Explainer: Will Big Tech cloud companies cut off Russia?

NEW YORK (REUTERS) – Ukraine has urged software and cloud-computing 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 the country’s economy and forcing the Kremlin to reconsider what it has called a “special operation” in Ukraine.

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 have long 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.

Also popular are applications from Germany’s SAP, Microsoft, IBM, Oracle and Salesforce.com. The tools help organizations send e-mails, analyze 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 organizations 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 United States-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 to 19 percent in the US, Mr 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 past two years, with the coronavirus pandemic driving online commerce, according to researchers.

Microsoft has the largest market share in Russia at 17 percent, followed by Amazon.com’s cloud unit at 14 percent and IBM at 10 percent, according to 2020 estimates from IDC. Russian company Yandex, 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.

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