Cheaper and Losing: A Layered Model of Cloud Dependence and the Limits of Subsidy¶

Stefane Fermigier (Abilian) · sf@abilian.com

Draft working paper v0.6, 2026-08-04. Theory with a sourced empirical base; every proposition carries a proof, a numeric cross-check, and a Monte-Carlo robustness report; no identification is claimed.

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Abstract¶

European cloud providers are several times cheaper than US hyperscalers for raw compute and win independent price-performance benchmarks, yet their share of their own cloud-infrastructure market (IaaS, PaaS, and hosted private cloud) fell from 29% in 2017 to about 15% in 2022 and has held there since, while the three US firms hold about 70%. The two facts sit on different perimeters, the price edge on a sub-segment of IaaS and the share on the whole infrastructure market. The model turns on that divergence.

In it, each buyer has an altitude, the fraction of its needs that are differentiated (platform and AI services) rather than commodity infrastructure. Europe is cheaper and present in the commodity basement; in the differentiated layer, where value is migrating, the components of a European offer exist at prices near parity while the integrated breadth of a hyperscaler has no European counterpart, an assembly gap the model prices in $\pi_D$ and $\gamma$. Buyers sort by altitude, and because firms drift up-stack over their lifecycle the aggregate US share rises over time toward a segment boundary. With terminal altitudes bounded for part of the population the sorting converges to a floor. The observed plateau reads as that floor, with the model's remaining prediction compositional (Europe's share of differentiated workloads falls while its revenue share holds).

We show that subsidy is a weak lever at either layer: a commodity subsidy saturates over realistic budgets when firm types are distributed bimodally (only a subsidy scaling with the whole commodity base could restructure the market), while Europe's actual subsidies, which target the differentiated layer, meet a network constraint that capability funding alone does not clear. Interoperability's payoff is un-bundling the stack, with outright switching a separate lever; and once cross-provider coupling costs are modelled, the realistic European position is a loosely-coupled secondary beachhead whose value is sovereign reversibility and the preservation of a supplier the demand-side screen presupposes. Every result is proved, cross-checked numerically, and stress-tested by Monte-Carlo.

Keywords: cloud computing, network externalities, switching costs, digital sovereignty, industrial policy, coordination.

JEL: L86, L13, D85, H57, L52.

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Cite this paper¶

Fermigier, S. (2026). Cheaper and Losing: A Layered Model of Cloud Dependence and the Limits of Subsidy.
Draft working paper v0.6, Abilian Econ Lab.
https://econ.lab.abilian.com/papers/cheaper-and-losing/