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March 2, 2016updated 05 Sep 2016 8:00am

EU data protection regulations force CIOs to pay a premium for cloud hosting

News: Privacy Shield is unlikely to appease concerns.

By James Nunns

Data sovereignty concerns for European CIOs are resulting in them paying higher prices for cloud compared to their US counterparts.

Users are seeing a protection premium of up to 19% to host the same application in Europe due to a higher premium for databases, platforms and storage compared to virtual machines.

CIOs are paying this premium to use in-country or in-region services, rather than the cheaper option of US services, in order to ensure compliance with local regulations, to improve performance by bringing applications closer to users; and to take advantage of local customer service, according to the Cloud Price Index report from 451 Research.

The biggest driver of this local cloud demand is data protection legislation, while uncertainty about who has access and who has responsibility for data is confusing both cloud buyers and service providers.

According to the research firm, this is likely to continue given the uncertainty around legislation including Safe Harbour, the Patriot Act and the US-EU Privacy Shield Agreement.

Penny Jones, Senior Analyst for European Services, 451 Research said: "As European nations can place layers of regulation of top of agreements such as the EU-US Privacy Shield, we expect the latest agreement will do little to appease concerns, particularly in Germany."

Despite European cloud services on average being more expensive than in the US, they are not as expensive as in Asia Pacific and Latin America. In Asia Pacific it was found that it costs on average 14%-38% more than in the US, while in Latin America it is up to 38% with a much greater variation in prices, which is partly because of the limited selection of hosting providers.

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The research also found that there is a substantial disparity in the premiums between the small and large applications in Europe. Users have been found to be paying double the premium for a large application composed of compute, storage, platforms and support, compared to simpler virtual machines.

This disparity has been identified as being caused by skills shortages that are being compounded by the SME market that is willing to pay more for support when implementing complex applications.

Dr Owen Rogers, Research Director, 451 Research, who authored the report said: "When evaluating cloud providers, enterprises should consider how they will take advantage of variances in prices in the short- and long-term to cut costs."

Concerns regarding using cloud services and meeting data protection regulations has led some vendors to enhance their solutions to meet customer concerns.

Oracle for example is releasing its Storage Tek Virtual Storage Manager 7 System, which is designed to provide a scale data protection solution for mainframe and heterogeneous systems.

The offering will provide fully automated tiering to the public cloud and has been designed to integrate with Oracle Storage Cloud Service, Object Storage and Storage Cloud Service.

Oracle pitches the system as offering superior data protection for IBM z Systems mainframes with data interchange across previous generation VSM systems. It is powered by the SPARC M7 processor and offers wide-key encryption for data at rest and on removable tape media.

Although it may not resolve problems with European CIOs paying a premium for running applications in Europe, it does aim to tackle meeting data security and regulatory demands.

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