In an effort to comply with European companies’ rising call for greater data sovereignty, Microsoft has launched Microsoft 365 Local, which runs entirely within a customer’s own data center. The offering is part of a larger package called Microsoft Sovereign Cloud, an array of offerings that enables European cloud data to be stored and processed exclusively in Europe.

In a company blog post unveiling Microsoft Sovereign Cloud, Judson Althoff, Executive VP and Chief Commercial Officer at Microsoft, wrote that Sovereign Cloud “is the next step in strengthening our European Digital Commitments.” The launch of these five Digital Commitments were detailed in April in a blog post by Microsoft vice chair and president Brad Smith. Ironically, Microsoft’s Commitment #1 is “We will help build a broad Al and cloud ecosystem across Europe,” which may be exactly what EU leaders are uneasy about as Europe confronts growing U.S. tech dominance in the all-important cloud and AI markets.

But Microsoft’s new on-prem 365 Local offering appears to be exactly what European customers are seeking. It allows customers to run 365 on servers they control using Azure Local, which delivers all the customary Azure cloud services, from compute to networking to virtualization. Businesses can use 365 Local to deploy Exchange Server and SharePoint Server in sovereign cloud environments, with full client control of compliance and governance.

Also unveiled as part of Sovereign Cloud is number of key data protection tools:

• Data Guardian offers a commitment to store and process client data on infrastructure located in Europe. Only Microsoft staff in Europe can control remote access to these systems—and all entries will be logged in a secure ledger.

• External Key Management enables customers to connect Azure to keys stored on their own in-house Hardware Security Module or by a third party provider they trust. Microsoft is working with a number of leading HSM manufacturers to implement this feature.

• Regulated Environment Management enables customer to manage all of Microsoft’s Sovereign Cloud data protection features in one place. This feature is the core of the customer’s toolkit for launching and monitoring cloud workloads that conform to data sovereignty.

European leaders and company executives have shifted significantly toward protecting data sovereignty this year as the continent’s reliance on U.S. tech giants has reached critical mass—U.S companies now control more than 80% of the European cloud market. At the same time, the Trump administration has challenged longstanding American alliances with Europe.

In response, the EU has considered loosening its historic stance toward heavy regulation in an effort to compete more effectively with U.S. tech vendors. More immediately, European companies have placed more emphasis on data sovereignty; in short, they want European data to be controlled only in Europe.

A survey conducted by European cloud vendor Civo found that 84% of UK IT leaders are concerned that geopolitical developments could threaten their ability to access and control their data. Some 61% of organizations say data sovereignty is now a strategic priority. One finding that may have gotten Microsoft’s attention: 82% would consider switching from Big Tech to gain more control over data location and governance.

Microsoft is clearly motivated to work harmoniously with Europe. The company plans to grow its data center capacity in 16 European countries by 40% by 2027. The company doesn’t disclose the percentage of its overall revenue derived from Europe, but Microsoft’s “Non-US” revenue was 49.13% of its total revenue in fiscal 2024, or $120.42 billion.