(Repeats story to widen distribution)
By Deepa Seetharaman and Bill Rigby
SAN FRANCISCO/SEATTLE, Dec 19 (Reuters) - This spring, TaserInternational Inc won a small but high-profile contractto supply body cameras to the London police. But the deal nearlycollapsed over one issue: where the video footage would bestored.
In the end, the deal survived only after Taser droppedAmazon.com Inc as the data storage provider for theyear-long project. The fact that Amazon did not have a datacenter in Britain was a deal breaker for British officials,according to Taser.
The case is an example of the challenges that Amazon facesas it works to expand its cloud computing business, known asAmazon Web Services (AWS). In cloud computing, clients store andprocess data on remote servers accessed by the Internet, asopposed to storing information in local servers.
Since Edward Snowden exposed the vast reach of the U.S.National Security Agency's surveillance programs 18 months ago,government agencies and companies around the world have beenevaluating where they keep their most sensitive data.
Some larger companies have grown wary of relying too heavilyon Amazon's public cloud servers, preferring to store data ontheir own premises or work with cloud providers that can offerthem the option of dedicated servers - the so-called "privatecloud" model, technology consultants say.
That has opened a door for rivals such as Microsoft Corp, which has won over some companies by giving them moredirect oversight of their data in the cloud.
"Edward Snowden did more to create a future with many cloudsin many locations than any tech company has done," said SteveHerrod, the former chief technology officer of VMware Inc, now a venture capitalist at General Catalyst Partners.
A web of new laws restricting how data can move acrossnational borders creates another hurdle for Amazon, the largestU.S. online retailer.
Amazon "must be definitely more localized," said GordonMuehl, chief technology officer of security for German businesssoftware maker SAP.
For now, Muehl said he does not expect SAP to work withAmazon on many upcoming projects due partly to data-locationissues.
Amazon said demand for AWS, including in Europe and Asia,has never been stronger, and that any contracts lost to rivalsare the extreme exception, not the rule.
The company plans to build data centers in every largecountry over time, according to AWS chief Andy Jassy. But doingso will take time and incur considerable expense, analysts said.
NARROWING ADVANTAGE
Amazon pioneered cloud computing in 2006 and quickly amasseda wide base of customers by hosting data in its own centersrather than clients' own. This spared many startups from thehigh cost of managing their own computer servers.
Executives have said they expect AWS to one day be morevaluable than Amazon's $70 billion retail arm.
Since its launch, AWS has amassed five times the computingcapacity of its next 14 rivals, including Microsoft, Google Inc and IBM, according to Gartner. Jefferiesestimates that AWS revenue will more than double from 2014levels to $10.5 billion in 2017, faster than the market overall.
But while Amazon remains dominant, its advantage is alsonarrowing. According to Synergy Research Group, AWS held a 27percent market share in the third quarter of 2014, compared to10 percent for Microsoft's Azure cloud business. Azure, however,grew 136 percent on a rolling annualized basis in the quarter,while AWS grew 56 percent, according to Synergy.
Microsoft is willing to work with third-party data centermanagers, such as Fujitsu Ltd or Outsourcery Plc, when clients are required to keep data within acountry's borders.
The software company is also willing to help companies addcloud capabilities to their existing data centers, a "hybrid"model that Amazon has only just started to offer.
"Having a hybrid cloud does provide an advantage over AWS,"said Garth Fort, general manager of Microsoft's cloud andenterprise marketing. "Privacy, security and compliance areimportant areas that businesses consider when they make the moveto the cloud."
About six months ago, a small team at the British bankBarclays Plc selected Azure over AWS to power somedevelopment and testing work, two people familiar with theproject said.
The team picked Azure because of its private-cloud option,along with Barclays' existing familiarity with Microsoft'sdata-center software, the people said. A Barclays spokesmandeclined immediate comment.
Microsoft can draw on the corporate and governmentrelationships it has cultivated over decades to peddle Azure,experts said. AWS has only just started to build such ties.
"The name Microsoft is helpful in dealing with largeinsurance companies," said Patricia Renzi, who runs the lifetechnology solutions unit for Milliman, an actuarial firm whichsells applications to insurance company clients.
Many of those insurance companies, which crunch data toproduce financial risk models, are in Europe and already workwith Microsoft. Amazon does not have that advantage, Renzi said.
Amazon Chief Technology Officer Werner Vogels said AWS'spublic cloud meets the security needs for most customers,including banks, drug companies and government institutions.Many of those companies can move large chunks of services to AWSwhile keeping control of core functions themselves, he said.
"It's not an all or nothing story," Vogels said in aninterview last month. (Additional reporting by Steve Slater in London; Editing bySarah McBride, Peter Henderson and Tiffany Wu)