Joey on SQL Server

Microsoft Rethinks EU Cloud Strategy as Geopolitics Roil Global IT

Facing rising trade tensions and anxiety over data sovereignty, Microsoft unveils a plan to shore up its European cloud footprint -- one that could reset how U.S. cloud giants operate abroad.

• By Joey D'Antoni
• 04/30/2025

One of the benefits of cloud computing has been how easy it is to geolocate workloads close to your customers and development teams or to manage regulatory concerns, but recent policy changes seem poised to complicate that.

The business of cloud computing is roughly 15 years old now and is a significant beneficiary of free trade. In recent months, however, the White House has chaotically enacted a tariff regime that challenges many long-held notions around free trade. While software and cloud services aren't affected by the latest round of U.S. tariffs, the unpredictability surrounding them has made many global organizations concerned about working with U.S.-based cloud providers like Microsoft Azure, Amazon Web Services and Google Cloud.

However, moving out of the cloud presents many challenges. Organizations have lost skills in managing datacenters, and changes in the on-premises software space -- like Broadcom's acquisition of VMware and the adoption of platform-as-a-service (PaaS) offerings -- make it difficult to migrate out of the cloud. Beyond that, datacenters, servers and storage all have varying degrees of capital expense and lead time, varying from weeks to years, depending on what you are buying and building.

While there are a couple of European cloud providers like OVHcloud, Ionos and Exoscale, they lack the maturity and ecosystem of the Big 3. These European providers are more like colocation providers -- something like Equinix, which provides both datacenter and network services and high-performance computing with some cloud services. Where the European providers also fall short is computing capacity, though giants Azure and Google are not immune to those concerns. Azure, in particular, has been very capacity-constrained in European and U.K. datacenters in recent years.

On Wednesday this week, Brad Smith, Microsoft's vice chair and president, addressed many of these customer concerns in a blog post accompanying a speech in Brussels, Belgium.

Microsoft has made deep commitments to Europe, including building new datacenters to address capacity concerns (specifically, a planned 40 percent capacity increase in the next two years) and taking a multifaceted approach to building a broader cloud ecosystem across the continent. Beyond just growing its datacenter footprint, Microsoft also offers Microsoft Cloud for Sovereignty, which Smith described as "a package of technologies to help governments and other customers to run on Azure." (This sounds much like Microsoft's GovCloud offering in the United States, but I await further details and more elaboration. GovCloud regions are not connected to commercial Azure and typically lag in features due to required certifications. I would not be surprised to see something similar come to the EU.)

The second component of Microsoft's European datacenter approach is sovereign clouds. In France, Microsoft has partnered with Capgemini and network provider Orange to build a new venture called "Bleu" to build a "cloud de confiance" (trusted cloud) platform to deliver both Azure and Microsoft 365 services operated entirely under French control. Similar efforts are underway in Germany through a partnership with SAP and Arvato Systems.

This is not unprecedented for Microsoft; it used a similar model in its China regions, where those Azure datacenters operated under license by VNET Group Inc. (formerly 21Vianet), the largest datacenter provider in the country. And years ago, Microsoft partnered with Deutsche Telekom in a sovereign cloud effort codenamed "Black Forest." While the technology behind that effort was robust, there were cost challenges: Deutsche Telekom needed to make a profit margin over Microsoft's licensing costs -- roughly 35 percent more than standard Azure pricing. That led to the end of the project in October 2018.

I suspect these new efforts in France, Germany and beyond will have more staying power, even if the costs are higher or the clouds are behind on features. Microsoft also committed to supporting these French and German datacenters in the worst-case scenario of a court order preventing Microsoft from operating in the EU, including by storing backup copies of Azure code in a secure repository in Switzerland and providing legal rights to partners to use the code as needed.

A third aspect of Microsoft's strategy is the most interesting to me: Microsoft is collaborating with European cloud providers to, as Smith put it, offer "Microsoft's applications and services on their local cloud infrastructure." Smith said Microsoft is committed to offering these providers better terms than AWS or Google, and mentioned new technology and licensing solutions tailored to the European market. Of the three tenets of Microsoft's European cloud strategy, this last one is probably the most challenging to implement; working with smaller providers will always be difficult. I'm not sure if this will leverage Azure Stack or Azure Local implementations.

Smith also referenced efforts by European governments to financially back home-grown European clouds, and Microsoft's broad support of these efforts.

In terms of governance, Smith broached reshaping Microsoft's European datacenter operations by creating a new European board of directors that operates under European law and is staffed exclusively by European nationals. Additionally, Microsoft has committed to its EU Data Boundary, an ongoing effort to ensure that all customers' Azure and Microsoft 365 data stays within the EU. This is a trickier undertaking than you might think, as it spans logs for some global services and other aspects like support tickets that were not EU-initiated. Microsoft completed this project as of February 2025.

Beyond securing European Azure and other cloud services, Microsoft is making further investments in EU cybersecurity, including appointing a deputy CISO for Europe and ensuring compliance with European cybersecurity regulations. Microsoft also committed to an external audit to validate its European security and data sovereignty operations, and to ensuring open access to AI models across Europe, along with a commitment to open-source and AI development.

I'm interested to see how this will shift the locus of power in global cybersecurity and resilience, especially amid potential cuts to U.S. government cybersecurity funding.

As a technology and business professional, it pains me to write this column. We live in a connected world and work across borders, time zones and geographies. Despite all the success that businesses have seen from free trade, populist politicians have used it to generate hate against "others." Tariffs and other nationalist policies hurt the overall growth of business, more so when implemented in such a chaotic manner. I am happy that Microsoft has taken a strong position to protect and support its European customers and call on AWS and Google to deliver similar initiatives.