UK competition probe into Microsoft, AWS will go on – CMA • The Register
The UK’s market regulator says “competition is not working as well as it could” in the local cloud services sector, and it plans to look harder at what AWS and Microsoft are doing – while giving Google a pass – in its Cloud Services Investigation.
Unsurprisingly, the Competition and Markets Authority (CMA) found that cloud services in Britain are dominated by AWS, with a 40 – 50 percent share, and Microsoft, with a 30 – 40 percent share. Those same two wield control over the public and the private sector, the CMA said.
Google was a distant third “with a much smaller market share” of the estimated £9 billion that customers spent on cloud computing services in 2023. IBM and Oracle trailed even further behind.
We have provisionally found that Microsoft has the ability and incentive to partially foreclose AWS and Google using the relevant Microsoft software products …
The watchdog set out in October 2023 to discover the health of competition in the UK, whether it was thriving or being choked by a smaller number of industry big dogs.
Is competition working? According to the CMA’s provisional decision, the answer is a resounding no:
“High levels of market concentration and barriers to entry and expansion have enabled each of the two largest providers, AWS and Microsoft, to hold significant unilateral market power in these markets [cloud services].
“This harms competition in cloud services in the UK because it is harder for alternative cloud suppliers to enter and grow in these markets and customers face a limited choice of suppliers.”
The CMA found barriers include the sheer cost of entry faced by rivals to AWS, Microsoft, and Google, as well as technical difficulties encountered by customers when integrating with multiple providers. Then, there are the costs incurred should a customer wish to exercise their choice.
On the issue of lock-in fees, the CMA said, “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.”
Microsoft’s software licensing practices also came in for specific criticism in the provisional decision. The CMA noted the company’s dominance in software – SQL Server, Windows 10 and 11, Visual Studio, and so on – and commented that Microsoft had the power to harm its competitors using this dominance.
The CMA said, “We have found differences relating to price and/or quality factors when customers use these software products on Microsoft’s cloud compared to its main rivals, AWS and Google: in fact, the price that Microsoft charges these rivals for some of these products can be higher than the retail price it charges its own customers.
“We have provisionally found that Microsoft has the ability and incentive to partially foreclose AWS and Google using the relevant Microsoft software products and that its conduct is harming competition in cloud services.”
AWS and Microsoft to face further scrutiny
As for remedies, the provisional decision proposes that the CMA Board designate AWS and Microsoft with strategic market status (SMS) in relation to their digital activities in cloud services.
SMS is a “designation” the CMA gives to corporate titans with substantial market share and a position of strategic influence. They must generate revenues of more than £1 billion ($1.23 billion) in the UK or global sales in excess of £25 billion ($30.76 billion). If a firm is designated with SMS, the CMA can tackle conduct deemed to undermine fair competition and intervene to address specific competition problems in a particular digital activity.
The CMA said, “We consider that measures aimed at AWS and Microsoft would address market-wide concerns by directly benefitting the majority of UK customers and producing wider indirect effects by altering the competitive conditions for other providers.”
Chris Lindsay, Vice President, Customer Engineering EMEA, Google Cloud, which was not singled out for criticism in the same way as Microsoft and AWS, said, “We will continue to engage constructively with the CMA to support openness, innovation, and growth for the UK cloud market. Restrictive licensing harms UK cloud customers, threatens economic growth, and stifles innovation, and we are encouraged that the CMA has recognised the harm of these practices.”
Rima Alaily, Corporate Vice President and Deputy General Counsel Competition Law Group, Microsoft, was less impressed by the provisional decision: “The draft report should be focused on paving the way for the UK’s AI-powered future, not fixating on legacy products launched in the last century. The cloud computing market has never been so dynamic and competitive, attracting billions in investments, new entrants, and rapid innovation. What could be better for UK businesses and government?”
And AWS? A spokesperson said, “We welcome the CMA’s updated finding that customer discounts do not harm competition. But we urge the CMA to carefully consider how regulatory intervention in other areas will stifle innovation and ultimately harm customers in the UK. We will continue to work constructively with the CMA as they work on their final report.”
One of the beneficiaries of those committed spend discounts that the CMA decided worked well? None other than… the CMA.
Nicky Stewart, senior advisor to the Open Cloud Coalition, called the provisional decision “a welcome spotlight on anticompetitive practices in the cloud market, which lock in customers and harm free, fair competition.”
Stewart said, “The CMA should accelerate the process of bringing this under the Digital Markets Unit. Every month that passes without action is another missed opportunity for innovation and UK economic growth. Every pound spent on restrictive licensing markups and egress fees is a pound not spent on growing the UK’s economy.”
Dr Maria Luisa Stasi, the class representative in the £2 billion ($2.5 billion) case against Microsoft, took note of the CMA’s comments regarding the Windows giant and said, “The CMA has rightly called Microsoft out for its anti-competitive practices. Microsoft’s software licensing prices were found to be higher for organizations using its rivals like AWS and Google, with the CMA adding that Microsoft has the ‘ability and incentive’ to foreclose its cloud rivals and harm competition.”
Stasi noted that for many businesses and organizations, “The damage has already been done. Microsoft has already overcharged them for software licensing, and has done so for years.”
Mark Boost, CEO of UK cloud biz, Civo, welcomed the CMA’s provisional decision and called it “a cautious step in the right direction.”
While Boost said he hoped the CMA would make use of its new digital markets powers to investigate AWS and Microsoft and closely monitor potentially unfair practices, he cautioned, “The elephant in the room has gone unaddressed: sky-high cloud credits are the most damaging method used by hyperscalers to lock in customers, but there is no mention of this in the provisional findings.”
Although Boost was positive, he told El Reg “The job’s far from done.”
The final outcome is not due until later this year, and the CMA’s leadership has undergone a shake-up in recent weeks. However, Boost remained optimistic: “If the CMA stays its current course, providers that have continuously delivered the service that customers want will be well-positioned in this new regulatory landscape.” ®
