Competition in the UK’s cloud market isn’t working as well as it could, an independent inquiry from the Competition and Markets Authority (CMA) has found.
The UK cloud market is valued at £9 billion, but a lack of competition is stifling innovation and leading to higher costs, less choice, and a lower quality of service for businesses operating in the UK, the CMA said.
Cloud customers face a limited choice of providers owing to the dominance of major firms. At the same time, technical and commercial barriers make it harder for customers to switch cloud providers.
Barriers to entry make it difficult for alternative players to enter the market, according to the CMA. As such a large amount of capital investment is needed to deliver cloud services.
The CMA has cited Microsoft, saying the cloud provider had leveraged its strong position in the UK cloud to make it more difficult for rivals to compete.
It recommended that both Microsoft and AWS be designated strategic market status (SMS) under new powers granted by the Digital Markets, Competition, and Consumers Act (DMCCA). Which could force both firms to meet more stringent regulatory requirements.
Both Microsoft and AWS have responded to the inquiry, dismissing the CMA’s claims to a certain extent and defending the UK cloud’s competitive landscape.
“The draft report should be focused on paving the way for the UK's AI-powered future, not fixating on legacy products launched in the last century,” Rima Alaily, deputy general counsel at Microsoft, said in a statement seen by ITPro.
“The cloud computing market has never been so dynamic and competitive, attracting billions in investments, new entrants, and rapid innovation. What could be better for UK businesses and government?” Alaily added.
A spokesperson for AWS called the intervention unwarranted, stating that evidence demonstrates that the IT services industry is highly competitive.
“Cloud computing has lowered costs for UK businesses with on-demand services and pay-as-you-go pricing, expanded product choice, and increased competition and innovation,” the spokesperson told ITPro.
“We welcome the CMA's updated finding that customer discounts do not harm competition. But we urge the CMA to carefully consider how regulatory intervention in other areas will stifle innovation and ultimately harm customers in the UK. We will continue to work constructively with the CMA as they work on their final report.” they added.
Google has welcomed the results of the inquiry and its attention to certain anti-competitive practices. According to the CMA review, Google is the UK’s third largest provider, though has a much smaller share than either Microsoft or AWS.
“Restrictive licensing harms UK cloud customers, threatens economic growth, and stifles innovation, and we are encouraged that the CMA has recognized the harm of these practices,” Chris Lindsay, VP of customer engineering EMEA at Google Cloud, told ITPro.
Industry reacts
Many in the tech industry have welcomed the results of this inquiry, particularly firms that operate in the UK cloud market and interact with the likes of Microsoft and AWS.
Mike Hoy, CTO at UK edge services provider Pulsant called the move a significant step forward in increasing competition and fostering business growth in a comment to ITPro. CEO of UK cloud firm Civo, Mark Boost, expressed a similar sentiment.
“For years, hyperscalers have been allowed to stifle the cloud market with a host of anti-competitive practices. Today’s provisional decision from the CMA indicates a cautious step in the right direction,” Boost told ITPro.
“Using the CMA’s new digital markets powers to investigate AWS and Microsoft will ensure closer monitoring of potentially unfair practices, and a focus on specific tools like egress fees is promising,” he added.
He said that one serious issue had not been addressed, though, with the CMA failing to mention the damaging effects of cloud credits. Although Boost recognized the CMA’s view as positive, he added that the job was far from complete.
Matthew Sinclair, senior director at the Computer & Communications Industry Association (CCIA) said the CMA needs to move quickly to act on its findings while avoiding any action that may stifle innovation.
“The UK is benefiting from healthy competition in the wider IT services industry with new opportunities for business, AI innovation and investment. The CMA should be careful to avoid premature or overly broad interventions in the wider cloud sector,” Sinclair told ITPro.
