Ofcom recently released its Cloud Services Market Study Interim Report. Cloud computing has been transformative in how businesses are run and is now critical to many standard digital services. The main focus of the study was cloud infrastructure services that provide foundations for how software applications are developed.
Amazon Web Services and Microsoft are the top providers of cloud infrastructure services in the UK, with a cumulative share of 60-70 per cent of the market in 2021. Google trails behind them with just 5-10 per cent of the market. However, independent vendors continue to compete, leading to product innovations and discounts. It isn’t surprising to see Google lag so far behind Microsoft. Microsoft’s cloud game streaming service is still going strong while Google Stadia is now defunct.
Are Microsoft and AWS monopolising the market?
Still, Ofcom is concerned that competitors are hindered by limited features that make it difficult for consumers to switch between and use multiple providers. Typically, providers charge egress fees for customers to transfer their data. Unsurpisingly, hyperscalers like Google and Microsoft charge significantly higher rates than most.
These fees discourage users from switching to another cloud provider and using multiple cloud providers. Additionally, hyperscalers impose technical interoperability restrictions by purposely preventing their services from working effectually with other providers. Between discounts incentives users to stick to the same cloud provider and the difficulty of reconfiguring data to be accessible on different clouds, most are unlikely to switch to a rival provider.
Ofcom believes the market features mentioned above lead to consumers paying higher prices while settling for subpar services. Often customers see high price increases when renewing their subscriptions.
AWS and Microsoft’s hold on the market will likely grow as fewer customers see merit in switching to competing providers. This may lead to ISVs relying more heavily on market leaders to access customers. Due to these concerns, Ofcom believes action must be taken now to prevent Microsoft and AWS from monopolising the market. The company is working on a proposal asking the Competition and Markets Authority (CMA) to investigate the cloud infrastructure market.
Accusations Against Microsoft
The company is also concerned about allegations that Microsoft is selling specific software in a way that makes it more appealing to use with Microsoft Azure rather than rival cloud infrastructures. Microsoft denies the accuracy of the allegations.
Francisco Mingorance, Secretary General at CISPE, says: “It is clear that Ofcom recognises the potential for Microsoft’s unfair software licensing practices to distort competition in the cloud market – it devoted a whole chapter of its interim report to these practices and noted it, “Will consider the most appropriate way forward on these issues” with the competition authority.
“More and more customers, competitors and regulators are waking up to the ways in which Microsoft continues to distort fair competition in the cloud. Private deals are unlikely to solve these sector-wide issues,” adds Mingorance.
“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 plans to release complete and publish the study by October 5th, 2023