Amazon’s Dominance Works Against Domestically Made Government Cloud Service in Japan

The Yomiuri Shimbun
Digital minister Taro Kono speaks before reporters at the Diet on Tuesday.

A domestically built government cloud service could come into existence for the first time in Japan. Concerns remain, however, whether Osaka-based Sakura Internet Inc. will be able to manage personal information and other data municipalities possess in such a cloud-based system.

Even in Japan, cloud computing is dominated by U.S. tech giants.

The cloud refers to a system of storing electronic data entrusted by companies or other customers on multiple servers and allowing access on demand over the internet.

By using the cloud, users no longer have to store data on local storage systems and can leave most of the security and other measures to cloud service providers. The benefits are significant in terms of operational efficiency and cost reductions.

Central government ministries and agencies as well as local municipalities are thus able to manage their own data on the government cloud. The data held by local governments covers 20 areas, including resident and family registrations, pension records and resident taxes, and includes a large amount of personal information.

The national government aims to move this data to a central government cloud service by fiscal 2025 in principle.

Local governments, however, have usually entrusted domestic tech firms with building and operating their information systems.

“The domestic tech companies are the ones that local governments consult with about the central government cloud, not cloud service providers,” said an official of a leading tech company.

The remarks suggest the actual decision-making power is in the hands of domestic tech companies. These companies are expected to first select to which cloud they will upload the data of local governments when transferring the information to a central government cloud. According to a local government official, Inc.’s cloud service is likely to be the choice at that point.

Overwhelming share

According to a survey by the Japan Fair Trade Commission, Amazon’s cloud market share was 40%-50% in Japan in fiscal 2020. The company has close relationships with major Japanese tech firms providing computer systems to local governments, and many of these firms employ engineers to work with Amazon’s cloud service, promoting the implementation of the Amazon system.

Group companies of NEC Corp., Fujitsu Ltd. and Hitachi Ltd., which are considered the nation’s Big Three tech firms, are already using Amazon’s cloud service system for some local governments that have already joined the national government cloud. Other municipalities are increasingly adopting Amazon’s system, too.

Whispers in the industry say that the end result is that domestic tech firms will choose Amazon’s cloud service system, and local governments will follow suit accordingly.

Sign of this have already occurred.

According to the Digital Agency, Amazon provides its cloud service to more than 90%, or 162 out of 175 national and municipal government projects, outnumbering Google LLC at eight projects, Oracle Corp. at three cases, and Microsoft Corp. at two projects.

‘100% impossible’

“We want to live up to expectations as a company that supports Japan’s digital infrastructure,” Sakura Internet President Kunihiro Tanaka said Tuesday, when his firm was chosen as a potential provider of government cloud services.

There is firmly rooted concern in Japan that entrusting personal information to cloud services controlled by U.S. firms could lead to the leakage of information to other countries. Sakura is expected to pitch the benefits of a Japanese company managing the public data, promoting the implementation of the firm’s system.

U.S. tech giants, however, are believed to be far ahead in terms of not only technological capabilities but also security measures. In addition, the larger the scale of the cloud service, the more efficient it becomes and the lower the price can be.

“It is 100% impossible to compete with Amazon,” said an official at a domestic tech firm.