If You're to Beat Amazon in Spain, Maybe Start Speaking Spanish

(Bloomberg) -- How can regional startups compete with Amazon.com Inc. and Microsoft Corp. in the cloud-storage space? Look for small clients, speak Spanish, and snap up your peers, according to one CEO.

Diego Cabezudo, co-founder and chief executive officer of Spain’s Gigas Hosting SA, believes his company’s model of helping customers develop their cloud infrastructure, and doing so in their local language, will help it expand in a niche ignored by bigger players.

“A lot of people don’t speak English, so it’s hard for them to deal with some of the big cloud companies," says Cabezudo, who previously served as chief operating officer of Fon, the Wi-Fi provider created by entrepreneur Martin Varsavsky. 

"We can set up the hosting for them -- something smaller companies don’t have the capacity to deal with," Cabezudo said. Having data centers physically located in Spain offers an advantage against larger rivals, for whom this is not seen as a priority, he said.

Cloud-computing services have become increasingly attractive to businesses over the past decade, with companies such as SAP SE, Oracle Corp., Salesforce.com Inc., Amazon and Microsoft fiercely competing to replace a company’s bespoke data centers with subscriptions to services rented online and paid for over time.

The European enterprise cloud services market was worth about $30.2 billion in 2017, or about 29 percent of the global market, and will reach about $51.9 billion in 2021, according to estimates by research group Ovum.

Regional Consolidation

Cabezudo is pushing for Gigas to expand regionally by consolidating highly fragmented local markets while focusing on clients that may lack the technical competence to deal effectively with larger cloud providers. 

Smaller, less tech-savvy companies require more support to operate cloud services than is typically offered by large providers, which tend to offer cutting-edge infrastructure but have more of a do-it-yourself approach to deployment and little to no support available in local languages, Cabezudo said.

In January, Gigas acquired cloud-storage provider SVT for 830,000 euros ($1 million), which gave it a data center in Barcelona and exposure to clients in the eastern region of Catalonia. Cabezudo now has plans for a shopping spree, looking for targets mainly in Spain and Mexico, he said, adding that the company also operates in several other counties in Latin America.

The CEO said he aims to more than double earnings in 2018 compared to the year before. In 2017 the company posted a profit of 590,000 euros before interest, taxes, depreciation and amortization.

Focusing on small-scale clients, local data centers for proximity, and local language service desks would appear to be a “coherent" strategy, said David Molony, an analyst at Ovum.

Local language support is “an underestimated requirement," he said. "It’s not easy to do. There is a kind of niche there."

New Investment

Gigas’s proposition has started to draw attention, with Barcelona-based venture capital Inveready Technology Investment Group financing it from a fund focused on European tech companies that trade on alternatives exchanges. The investment was made through a 2.5 million euro convertible bond.

Cabezudo admits that Gigas’s size pales compared to some larger European peers, such as OVH Group SAS, the French startup valued at $1 billion, that has managed to grow at more than 30 percent per year and generate profit.

“Our priority now is to gain volume to be more competitive and increase EBITDA to improve profitability, and then we will see what happens," Cabezudo says, after having analyzed more than 35 potential targets. “We have dismissed some, but there is really more than enough market to grow inorganically."

To contact the reporter on this story: Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net.

To contact the editors responsible for this story: Charles Penty at cpenty@bloomberg.net, Nate Lanxon, Giles Turner

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