IBM Wins In A Cloud Trade War

Stung by their own lack of competitiveness Europe is threatening a cloud trade war. It's one where the winner seems clear to me -- IBM.

The tell on this came back in 2010, in Switzerland. That country's government decided that, for reasons of privacy, it would not let data on Swiss citizens cross the Swiss border, unless data protection laws could guarantee privacy. E.U. laws could, but U.S. laws, it decided, could not.

The result is that what happens in Europe stays in Europe.

Some want to go further. A Dutch minister has called for banning U.S. companies from bidding on government IT contracts for fear the U.S. Patriot Act could mandate compromising of data. Royal Dutch Shell decided that it would store its data in Germany, on German servers, even though it was running Microsoft software.

Even Google's vaunted Spanish contract, under which Google Apps will be the desktop of choice, excludes confidential data, which stays in Spain.

So why would IBM be a winner in this environment?

Because IBM doesn't just run clouds. It makes clouds. It can sign a contract with a company in Germany (or anywhere else) that will have a cloud built there and managed there under local law, without resort to the U.S.

Even T-Systems, a unit of Deutsche Telekom (DTEGY.PK) that has been the loudest voice marketing against U.S. companies and U.S. law, has a former IBM employee running its marketing and works closely with Cognizant (CTSH), an American outsourcing company, through a systems integration alliance. Most IBM employees today are located outside the U.S. Geographic lines are just not that important to the company.

This allows IBM, despite its American brand name to reign as the leading outsourcing vendor, according to a Forrester report released last year.

So while companies like Microsoft (MSFT) are still in legal hot water with potential European business partners IBM has everything it needs to do to finesse that.

Despite all the rhetoric now flowing from Europe, expect IBM to adapt to it, supplying hardware where it can, selling clouds to Europeans when it must, even creating foreign cut-outs to maintain its cloud leadership.

Law may, in fact, become IBM's real secret sauce in the age of the cloud.

Disclosure: I am long IBM.