The cloud services market in the United Kingdom is set to undergo a thorough antitrust investigation as the UK’s Competition and Markets Authority (CMA) steps in to assess the presence of anti-competitive practices. Two tech behemoths, Amazon (through Amazon Web Services) and Microsoft, find themselves in the spotlight, primarily due to their dominant positions in the UK cloud services landscape.
According to a report from media regulator Ofcom, Amazon and Microsoft collectively held a staggering market share of between 70 and 80 percent in the UK cloud services sector last year. This remarkable market dominance has prompted Ofcom to request the CMA’s intervention to investigate potential competition-related concerns. In a distant third place is Google, with a relatively modest market share ranging from five to 10 percent.
Ofcom’s primary contention is that competition within the cloud services market is stifled by various factors that impede customers’ ability to switch providers or employ multiple providers simultaneously. One significant obstacle is the presence of egress fees, which customers often must pay to migrate their data to an alternative service. Ofcom noted in its report that the costs associated with transferring data can discourage customers from adopting multiple cloud providers and, in some instances, make switching financially burdensome.
The lack of interoperability and data portability further compounds the challenge for customers, making it arduous to configure data and applications to function seamlessly across various services. Additionally, discounts offered by dominant providers can dissuade customers from exploring alternatives.
These factors collectively provide Amazon and Microsoft with a competitive advantage, according to Ofcom’s analysis. The report states that “limits on the ability of customers to credibly threaten to switch away can reduce the competitive pressure on the market leaders, giving them a degree of market power.” When customers encounter difficulties in transitioning between providers or adopting multiple cloud services, it can become more challenging for competitors to expand and effectively challenge AWS and Microsoft for both new and existing customers.
Moreover, Ofcom acknowledges concerns raised by certain cloud service providers regarding the software licensing practices of some industry players, particularly Microsoft. The report cites submissions claiming that Microsoft engages in practices that make it less appealing for customers to use the company’s licensed software products on rival providers’ cloud infrastructure compared to Microsoft Azure. Products such as Windows and Microsoft 365 are mentioned in these allegations, although Microsoft has disputed their accuracy.
CMA CEO Sarah Cardell welcomed Ofcom’s referral of public cloud infrastructure services for in-depth scrutiny, emphasizing the critical role of this £7.5 billion ($9.1 billion) market underpinning various online services, from social media to AI foundation models. As many businesses heavily rely on cloud services, ensuring effective competition in this market is deemed essential. The CMA aims to conclude its investigation by April 2025.
In response to these developments, both Microsoft and Amazon have expressed their intent to cooperate constructively with the CMA. Amazon contested Ofcom’s assertions, suggesting that the watchdog’s conclusions were based on a “fundamental misconception of how the IT sector functions, and the services and discounts on offer.”
This investigation adds to the ongoing scrutiny surrounding Microsoft’s activities, including its proposed acquisition of Activision Blizzard, which initially raised concerns about its dominance in the cloud gaming market. As part of a revised agreement, Microsoft pledged to sell cloud game streaming rights to Activision Blizzard titles to Ubisoft, a move seen as a potential path to clearance by the CMA. The regulator is expected to make its final decision on the merger this month.
