This spring, Taser International Inc won a small but high-profile contract to supply body cameras to the London police. But the deal nearly collapsed over one issue: where the video footage would be stored.
In the end, the deal survived only after Taser dropped Amazon.com Inc as the data storage provider for the year-long project. The fact that Amazon did not have a data center in Britain was a deal breaker for British officials, according to Taser.
The case is an example of the challenges that Amazon faces as it works to expand its cloud computing business, known as Amazon Web Services (AWS). In cloud computing, clients store and process data on remote servers accessed by the Internet, as opposed 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 been evaluating where they keep their most sensitive data.
Some larger companies have grown wary of relying too heavily on Amazon's public cloud servers, preferring to store data on their own premises or work with cloud providers that can offer them the option of dedicated servers - the so-called "private cloud" model, technology consultants say.
That has opened a door for rivals such as Microsoft Corp, which has won over some companies by giving them more direct oversight of their data in the cloud.
"Edward Snowden did more to create a future with many clouds in many locations than any tech company has done," said Steve Herrod, 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 across national borders creates another hurdle for Amazon, the largest U.S. online retailer.
Amazon "must be definitely more localized," said Gordon Muehl, chief technology officer of security for German business software maker SAP.
For now, Muehl said he does not expect SAP to work with Amazon on many upcoming projects due partly to data-location issues.
Amazon said demand for AWS, including in Europe and Asia, has never been stronger, and that any contracts lost to rivals are the extreme exception, not the rule.
The company plans to build data centers in every large country over time, according to AWS chief Andy Jassy. But doing so will take time and incur considerable expense, analysts said.
Amazon pioneered cloud computing in 2006 and quickly amassed a wide base of customers by hosting data in its own centers rather than clients' own. This spared many startups from the high cost of managing their own computer servers.
Executives have said they expect AWS to one day be more valuable than Amazon's $70 billion retail arm.
Since its launch, AWS has amassed five times the computing capacity of its next 14 rivals, including Microsoft, Google Inc and IBM, according to Gartner. Jefferies estimates that AWS revenue will more than double from 2014 levels to $10.5 billion in 2017, faster than the market overall.
But while Amazon remains dominant, its advantage is also narrowing. According to Synergy Research Group, AWS held a 27 percent market share in the third quarter of 2014, compared to 10 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 center managers, such as Fujitsu Ltd or Outsourcery Plc, when clients are required to keep data within a country's borders.
The software company is also willing to help companies add cloud 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 and enterprise marketing. "Privacy, security and compliance are important areas that businesses consider when they make the move to the cloud."
About six months ago, a small team at the British bank Barclays Plc selected Azure over AWS to power some development and testing work, two people familiar with the project said.
The team picked Azure because of its private-cloud option, along with Barclays' existing familiarity with Microsoft's data-center software, the people said. A Barclays spokesman declined immediate comment.
Microsoft can draw on the corporate and government relationships 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 large insurance companies," said Patricia Renzi, who runs the life technology solutions unit for Milliman, an actuarial firm which sells applications to insurance company clients.
Many of those insurance companies, which crunch data to produce financial risk models, are in Europe and already work with Microsoft. Amazon does not have that advantage, Renzi said.
Amazon Chief Technology Officer Werner Vogels said AWS's public 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 AWS while keeping control of core functions themselves, he said.
"It's not an all or nothing story," Vogels said in an interview last month.