Brexit spells turbulence for cloud computing: 6 stormy scenarios

The fallout from the U.K. leaving the EU is just starting. Here's a look at how large cloud computing vendors may be affected. Get ready for the pause in U.K. data center build-outs.

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The only certainty about the United Kingdom's move to exit the European Union is the cloud computing ecosystem is going to see some turbulence and uncertainty ahead.

Although Brexit rattled the stock markets on Friday, the fallout is just beginning. Enterprises everywhere were planning based on their exposure to the U.K. The currency hit alone is going to ding revenue for many technology companies.

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Beyond that initial calculation--you can expect Brexit to be a topic on every earnings conference call in the weeks ahead--there are some real technology logistics to sort out. With that in mind, here's a speculative stab at a few Brexit scenarios and how they may impact large cloud providers such as Amazon Web Services, Microsoft Azure, Google Cloud Platform and IBM.

Scenario 1

Highly likely: U.K. data center plans by large cloud providers may go on hold. U.S. cloud providers are building out data centers in the European Union as well as the U.K. Now that the U.K. has decided to leave the EU there will be new laws and regulations in place for cloud providers. Any plans to build data centers in the U.K. could be paused. AWS and Microsoft Azure have facilities in Ireland. Azure is also in Amsterdam and has to-be-announced plans to build two cloud centers in the U.K. AWS runs out of Frankfurt, Germany too. New regulations add costs to cloud providers and they're likely to double down in Ireland now and choose to expand in Germany.

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The EU has made a large push to create a Digital Single Market that would offer standards for infrastructure as well as simplify the ecosystem to be an innovation leader. U.K.'s IT standards are inevitably going to veer from whatever the Digital Single Market turns out to be.

Scenario 2

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Likely. Ireland becomes the cloud lifeboat for all that spending that would have gone to the U.K. The Brexit simply makes Ireland a better country to carry out financial services and technology. Ireland also becomes the hub for Western European cloud operations.

Scenario 3

Less likely but: Brexit creates a mass exodus from the EU as other nations leave and the cloud landscape becomes much more complicated. The Euro disappears and local currencies take over. Reports after the U.K. exit from the EU noted that Scotland was thinking about leaving the U.K. and pols in other EU countries were pushing for votes on whether they should stay or go. It's far too early to predict that the EU would dissolve, but the implications for scale-out cloud providers would be huge. The end of the EU would happen in slow motion. After all, any country would wait to see what happened to the U.K. before creating a referendum.

Scenario 4

Likely if the EU dissolves: Should the EU disappear every country would have its own regulations and be judged based on market size and importance. It's also unclear how data would flow between countries. An EU breakup would weaken the computing grid and agreements between countries. What could emerge is a series of country specific cloud providers instead of the four horsemen--AWS, Azure, Google Cloud Platform and IBM--we see today.

Scenario 5

Possible: Cloud advances in the EU are cut off. Should the EU and U.K. carry out a quick divorce my aforementioned scenarios would be contained. However, if negotiations on an U.K.-EU split drag on the uncertainty will lead some cloud providers to look at growth elsewhere. The longer negotiations drag out the more tenuous the EU looks. In other words, the Europe cloud infrastructure build out will go to Asia until the EU uncertainty is sorted out. Ultimately, the EU would fall years behind in the move to the cloud.

Scenario 6

Possible over time: The U.K.'s cloud industry fares well. Assuming the U.K. doesn't split with Northern Ireland and Scotland, there's an argument that more data centers will be built in the country beyond the ones already in the works from Microsoft and AWS and ones there today from IBM and Google. What's unclear is what the U.K. privacy model will look like. There's an argument that the U.K. could become more business and tech friendly.

Forrester analyst Laura Koetzle told TechRepublic:

The data privacy and data residency implications of Brexit are profound. When the UK exits the EU, it will have to either: a) become a trusted entity like Canada or Switzerland; or b) pass new privacy laws that meet the requirements of the EU General Data Protection Regulation (GDPR).If the UK does neither of those, firms operating in the UK will need to repatriate data to EU data centers. Additionally, EU companies will now demand that their cloud vendors move data out of the UK and into EU data centers to comply with the EU GDPR.

BitTitan, which specializes in delivering cloud services applications, said the U.K. will take a short-term hit, but potentially gain in the long run. BitTitan CEO Geeman Yip said:

With the UK's EU exit, it's highly probable that customers will have to comply with one set of data sovereignty regulations in the UK and another one in the EU. UK regulators know their financial stability rests on keeping these huge infrastructure providers in their country and bringing in more companies. It's feasible the UK could become a Mecca for tech innovation - a place where companies go to experiment, innovate and create - and a center where ingenuity isn't stifled by EU compliance regulations.

The catch is that items like data privacy and regulations may take months to negotiate. The U.K. needs to start the withdrawal process from the EU and that could mean two years of negotiation. Two years is a long time in the cloud.

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