India’s coming demand that the Cloud Czars store all data on Indians locally, and build new data centers to do it, isn’t that new.
Switzerland has been doing it for years, and data center providers both large and small have been building there.
India’s move, based on a new data protection bill, to demand that data on Indians stay in India is going to shake up the entire data processing business in the country, but most of the assumptions concerning that shakeup are wrong.
The Facebook (NASDAQ:FB) Cambridge Analytica scandal is being blamed for the moves, but this is as much about demanding construction of local computing infrastructure as it is about protecting elections.
How Does This Affect the Cloud Czars?
Amazon has been in India since 2016, through a “cloud region” in Mumbai. Google has a Mumbai data center, and Microsoft has created three India regions. Even IBM (NYSE:IBM) has two centers.
Apple (NASDAQ:AAPL), however, only has a development center in Hyderabad and may be moved to build a data center. Facebook has no data centers in India. It may have to build one or buy an existing provider. Or both could hook up with one of their fellow czars. Smaller companies will also have to tie up with a provider who has facilities in India to participate in the market.
While serving India won’t be a huge problem for the Cloud Czars, it’s part of a trend that could become expensive, as other countries all demand what India has. Serving a market of a billion people is attractive, but when smaller countries make the same demand, meeting it degrades the scaled advantages of having a cloud in the first place.
India’s Real Target
The real targets of India’s data localization moves aren’t the czars at all. It’s the big U.S. payment processors, companies like Visa (NYSE:V), MasterCard (NYSE:MA) and American Express (NYSE:AXP), that are behind the eight ball. All of them have been protesting a central bank directive demanding localization for months.
India’s homegrown Unified Payments Interface (UPI), which acts against bank accounts without the need for a gateway, is being integrated into the Cloud Czars’ apps but has also built local companies like PhonePE and PayTM into scaled competitors.
PhonePE is owned by Flipkart, which is mostly owned by Walmart (NYSE:WMT). PayTM is said to be worth $10 billion, with investment from Alibaba and SoftBank (OTCMKTS:SFTBY), although it remains locally controlled.
The U.S. payment giants are thus faced with two problems, getting local and maintaining market share where they don’t control the fastest-growing payments gateway.
Winners and Losers
The Indian move is one which guarantees the rich get richer.
The companies that will dominate cloud hosting are already in the country. The big U.S. services that need localized hosting can afford to build it.
The danger is not what India is doing today, but what countries like Vietnam, Pakistan, Argentina, Indonesia and Brazil may do tomorrow in demanding local control of locally generated data. Even the Cloud Czars don’t have data centers in all these markets. Building them will be expensive. Buying local providers will take time, but it may well be the way they go.
And payments represent an even bigger headache. If India’s move to set up its own phone gateway is emulated by other countries, and they then move to demand data localization, it could be very bearish for the U.S. payment leaders and the processors which are their followers.
Dana Blankenhorn is a financial and technology journalist. He is the author of the new historical mystery romance, The Reluctant Detective Travels in Time, available at the Amazon Kindle store (and soon in paperback). Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN, BABA and MSFT.