UPDATE 2/8: Meta has released an official statement saying that they are “absolutely not threatening to leave Europe.”
Meta, in their annual report, suggested that there’s a reality where they would have to pull its holdings (notably Facebook and Instagram) out of Europe completely. The statement was in response to EU data regulators who, like many other regions and countries, are moving towards a more conservative approach when it comes to data sharing and consumption. More specifically, in 2020, a court ruling annulled a data agreement called “Privacy Shield” that allowed companies to more freely carry out data transfers.
The implications of Meta leaving the EU are huge, for both Meta themselves and their European users. EU users would lose the ability to use and thus advertise on Instagram and Facebook, which for many businesses, would be devastating. This doesn’t help Meta either, as their share price has already taken a beating after an already bad week (a loss of 25%), due to a report showing a decline in daily active FB users.
The question is, would Meta really leave the EU? In my opinion, most likely not. Their share price is heavily in the red and they’ve recently invested in a new brand and product that will take at least half a decade to manifest. They will need as much revenue and investor backing as possible, which they will have less of if they leave the EU.
The weight of their words seem to be so heavy that the media thinks that Meta is “threatening” the EU, which isn’t true, they just released a general statement over their concern. It’s quite telling, however, that Meta’s statement elicits a response from countries directly.
(Our CEO recently wrote a piece about how this “data protection” story isn’t really about data protection. The premise: The data protection narrative is a medium for having full control and access over commercial infrastructures and data.)
However, this isn’t just about Meta. It’s a precursor for an issue that the IT industry on a whole has to be concerned about.
“…There’s a looming new risk of regulatory requirements that legacy cloud computing solutions are ill-equipped to satisfy. Increasingly, countries are pursuing regulations that ensure that their laws apply to their citizens’ personal data. One way to ensure you’re in compliance with these laws is to store and process data of a country’s citizens entirely within the country’s borders.”Matthew Prince, CEO of Cloudflare
If stricter, more isolationist regulations make it so that data must be processed within the confines of a country’s jurisdiction, this will directly impact any EU user that relies on any sort of international cloud computing (IaaS, PaaS, SaaS, etc.) For the economics of cloud computing to work, centralizing and maximizing economies of scale is crucial. If cloud companies have to operate within a country’s jurisdictions, it means that they have to divide up their resources, which makes the expedition much less profitable.
But I suspect that companies will not have a choice; isolationism is quickly becoming the new world order. Even if the EU puts together a new agreement that meets Meta halfway, it’s only a matter of time before the isolationist agenda is revisited in another region or country (e.g. China.)
“In the worst case scenario, this could mean that a small tech start up in Germany would no longer be able to use a US-based cloud provider. A Spanish product development company could no longer be able to run an operation across multiple time zones… A French retailer may find they can no longer maintain a call centre in Morocco.”Nick Clegg, VP of Global Affairs and Communications of FB
For an EU citizen, it may mean that for certain kinds of websites, they’ll only be able to access them if the site is hosted in their country. For companies that want to reach their audiences in the EU, this becomes a frustratingly difficult task.
But like in any situation, one party’s misfortune is another’s opportunity. Companies that can navigate this new landscape will come out the other side more resilient. Vendors that can address these problems will increase their revenues and market share. Cloudflare, for example, seems to be in a prime position to address these problems with their Durable Objects product.
“Durable Objects are not, in-and-of-themselves, going to kill the public clouds; what they represent, though, is an entirely new way of building infrastructure — from the edge in, as opposed to the data center out — that is perfectly suited to a world where politics matters more than economics.”Ben Thompson, Stratechery
Just like Cloudflare, jurisdictional restrictions on data is an issue that FGX is well positioned to address. Concern over data privacy and operating at the edge isn’t a new problem, e.g. financial and healthcare companies and data regulations. For CDNs, it’s a part of their service and is quickly becoming their top selling point.
In fact, we help CDNs like Cloudflare and Akamai and financial companies (names not to be disclosed, for, you guessed it, data privacy reasons) move their infrastructure all around the world to set up their POPs. Although we’re not in a position to argue whether or not EU regulators are wrong or right, we are in a position to help our clients get ahead of these problems.
CIOs and their direct reports of multinational organizations have to take into consideration the future of the global macro landscape sooner rather than later. How much control do you have over external influence and rapidly changing environments? Can you move only as fast as your cloud provider? What is the use case for cloud when it comes to global infrastructures?
Even at FGX, we’re wondering, what does it mean for our products and offerings? How can we best help our clients? Our answer is FGX Enterprise, more to come on that soon.