Explained: Will Big Tech Cloud Companies Cut Off Russia?

Ukraine has urged cloud-computing and software giants including Microsoft Corp and SAP SE to cut off Russia to prevent an invasion of Moscow. What is at stake here.

What is Ukraine demanding?

The Ukrainian Ministry of Digital Transformation wants North American and European technology companies to completely halt any deals with Russian customers, potentially crippling Russia’s economy and forcing the Kremlin to reconsider is doing what it calls a “special operation” in Ukraine.

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

What is the role of Western companies in Russia’s IT system?

The SAP logo is seen at their offices in Reston, Virginia, US. (Image: Reuters file)

Russian companies and government agencies have long relied on technology developed by the West as the basis for their owned and operated IT systems. Servers from International Business Machines Corp., Dell Technologies Inc. and Hewlett Packard Enterprise Company (HPE) top the market in Russia.

Applications from SAP, Microsoft, IBM, Oracle Corp. and Salesforce.com Inc. are also popular. Tools help organizations send emails, analyze data, store records, and generally manage their operations.

Vendors cannot remotely shut down some technology. But there are alternatives to choking customers’ systems.

Banking, telecommunications, transport and other organizations in Russia could be disrupted if vendors stop providing replacement parts, security patches, software updates and technical support, according to two former senior IBM salespeople in Eastern Europe.

Customers may be forced to find alternatives, even pen-and-paper bookkeeping, if services go offline or go haywire due to a lack of updates.

What effect will the Western Cloud Shutdown have on Russia?

Microsoft has the largest market share in Russia at 17%. (Image: Reuters file)

According to IDC analyst Philip Carter, Russian companies have been largely reluctant to rely solely on cloud services, particularly from US-based providers such as Microsoft Azure and Alphabet Inc.’s Google Cloud. As a proportion of total home IT spending, the cloud accounts for 5% in Russia, compared to 19% in the United States, Carter said.

As a result, Russian companies that will be dropped from the cloud will not be overly crippled, he said.

Still, the Russian cloud market has grown exponentially over the past two years, according to researchers with the pandemic driving commerce online.

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

But the IDC said that Russia and Ukraine combined account for only 5.5% of all information and communication technology spending in Europe and 1% worldwide.

What did western companies say?

Salesforce said Monday it has begun pulling out of its customer relationships in Russia, which it said added to a small, non-physical number.

Other companies declined to comment on whether they were considering leaving existing customers.

Amazon Web Services has said its biggest customers in Russia are companies headquartered elsewhere, and it has a longstanding policy of not doing business with the Russian government.

IBM and Oracle have said they have suspended all businesses in Russia, and IBM said it does not do business with Russian military organizations. HPE, Dell, SAP and Microsoft have all said they are stopping sales. Google Cloud did not respond to a request for comment.

Who could benefit if Western companies bow down?

Russian companies can turn to home workplace software like MyOffice or to local cloud providers including Yandex and ActiveCloud. IDC’s Carter said prices and quality could be less favorable.

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

Nevertheless, any use of Western components in its operations could complicate Russian sales under trade sanctions recently imposed by the United States.

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