Microsoft and Amazon See Growth in Middle Eastern Cloud Services

(Bloomberg Businessweek) -- Dubai Airports Co. uses Microsoft’s Azure cloud service for the Wi-Fi it offers travelers. But for most other applications, it spends a lot of money and uses precious square footage to run its own servers. The airport company is partly owned by the United Arab Emirates government, and local law requires data related to government entities to be stored in the country.

“We’d rather use that space and energy for airplanes and passengers and bags than for data centers,” says Michael Ibbitson, the company’s executive vice president for technology and infrastructure. His wish will soon be a reality. Next year, Microsoft Corp. is expected to cut the ribbon on a data center in Dubai, a move that will potentially bring in a lot more business from existing clients, including the airport operator. Ibbitson says that as soon as the Azure center is open, the airport will consider transferring files there, including financial data.

The Middle East’s largely untapped frontier for cloud services will see even more activity in 2019. Microsoft is also planning a data center in Abu Dhabi next year. And Amazon Web Services (AWS), the No. 1 cloud provider globally, will open a center in Bahrain. “The region is one of the fastest-growing public cloud services markets,” says Megha Kumar, an analyst for IDC Research Inc. in Dubai. “The potential is huge given the ambitions of the public sector and their drive for innovation.”

The Middle East and Africa regions are worth $2.2 billion to cloud vendors, IDC says. That’s projected to grow 24 percent a year on average, reaching $5 billion in 2022. And the public sector in the Middle East is a major backer of technology investments, including artificial intelligence or blockchain. “We see a lot of potential in the Middle East as countries are going through economic transformations, where cloud technology can be a key enabler for advanced citizen services and smart city initiatives,” says Zubin Chagpar, head of Middle East and Africa for AWS. “This is also a region with a young and tech-savvy population.”

In a poll conducted last year by Microsoft, 51 percent of almost 1,000 companies in the Gulf Cooperation Council, a group that includes Bahrain, Kuwait, and the UAE, said cloud computing will be a 2018 priority. Some smaller companies have already moved in: Alibaba Group Holding Ltd. has provided cloud services in the region since 2016. The real growth will come next year, says Tiny Haynes, an analyst at Gartner Inc. He also expects upcoming data centers in Saudi Arabia and Qatar.

Amazon.com Inc. already has dozens of clients in the region, including ride-hailing startup Careem; Saudi Arabia’s Al Tayyar Travel Group; and the Dubai-based broadcaster MBC Group. Bahrain’s Information and EGovernment Authority is moving all government services online and working with AWS to store data and provide computing power for its websites and applications.

Saurabh Verma, associate director for the digital transformation practice at consultant Frost & Sullivan Inc., says there’s little local competition. Given that the market is small—the U.S. cloud market is worth $99 billion—Amazon and Microsoft have the chance to establish themselves early and show a commitment to the region that will help them win more business. “We are making decades-long bets. Some of them are more about future growth than current market size,” says Julia White, vice president for marketing at Azure.

Geopolitical tensions could complicate plans, as government and corporate leaders decide how to respond to the killing of Saudi journalist Jamal Khashoggi. That’s a risk tech companies have to weigh as they enter these markets, says Matt Scott, vice president for strategy and alliances at Cloudability Inc., a partner of both AWS and Microsoft. “You do have this constantly evolving political situation in that region, and they will have to make a political calculation,” he said. “But the customers are there.”

To contact the editor responsible for this story: Dimitra Kessenides at dkessenides1@bloomberg.net, Eric Gelman

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