Amazon and Microsoft harming competition in cloud computing, finds CMA

It raised concerns over the way Microsoft charges Amazon and Google to use its software, which it said is driving up costs.

The UK’s cloud computing market is “not working well” and conduct requirements should be considered for the sector’s two main players, Microsoft and Amazon, according to the competition watchdog.

The final report from an independent inquiry group of the Competition and Markets Authority (CMA) has found that Microsoft and Amazon Web Services (AWS) are hurting competition in the cloud computing sector.

Microsoft came under particular fire, with the panel’s report saying it has “significant market power” with some of its software products.

It raised concerns over the way Microsoft charges Amazon and Google to use its software, which it said is driving up costs.

The report recommends that the CMA uses new powers to give Microsoft and AWS so-called strategic market status in order to “remedy the harms to competition that we have found”.

“This would enable the CMA to impose targeted and bespoke interventions to address the concerns we have identified, including with respect to features where there are specification risks around the design of effective market interventions,” according to the report.

The CMA will now consider launching a probe into whether to hand them “strategic market status”, but this would not start until 2026 as it focuses efforts on proposals announced last week to assign this status to Google and Apple over their mobile platforms.

The panel found that a lack of competition in the £9 billion cloud sector could be leading to higher costs, less choice and innovation, and a lower quality of services for businesses across the UK.

AWS and Microsoft’s Azure each have up to around a 40% share of consumer spend in the market, with Google lagging behind in third place.

On Microsoft, the report said: “Microsoft’s licensing practices are adversely impacting the competitiveness of AWS and Google in the supply of cloud services, particularly in competing for customers that purchase cloud services which use the relevant Microsoft software as an input.

“As a result, Microsoft faces weaker competitive constraints from AWS and Google, its most significant competitors, which is reducing competition in cloud services markets.”

Annual results from Microsoft on Wednesday showed booming sales in its Azure cloud computing business, with revenues for the division surpassing 75 billion US dollars (£57 billion) on an annual basis.

A Microsoft spokesperson said: “The CMA panel’s most recent publication misses the mark again, ignoring that the cloud market has never been so dynamic and competitive, with record investment and rapid, AI-driven changes.

“Its recommendations fail to cover Google, one of the fastest-growing cloud market participants.

“Microsoft looks forward to working with the digital markets unit toward an outcome that more accurately reflects the current competition in cloud that benefits UK customers.”

A spokesperson for AWS said the report “disregards clear evidence of robust competition in the UK’s IT services industry”.

They added: “The action proposed by the inquiry group is unwarranted and undermines the substantial investment and innovation that have already benefited hundreds of thousands of UK businesses.

“It risks making the UK a global outlier at a time when businesses need regulatory predictability for the UK to maintain international competitiveness.”

But Google welcomed the findings and called for “swift action”.

Chris Lindsay, Google Cloud’s vice president of customer engineering in the EMEA (Europe, the Middle East and Africa) region, said: “The conclusive finding that restrictive licensing harms cloud customers and competition is a watershed moment for the UK.

“Swift action from the (CMA’s) Digital Markets Unit is essential to ensure British businesses pay a fair price and to unleash choice, innovation and economic growth in the UK.”

The Computer and Communications Industry Association (CCIA) cautioned there was a risk that the “overly broad and prescriptive intervention” recommended could hamper investment in the UK and access to new technology.

Matthew Sinclair, CCIA UK senior director, said: “If the CMA goes ahead with these changes it would undermine the UK’s competitiveness as business users here no longer get access to the latest cloud services.”

By Press Association