AWS and Microsoft in UK crosshairs as Ofcom mulls cloud services market investigation

U.Okay. regulator Ofcom has given its first indication that it’s getting ready to refer the native cloud infrastructure providers marketplace for an in-depth investigation, with the practices of Amazon and Microsoft particularly in its crosshairs as a result of their market share.

The information comes some six months after Ofcom first revealed it was kickstarting a market examine into the £15 billion U.Okay. cloud market, with the so-called large three “hyperscalers” of Amazon, Microsoft, and Google firmly in its crosshairs.

It’s value noting that Ofcom’s session, which includes soliciting stakeholder suggestions from throughout the cloud trade, is just at its midway level. But in the present day Ofcom confirmed that it has “provisionally identified” practices that make it tougher for enterprise clients to change between cloud suppliers, and even use a number of suppliers, which is why it’s “proposing” to refer the cloud providers market to the Competition and Markets Authority (CMA) for a proper investigation.

“We’ve done a deep dive into the digital backbone of our economy, and uncovered some concerning practices, including by some of the biggest tech firms in the world,” Fergal Farragher, Ofcom’s director liable for the market examine, stated in a press release. “High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed, to make sure it’s working well for people and businesses who rely on these services.”

Friction

The crux of the issue, in response to Ofcom, is that Amazon, Microsoft, and Google collectively account for greater than 80% of cloud revenues within the U.Okay., they usually could embody insurance policies and restrictions that make it troublesome for different smaller suppliers to achieve traction. These embody so-called “egress fees,” which are sometimes opaque charges that cloud corporations cost at any time when an organization transfers knowledge out of the cloud and strikes it elsewhere — that is typically seen as an unscrupulous means to lock clients in, as they’re usually greater than what it prices to switch knowledge inside a single supplier’s cloud.

Elsewhere, Ofcom additionally factors to points round interoperability, whereby the large cloud companies create their merchandise in order that they don’t play properly with competing suppliers — this will put a substantial resource-drain on corporations seeking to undertake a hybrid cloud strategy. Related to this, Ofcom additionally says that the large cloud distributors typically provide “committed spend discounts,” which whereas lowering the shoppers’ prices, additionally encourages them to stay with a single vendor even when higher options could exist.

Ofcom notes in its preliminary findings:

These market options could make it troublesome for some current clients to cut price for a superb cope with their supplier. There are indications that is already inflicting hurt, with proof of cloud clients going through vital value will increase after they come to resume their contracts.

Ofcom has beforehand pointed to market share knowledge that highlights the rising market share of the hyperscalers. From 2018 to 2021, the “others” class within the U.Okay. cloud market fell from 30% to 19%, whereas in tandem the large cloud corporations both gained vital market share, or remained across the similar. Microsoft has really seen the largest development, rising from 17% to 25% over the four-year interval, whereas Google jumped from 12% to 16% market share. AWS, in the meantime, has fallen marginally from 41% to 40%, however stays by far the one largest cloud supplier.

While all three of the big-name cloud gamers are a part of its focus, Ofcom’s report appears to pinpoint AWS and Microsoft particularly, provided that they reportedly account for cloud income spend of between 60% and 70% between them.

Moreover, Ofcom is fast to emphasize that its focus lies not a lot on competitors on the signing-up stage, it’s extra about how troublesome issues turn out to be to change after an organization has signed up. The report notes:

We provisionally discover that there’s proof of lively competitors for brand spanking new clients, and that some clients are prone to have some bargaining energy when first migrating to the cloud. However, as soon as a buyer makes its preliminary alternative of cloud supplier, their bargaining energy is decreased, and the steadiness of energy shifts to the preliminary cloud supplier – most frequently AWS or Microsoft.

Dark cloud

Across the water in mainland Europe, an analogous episode has additionally been unfolding. Cloud Infrastructure Services Providers in Europe (CISPE), a not-for-profit commerce affiliation, filed an antitrust complaint in opposition to Microsoft again in November, alleging that Microsoft was utilizing its dominance in enterprise software program to tether its clients to Azure. It’s value noting that Amazon’s AWS is a member of CISPE, and AWS has a transparent curiosity in making an attempt to stymie any gains Microsoft continues to make on its profitable cloud enterprise.

However, different smaller players within the cloud area, including France’s OVHcloud, have additionally been making noises about Microsoft’s practices to European regulators, with reports emerging last week that Microsoft was near agreeing a deal to placate them — prompting Google, of all companies, to accuse Microsoft of anti-competitive practices.

In response to in the present day’s announcement from Ofcom, CISPE Secretary General Francisco Mingorance stated that it’s “clear that Ofcom recognises the potential for Microsoft’s unfair software licensing practices to distort competition in the cloud market,” an announcement that conveniently ignores CISPE-member AWS’s involvement in Ofcom’s preliminary market examine.

“More and more customers, competitors and regulators are waking up to the ways in which Microsoft continues to distort fair competition in the cloud,” Mingorance stated. “Private deals are unlikely to solve these sector-wide issues. Based on the mounting evidence, it is important that both national and EU authorities open formal investigations into Microsoft’s unfair software licensing practices as an urgent competition issue.”

Ofcom’s market examine remains to be at its midway level, and is topic to extra suggestions based mostly on Ofcom’s provisional findings, with stakeholders given a agency May 17, 2023 date to submit responses. The closing report and suggestions is predicted “no later than” October 5. 

AWS and Microsoft in UK crosshairs as Ofcom mulls cloud services market investigation by Paul Sawers initially revealed on TechCrunch