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November 25, 2022

OVHCloud is building 15 new data centres but will struggle to move the needle in the European cloud market

A new €200m lending facility will help Europe's biggest cloud company expand its reach. It has work to do to catch its US rivals.

By Matthew Gooding

OVHCloud, Europe’s biggest dedicated cloud provider, has secured a €200m credit facility to help it expand its network of data centres over the next two years. The company is aiming to help Europe reduce its reliance on the US-based public cloud hyperscalers who dominate the cloud market on the continent, but may struggle to make an impact against its far bigger rivals.

OVHCloud has secured funding to expand its network of data centres. (Photo by Postmodern Studio/Shutterstock)

The borrowing is being provided by European Union-backed lender the European Investment Bank (EIB), and will help OVHCloud open 15 new data centres, ten of which will be in Europe, by the end of 2024.

OVHCloud: the story so far

OVHcloud was founded in 1999 by the Klaba family and is based in Roubaix in northern France. It is Europe’s largest cloud provider and offers both private and public cloud products, as well as industry-specific platforms. The company has more than 1.6 million customers around the world, including job portal Talent and games company Ravensburger. It has been growing revenue consistently in recent years, and went public last year and has a market cap of €2.77bn.

Now it has plans to grow its footprint in Europe and beyond, and says its new data centres will be built with sustainability in mind, using its expertise in water cooling systems to ensure the carbon footprint of the new servers is kept to a minimum. Details of where on the continent the new data centres will be located have yet to be revealed.

The funding will also be used to fund R&D and the development of new software to extend OVHCloud's product portfolio, "starting with the storage offer, security solutions and the integration of new technological building blocks," a company statement said.

"Whether in software or hardware, innovation is at the heart of our company's DNA and guides each and every one of our actions in a sustainable, open and transparent approach," said Michel Paulin, CEO of OVHcloud. "This additional financial capacity provided by the EIB contributes to our Group's strategic roadmap and will enable us to promote a cloud that respects our European values faster, higher and stronger.”

Europe wants to be more self-sufficient in the cloud

It is the first time the EIB has backed a pure cloud company, and it is providing the maximum amount of credit it is allowed to lend. The organisation says this demonstrates its desire to "actively support European digital players". An EIB statement added that "this commitment is in line with the EU's priorities for strategic autonomy in the field of new technologies".

"The cloud is the essential building block for the digitalisation of all aspects of our economic and social lives," said EIB vice-president Ambroise Fayolle. "By contributing to the financing of the most innovative players in Europe, the EIB is fully in line with European policy priorities: increasing our competitiveness and fostering our technological sovereignty. This €200m loan to the European leader in the sector is a significant demonstration of Europe's commitment to placing our digital expertise at the service of our strategic autonomy."

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The European cloud5 market is booming, with data from Synergy Research Group showing that it is now over five times as big as it was in early 2017, reaching €10.4bn in the second quarter of 2022. Over that same period, European service providers like OVHCloud have grown their cloud revenues by 167%, the analyst house says, but their market share has declined from 27% to 13% as their growth rate lagged well behind the overall cloud market growth. The main beneficiaries of the market growth have been the hyperscalers - Amazon's AWS, Microsoft Azure and Google Cloud.

And though it has up to €200m burning a hole in its pocket, OVHCloud will still struggle to match the investments of its US rivals.4 “The cloud market is a game of scale where aspiring leaders have to place huge financial bets, must have a long-term view of investments and profitability, must maintain a focused determination to succeed, and must consistently achieve operational excellence," said John Dinsdale, a chief analyst at Synergy Research Group. "No European companies have come close to that set of criteria and the result is a market where the six leaders are all US companies."

Dinsdale added: "As US cloud providers continue to invest over €4bn every quarter in European capex programs, that presents an impossible hill to climb for any companies who wish to seriously challenge their market leadership. Consequently, European cloud providers have mostly settled into positions of serving local groups of customers that have some specific local needs, sometimes working as partners to the big US cloud providers. Some of those European cloud providers will continue to grow but they are unlikely to move the needle much in terms of overall European market share.”

Read more: Here are all the mistakes your business is making in cloud security

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