Ukraine Crisis: Will Big Tech Cloud Companies Cut Off Russia?

Some companies like Microsoft have stopped accepting new customers in Russia since the invasion began last month.

By Reuters | Updated: 9 March 2022 19:21 IST

Highlights

Microsoft have stopped accepting new customers in Russia
Microsoft has the largest market share in Russia at 17 percent
Salesforce said it had began exiting its customer relationships in Russia

Ukraine has urged cloud-computing and software giants including Microsoft and SAP to cut off Russia to stop Moscow's invasion. Here's what's at stake.

What is Ukraine demanding?

The Ukrainian ministry of digital transformation wants North American and European technology companies to completely pause any dealings with Russian clients, potentially disrupting Russia's economy and forcing the Kremlin to reconsider what it has called a "special operation" in Ukraine.

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

What role do western companies play in Russia's IT systems?

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

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Also popular are applications from SAP, Microsoft, IBM, Oracle, and Salesforce.com. The tools help organisations send emails, analyse data, store records and generally manage their operations.

Vendors cannot remotely turn off some of the technology. But there are options to choke clients' systems.

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

Clients could be forced to find alternatives, even pen-and-paper bookkeeping, if services go offline or degrade due to a lack of updates.

How would a western cloud shutdown affect Russia?

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

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

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

Microsoft has the largest market share in Russia at 17 percent, followed by Amazon's cloud unit at 14 percent and IBM at 10 percent, according to 2020 estimates from IDC. Yandex NV, a Russian company, comes in fourth with 3 percent market share.

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

What have the western companies said?

Salesforce on Monday said it had began exiting its customer relationships in Russia, which it said added up to a small, non-material number.

Other companies declined to comment on whether they are considering dropping existing clients.

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

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

Who could benefit if western companies bow out?

Russian companies could turn to homegrown workplace software such as MyOffice or local cloud providers including Yandex and ActiveCloud. Prices and quality may be less favorable, though, IDC's Carter said.

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

Still, any use of Western components in their operations could complicate Russian sales under trade curbs the United States recently imposed.

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