UK regulators to investigate Amazon and Microsoft’s cloud market dominance

The UK’s competition watchdog has launched an investigation into the cloud computing market, following concerns raised by the telecoms regulator Ofcom. The inquiry will focus on the practices of Amazon and Microsoft, the two leading providers of cloud infrastructure services in the UK, and whether they are harming competition and innovation.

Why are regulators concerned?

Ofcom conducted a market study into cloud computing and found that Amazon Web Services (AWS) and Microsoft Azure account for around 70-80% of the cloud infrastructure market in the UK, with Google being their closest competitor with a share of up to 10%. Ofcom also found that AWS and Microsoft have high levels of profitability, indicating that there are limits to the overall level of competition.

Ofcom identified a number of features that make it more difficult for customers to switch or use multiple cloud providers, such as:

• Egress fees: These are charges that customers pay to transfer their data out of a cloud provider’s network. Ofcom found that AWS and Microsoft charge significantly higher egress fees than other providers, which could discourage customers from moving their data or using multiple providers.
• Committed spend discounts: These are discounts that customers receive if they commit to spending a certain amount with a cloud provider over a period of time. Ofcom found that AWS and Microsoft offer these discounts to customers who use only their cloud services or a large proportion of them, which could incentivise customers to use a single provider for all or most of their cloud needs.
• Technical barriers: These are factors that make it difficult for customers to use different cloud services together or switch between them. Ofcom found that some cloud services are designed in a way that makes them less compatible or interoperable with other providers’ services, or that some providers restrict access to certain features or functionalities for customers who use other providers’ services.

Ofcom also expressed concerns about the software licensing practices of some cloud providers, especially Microsoft. Ofcom said it received evidence showing that Microsoft makes it less attractive for customers to run its Office productivity apps on cloud infrastructure other than Microsoft Azure.

Ofcom said these market features could make it challenging for some customers to bargain for a good deal with their provider, or to mix and match the best quality services across different providers. Ofcom also said these features could reduce innovation and diversity in the market, as smaller or new entrants may struggle to compete with the dominant players.

What will the investigation do?

Ofcom has referred its findings to the Competition and Markets Authority (CMA), which will conduct an independent investigation into the cloud computing market. The CMA will decide whether there is an adverse effect on competition in the market, and if so, whether it should take action or recommend others to take action.

The CMA has the power to impose remedies on the cloud providers if it finds any competition issues, such as requiring them to change their pricing, terms or practices, or imposing fines or penalties. The CMA can also make recommendations to the government or other regulators on how to improve the regulation or oversight of the market.

The CMA will seek views from stakeholders and interested parties on its investigation, and will publish its final report by October 2024.

How have Amazon and Microsoft responded?

Amazon and Microsoft have not commented on the CMA’s investigation yet. However, both companies have previously defended their positions in the cloud market and argued that they face strong competition from other providers.

Amazon has said that it offers low and transparent prices for its cloud services, and that it does not lock in customers or prevent them from using multiple providers. Amazon has also said that it invests heavily in innovation and customer service, and that it supports thousands of jobs and businesses in the UK.

Microsoft has said that it offers flexible and competitive options for its cloud services, and that it does not force customers to use its software on its cloud infrastructure. Microsoft has also said that it collaborates with other providers to ensure interoperability and compatibility of its cloud services, and that it contributes to the UK’s digital economy and society.