In a recent turn of events that could reshape the cloud infrastructure landscape, the UK’s Competition and Markets Authority (CMA) has launched an extensive investigation into the public cloud services market. With Ofcom’s referral, the investigation will focus primarily on Microsoft and Amazon, the two tech behemoths that dominate the UK’s cloud market. This inquiry could have far-reaching implications for the £7.5 billion industry that is crucial for everything from social media to AI development.

The Scope and Motivation

The CMA’s investigation comes on the heels of a comprehensive market study by Ofcom, the UK’s media and communications regulator. Ofcom estimated that the UK cloud services market was worth up to £7.5 billion in 2022. With concerns over limited competition, high switching costs, and potentially unfair business practices, this investigation aims to ensure a level playing field in an industry that has become essential for the UK’s digital economy.

Sarah Cardell, CEO of the CMA, emphasized the significance of the probe: “This is a £7.5 billion 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.”

Core Concerns Raised by Ofcom

Ofcom’s initial study highlighted several features in the supply of cloud services that make it challenging for customers to switch or use multiple cloud providers. The primary concerns include:

  • Egress Fees: The charges customers must pay to move their data out of the cloud.
  • Discounts: Incentives that could trap customers into using only one cloud provider.
  • Technical Barriers: Issues that prevent easy switching between different cloud services.

Additionally, Ofcom’s report expressed specific concerns about Microsoft’s software licensing practices, suggesting they could be creating an uneven playing field.

Market Dominance of Microsoft and Amazon

According to Ofcom, Microsoft and Amazon had a combined market share of between 70 and 80 percent last year. This duopoly raises questions about the competitive pressures in the marketplace. “Limits on the ability of customers to credibly threaten to switch away can reduce the competitive pressure on the market leaders, giving them a degree of market power,” Ofcom stated.

The Regulatory Backdrop

This investigation is part of the CMA’s broader focus on digital markets, as outlined in its 2023 to 2024 Annual Plan. The CMA aims to conclude this probe by April 2025. During this period, an independent inquiry group will be formed to evaluate whether the market is operating as it should and recommend necessary interventions.

Industry Reactions

Both Microsoft and Amazon have stated their intent to cooperate with the CMA’s investigation. However, Amazon challenged Ofcom’s initial findings, arguing that they stem from “a fundamental misconception of how the IT sector functions, and the services and discounts on offer.”

Broader Context

This UK investigation adds another layer to the antitrust scrutiny that both companies are facing globally. Notably, Microsoft is under the Department of Justice’s radar for its acquisition of Nuance Communications in the U.S., while Amazon faces multiple lawsuits over its alleged market power abuse.

What Lies Ahead

As the CMA prepares to publish its issues statement outlining the focus of its investigation, the tech industry and regulatory bodies will be keenly watching for developments. The outcome of this investigation could trigger a domino effect, influencing cloud service regulations not just in the UK but potentially around the world.

Final Thoughts

As cloud services become increasingly central to both businesses and consumers, the CMA’s investigation into Microsoft and Amazon could serve as a precedent for other jurisdictions. It’s a story that could shape the future of digital markets, underscoring the vital need for effective competition in an age of technological dependence.