Competition in the cloud services market is not working as well as it could be, the UK’s competition regulator has said in its provisional findings on an investigation into the industry.
An independent inquiry group has suggested that the UK’s competition regulator should look into Amazon and Microsoft’s cloud services under new digital market regulations.
The group, in its preliminary findings on an investigation into the UK’s £9bn cloud services market, stated that competition isn’t functioning as effectively as it could be. This could result in increased costs, reduced choice and innovation, and a decline in service quality for businesses across the UK. The sector is dominated by Amazon’s AWS and Microsoft, each holding approximately 40% of consumer spending in the market.
The report highlighted that Microsoft, in particular, was leveraging its strong software position to make it more challenging for AWS and Google – the third largest player in the market – to compete effectively for cloud customers wanting to use Microsoft software on the cloud. This is diminishing the competitive challenge that AWS and Google can pose to Microsoft’s position in the cloud market, according to the report.
It also noted that technical and commercial barriers make it difficult for users to switch between different cloud providers, thereby locking them into their initial choices.
The inquiry group has raised concerns, suggesting the Competition and Markets Authority (CMA) flex its muscles under the Digital Markets, Competition and Consumers Act (DMCCA) to consider whether AWS and Microsoft, should be designated with strategic market status. Just last week, former Amazon UK boss Doug Gurr was announced as the new chair of the CMA.
Under the new rules, firms which are designated are required to follow special measures or interventions which are designed to boost competition. Kip Meek, who leads the CMA’s independent inquiry group, said: “Cloud services underpin most business operations, providing vital infrastructure to businesses and organisations across the UK economy.
“Our provisional view is that competition in this market is not working as well as it could be. So, we propose that the CMA considers investigating the largest cloud service providers using its new digital markets powers.”
“Effective competition in the delivery of these vital services could drive choice, quality and competitive prices – not only helping UK businesses but boosting innovation, productivity, growth and investment across the UK economy.”
In a statement, an AWS spokesperson said: “The proposed intervention under the Digital Markets, Competition and Consumers Act is not warranted.
“The evidence demonstrates 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.
“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.”
Rima Alaily, corporate vice president and deputy general counsel competition law group at Microsoft, said: “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.
“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?”
