CMA probes Amazon and Microsoft's grip on the cloud

Amazon and Microsoft’s dominance of the cloud computing marketing is to be investigation by the Competition & Markets Authority following Ofcom concerns a lack of competition made it difficult for businesses to switch providers.

Cloud computing is used by nearly every businesses in the UK, and Ofcom estimated that in 2022 the market was worth up to £7.5bn. The regulator maintains Amazon and Microsoft hold 70% to 80% of the UK sector, with closest rival Google which has between 5% and 10%.

In its market study, Ofcom identified a number of features in the supply of cloud services that make it more difficult for customers to switch and use multiple cloud suppliers.

The features which Ofcom is most concerned about include egress fees, charges that cloud customers must pay to move their data out of the cloud; discounts, which may incentivise customers to use only one cloud provider; and technical barriers to switching, which may prevent customers from being able to switch between different clouds or use more than one provider.

Ofcom’s report also outlines concerns it has heard about the software licensing practices of some cloud providers, in particular Microsoft.

CMA chief executive Sarah Cardell said: “We welcome Ofcom’s referral of public cloud infrastructure services to us for in-depth scrutiny. This is a £7.5bn market that underpins a whole host of online services – from social media to AI foundation models. Many businesses now completely rely on cloud services, making effective competition in this market essential.

“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.”

The CMA’s independent inquiry group will now carry out an investigation to determine whether competition in this market is working well and if not, what action should be taken to address any issues it finds.

The CMA has appointed independent panel members to an inquiry group, who will act as the decision makers on this investigation. The group will publish an issues statement setting out the proposed focus of the CMA’s investigation shortly for consultation.

The investigation will form a key part of the CMA’s wider programme of work in digital markets, including under the incoming Digital Markets, Competition & Consumer Bill. It will conclude by April 2025.

A Microsoft spokesperson said: “We are committed to ensuring the UK cloud industry remains innovative, highly competitive and an accelerator for growth across the economy.

“We will engage constructively with the CMA as they conduct their Cloud Services Market Investigation.”

An Amazon spokesperson said the firm believed Ofcom’s findings were “based on a fundamental misconception” of the sector, and added: “Only a small percentage of IT spend is in the cloud, and customers can meet their IT needs from any combination of on-premises hardware and software, managed or co-location services, and cloud services.

“Customers make hundreds of millions of data transfers each day in the ordinary course of business, and over 90% of our customers pay nothing for data transfer because we provide them with 100 gigabytes per month for free.”