The UK’s Competition and Markets Authority (CMA) has released the initial findings of a report on the cloud industry, suggesting measures be taken to improve competition.

AWS is the cloud market leader, with Microsoft coming in at a close second place. Google rounds out the top three, it is a distant third. The CMA is concerned that economic and technical challenges make it difficult for companies to enter the market and provide viable alternatives to the big players. The agency also found that Microsoft is using its dominance in the operating system and office software to restrict AWS and Google’s ability to compete.

• customers see many benefits of using the public cloud over on-premise IT or private cloud but they face a limited choice of providers: the two largest providers, Amazon Web Services (AWS) and Microsoft, each has a share of these markets of 30 to 40%, while Google is the next largest provider but has a much lower share of these markets
• there are significant barriers to entry and expansion due to the very large capital investment needed for cloud infrastructure — this makes it harder for alternative cloud suppliers to enter and grow in these markets
• technical and commercial barriers make it harder for cloud customers to switch and multi-cloud between providers, locking them into their initial choice of provider which may not reflect their evolving needs
• Microsoft is using its strength in software to make it harder for AWS and Google to compete effectively for customers who wish to use Microsoft software on the cloud — this reduces the competitive challenge to Microsoft in the supply of cloud services

Ultimately, the CMA found that competition is not working and ultimately costing UK businesses.

The inquiry group’s provisional view is that competition is not working as well as it could, and that improvements could make cloud services markets work better for UK businesses in terms of improved prices, quality and choice. Interventions to address some of these issues would allow UK businesses get better deals from cloud providers, enabling them to contribute to economic growth.

To illustrate the possible detriment to UK customers: given £9 billion spend in the UK on these services, if prices are on average 5% above those in a well-functioning market, this would amount to around £430 million per year. If the recent annual growth in cloud services of 30% continues, this figure would grow rapidly. This is money that UK businesses could reinvest in their own growth or pass onto UK consumers to flow through the UK economy.

The CMA’s inquiry is recommending that AWS and Microsoft be designated as having “strategic market status.”

The inquiry group proposes that the CMA board should use its new digital markets powers to consider whether to designate AWS and Microsoft with having strategic market status (SMS) in cloud services and, if so, to consider making interventions such as those we have identified in this inquiry. It believes that this would create greater competitive pressure in cloud services, unlocking benefits for UK businesses and the wider economy.

Should AWS and Microsoft be designated as having SMS, the CMA would be able to consider the interventions we have considered in this inquiry relating to egress fees, technical barriers and Microsoft’s licensing practices. We think that measures aimed at AWS and Microsoft would address our market-wide concerns by directly benefitting most UK customers and affecting the competitive conditions for other providers.

If the CMA goes through with the inquiry’s recommendation, it could have serious repercussions for AWS and Microsoft, not to mention open the door for smaller cloud companies to better compete.