UK Regulators Say Dominance of Microsoft and AWS Hurts Cloud Competition

AWS and Microsoft have been accused by the CMA of creating obstacles for competitors in the UK’s growing cloud services sector, costing businesses millions annually.

The UK Competition and Markets Authority (CMA) has released its provisional findings on the cloud services market, citing major barriers to competition and singling out dominant providers Amazon Web Services (AWS) and Microsoft for practices that could harm consumers and stifle market growth.

According to the CMA, the £9 billion UK cloud services market—critical to industries ranging from retail to financial services—suffers from high levels of market concentration and anti-competitive behaviors.

These issues are estimated to cost UK businesses approximately £430 million annually due to inflated prices and restricted customer choice, with AWS and Microsoft collectively controlling up to 80% of the market.

Cloud services, which include infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS), are essential to modern businesses, enabling remote access to computing power, storage, and networking. While the sector has been growing by more than 30% annually, the CMA has identified a series of challenges that undermine fair competition and impede smaller providers’ ability to compete.

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A Market Dominated by Microsoft and Amazon

The CMA’s findings reveal that AWS and Microsoft have entrenched their positions as market leaders in the UK, capturing significant shares in both IaaS and PaaS.

Microsoft holds additional leverage through its dominance in software products such as Windows Server, SQL Server, and its Office productivity suite, which are integral to many businesses’ IT infrastructure.

According to the CMA report, Microsoft has “significant market power” over these products, which it uses to strengthen its position in the cloud market. The CMA noted that “The price that Microsoft charges these rivals for some of these products can be higher than the retail price it charges its own customers.” This disparity discourages businesses from adopting competing cloud services, forcing them into Microsoft’s ecosystem.

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AWS, meanwhile, benefits from its scale and global presence, making it a default choice for many businesses despite the financial burden of its pricing strategies. While the CMA acknowledged that AWS and Microsoft provide quality services and innovation, it argued that their overwhelming dominance limits competition and leaves customers with fewer options.

Smaller providers like Google Cloud, Oracle, and IBM lack the resources and breadth of services to mount a significant challenge, further entrenching the position of the two market leaders.

Barriers to Switching and Multi-Cloud Adoption

One of the most significant issues identified by the CMA is the difficulty customers face in switching providers or adopting multi-cloud strategies, where businesses use services from multiple cloud vendors.

These practices are often seen as a way to enhance flexibility and resilience while avoiding dependency on a single provider. However, AWS and Microsoft impose technical and commercial barriers that discourage customers from switching.

Egress fees, charged for transferring data out of a provider’s cloud environment, are among the most problematic obstacles. The CMA criticized these fees, stating that “We have provisionally found that the presence and magnitude of egress fees reduces the ability of, and/or incentives for, customers to switch and/or multi-cloud to other cloud providers; they also reduce the incentives of suppliers to compete for their rivals’ customers.”providers or adopt multi-cloud, limiting competitive pressure.”

Customers considering switching often find the associated costs outweigh the potential benefits, effectively locking them into their current provider’s ecosystem.

Technical barriers further complicate the situation. Businesses often encounter compatibility issues or require significant technical expertise to migrate workloads to a different provider.

While some larger enterprises successfully use multi-cloud strategies, smaller businesses, which account for a significant portion of the market, are disproportionately affected by these challenges.

Economic Impact of Market Inefficiencies

The CMA estimates that the lack of competition in the UK cloud market costs businesses around £430 million annually in inflated prices and reduced access to innovative services.

The regulator highlighted that even modest improvements in competition could significantly reduce these costs, enabling businesses to reinvest savings into growth or pass on benefits to consumers. This economic burden underscores the need for regulatory intervention to ensure fairer market conditions.

The CMA noted that “healthy competition in cloud services markets can enable innovation, investment, and improved productivity amongst all customers for the benefit of people, businesses, and the UK economy.” It argued that the current market dynamics not only harm businesses but also impede technological progress and limit customer access to better services.

The Role of AI in Cloud Market Dynamics

The CMA’s report also touched on the role of artificial intelligence (AI) in shaping the future of the cloud market. AI workloads increasingly rely on accelerated computing, which requires specialized infrastructure beyond standard IaaS.

While AWS, Microsoft, and Google currently dominate this space, the CMA found no direct evidence that AI-specific services are affecting competition in standard cloud infrastructure. However, the report acknowledged that partnerships between AI developers and major cloud providers could influence market dynamics in the future. This is an area the CMA plans to monitor as part of its ongoing investigation.

Recommendations for Regulatory Intervention

To address these issues, the CMA has proposed designating AWS and Microsoft with Strategic Market Status (SMS) under its new digital markets regime.

This designation would allow regulators to implement targeted interventions to address anti-competitive practices, including regulating egress fees, improving licensing transparency, and reducing barriers to switching.

The CMA emphasized that these measures are necessary to foster a more competitive and dynamic cloud market. According to the report, “the new digital markets powers provide greater flexibility and better provisions for ongoing monitoring and oversight.”

The regulator also called for the UK government to enhance public procurement policies to encourage greater competition in cloud services. By diversifying public sector contracts, the government could provide smaller providers with opportunities to expand their market share and increase their competitiveness.

Broader Context: Global and European Implications

The CMA’s findings reflect broader concerns about the dominance of big tech in digital markets. Similar issues have been raised in Europe, where Microsoft recently settled with the Cloud Infrastructure Services Providers of Europe (CISPE) over its licensing practices. AWS, a founding member of CISPE, criticized the settlement as insufficient, arguing that it failed to address the systemic disadvantages smaller providers face.

Google Cloud has also voiced concerns about Microsoft’s practices, particularly its ability to bundle software products with its cloud services to create artificial barriers for competitors.

These global dynamics highlight the need for coordinated regulatory efforts to ensure fair competition in the cloud market. As cloud adoption continues to grow, regulators worldwide are likely to follow the CMA’s lead in scrutinizing the practices of dominant providers.

The CMA’s final recommendations, expected later this year, could have far-reaching implications for the UK cloud market and beyond. By addressing barriers to competition and holding dominant providers accountable, the regulator aims to reduce costs for businesses, foster innovation, and create a more equitable digital infrastructure.

Markus Kasanmascheff
Markus Kasanmascheff
Markus has been covering the tech industry for more than 15 years. He is holding a Master´s degree in International Economics and is the founder and managing editor of Winbuzzer.com.

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