Unexpected cloud service provider: Lidl | Technology

A strange player has emerged into a market dominated by US tech majors Amazon, Microsoft and Google. The Schwarz Group, whose main brand in Spain is Lidl and which also owns the Kaufland supermarket chain, has created a division offering IT services to third parties. In Spain, this digital division is present in Barcelona, ​​with 700 employees, whose developments include the Lidl Plus loyalty app. To this center Added newly opened Cyber ​​Defense Center.

But the overall size of this IT division, called Schwarz Digits, is much larger. About 7,500 people work there. It is growing rapidly and already has its own division within the German group. Today, this allows external companies to contract for storage and computing power, which they maintain in their own data centers. In 2023, its revenues reached 1.9 billion euros.

It all started with an inner need. A few years ago, different group companies used different formulas for delivering their IT services. Supermarket chain Kaufland (with a presence in Central Europe) used SAP, while Lidl had its own ERP system, which it tried to migrate to SAP, but ultimately ruled out the option. And at this stage: “We saw that we needed to carry out a transformation in our company. We thought we needed to take a different approach and move towards the cloud,” says Walter Wolf, CEO of Schwarz Digits. They concluded that they needed a cloud service to achieve the scalability and versatility they desired. “We’re retailers and we have peak times on certain days, like Christmas or Black Friday,” the manager recalls.

When they made the decision to move their tools and applications to the cloud, they explored the market for options. By then, the idea was to hire cloud services from a third party. “There were large American suppliers, as well as Chinese ones. And we have not seen any European alternative in terms of data sovereignty, security and other areas. So we decided to build our own cloud,” explains Wolf.

It was necessary to build data centers, develop infrastructure and software, purchase equipment and conclude a connection contract. In 2020, the system was ready and the first workloads were uploaded to the cloud recently created by parent company Lidl. Wolf explains the process: “We develop (the services) in-house. We grow up, grow them, scale them. And at a certain point, if we see that they have different values, we will be able to offer them on the foreign market.”

They now offer not only cloud services in various modalities, but also cybersecurity tools thanks to the acquisition of Israeli startup XM Cyber ​​in 2021. They spent $700 million on this, a figure that underscores the parent company’s interest in this area. . In addition, since it is a well-known business group in Germany, its sales team has access to all types of companies. His clients include start-ups and large organizations such as Bavaria Munich or the Port of Hamburg (the third largest in Europe).

“My guess is that they have good contacts and have thought about trying to capitalize on all the investments they have made,” says Ignacio Cobisa, director of consulting at research firm IDC. “They have to have more power than what they need, and they put it on the market. “They did the same thing as the big suppliers (Amazon, Google) who started looking outside for customers.”

The Amazon case was the first and most significant. In the early 2000s, the e-commerce platform used third-party servers and technology. But it had a lot of problems managing peak demand from users. So her IT team developed its own tools tailored to her needs. They soon realized the potential and within a few years they offered them as a service to third party companies. Thus AWS (Amazon Web Services) was born. The division generated $90.8 billion in revenue in 2023 and achieved profitability long before the initial e-commerce business.

“We’re not bold enough to say we’ll be the same size as Amazon,” Wolf says. “But we have a specific niche market, and customers want something like our platform.”

European asset

In 2022, 72% of EU cloud spending will come from Amazon, Microsoft and Google. Other American companies – IBM, Salesforce and Oracle – were left behind. And then the first European companies appeared, the German companies SAP and Deutsche Telekom (each at that time owned 2% of the market).

Between 2017 and 2022, European cloud service providers were riding a wave of technological growth. Together they increased their turnover by 167%. Despite this, its market share fell from 27% to just 13%. This gives an idea of ​​the piece of the pie that three large American companies have taken.

In recent years, the European Union has emphasized the importance of technological independence in some critical areas. Cloud Field is one of them. Through initiatives such as Gaia-X, the EU aims to stimulate the development of local projects that serve as alternatives to the ubiquitous American companies. Kobisa illustrates this motivation: “If we cannot provide for ourselves even minimally when a component crisis occurs, we will end up in the hands of third parties. And the same could happen in the cloud sector.”

This European invoice is one of the commercial requirements of the technology division of the group to which Lidl belongs. “All our data centers are located in Germany. They are ours, just like the services we offer. We developed the software using open source standards,” emphasizes Wolf. The company has four data centers in Germany and plans to build new facilities.

“Control of the data, that the data is in the same country, in the (geopolitical) context that we have, is important and is being driven from Europe,” Kobisa says. Although the analyst emphasizes that there are already other European companies offering cloud services, for example United Internet OVHcloud.

Adding to this supply is the strengthening of large American suppliers who have begun building data centers on European soil. One reason: compliance with the GDPR, which makes it difficult to process personal data outside the EU.

In any case, this is a fast-growing market. IDC forecasts that the public cloud services business in Europe will reach $171 billion by 2024. By 2027 there will be 298 billion, representing an increase of 21% annually. Of course, the piece is juicy.

There are also companies that prefer to store their data on their own servers. But even they look towards the cloud. “Many companies enter the market when they reach a period of obsolescence. If three years ago they invested heavily in SAP for their servers, then maybe two years from now those servers will no longer have the necessary features to provide sufficient security,” explains Kobisa. And here companies have two great options: “Update all this internally or think it’s not worth it and ask a third party to do it for me at their facilities, but in our country,” the analyst adds. And this is where the European asset plays a fundamental role in attracting customers.