In recent months, Amazon Web Services (AWS) has been exploring the possibility of expanding its cloud services in Israel by adding more data centers. As the top winner in Israel’s Nimbus government cloud service tender, AWS is committed to establishing a local service region in Israel. As a local franchisee, companies and government organizations can connect to their cloud service at a facility located in Israel. Until then, the only option for Israeli companies and government ministries was to store data and perform cloud processing in locations abroad such as Ireland, Germany and the United States.
After winning the bid, AWS leased three large data centers in Shoham and Tenuvot in Sharon and in the Har Tov industrial zone near Beit Shemesh, and launched a service area in Israel in August 2023. AWS recently began a due diligence process to identify additional sites to build new facilities, but “Globes “I learned that the operation has been terminated.
The decision does not necessarily mean that AWS will not expand in Israel. Contrary to its previous practice, AWS did not build new data centers in Israel but rented server space in existing facilities built by Schonfeld Engineering in various locations in the country. But ending the process to study a more significant expansion reflects some cooling in the cloud giant’s outlook and growth plans in Israel.
The Israeli market is struggling to grow
Why is AWS quiet about expanding into Israel? Market sources explain that the entire Israeli market is at a lower growth point than cloud providers expected when they invested billions of shekels here in building data centers to run local cloud computing services. Google, which won the Accountant General’s tender for government cloud computing, has also leased data center space from companies such as SDS, Serverfarm and EdgeConneX, while other giants Microsoft and Oracle have also set up an Israeli cloud service area, despite losing the government tender.
At the same time, over the past two years, more and more Israeli technology companies have chosen to establish their headquarters in the United States. The Israel Innovation Authority reported that 80% of Israeli companies establish their headquarters abroad.
This does not only include setting up offices and hiring local staff. Globes has learned that more and more Israeli private sector companies prefer to decentralize their computing resources and take many components outside Israel and store them in data centers abroad, especially in Ireland, the Netherlands, Germany and the United States, even if these companies focus on the Israeli market.
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The CEO of a large Israeli company recently admitted privately that the company keeps its data in Ireland. The executive, who requested anonymity, said: “We understand that business continuity in Ireland is higher than in Israel, especially since the costs there are lower.”
The reasons for the increase in computing activity abroad are varied, but this company is no exception: despite Ireland’s campaign against Israel – for example, filing a lawsuit against it in the International Court of Justice in The Hague – Israeli companies do not fear sanctions against them. Because harming Israeli activity on its territory means antagonizing cloud service providers such as Amazon and Google.
“Investors want data from Israel”
Even today, 18 months after AWS launched its cloud service in Israel for the local market, prices are more expensive than most cloud regions in Europe, even though Israel is in the middle of the global price range offered by the company.
AWS charges 4.79 cents per hour for one cloud pulse, a single unit of consumption that serves as a benchmark for usage pricing, for cloud services for servers in Israel, while prices in Ireland are just 4.56 cents per hour. The AWS Israel Region is more expensive than most AWS operating regions in the US and Europe, with the exception of Zurich and Frankfurt, and is priced similarly to Milan.
The AWS Israel Region ranks 18th in terms of overall pricing, along with Milan, out of 33 AWS Service Regions worldwide. There’s a reason for the average price. Compared to other AWS Regions around the world, the Israel Region is lower in computing resources. However, the rule of thumb in the computing world states that the more services a service area offers, the more customer traffic, the more servers the provider buys, and the lower the price can be.
AWS is not the only cloud provider, but it is the largest. Google was the first to open a local service area in Israel in November 2022, while Microsoft opened it last year. For both companies, the price for the Israeli region is low compared to all over the world.
In a survey published by the Israeli human resources management company HiBob, 27% of those surveyed in Israel admitted that their companies transferred data abroad from certain departments or regions after the outbreak of war.
Olga Gahnkin, CEO of Aman IT Group, a unit of Eshnav Information Systems, admits she has received requests from customers to move their cloud computing abroad. “No one comes forward and explains why, but most of them point to instability over the last year and a half, and that it affects the continuity of their business. They usually don’t take everything, but development-related cloud systems and sometimes also product-related ones.”
Gankin explains that there is a difference between companies operating in the Israeli cloud, which are, for example, government companies, technology companies and startups, where the trend is to move activities abroad, even if not always all of them. This stems from the fact that most of the work is directed to markets outside Israel and that there are multiple branches of the company, and also because of the brain drain, which is very worrying for companies.
“So, when companies set up activities abroad and deploy data centers geographically closer to target markets or to development and product branches, they reduce the risk of employee turnover and feel more secure in terms of business continuity.”
She adds: “The risk of cyber attacks in Israel has increased, as has the risk of missile attacks, and economic and legal instability. Investors who sympathize with Israel and invest to support local industry are seeking to steal data.”
One of the most sought-after destinations – Ireland “It takes time for a company like Amazon, which opened its service area in Israel, to deploy all its services here, and it happens more gradually,” says Roy Rafhon, CEO and co-founder of Finout, an Israeli startup that helps businesses. Plan their cloud costs. “For most companies that are not familiar with Israeli customers, there is little incentive to operate on local servers. Companies that also serve European customers and must adhere to European privacy regulations – prefer Ireland or Frankfurt, but most Israeli companies are moving to server regions in the US – Like Virginia and more recently Ohio, only the United Kingdom and Canada are next on the priority list.
Most of the demand she receives is Europe-oriented, explains Jankin: “Ireland is one of the most sought-after destinations due to it having some of the largest data centers in Europe, which run on every type of organization with a very wide range of solutions and it is also economically attractive and additional clients are targeting the Netherlands.” And recently also the Central European region such as the Czech Republic or Slovakia.”
She adds: “The drain of data abroad can be stopped, as happened with legislation in Germany – where they limited what kind of data can be stored abroad and what the law requires to be stored in Germany. But Israeli companies want to grow at a rapid pace, and most customers are not in Israel anyway.” “So I’m not sure there’s a way to stop this trend, especially if the security situation is unstable.”
Published by Globes, Israel Business News – en.globes.co.il – on January 20, 2025.
© Copyright Globes Publisher Itonut (1983) Ltd., 2025.
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