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Microsoft and Amazon face UK scrutiny over cloud services

Noah Berger / reuters

Microsoft and Amazon are currently under increased scrutiny for potential antitrust violations. The UK’s Competition and Markets Authority (CMA) has initiated an investigation into the cloud services sector within the country to assess whether companies are involved in anti-competitive practices.

In the UK, Amazon (operating through Amazon Web Services) and Microsoft dominate the cloud services market, boasting a combined market share ranging from 70 to 80 percent last year, as reported by media regulator Ofcom. Ofcom, which requested the CMA’s investigation, ranks Google as a distant third player, with a market share ranging from five to ten percent.

Ofcom identifies several factors that hinder competition in this market, making it challenging for customers to switch providers or utilize multiple services concurrently. One major obstacle is egress fees, which customers often must pay to transfer their data to another service. In its report, Ofcom states, “The cost of transferring data between rival providers can discourage customers from using more than one cloud provider and, in some cases, make switching more costly.”

Furthermore, a lack of interoperability and portability can complicate the process of configuring data and applications to function on different services. Discounts offered by Microsoft and Amazon can also discourage customers from exploring alternative providers.

These conditions provide Microsoft and Amazon with a competitive advantage, according to Ofcom. The report suggests that limitations on customers’ ability to credibly threaten to switch providers reduce competitive pressure on the market leaders, granting them a degree of market power. This, in turn, could make it harder for competitors to scale up and effectively challenge AWS and Microsoft for the business of both new and existing customers.

Additionally, Ofcom notes concerns raised by some cloud service providers regarding the business software licensing practices of certain cloud players, especially Microsoft. The report states, “We have received submissions that say Microsoft engages in several practices that make it less attractive for customers to use Microsoft’s licensed software products on the cloud infrastructure of rival providers compared to Microsoft Azure.” Notable products mentioned include Windows and Microsoft 365. Microsoft has disputed the validity of these claims, according to Ofcom.

CMA CEO Sarah Cardell expressed support for Ofcom’s referral of public cloud infrastructure services for in-depth scrutiny, emphasizing the importance of effective competition in a market worth £7.5 billion ($9.1 billion) that underpins various online services. The CMA plans to conclude its investigation by April 2025.

Both Microsoft and Amazon have stated their intent to cooperate with the CMA during the investigation. Amazon, in particular, disputed Ofcom’s claims, contending that the regulator’s conclusions were based on a “fundamental misconception of how the IT sector functions, and the services and discounts on offer.”

This scrutiny of the cloud services sector is not the first instance of Microsoft’s interactions with the CMA. Previously, the watchdog had initially blocked Microsoft’s proposed $68.7 billion takeover of Activision Blizzard due to concerns about Microsoft’s potential dominance in the cloud gaming market. In response, Microsoft pledged to sell cloud game streaming rights to Activision Blizzard titles to Ubisoft if the merger were approved, potentially clearing the path for the deal to proceed. The CMA is set to make its final decision on the merger later this month.

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