Israel Seeks to Woo U.S. Tech Giants to Build Government Server Farm

Israel is eyeing Amazon, Microsoft, Google, IBM and Oracle to establish a regional presence but some are concerned that none of the companies will bid on the job

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A Google server farm in Iowa, U.S.
A Google server farm in Iowa, U.S.Credit: AP

In February, the Government Procurement Administration posted an announcement on its website saying that it would be inviting bids to provide cloud computing for all of the government’s ministries and affiliated units from a single supplier that would be required to establish a server farm in the country. That same day, the Israeli army issued a nearly identical announcement that it was seeing the same services.

The two notices are the opening shot in a project that could lead one of five global tech giants, all of which already have a presence in Israel, to invest hundreds of millions of dollars more. The hundreds of millions of shekels in government funding that is currently earmarked for the services that the government provides for itself would be diverted to the new cloud service firm. Instead of the government-run computer rooms and servers now at the disposal of government offices – and the army – the plan is to have everything transferred to the cloud computing facilities of a single tech giant that would be paid to store the data and provide the services off-site but in Israel.

The actual request for bids is expected to be issued at the beginning of next year. The government is eyeing Amazon, Microsoft, Google, IBM and Oracle to establish a regional presence in Israel in exchange for certain incentives. At the moment, the closest server farms that the five operate are in Europe.

The five companies are seriously considering bidding on the project and some of them have already had representatives tour the country and meet with senior government officials, TheMarker has learned. They have also met with potential information technology contractors as well as data center firms that might host the infrastructure for the huge project.

The government’s requirement that the server farm be located in Israel may be an obstacle for bidders. The requirement is the being imposed over security issues as well as ownership of the data and other factors.

Regional cloud computing centers such as what the government hopes to have established are generally built underground and would be expected to cost more than $500 million to build. On the other hand, the money that the government currently spends on these computer services, about 500 million shekels ($142 million) a year, would be paid to the successful bidder, which would also receive the budget that the army spends for the services (the amount of which is not known).

It would also be reasonable to expect that the multinational would attract other Israeli clients to use its services, from the major banks to startups, which already make massive use of cloud services.

“Currently, the scope of the government expense on IT infrastructure is more than 500 million shekels a year,” said Keren Katzir Shtiebel, the marketing director at the Government Information and Communications Technology Authority in the Prime Minister’s Office, which is responsible for the project. “We expect that with the establishment of the cloud in Israel, and after a few years of transition and gradual adjustments, we will complete the shift to cloud computing while [realizing] budget efficiencies on one hand, and enter new worlds, such as artificial intelligence and programmed learning on the other.”

The entire project got its start with the passage of a cabinet resolution in 2014 after which planning for it began. In 2016, Shtiebel’s authority published a report that noted that the government was operating about 60 separate computer rooms and server farms, although the government already does make some use of cloud computing services.

“Most of the computer rooms are small,” it stated. “They are spread out among various sites, some on state-owned land, some on leased land. Most are close to ministry headquarters in rooms that are not designed to serve as computer rooms. … Most have limited growth capacity when it comes to area and energy.”

In addition, the report stated, government ministries lack uniform information security standards. In addition, levels of service, including the time required for a response, are problematic. Service is also purchased from suppliers without coordination among the various ministries.

Concern has been expressed, however, that none of the five cloud technology giants will decide to take up the gauntlet. Israel is hot, electricity is expensive in the country, the geopolitical situation in the region is unstable and neighboring countries such as Lebanon, Jordan and Egypt will not use servers located in Israel. This raises uncertainties as to whether the required investment would justify itself in terms of volume of use and the revenue generated.

The acting head of the Government Information and Communications Technology Authority, Shahar Bracha, said the authority has also met with all of the companies and has presented projections on demand for the cloud services. “For their part, [the companies] have already sent technical teams that have looked at where it was possible to establish [a data center].”

Bracha remains optimistic. “There is a lot of interest in the public tender. I don’t foresee a situation in which there are no bids. I know that more than one company has a concrete plan. Israel is going in the direction of artificial intelligence for research. There is a digital health project here and there are another 6,000 startups that would be happy to use cloud services. The suppliers know this,” he noted.

“Israel is hot and expensive? They’ve gone to Abu-Dhabi too,” Bracha said, apparently referring to Microsoft, which has set up a new server facility there. ““If in the past, companies used to establish huge server farms the size of a stadium, today their strategy is to create smaller sites in each country.”