Cloud services market investigation: provisional findings
What the Competition and Markets Authority (CMA) has provisionally found while investigating the UK cloud services markets.
Cloud services provide vital infrastructure and support most businesses and organisations across the UK economy. Spend on cloud services by UK businesses and other organisations has been growing by over 30% each year and was £9 billion in 2023.
A range of cloud customers have told us how cloud services underpin their main activities today and, for this reason, healthy competition in cloud services markets enables innovation, investment and productivity for the benefit of people, businesses and the UK economy.
What our independent inquiry group has found
The market investigation into how well the UK cloud services markets are working has reached its provisional decision stage. It has so far found that:
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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
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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
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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
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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
The ability of UK businesses to put pressure on cloud providers to offer better deals is important to ensuring good outcomes and to unlocking the potential benefits of cloud services.
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.
More effective competition would incentivise providers to improve services, whether that be in terms of scalability, flexibility, resiliency or any other aspect that UK customers told us matters to them. By making it easier for customers to take advantage of new and improved products and services offered by different cloud providers, both customers and the providers will have greater incentives to innovate.
What the investigation recommends as next steps
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.
Given the size of capital investment and economies of scale required to provide cloud infrastructure services, there may be a natural limit to the number of providers who can compete effectively in these markets. For this reason, it is vital that competition between even a small number of providers works well for customers.
For more information about SMS and our investigation process, read our guide to the new digital markets competition regime.
Share your views
The inquiry group is now consulting on these provisional findings and our remedy proposals. It will consider carefully all evidence and submissions sent before reaching a final decision later this year.