Data is no longer just data. A perfect storm of protectionism and the advent of data as an internationally traded good requires business leaders to regard data as part of the supply chain, subject to similar trade and regulatory patterns. Microsoft\u2019s cloud service, Azure, is at the forefront of data\u2019s transformation but growth is hampered by increasingly protectionist data policies in China and Europe.<\/p>\n
While free trade sputters, data protectionism runs rampant. Amazon recently sold $300 million of cloud assets in China to comply with regulations stipulating Chinese ownership of public cloud services [1]. The European Union adopted the General Data Protection Regulation (GDPR), stipulating localization of data and requiring consent for routine transfers of data across borders [2]. The US Supreme Court will soon decide the legality of federal searches of foreign data that American companies hold overseas [3]. Transferring and storing data, once largely unregulated, are now subject to laws limiting corporate ownership of hardware and routine data transfer. Those laws are similar to trade of physical goods, which often face tariffs, import\/export restrictions, and search by authorities. Moreover, data protectionism is defended for the same reasons: domestic industry protection, national defense, and tax revenue.<\/p>\n
Far from esoteric legal issues, data restrictions are profoundly deleterious to world economies and Azure\u2019s growth. Unregulated data increased world GDP by 10% ($7 trillion) in 10 years [4], and GDPR will cost 1.3% of EU-27 GDP ($200 billion) due to productivity and research losses [5]. Chinese protectionism hampers Azure\u2019s growth; Azure must license its technology to a Chinese company that owns the hardware [6]. Azure\u2019s inability to market its brand and own its infrastructure prevents it from competing with domestic leader Alibaba, and Chinese control of Azure-licensed assets means that Chinese authorities have access to customer data. Those restrictions are deal breakers for most multinational corporations, and Azure thus has difficulty attracting large contracts in China. In Europe, GDPR protections compel Microsoft to build many local data centers, increasing the price of Azure services between 10% and 50% [7]. Azure is thus not price competitively with European cloud providers despite an overwhelming economy of scale advantage in a capital intensive industry. In short, data protectionism works as intended: foreign companies are severely disadvantaged versus domestic industry, but at staggering cost.<\/p>\n
In the short term, Azure has little choice but to build localized infrastructure and cede control and growth potential. In China, Azure is licensed through 21Vianet, which is responsible for its management, infrastructure, sales, and marketing [8]. Ironically, 21Vianet has the same agreement with IBM\u2019s cloud services [9]. In the EU, Microsoft will spend more than $1 billion building datacenters to comply with GPDR [10]. The trend is worldwide: Azure now has 42 global public sites, perhaps half of which would be unnecessary without data protectionism concerns [11]. Falling behind in the exploding cloud market is fatal, leaving Microsoft little choice but to build datacenters worldwide and accept slower growth in China managed by a company with conflicts of interest.<\/p>\n
Unable to change the economics of cloud services, Microsoft invests in political strategies to reduce barriers in the long term. The company spent $10 million lobbying in 2017 [12], unsuccessfully advocating against subsidies for European cloud service competitors [13] and leading the legal battle against US search warrants applying to data held overseas [14]. Directly challenging legal barriers is ill-advised; there are few examples of American tech firms successfully changing foreign laws in the EU and China. In fact, Microsoft\u2019s broad lobbying focus and average levels of funding suggest that the company\u2019s efforts may be a public relations campaign.<\/p>\n
Continuing Azure\u2019s breathtaking 93% growth rate [15] requires Microsoft to further differentiate Azure and focus its political messaging. Protectionist environments have stripped Azure of both its brand and pricing power, leaving quality as the prime differentiator. Microsoft must position Azure as the premium cloud offering, providing seamless integration with a range of business software and hardware. Making Azure indispensable for business IT will allow Microsoft to capture market share from other cloud providers. Politically, Microsoft should focus its lobbying efforts to push the WTO and governments to adopt international standards against excessive data protectionism, highlighting the staggering economic costs.<\/p>\n
Data has proven to follow similar trade and regulatory patterns as physical goods, prompting nations to enact well-intentioned but risky protectionist policies. World leaders must reach multilateral agreements on data management or include data in future trade deals. Azure highlights the challenges of data in the era of cloud computing, and business leaders must recognize that data is part of the supply chain, subject to similar protections and barriers as conventional trade. In turn, political leaders must ask themselves how data should be regulated in the era of cloud computing. What are the economic and social tradeoffs? How much do privacy and transparency matter?<\/p>\n
<\/p>\n
(800 words)<\/em><\/p>\n Footnotes:<\/em><\/p>\n How can Azure and cloud services compete against rising international data protectionism?<\/p>\n","protected":false},"author":10334,"featured_media":26744,"comment_status":"open","ping_status":"closed","template":"","categories":[298,154,50,2396,3232,3549,3877,3239,1520,2535,3240,1633],"class_list":["post-26743","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-big-data","category-china","category-cloud-computing","category-digital-technology","category-european-union","category-free-trade","category-global-trade","category-isolationism","category-microsoft","category-microsoft-azure","category-protectionism","category-united-states","hck-taxonomy-organization-microsoft","hck-taxonomy-industry-technology","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n\n