AWS and Microsoft could potentially face an investigation of their cloud businesses in Britain should the Competition and Markets Authority (CMA) follow the recommendation of an independent inquiry group that reports into the UK’s antitrust regulator.
In a release issued on Monday, the group asks that the CMA use its powers under the Digital Markets, Competition and Consumers Act 2024 (DMCCA), to “designate the two largest providers, AWS and Microsoft, with strategic market status (SMS) in relation to their respective digital activities in cloud services.”
The new legislation took effect at the start of the year, and UK law firm Macfarlanes wrote in an advisory on the new legislation, issued on January 13, that the “UK’s answer to the EU’s Digital Markets Act (DMA) empowers the CMA to designate firms as having “Strategic Market Status” (SMS) in relation to a particular ‘digital activity.’ Once designated, the CMA can impose ‘conduct requirements’ (CRs) on those firms or introduce ‘pro-competition interventions’ (PCIs) to achieve positive outcomes for UK consumers and businesses.”
In its report, the inquiry group concluded that competition in the £9 billion (US$11.2 billion) UK cloud services markets “is not working as well as it could be,” as a result of the following provisional findings:
- Cloud customers face a limited choice of providers. The group noted that “AWS and Microsoft are the two largest providers of cloud services, each with a share of up to 40% of UK customer spend on cloud services. Google is the next largest provider with a much smaller share.”
- Technical and commercial barriers make it “difficult for cloud customers to switch between and use different cloud providers, locking them into their initial choices, which may not reflect their evolving business needs.”
- The fact there are significant barriers to “entry and expansion due to the very large capital investment needed to supply cloud services, making it harder for alternative cloud suppliers to enter and grow in these markets.”
Dario Maisto, senior analyst at Forrester Research, said of the independent inquiry group’s recommendations that “this is not the first time we have heard about competition issues in the cloud market, and not only in the UK. On the one hand, it is obvious that there is an impressive market concentration, with the three US hyperscalers owning more than 80% of the cloud market. On the other hand, while lack of competition is never a good thing, the cloud market does work quite differently from other markets.”
The scale of the hyperscalers, he said, allows investments in innovation and more powerful infrastructure that are even benefiting businesses leveraging these resources.
If the various points made in the inquiry are dissected, said Maisto, “we can argue that: a) it is not actually true that cloud customers face a limited choice of providers as there are plenty of cloud vendors; b) it is unlikely that the US hyperscalers may not reflect the evolving business needs of UK clients; c) the significant barriers to entry and expansion in this market are not the hyperscalers’ fault but rather a matter of fact.”
He added that, while according to the inquiry, Microsoft is using its strong position in software to make it harder for AWS and Google to compete effectively for cloud customers, it “actually reached agreement with CISPE back in July 2024 related to CISPE’s competition complaint filed against Microsoft with the European Commission in November 2022.”
According to Maisto, “the inquiry group does have a point that the ability of UK businesses to put healthy pressure on cloud providers to offer better deals is key to ensuring good outcomes and to unlocking the potential benefits of cloud services, but does not consider that UK businesses can and should address these concerns from a concentration risk perspective.”
UK organizations, he said, are “still free to leverage multiple cloud vendors and/or cloud providers that are not hyperscalers. In our Forrester European Public Cloud Platform Wave, 2024, for example, we do provide a piece of evaluative research featuring at least seven alternative cloud vendors with the full spectrum of services available in the hyperscaling cloud market as well. All in all, the inquiry does address a right concern but fails to acknowledge the actual problems behind such a setup of the market.”
The inquiry group next plans to “consult on its provisional findings and recommendations,” before making a final decision by August 4.
From there, it will be up to the CMA board to decide if and when to open SMS designation investigations, and, in an interesting twist, its chair is Doug Gurr, former country manager of Amazon UK.
Asked whether or not that might have an impact in what eventually happens with both AWS and Microsoft, Maisto said “it is not the person that makes the difference, but rather his mandate from the government. The UK government wants a CMA more oriented to growth rather than regulation, and that is why a former big tech guy was chosen for the office. This might indeed give us a hint on whether the investigation will actually happen.”
Source:: Network World