Andromede takes shape…le sigh

Sep 10, 2012
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In a move that’s certain to frustrate France’s entrepreneurial ecosystem even more, Andromède’s structure is finally place.  Andromède has now morphed into two companies, also known as ‘National Champions’ (I guess this is the government’s attempt to create some competition?).  The first company is called Numergy which comprises SFR and Bull and the second called Cloudwatt which comprises Orange Association and Thales.  The French state via the Caisse de Depots is injecting 75 million euros into each company in return for a minority stake of 33% in each.  The government has given the objective to each company to “make available to companies and the French administration IT infrastructure capable of hosting information and applications, which is both accessible remotely and secured”.  Of course the new ‘companies’ are happily going along with building ‘the French cloud’, with an additional 75 million euros in their pockets and dreams (I stress dreams) of pulling in 3 billion euros in revenues p.a.  Numergy even aspires to be “the first central Digital Energy in Europe”.

According to Les Echos [FR], the American giants are (not surprisingly) completely unfazed by Andromède.  IBM alone claims that since 2009, they have invested 300million euros(!) in France to develop their business here.   HP isn’t worried either, stating that they believe Andromède will develop the overall IT ecosystem, which will benefit everyone.  I hope this assumption is correct and some good does come of all this.

Andromède has been controversial within France’s tech community since day one and there are still many lingering questions.  One of the first that comes to mind is whether this move by the French government falls afoul of the EU rules against all forms of state aid that could result in an anti-competitive situation.  Of course, as always, there are loopholes to these things and the EU has a big one.  One of the types of aid that ‘may’ be considered acceptable is: “aid to promote the execution of an important project of common European interest”.  So, perhaps because the European Commission is pushing at the moment to develop a cloud computing strategy for Europe, Andromède fits neatly into furthering their objectives and, as a result, they’re willing to give France a pass on this one?

Then there’s the obvious question around whether in the middle of a financial crisis when belt tightening is required, if it’s good policy for the state to essentially give away 150 million euros to large, multi-billion euros firms (even if the spending is a part of the ‘grand emprunt’ – France’s government borrowing initiative).  Needless to say, 150 million is a drop in the bucket in terms of what is needed to resolve France’s fiscal challenges, but every little bit helps.  Of course Andromède started under Sarkozy’s mandate, but as he’s done with many of the other ‘Sarkozy’ initiatives, Hollande could change course and stop the program all together or implement it differently.

Then, of course, there’s also the dubious assertions floating around that given their scale and available resources, SFR, Bull, Thales, and Orange are best positioned to make a project of this magnitude a success.  There is no evidence that throwing a chunk of money at this problem is going to move France any closer to creating something that can fully compete with the likes of Microsoft Azure, Amazon Web Services, Salesforce.com, IBM, etc.   There are many French startups that we’ve met along the way that, while small, are really starting to build up real expertise and some success in the cloud space in France and elsewhere.  Other than perhaps Bull, what type of substantive knowledge, strength, and/or competitive advantage to these companies have in the area of cloud computing? Why not look to France’s existing cloud computing startups/SMEs who are already working hard to put France on the map?

Ideally, the bulk of a startup’s success should come from their own (tireless) efforts rather than through reliance on substantial aid and support from the government.  However, in this case, investing these resources in France’s burgeoning cloud startup/SME ecosystem would have been a smart move as it would’ve still have gotten the government its ‘French cloud’ (probably even a better one) while also putting some substance behind the government’s promises to support entrepreneurship and innovation more effectively.