Forced Data Localization Hurts Businesses Economically, Google Says

Businesses that are required to host electronic data on local systems could miss out on the economic benefits of cloud computing, Google said.

local vs. global hosting

Laws that require organizations to store customer data in a specific country or geographic location undermine many of the economic benefits of cloud computing, Google said, quoting a new report from the Leviathan Security Group.

Data localization laws run counter to the direction of technological innovation and erode the cost-efficiencies of a distributed cloud hosted model, the company said on its Policy by the Numbers blog.

Forced localization can also negatively affect data security and privacy, the company said. Large cloud services typically offer better resiliency and redundancy than locally hosted services. They also have access to more skilled security resources than organizations that host data locally.

The Leviathan report, developed in collaboration with Google, basically looks at the economic impact of laws that force companies to store electronic data on a country's citizens on servers inside that country. It's an issue that has assumed special significance in the era following Edward Snowden's allegations about National Security Agency snooping.

Snowden's disclosures about the NSA's data collection and surveillance practices have caused organizations in different parts of the world to withdraw or scale back hosting arrangements with American cloud service providers like Google, Amazon and Microsoft. Several countries have also introduced or strengthened data localization laws in response to privacy concerns spawned by the Snowden leaks.

A recent report by the Information Technology & Innovation Foundation shows that concerns overseas about pervasive surveillance by the United States government have already cost businesses more than $35 billion in lost revenues. While the cloud computing sector has been the hardest hit, the tech industry as a whole has been damaged by the issue, the ITIF noted in its report.

Google's post, on forced localization, and its work with Leviathan appear designed to inform policy- and decision-makers on the economic and other impacts of such laws on local businesses.

Leviathan's analysis shows that cloud hosted services with no localization restrictions are consistently cheaper than locally hosted services, regardless of geography. Leviathan considered cloud-hosting services provided by Google, Microsoft, Amazon, HP, RackSpace and a couple of other providers.

In every region, these services were more economical than the alternative, the report noted. In Brazil, which enacted a localization law last year, for instance, a company would pay about 54 percent less using cloud services located outside the country compared to what it would pay to host the same services with a local cloud provider. In the European Union, organizations would save 36 percent doing the same thing, according to Leviathan.

The "startling reality" with world cloud data centers is that they are distributed over a small handful of nations. The cloud providers that Leviathan and Google considered for their study had their data centers in just 12 countries. Organizations that are located in countries outside this small group face the risk of cutting themselves off entirely from the benefits of cloud computing by adopting localization laws, the report said.

Consumers and organizations in affected countries might be able to find local cloud services providers but it is unlikely that these providers will offer the flexibility and scalability of the major cloud players, Google said. "In many countries, cloud providers won't be available at all, so businesses must make major capital investments in computer hardware and infrastructure, rather than being able to take advantage of flexible and cost-saving per-use models."

Jaikumar Vijayan

Jaikumar Vijayan

Vijayan is an award-winning independent journalist and tech content creation specialist covering data security and privacy, business intelligence, big data and data analytics.