A competition watchdog will investigate the UK cloud services market amid concerns that the main providers prevent fair competition and create technical barriers to switching for customers.
Responding to a referral by Ofcom, the Competition and Markets Authority (CMA) announced on Thursday it would investigate Britain’s £7.5 billion cloud services market.
Cloud computing allows customers to access their computing resources on demand and over a network.
Cloud infrastructure provides the foundation for how software applications are developed and run. Businesses of all types and sizes rely on cloud services for faster, more flexible, and potentially cheaper operation.
Amazon Web Services (AWS) and Microsoft have a combined share of 70 to 80 percent of the market, according to 2022 figures. Their closest competitor is Google, with a share of 5 to 10 percent.
These include egress fees or the charges customers have to pay to transfer their data out of a cloud.
Another area of concern was technical barriers to switching from one provider to another. In order to switch, customers would need to reconfigure their data, which restricts their ability to use multiple suppliers or “multi-cloud.”
Ofcom said that discounts to only use one cloud provider can help reduce costs, but ultimately serve as barriers for businesses to explore other offers on the market.
The CMA will analyse what can be done to improve the supply of cloud services to UK customers.
“Strong competition ensures a level playing field so that market power doesn’t end up in the hands of a few players—unlocking the full potential of these rapidly evolving digital markets so that people, businesses, and the UK economy can get the maximum benefits,” said CMA CEO Sarah Cardell.
Hyperscalers
Market domination by “hyperscalers” such as Amazon and Microsoft could lead to higher costing cloud services, costs that would ultimately be passed on to consumers.Amazon said its customers trust AWS to “power their infrastructure, become more agile, and lower costs.”
Microsoft is helping its cloud customers to get the most value out of their digital spend by leading a new AI platform shift, the company said in July.
There are other cloud providers in the UK, including Oracle and IBM. However, their market shares are considerably smaller, at around 0 to 5 percent. Competing with “hyperscalers” is difficult because it is hard to build a rival ecosystem of products, Ofcom said.
Added to the mix are barriers identified by the regulator. Businesses are likely to think twice before taking a service from a different provider, because of egress fees.
An Ofcom survey found that 78 percent of respondents would want to reduce or remove egress fees. Some businesses design their own cloud infrastructure just to avoid and reduce the cost of egress.
Outside the UK, regulations are being implemented to curb the negative effect of egress on consumers. Under the EU Data Act proposed rules, customers should be able to switch between providers without charges, including egress.
The U.S. Federal Trade Commission is currently reviewing information it requested in March 2023 on competitive dynamics of cloud computing. The commission will review security risks in the sector and the reliance of economy on cloud service providers.
It’s estimated that companies in the United States will spend $576 billion on cloud computing in 2023.
Britain’s own legislation, in the form of the Digital Markets, Competition and Consumers Bill, will include the CMA’s investigation into cloud services.
The regulator’s investigation will conclude by April 2025.
