcare, or defense. Partner ecosystems can also be a large source of indirect economic benefit, though again it can be difficult to get precise numbers for specific countries. Microsoft said in 2017 that the 400,000 firms in its worldwide partner ecosystem generated nearly one trillion dollars in sales while employing 17 million people, and we can be confident that these numbers have grown considerably larger five years on. Microsoft’s historic hybrid business model combines cloud services and on-premises software, creating opportunities for thousands of local in-market resellers and software developers to create value for customers by tailoring custom solutions for them. This means that many of its partners earn substantial revenue from both kinds of activity.

With an overall revenue number that will certainly be well over $1 trillion in 2022, the Microsoft global partner ecosystem could claim membership in the G20 group of nations if it were itself a country. Likewise, while the AWS cloud-only model may not have a partner ecosystem on the scale required by Microsoft’s hybrid model, its corporate owner, the retail behemoth Amazon, certainly has a large and rapidly growing economic footprint in Europe, employing some 200,000 people in its warehouses, package delivery services, and other facilities.

The third channel by which cloud providers contribute to local economies consists of benefits they offer outside of their technology offerings. A natural thing to expect of leading technology companies is that they should support technical education. After all, digital transformation cannot proceed if local workforces cannot acquire the technical skills needed to implement it in organizations of all sizes throughout a national economy. AWS, Microsoft, and Google all offer extensive training and certification courses on their cloud technologies. Google has announced a new €15 million Digital Education Fund to support schools in Europe that are developing innovative digital education programs. Microsoft has announced an investment program in 24 countries (including 12 in Europe) to help local educational institutions develop programs suited for training the millions of cybersecurity experts the world needs to defend against the ongoing cyber menace.

Without economic growth, little else is possible. It’s only natural that European governments should have grand expectations for the contribution to such growth by cloud providers who now loom so large in Europe’s technology landscape.