We need a more competitive, innovative, and fairer cloud computing market for all.

Growth in Europe has been slowing for decades. Across different measures, a wide gap in GDP has opened up between the European Union and America. Europe’s households have paid the price in forgone living standards. Since 2000, real disposable income on a per-person basis has grown almost twice as much in America as in the EU.

To reignite growth, the European Commission tasked Mario Draghi – former ECB President – with preparing a report of his vision on the future of European competitiveness. Mr. Draghi came out with a long list of sectoral and horizontal priorities to ensure that, as the European Union, we do not fall into lines of fallen superpowers.

One area of particular concern is Europe’s tech sector. While the EU has led the way in digital regulation – with the Digital Markets Act, the Digital Services Act, and the AI Act shaping global standards – it has struggled to foster a robust tech industry of its own. According to Draghi, Europe missed out on the digital revolution powered by the internet, and its position in emerging technologies like AI and semiconductors remains weak. This is contributing to an ever-widening innovation gap with US.

In comparison to their US and Asian counterparts, EU tech players often lack the scale to support R&D and deploy investments in telecoms, cloud services, AI, and semiconductors. On one hand, we see the EU often focusing on excessive regulation without boosting key industries. On the other side, we also note cases of big companies narrow-mindedly attempting to maximize their profits while limiting further development of crucial sectors.

Mr. Draghi’s indictment of Member States’ inactivity is clear, but the role of corporations in Europe’s digital stagnation also deserves attention. Let’s narrow it down and look at one such issue: cloud. In 2023, just 42.5 % of EU enterprises purchased cloud computing services. What is stopping so many companies from embracing the cloud, a technology so inherent to the progress in digital innovations? Four factors are holding companies back – data sovereignty and protection regulations, security question marks, skills gaps, and, most importantly, concerns around vendor lock-in and licensing.

While many of these obstacles can be addressed and prevented with education, awareness-raising, and training, the issue of vendor lock-in is more complex and a real concern for many organizations. It is a problem that drives up costs for many businesses and consumers. For instance, a study by the Social Market Foundation highlighted how one company’s abuse of market dominance cost European and British consumers hundreds of millions of euros. They examined how the policy that ended customers’ ability to use on-premise software licenses on competitors’ infrastructure may have resulted in first-year repurchase costs totaling a baseline of €560 million for European and £586 million for UK businesses.

We believe that this approach is short-sighted – when companies limit competition and consumer choice by the foreclosure of alternatives, they are undermining trust and their long-term success potential.

Unfortunately, this is not an isolated incident. Report by data intelligence company Savanta accentuated that despite a clear desire for choice, of those surveyed who have considered switching cloud infrastructure providers, 40% claimed that existing licensing terms prohibit their companies from taking on-premise licenses to another vendor, and a further 40% worried about losing discounts – another potential cause of cloud lock-in.

Furthermore, a report by the UK’s principal competition regulator, the Competition and Markets Authority, highlighted many other practices that hamper competitive, innovative, and fair access to the cloud. This takes many forms, starting with straightforward differential punitive pricing for customers using software of one major developer with their own cloud portfolio on rival platforms. It also includes aggressive bundling of ancillary products or limiting security updates and features for products running in rival clouds.

The European Union finds itself on an uneasy path toward ensuring that it does not fall behind. While the EU institutions are guilty of inactivity, they do not carry the full blame. Businesses need to look beyond short-term profit and make sure that we can all get behind an innovation economy. The walk toward the common goal is complicated and complex. However, it is a walk worth walking.

The article was also published on Medium: https://medium.com/@SmartConsumerInstitute/dark-cloud-over-europe-looking-beyond-innovation-gap-9b8c3df5b14f.