In a recent conversation with a senior executive at a rapidly expanding, Toronto-based cloud provider, an inevitable point of discussion was European expansion. Like many organizations with eyes on that part of the world, the plan was to set up a London, UK office.
While that plan will likely follow through, the executive admitted his organization was certainly going to pay more attention to the implications of having its European operations based in London in light of the Brexit vote, joking that with Brexit, the UK may have committed economic suicide.
While ”suicide” is clearly an exaggerated take on Britain’s vote to exit the European Union, many organizations are having sober discussions about how to reconfigure their approaches to European markets. For the most part, however, the consensus seems to be that cooler heads should, and will, prevail; and the logistics will sort themselves out over time.
It is early to predict or quantify the ultimate effects of Brexit. What is clear today, though, is that Brexit is creating a level of unprecedented uncertainty in EU business strategy, making long-term extremely challenging for companies that have viewed the UK as their natural entry point to the EU market.
The impact of Brexit on multi-tenant data centre (MTDC) and hosting providers will not be as dire as an “extinction level event,” despite the voices of the gloom and doom factions, argued Rory Duncan, research director, during a recent webinar by 451 Research, What the Brexit means for the London MTDC & Hosting markets.
However, there is still a need to revisit strategies and consider the potential pros and cons of a post-Brexit world. Buyers and sellers alike need to assess a number of factors, such as the impact of Brexit on existing contracts, potential cost hikes associated with new operating demands, potential changes in data sovereignty requirements, and broader issues around privacy and security and compliance.
Will demand for services in London itself dry up? Will UK-based MTDC and hosting suppliers shift to a more local focus while North American/global providers explore other potential locations (such as Frankfurt, Dublin or Amsterdam) for their European operations? How much impact will Brexit have on the costs associated with new compliance requirements and professional services?
According to 451 Research, there are definitely signs of unrest, which may have slowed data centre investment in the first half of 2016. “Initial conversations with providers are that they plan to continue to go ahead with their build plans,” said Penny Jones, senior analyst, European Services, adding that “If they do make a shift based on Brexit, it would be more around the 2018 market.” There is also some uncertainty on the buy-side of the IT equation: early survey results show that when asked how Brexit will affect IT spending plans, 52.4 percent of organizations say there will be no change; while 34.4 percent believe it’s too early to say. The balance is evenly split between decreasing and increasing spending.
In a June 2016 ZDNet article, Brexit spells turbulence for cloud computing: 6 stormy scenarios, Larry Dignan speculated there will be a pause in UK data centre build-outs which could affect the growth trajectories of large cloud computing vendors. While some of the scenarios are predicated on extreme outcomes (the complete dissolution of the EU), the two most likely are:
- UK data centre expansion by large cloud providers will go on hold until new laws and regulations are in place, so that the UK environment can be compared to alternatives like Amsterdam and Frankfurt.
- Ireland becomes “the cloud lifeboat,” buoyed by spending that would have gone to the UK to become the hub for Western European cloud operations.
One of the key issues at stake in Brexit are the implications for data privacy and residency implications. “Data protection and regulation are even more up in the air now,” Jones said, but “the UK will have to adhere to the EU and GDPR [general data protection regulation] to trade into the EU.”
In Duncan’s view, the main requirement is balance and patience. “In any time of uncertainty, when analyzing a situation like the one we have right now, it’s important to throw out as [many scenarios] as possible… bringing all this out will help form opinions and solidify them.”
This advice applies to both providers and buyers of data centre services. Organizations that rely on UK/EU-based facilities and/or which have business in Europe need to plan for contingency scenarios and to proactively consider the implications of Brexit to avoid being forced by circumstance into sub-optimal decisions. “Those sitting back waiting for clear answers around Brexit before they start to form strategies will be at a disadvantage,” Jones said. “It’s about being prepared for what might come around the corner.”