Europe's digital future hangs in the balance. While the EU has set ambitious targets for digital transformation - including 10,000+ edge data centers and AI factories across the continent - we're pursuing these goals with one hand tied behind our back. The fundamental problem isn't a lack of infrastructure or investment. It's that Europe's digital resource market is broken.

This paper proposes radical new thinking: instead of pouring billions into new infrastructure that may never deliver intended outcomes, we need to fix the market itself. European digital infrastructure providers already offer world-class services, but they're trapped in a system designed to funnel customers toward American tech giants. The result? Higher prices, fragmented access, and a digital economy operating far below its potential.

As we will show, European digital infrastructure providers offer world-class cloud and computing services. Yet they command just 13% of their home market according to the Dutch Market Authority. The rest is dominated by closed cloud markets run by American tech giants - not because they offer better services, but because they've created a system that funnels customers their way and locks them in.

With this paper we outline a bold solution: creating Europe's first true open marketplace for digital resources. An open exchange for the computing, storage and network capacity that can accelerate Europe’s digital transformation and economy. By uniting Europe's fragmented providers into a single, liquid marketplace, Europe can reap the benefit of scale and flexibility and enable competition with closed markets while maintaining Europe's standards for privacy, security, and fair competition.

The Building Blocks of Digital Infrastructure

At the heart of this analysis are three fundamental commodities we call "digital resources":

1. Computing Power: The raw processing capacity needed to run applications, analyze data, and power AI training and inference

2. Storage: The ability to securely store and retrieve vast amounts of data

3. Network Capacity: The bandwidth and connectivity required to move data between systems

These resources are as essential to the digital economy as electricity is to the industrial economy. And like electricity, they should be treated as standardized commodities that can be traded on an open market. This is why we deliberately avoid the marketing term "cloud provider" and instead use "closed market operator" - to focus on the economic dynamics at play.

The Illusion of Competition: How Closed Markets Dominate Europe

What we call the "cloud market" today isn't really a market at all. A true market requires:

• Multiple buyers and sellers competing freely

• Transparent price discovery

• Standardized, comparable products

• Low barriers to entry

• Clear rules for all participants

The energy market works this way - multiple producers compete to sell standardized electricity through power exchanges. But the digital resource market is fundamentally different. Instead of one open marketplace, we have several closed systems where single companies act as both marketplace operator and sole supplier.

These closed markets superficially mimic real marketplaces - they offer on-demand pricing, spot trading, and futures contracts. But they're designed to prevent true competition. No third party can sell resources through them. Products are deliberately packaged to make price comparisons difficult. And most importantly, every transaction must go through the market operator, who is also the sole supplier. Imagine if a single energy company owned both the power exchange and all the power plants - that's effectively what we have in digital resources today.

At first glance, the problem might seem to be about scale. European providers offer similar services–hourly billing, future contracts, on-demand resources–but individually lack the massive capacity of American tech giants. The closed market operators maintain vast pools of "oversupplied" capacity, ready to serve millions of new resources in minutes. No single European provider can match this scale.

But this focus on scale misses the real story. In 2022, European providers' market share dropped to just 13% of their home market (see chart). If we take the Top 8 providers in Europe, that means each actor has a meager 1.6% market share. This isn't because European providers aren't growing–they are. It's because closed market operators have built a sophisticated system to capture and control demand itself.

The Three Pillars of Market Control: How Closed Markets Capture Demand

The dominance of closed markets isn't maintained through superior technology or efficiency. Instead, they've built three interlocking systems that funnel customers their way and keep them locked-up:

1. Gatekeepers and Incentives: Capturing Enterprise & Public Sector IT Procurement Channels

The first and most powerful pillar of market control targets the enterprise and government sector - where the biggest contracts and most lucrative customers reside. The strategy is elegant in its simplicity: instead of selling to organizations directly, closed market operators control the intermediaries who make the actual purchasing decisions.

Here's how it works: Most large organizations don't buy digital resources directly. Instead, they rely on IT consulting firms (ITSPs) and managed service providers (MSPs) to handle their digital infrastructure. These intermediaries:

• Evaluate and select digital resources

• Build and maintain applications

• Manage day-to-day operations

• Provide technical support

By controlling these gatekeepers, closed market operators effectively control access to the most valuable customers in the market.

Closed market operators have locked down these channels early. They offer incentives for the service providers to use their digital resources exclusively. In this space, Microsoft had an early advantage, as it already had a reseller program with the service providers in place to resell Microsoft licenses for Windows, Office and other products. This also explains why they remain the dominant closed market operator in the enterprise and public sector markets, whereas Google and AWS struggle to break open the existing partnership agreements that Microsoft has in place with the service providers. They try nevertheless.

According the Microsoft’s Incentive Program, service providers can earn up to 5% from selling digital resources from Azure. This is combined with a myriad of other incentives surrounding different products and licenses. However, industry sources report much higher incentives being offered, especially when a service provider has access to target customers, e.g. large government contracts or key enterprises. In those cases combined incentives and discounts can reach up to 50% of the contract value. This is also echoed, albeit partly redacted, in Ofcom’s comprehensive market study, which has identified similar anti-competitive practices as we outline in our research.

All of the closed market providers offer incentive levels to partner - from Silver to Platinum, from Basic to Premier. The idea is always the same: Sell more of my digital resources and you’ll be rewarded.

The scale of this control is staggering. Every major closed market operator runs elaborate partner programs with tiered benefits - Silver to Platinum, Basic to Premier. But what sets them apart isn't just the incentives - it's their ability to play the long game. Thanks to massive profits from their core businesses (Microsoft's licensing, Google's advertising, Amazon's e-commerce), they can afford to:

• Offer partners incentives up to 50% of contract value

• Subsidize below-cost pricing to win strategic contracts

• Invest in long-term partner relationships regardless of short-term profits

European providers, who must rely solely on digital resource revenue, simply cannot match this level of financial firepower.

Below, we include an overview on some of the largest MSPs and ISPs by revenue in Europe and the digital resource providers they partner with:

2. A continuous cycle: Locking down the newcomers–startups that need digital resources to build their business

The second pillar of market control is perhaps the most strategic: capturing tomorrow's tech giants while they're still in the cradle. The strategy exploits a critical vulnerability in every tech startup's journey:

1. A startup begins with an idea and either open-source or self-developed, propietary technology

2. To turn that idea into a sellable product, they need digital resources

3. These resources, especially for AI applications, require significant upfront investment

4. Early-stage startups must choose between paying for infrastructure or paying employees

Closed market operators come to the rescue with an offer that seems too good to refuse: up to €250,000 in free digital resources through their startup programs. It's positioned as no-strings-attached support for innovation. In reality, it's a sophisticated lock-in strategy that shapes the entire startup ecosystem.

This "free resources" strategy is actually a brilliant investment play:

1. Portfolio Approach: Closed market operators can offer credits to hundreds of startups, knowing only a few will succeed

2. Zero Equity Risk: Unlike traditional investors, they don't need to take equity - they'll profit from the winners' future resource usage

3. First Money Back: When startups raise venture capital, much of that money goes straight to paying for digital resources as the credits will have run out

4. Compound Lock-in: As startups grow, switching providers becomes increasingly costly and risky

The scale of this strategy becomes clear in Andreessen Horowitz's analysis. Looking at five major tech success stories - Palantir, Slack, Asana, Datadog, and Snowflake - they found these companies spend an average of 48.8% of their revenue on digital resources. Nearly half of every dollar these companies earn goes straight to closed market operators.

Let's do the math on this strategy:

• To get 5 success stories like these, you typically need 50 startup investments (given the 1-in-10 success rate)

• At €250,000 in credits per startup, that's €12.5 million in "investment"

• For closed market operators with billions in cash flow, this is pocket change

• For European providers operating on thin margins, it's an impossible bet to match

The genius of this system is its self-reinforcing nature. Each generation of successful startups becomes more deeply embedded in closed market infrastructure, making it the default choice for the next generation. It's a continuous cycle that shapes the entire digital economy.

3. Creating Structural Dependencies: The Software-Infrastructure Bundle

The third pillar of market control is perhaps the most ingenious: rather than just capturing customers, closed market operators have made themselves indispensable to the entire software industry. They've done this by solving a fundamental business challenge that every modern software company faces.

To understand this strategy, we need to look at how software is delivered today. The traditional model of installing software on local computers is dying. Instead, software is increasingly delivered as a service (SaaS) - bundling the software product with all the infrastructure needed to run it. This model offers clear benefits for customers:

• Pay only for what you use

• No upfront infrastructure investment

• Instant scalability

• Automatic updates and maintenance

But this convenience creates a hidden challenge for software providers: managing infrastructure risk. Consider this scenario:

1. A SaaS provider gains 10,000 new users

2. They must immediately provision infrastructure to support these users

3. If users leave next month, they're stuck with expensive unused capacity

4. This infrastructure risk can bankrupt even successful software companies

This is where closed market operators offer what seems like the perfect solution: infinite scalability with zero risk. They position themselves as the essential foundation for any software business by:

1. Absorbing Infrastructure Risk: They handle all capacity planning and capital investment

2. Providing True Elasticity: Resources scale up or down instantly with demand

3. Offering Predictable Pricing: Pay-as-you-go models that match software providers' revenue

4. Bundling Critical Services: Adding security, compliance, and management tools

For software companies, this proposition is impossible to refuse - but it creates a dependency that goes far deeper than simple vendor lock-in.

Why European Providers Can't Compete:

• They lack the capital reserves to risk hundreds of millions on infrastructure

• They can't offer the "infinite scaling" that software companies require

• They don't have alternative revenue streams to subsidize infrastructure investments

• The financial risk of supporting rapid-growth companies is too high

How Closed Markets Benefit:

1. Zero Competition: Once a software service is built on their infrastructure, switching costs become prohibitive

2. Hidden Pricing Power: Infrastructure costs get buried in the software's "Cost of Revenue" rather than appearing as operating expenses

3. Distribution Control: They become essential resellers of the software services built on their platform

4. Compounding Partnership: The relationship deepens over time, as exemplified by Anthropic receiving an estimated 60% of its AI API revenue through Amazon Bedrock.

These three pillars of market control - enterprise channels, startup ecosystem, and software bundling - create a seemingly unbreakable grip on Europe's digital economy. But there's a solution that addresses all three challenges simultaneously: an open marketplace for digital resources.

This marketplace would:

1. Match the Scale of Closed Markets: By aggregating capacity from multiple providers, both European and international

2. Enable True Flexibility: Offering instant scaling without vendor lock-in

3. Reduce Risk: Spreading infrastructure investment across many providers

4. Support Innovation: Letting service providers choose resources based on their specific needs:

Most importantly, this marketplace would break the current cycle of dependency. Software companies could access the scale they need without sacrificing their independence. European providers could compete on merit rather than marketing budgets. And the digital economy would benefit from genuine competition and innovation.

The Price of Market Control: European Providers' Hidden Advantage

The dominant narrative about European cloud providers usually focuses on what they lack: scale, advanced features, or market presence. But this narrative misses a crucial truth: European providers also offer superior value for digital resources. Here's the evidence.

Price Comparison: The Surprising Reality

For the price analysis, we have selected a digital resource configuration that is comparable across all providers–albeit not perfect, as the various digital resource products are not standardized.

Our analysis reveals three striking findings:

1. Dramatic Price Differences: European providers offer digital resources at 5-10x lower prices than closed market operators

2. Hidden Costs: Closed market prices often exclude crucial components like data transfer and storage

3. Suspicious Pricing Alignment: Major closed market operators' prices vary by only 10-20% - suggesting coordinated pricing rather than true competition

The Real Question

When closed market operators charge 5-10x more for comparable resources, we must ask:

• Is this premium justified by superior technology?

• Or is it the result of market control enabling artificial pricing power?

• Why don't we see more price competition between major providers?

This pricing evidence supports our core argument: the problem isn't European providers' capabilities, but rather their access to demand. An open marketplace would expose these pricing disparities and enable true competition based on value rather than market control.

From Vision to Reality: Building Europe's Digital Resource Exchange

The good news? We're not starting from scratch. Through initiatives like ICPEI for Cloud and Horizon Europe, the EU has already invested in many of the technical building blocks crucial for an open digital resource marketplace. What's missing is the market structure and policy framework to make it work.

Three Core Components

1. The Exchange Platform

2. Resource Standardization

3. Policy Framework

Breaking Down Barriers

To counter the three pillars of closed market control, we need targeted policies:

1. Startup Ecosystem

2. Enterprise & Government

3. Market Structure

Beyond Competition: How a Digital Resource Exchange Advances Europe's Strategic Goals

A European digital resource exchange isn't just about market competition - it's a catalyst for achieving multiple strategic objectives simultaneously.

1. Digital Sovereignty & Economic Security

• True Independence: Break dependency on non-EU closed market operators

• Strategic Autonomy: Control over critical digital infrastructure

• Economic Security: Keep value creation and tax revenue within Europe

• Local Job Creation: Support high-skill employment across the EU

2. Innovation & Competitiveness

• Unleashed Scale: Aggregate Europe's existing computing power for AI and next-gen applications

• Lower Barriers: Make advanced computing accessible to more European companies

• Price Efficiency: Drive down costs through real competition

• Innovation Freedom: Let companies choose resources based on their specific needs

3. Sustainability & Resource Efficiency

• Optimized Usage: Better resource utilization through market signals

• Green Incentives: Prioritize providers using sustainable practices

• Circular Economy: Support providers using refurbished hardware

• Energy Integration: Better alignment with Europe's power grid

4. Market Transparency & Governance

• Clear Price Signals: Real-time visibility into resource costs

• Usage Patterns: Better understanding of digital infrastructure needs

• Effective Regulation: Ability to monitor and guide market development

• Fair Competition: Level playing field for all providers

5. Regional Development & Social Impact

• Distributed Growth: Enable regional providers to compete effectively

• Local Investment: Encourage infrastructure development across Europe

• Skills Development: Create technical jobs throughout the EU

• Tax Base: Ensure digital economy benefits flow to European communities

This comprehensive impact makes the digital resource exchange more than just a market reform - it's a strategic tool for achieving Europe's broader digital transformation goals.