Companies in some countries are getting particular about where their data is stored, a trend that SAP SE SAP +0.53% and International Business Machines Corp. IBM +0.15% hope to turn to their advantage.
The longtime partners on Tuesday said SAP will use IBM-operated facilities in addition to its own to deliver SAP software as a service over the Internet. IBM became a bigger player in such operations, known as cloud computing, when it acquired SoftLayer Corp. last year. It expects to deploy 40 data centers to supplement 20 facilities operated by SAP.
IBM’s data centers include sites in Germany, France, England and the Netherlands. Customers in such countries have become increasingly adamant that the cloud services they use store data in their own countries.
Such concerns as well as laws passed by some European governments have come to the fore since disclosures began in mid-2013 about data-collection practices by the U.S. National Security Agency and other intelligence services.
“We found that nearly every jurisdiction has some location or compliance requirements,” said Erich Clementi, an IBM senior vice president in charge of global technology services.
Kevin Ichpurani, an SAP senior vice president, said the IBM deal “allows us to address the data sovereignty issues.”
But moves to require local computing facilities conflict with the longtime concept of a borderless Internet, which stresses speed and efficiency rather than geographic preferences. Companies like Google Inc. GOOGL +0.72% have argued against a trend they say creates unnecessary costs and complexity.
Eric Schmidt, Google’s executive chairman, warned recently of ”huge” costs of what he characterized as online Balkanization. “We’re going to end up breaking the Internet,” he said.
But corporate demands in the wake of the NSA revelations appear to be changing the business landscape. About 9% of U.S. companies selling cloud products to corporations now have clusters of computer servers in the European Union, compared with 2% before disclosures about the NSA surveillance programs, according to information compiled by Skyhigh Networks Inc., which advises companies on potential security threats of their tech services.
Robert Reid, CEO of Intacct Corp., recently estimated that 10% to 20% of potential European customers for cloud-based accounting software refuse to buy unless the vendor has a data center on the continent.
Such geographic concerns are yet another twist in a cloud craze that is forcing many companies to shift their strategies.
Others jumping on the bandwagon include old-line software vendors like Oracle Corp. ORCL +0.60% and Microsoft Corp. MSFT +0.18% , hardware makers such as Cisco Systems Inc., and younger companies, such as Google and Amazon.com Inc., AMZN +0.61% which grew up in the Web era. In some cases, companies are rivals and partners at the same time.
SAP sells software that manages corporate operations like manufacturing, inventory and finance. Its programs often are used along with a database, typically supplied by IBM, Microsoft or Oracle.
But SAP, which competes most fiercely with Oracle in business application software, lately has emphasized an internally developed database called HANA. That software exploits memory chips to gain speed advantages over conventional databases that run on disk drives. HANA has become the core of SAP’s cloud offerings.
SAP had previously established a relationship with Amazon Web Services, whose cloud services have a broad following among startups and Web companies. But Mr. Clementi said SAP’s pact with IBM will have greater appeal to established companies that have shied away from outsourcing operations or want use a combination of their own data centers and those in the cloud.
One reason, he said, is that SoftLayer specialized in features that appeal to many mainstream businesses. One is offering customers dedicated servers rather than commingling application software and data from multiple companies on each server, an approach that backers say has performance and security advantages.
“What we are signaling with this agreement is that you can run full-fledged core enterprise applications in the cloud,” Mr. Clementi said.
Holger Mueller, an analyst at Constellation Research, said the deal is important not only to improve SAP’s geographic reach but also to help IBM boost utilization of its newly acquired data centers. It also is important for SAP, with is German heritage, to take a lead on addressing concerns about the location of customer data.
“It’s harder for SAP to say to customers, ’don’t worry about it,’” he said.