Data and data services are increasingly becoming value drivers of products and services, raising the issue of how much power companies such as Google wield, and how this development will affect German and European businesses.
Pessimism dominates the discussion.
When value chains are digitalized, there is a danger of an asymmetrical relationship developing between the companies that own digital platforms and those who use them for goods and services. In worse case scenarios, business and industry leaders fear Europe could become just another working tool of the Internet giants.
Such scenarios are too downbeat. The German economy is already more digitalized and global than political pundits would have us believe. Nevertheless, we agree with the new president of the European Union Commission, Jean-Claude Juncker, who said digitalization is Europe’s path to growth.
Standing in the way, however, is the piecemeal nature of the European market. To remove this obstruction we must unify the European digital market, Mr. Juncker argues.
It’s a fact that the European Economic Area remains at a disadvantage compared to the digital markets in the U.S. and China. Someone looking to launch a company in the U.S. finds a relatively uniform market of more than 300 million inhabitants and an abundance of investment capital.
But in the E.U., a company founder must adapt their digital offering to each of the 28 countries’ different basic conditions in terms of digital protection, storage and security. This creates a huge difference in profit margins, which in turn makes the search for capital more difficult in Europe’s comparatively risk-averse investment environment.
It’s clear that national initiatives – such as a German data cloud – do nothing to address the competitive imbalance. A uniform European solution would not only create an enormous digital market of more than 500 million inhabitants, it would also provide political and economic power to the European culture of data protection and security.
Protection and security should become the trademark of the European cloud and the continent’s economic power, giving the E.U. huge leverage in exporting those standards. But what kind of design principles should shape a European cloud?
This is where Europe must go in a different direction. Our way is not that of free market play as in the U. S. The regulatory hurdles here are too high and our digital clusters still too weak. There’s also a notable lack of investment capital.
This means Europe’s move to digitalization must be federalized at first, a strategy that relies not on centralism, protectionism or the market power of large providers, but instead on the power of the many. Subsidiarity and competition should be the guiding principles.
It’s a fact that the European Economic Area remains at a disadvantage compared to the digital markets in the U.S. and China.
Additionally, Europe’s path to digitalization must have political support. In 2012, the market research company IDC created a model for how a European cloud market could be developed by 2020 with and without political involvement. The study found that with muscular political support, a European cloud could mean an increase in the E.U. gross national product of up to €250 billion ($319.66 billion), and create 3.8 million jobs.
Without strong political involvement, the study predicted growth of just €88 billion and creation of only 1.3 million jobs. Though the study is two years old, the wide variance in outcomes is probably just as valid today.
If we want to create a unified European digital economic space — a central cloud market — we must create one that is true to the European motto: United in diversity. How? We need a way to maximize the potential of our diversity without lapsing into either centralism or monopolism. There’s already a widely known model for this approach: the digital app marketplace.
Three attributes make this kind of marketplace a structural model for a unified European cloud project.
First, small IT companies as well as large ones will find a platform that reaches hundreds of millions of potential customers. It will be simple competition. If an app attracts positive evaluations and recommendations, every market participant has a direct path to growth and wealth.
Second, the central marketplace provides a unified framework of quality, business terms and conditions and security. The observance of the regulations and quality standards will be centrally monitored and enforced.
Third, there is freedom and individuality regarding the type of operating platform used, operating system aside. The user will decide which device they need and whether they require computing power, memory or encryption.
Existing app marketplaces can serve as a model for a European cloud.
Existing app marketplaces can serve as a model for a European cloud only in relation to structural characteristics, but not for security, data protection, business terms and conditions or availability. Yet the basic principles remain strong: a combination of a centrally controlled business platform with the decentralized development of cloud services and local IT service provider, guided by local laws and individual requirements in performance, availability and security.
For example, a cloud service for vehicle fleet administration developed in Tallinn, the capital of Estonia, could be centrally managed, but locally operated by an IT service provider in Hamburg. This model enables diversity, competition, and subsidiarity, yet as a centralized E.U. platform, it opens the door to a huge economic market for providers.
We have submitted a concrete proposal for such a model to Horizon 2020, the E.U. Framework Program for Research and Innovation. The concept provides for a central marketplace for cloud services operated by a non-profit organization, which would ensure standards and control wouldn’t be lowered in favor of profits.
Just as in the app store model, a would-be European cloud needs a uniform operating system, so a centrally controlled cloud service can operate on the computers of all the market participants. We suggest Open Stack, an open source cloud operating system as this software is becoming an industry standard on its own, with the help of many large and small IT companies worldwide.
European Commission projects are already working on a secure, reliable and legally watertight European cloud on the basis of Open Stack. Now we should begin to lay the foundations for a unified European cloud marketplace. To quote Mr. Juncker again, “Europe’s path to growth is paved with tablets and smartphones.”
This path is open to us. Now we actually have to take it.
The author is chairman of the management board of Hewlett-Packard GmbH and a director on the board of directors of AmCham Germany. To contact the author: email@example.com