The Italian cloud market is now worth over €5.5 billion ($6.9bn), according to data from the Cloud Transformation Observatory. With a 19 percent increase since 2022, it's no surprise, therefore, that the region is emerging as an increasingly attractive area for European cloud providers to set up data centers. Infrastructure services (IaaS), in particular, are driving growth, reaching a value of over €1.51 billion ($1.9bn), up 29 percent since 2022, and catching up with software services (SaaS), which have been historically more widespread.

The region has also experienced significant investments from international hyperscalers in recent years. With investment in the Italian data center industry set to rise by up to €15 billion ($18.9bn) between 2023 and 2025, according to a study from Milan Polytechnic, it's key to understand what makes the region so attractive for investment and development. From regulatory compliance to socio-economic and geographic factors, let's look at some of these reasons.

Aiding regulatory compliance 

Businesses operating in Italy are subject to some strict data protection regulations. Most notably, the General Data Protection Regulation (GDPR), regulated by the European Union (EU), dictates how businesses must handle personal information. International companies operating in Europe must comply with these regulations, often requiring slightly different conduct to operations outside the EU. Therefore, the growing Italian cloud region can offer services that comply with European laws, reducing the risk of sanctions and violations of privacy regulations.

With digital sovereignty rising in importance for many European states in recent years, this has also impacted Italy's emergence as an attractive region for local cloud providers to set up. Digital sovereignty allows states to manage their internal resources without the intervention of third parties or foreign influences. Recent geopolitical events have highlighted a new cohesion at Italian and European levels on data management, which until recently seemed impossible, pushing this development of the Italian data center market.

Beyond the FLAP-D market

For some time, the European data center market has been dominated by the FLAP-D region, the acronym of “Frankfurt, London, Amsterdam, Paris and Dublin," which concentrates the largest number of data centers in Western Europe. However, over recent years we’ve seen significant changes in the European data center market, allowing the industry in countries adjacent to the FLAP-D region, such as Italy, Spain, and Portugal, to grow.

To some extent, this is due to internal changes in the countries that make up FLAP-D. For example, growing concerns around data center energy usage in the Netherlands have slowed some projects as the government imposed a nine-month block on permits for sites larger than 10 hectares.

However, geographically, emerging data center regions like Italy and Spain are located in a strategic point for businesses looking to expand reach across multiple continents, which is driving investment. Sitting at the crossroads of Europe and the Mediterranean, these regions provide strong connectivity to markets in North Africa and the Middle East, besides having connectivity with Northern and West Europe. This proximity offers lower latency and faster connectivity, ensuring that businesses can seamlessly serve their global customer base.

The changing socio-economic climate

Changes in the socio-economic climate in Europe have also impacted attitudes toward cloud adoption in the region, pushing a rethinking of the reasons behind and benefits of cloud adoption. In this new climate, national cloud regions are gaining importance specifically. The socio-economic benefits of a national cloud environment are undeniable. Ensuring a local cloud market can develop is a crucial catalyst for economic prosperity and technological innovation, providing a wide range of jobs and opportunities for a region.

Italy had especially pioneered initiatives around a European sovereign cloud. For example, the Triennial Plan for IT in Public Administration has created a guide to the digital transformation of public administration; the National Recovery and Resilience Plan (PNRR) sets out steps for digital transformation to help overcome the socio-economic impact of the COVID-19 pandemic; and the Cloud Italia Strategy contains the guidelines for the migration to the qualified cloud of the Public Administration. These are all stimulating the evolution of cloud offerings in the country. As a result, private cloud services are becoming even more relevant for Italian organizations starting or continuing their migration to the cloud.

Growth of regional cloud providers

Regional cloud providers can respond promptly to needs that hyperscalers do not meet, equipped with more flexible offerings, highly customized services, and attention to local specificities. These are increasingly popular and insistent demands from businesses that require greater flexibility and customization of cloud services to adapt to their specific needs and a widespread presence in particularly strategic geographical regions to offer services that better meet local or sectoral needs.

As a result, regions like Italy are increasingly becoming preferred cloud regions, and the data center sector is taking the same parallel path, which sees Italy as Europe's newest data hub. Credit is also due to local providers breaking away from the 'one size fits all' dynamic, offering tailor-made and ad hoc services for the needs of companies migrating to the cloud.

The future of Italy's cloud and data center market

Regional cloud providers are increasingly becoming a beneficial choice for European businesses across the continent. With greater familiarity with local needs, a better understanding of regional laws and regulations, cultural assets, and the unique challenges of the area where a company operates, it is no surprise that many countries are encouraging the growth and development of these businesses. Combined with the geographic benefits of being based in Italy, the current socio-economic climate, and the focus on regulatory compliance, Italy is well-positioned to solidify its place as a significant player in the future of the European cloud and data center scene. Italy's ongoing digital transformation presents exciting opportunities for economic growth, job creation, and its continued emergence as a key player in Europe's digital landscape.