Ukraine Crisis: Will Big Tech Cloud Companies Separate From Russia?

Ukraine has called on cloud-computing and software giants, including Microsoft and SAP, to isolate Russia in order to stop Moscow’s aggression. What’s at stake here?

What is Ukraine claiming?

Ukraine’s digital transformation ministry wants North American and European technology companies to completely suspend any transactions with Russian clients, potentially disrupting Russia’s economy and forcing the Kremlin to reconsider its “special operation” in Ukraine.

Some companies, such as Microsoft, have stopped accepting new customers in Russia since the attack began last month. However, many have not concluded agreements with existing customers, except for those targeted by new sanctions and export controls.

What role do Western companies play in Russia’s IT system?

Russian companies and state-owned enterprises have long relied on technology developed by the West as the foundation of their owned and operated IT systems. Servers from International Business Machines, Dell Technologies and Hewlett-Packard Enterprise (HPE) top the Russian market.

Also popular are applications from SAP, Microsoft, IBM, Oracle and The tools help organizations send emails, analyze data, save records, and generally manage their operations.

Vendors cannot remotely block certain technologies. But clients have the option of suffocating the system.

Russia’s banking, telecom, transport and other companies could be disrupted if vendors stop providing replacement parts, security patches, software updates and technical support, according to two former IBM executives in Eastern Europe.

Customers may be forced to look for alternatives, even pen-and-paper notebooks, if services go offline or are down due to a lack of updates.

How will the western cloud shutdown affect Russia?

According to IDC analyst Philip Carter, Russian companies are largely reluctant to rely entirely on cloud services, especially from US-based providers such as Microsoft Azure and Alphabet’s Google Cloud. As a proportion of overall internal IT spending, Cloud accounts for 5 percent in Russia compared to 19 percent in the United States, Carter said.

As a result, Russian companies that have dropped out of the cloud will not be too crippled, he said.

Yet, according to researchers, the Russian cloud market has grown rapidly over the past two years, with epidemics driving trade online.

According to IDC’s 2020 estimates, Microsoft has the largest market share in Russia at 17 percent, followed by Amazon’s cloud unit at 14 percent and IBM’s 10 percent. Russian company Yandex NV is in fourth place with 3% market share.

But the IDC says Russia and Ukraine together account for only 5.5 percent of all information and communication technology spending in Europe and 1 percent globally.

What have Western companies said?

Salesforce said Monday it is starting to pull out of its customer relationship in Russia, adding that it has added a small, non-objective number.

Other companies declined to comment on whether they were considering eliminating existing clients.

Amazon Web Services says its biggest customers in Russia are companies headquartered elsewhere, and had a long-standing policy of not doing business with the Russian government.

IBM and Oracle have said they have suspended all business in Russia, and IBM has added that it does not do business with Russian military agencies. HPE, Dell, SAP and Microsoft say they are stopping selling. Google Cloud did not respond to a request for comment.

Who can benefit if Western companies are humbled?

Russian companies may turn to local cloud providers with indigenous workplace software such as MyOffice or Yandex and ActiveCloud. Carter said prices and quality could be less favorable.

Chinese technology companies could fill the gap, said Blake Murray of research firm Canalis. Cloud providers include Alibaba Group and Tencent Holdings. China-based Huawei Technologies opened a data center in Moscow last year for the Russian scientific and academic community.

Nevertheless, any use of Western elements in their activities could complicate Russian sales under the recently imposed trade embargo by the United States.

Thomson Reuters 2022

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