The Competition and Markets Authority (CMA) is worried that the flourishing UK cloud market is consolidating around Amazon Web Services (AWS) and Microsoft Azure.
The probe was initiated last year after the communications regulator, Ofcom, discovered evidence suggesting anti-competitive behaviour within the UK cloud industry.
The CMA’s investigation concentrates on several key areas, including the overall competitive landscape of the UK cloud market, the impact of technical barriers and data transfer fees (egress fees) on cloud provider switching, and the potential anti-competitive effects of cloud provider discounts.
The CMA states that AWS remains the market leader in overall share, but Microsoft is experiencing robust growth and attracting the lion’s share of new customers.
“AWS and Microsoft’s combined share of supply is increasing steadily year on year while the shares of smaller cloud providers are generally declining overall,” the paper says.
Microsoft’s share of revenue growth leapt from 30-40 per cent in 2021 to 40-50 per cent in 2022, while AWS’s share remained flat.
This dominance extends to new business wins, with Microsoft securing about 60-70 per cent of new customers in both 2021 and 2022.
However, AWS only managed to secure 20-30 per cent of new customers during the same period.
Vole boasts the highest profit margins in the UK cloud market. The CMA said Microsoft consistently earns between 33 and 44 per cent in profit margins, compared to AWS’s 25-30 per cent range.
Google Cloud, the distant third player, only recently achieved profitability and operates with significantly lower margins than its bigger rivals.
The CMA is also investigating whether factors like Microsoft’s software licensing practices and data egress fees – charges levied for transferring data from a cloud platform – could hinder competition.
Although initial findings suggest software licensing practices don’t directly determine cloud provider choice, Microsoft’s enterprise agreements might still subtly influence decisions.
Data egress fees are also a significant concern for the CMA’s investigation. Interestingly, since the probe began, all three major cloud providers – AWS, Microsoft, and Google – have abolished egress fees entirely.
Despite these recent developments, the CMA will continue its examination of data egress conditions.
The CMA’s initial report also focuses on committed spend discounts. While the discounts’ size is less of an issue, the conditions attached to them raise potential anti-competitive concerns. Some providers require users to reach high utilisation thresholds, exceeding eighty per cent of their workload on the provider’s cloud platform, to qualify for these discounts.
Given the dominance of AWS and Microsoft, the CMA considers that the impact on competition arising from committed spend discounts offered by these major players is likely to be greater than that of smaller providers.
The CMA’s investigation is ongoing, and the watchdog is expected to release a provisional decision on the competitiveness of the UK cloud market in September or October this year.
A final decision may come sometime between February and April of 2025.
