Sleep Walking to Oblivion: the Potential Local Societal Impact of Global Cloud Domination

Much is made of the success of silicon roundabout and the thriving ecosystem of the start-ups in neighbouring Shoreditch. Few of the youngsters working there though will recall ICL, the company that was once the UK’s tech giant – just as Bull was in France. National champions like ICL and Bull found it hard to serve their respective political masters as well as keep pace with the rapidly changing technology landscape and both fell on hard times, with ICL eventually being subsumed by Fujitsu Services.

Ever since then the UK has produced the odd tech unicorn, like Psion or Autonomy, but otherwise the UK tech industry has largely been comprised of large foreign (mainly US) players and small local start-ups, many of which are bought up long before they become unicorns.

This model has worked well for decades, with players like IBM not only employing over 20,000 staff in the UK, but also basing significant R&D establishments here, such as the software labs at IBM Hursley. Britain did not need a large champion of its own as long as it benefitted from the jobs and skills based here and from the taxes associated with these operations. Then there were the healthy partner ecosystems supporting each major vendor and all the jobs and large capital investments in corporate data centres managing and maintaining the systems that they supplied.

The cloud is changing all of this. There is now the very real risk that a small handful of US tech giants could dominate the tech sector in a completely different way. Not only will their size and reach squeeze out the partner ecosystems to a far greater extent than ever seen before, but they will also be replacing the corporate data centres as well and all the jobs that went with them.

Traditional vendors like IBM are struggling to compete and in order to do so are having to move marketing and R&D jobs to cheaper locations. Indeed, most of the traditional tech vendors have been reducing headcounts in the UK and EU dramatically as they reduce or offshore large proportions of their headcount.

The new kids on the block have a different model. They have based their cloud operations out of gigantic data centres where automation is maximised and headcount minimized. These vast operations are hoovering up workloads from thousands of companies – and many of these companies are now looking to close down their own data centres entirely as a result, leading to the loss of more skilled jobs.

Leading the pack are AWS and Azure, each of which now boasts its own presence in a UK data centre, but look under the covers and things are not quite as they might first appear:

1. Investment: while in its recent announcement AWS claimed to be “investing in the UK’s cloud future”, the global players are not actually investing anything much in the UK at all. The new facilities do not represent net new investment in the UK, as these players are simply leasing facilities that already exist and while they are installing some equipment of their own, it is all imported – almost none of it is made in the UK.
2. Skills: none of the innovation and little of the network management for these facilities will be based in the UK. Unlike IBM Hursley that (once) provided many high-skilled, UK-based R&D jobs, AWS and Azure have their innovation centres on the US West Coast along with much of their network management. Their local facilities have minimal staffing levels and most of their UK operation is simply sales and marketing.
3. Jobs: the new players will not provide anything like the level of employment that the traditional tech vendors like IBM did, and this does not even touch on the vast number of jobs that will also be lost in corporate data centres and as well as in the channel ecosystem.
4. Taxes: all of these lost jobs will represent a massive loss not only in the skills base in the UK, but also in the tax base – both in terms of the income taxes that the staff pay, and in terms of the corporation taxes that these global giants have so far been effective in evading.

Compared to the enormity of these changes, the handful of jobs centred around silicon roundabout and Shoreditch pales into relative insignificance. And while I applaud the efforts, innovation and enthusiasm of these small start-ups, they will never replace the skills base and tax base that we face loosing and will eventually be impacted themselves by these wider losses.

In the US the new administration is focused on ‘Making America Great Again’ and on the continent the French and others are dubious of the US players and their very different attitude to privacy. This privacy divide has been exacerbated by recent amendments to Rule 41 and other intrusive US legislation as well as by apprehension about some of the bolder assertions made by the incoming US administration. As the UK enters Brexit negotiations and finds its feet in its new global trading relationships, it needs to consider its own needs and to what level it applies industrial policy in areas like technology.

The UK government has already applied a level of societal value orientation in its own procurement, in many ways:

• For UK public sector IT procurement, the government created G-Cloud as a framework to enable participants of all sizes in the value chain (from large SIs to small businesses) to compete for government business on equal terms. Here at UKCloud we have grown with G-Cloud, providing a public cloud for the UK public sector working alongside an array of partners who also serve this market.
• The government has also provided guidance in relation to the Social Value Act (in terms of information and resources). The Public Services (Social Value) Act came into force on 31 January 2013. It requires people who commission public services to think about how they can also secure wider social, economic and environmental benefits, and “Procurement for Growth” is firmly embedded in government procurement policy.
• The Public Contract Regulations 2015 introduced new laws to ensure that public sector commissioners cannot put up artificial barriers to prevent small business bidding for public sector business.
• The government is committed to channelling 33% of its £50bn+ annual procurement spend to small and medium enterprises.

(N.B. throughout this article we have used the term societal value as opposed to social value in order avoid confusion with social in terms of social media).

What we need is vision from the UK government and policies that support that vision. Firstly, it needs to continue to lead by example, as it has with G-Cloud and other initiatives that enable local players (including SMEs) to compete on equal terms in the public sector and also to have societal value considerations included in the process. Secondly, it needs to use its influence to help extend this type of model well beyond the public sector to the private sector as well in order to ensure that a race to the cloud does not result in the domination of global cloud giants that could have massively negative societal impact in the UK.

Surely a government department would invite a hostile public response if it ignored its obligations in relation to the societal impact of moving its own jobs offshore, avoiding its own payroll taxes, or giving business to companies who practice tax avoidance, so why should it not consider the same issues in a wider context when moving workloads to the cloud? And if private sector organisations claim to have the same ethos around corporate and social responsibility, why would the same considerations not apply here also.

Finally, if societal impact is not enough, there is also the chasm that exists in the different attitudes and regulations on privacy on either side of the Atlantic. Nothing, including Privacy Shield, EU model clauses or encryption, prevents a company being responsible for the data it holds or the regulations that apply to the data. And whatever they say, the US players are all subject to a set of intrusive US regulations that do not apply to their UK rivals. This includes the recent amendment to Rule 41 which would allow the FBI access to any data held by the US cloud firms.

Just look at the compute and storage capacity available in the new facilities opened by AWS and Azure. It is simply not enough to serve all the needs of their UK clients. Therefore, a significant number of workloads will need to be processed off shore and a significant proportion of data held there also – hardly what you’d call data residency. And even if clients are offered guaranteed data residency with all compute and storage restricted to the new UK facilities, the data is still subject to the intrusive US regulations as long as it is being handled or stored by these US firms – hardly what you’d call data sovereignty either. Indeed, typically under AWS and Azure contracts, data (including meta-data and any customer data needed to perform the services) is allowed to go anywhere in the world. And getting the data back isn’t straight forward either as AWS and Azure are on proprietary technology stacks which means that you are locked in.

Think about it. If your customers want to know what your policy is on societal value, then what is your response? And if your customers want to know what your policy is on data privacy, residency and sovereignty, then again what is your response? With GDPR on the horizon, they will be asking, and if they don’t like the answers that you give them, then they will be empowered to withdraw their consent for you to hold their data. You have been warned.

This article first appeared on Compare the Cloud http://bit.ly/2i5XQfh