CMA launches probe into £7.5bn UK cloud market following Ofcom study
Britain’s competition watchdog has launched an investigation into the UK’s cloud market after an Ofcom study found issues that could hurt competition.
According to Ofcom, which valued the UK market for cloud services at up to £7.5bn in 2022, businesses are faced with steep exit fees, discounts in exchange for minimum spend commitments and technical restrictions when trying to switch to a new cloud provider or use multiple providers.
Ofcom is “particularly concerned” about leading cloud providers Amazon Web Services (AWS) and Microsoft, which together possessed 70-80 per cent of the market share last year.
However, AWS insists it “does not charge separate fees for switching data to another IT provider”.
Cloud services use data centres to provide all types of businesses with remote access to software, storage and networks, helping them build web-based applications and protect their data.
Ofcom said if this remains unchecked, “competition could deteriorate in a critical digital market for the UK economy”.
Fergal Farragher, director of Ofcom’s study, said: “Some UK businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well.
“So, we’re referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services.”
The Competition and Markets Authority (CMA) has appointed an independent inquiry group to undertake the investigation, which will soon set out its focus. Later the group will determine what action should be taken.
Sarah Cardell, chief executive of the CMA, said: “Many businesses now completely rely on cloud services, making effective competition in this market essential.
“Strong competition ensures a level playing field so that market power doesn’t end up in the hands of a few players – unlocking the full potential of these rapidly evolving digital markets so that people, businesses, and the UK economy can get the maximum benefits.”
In response to this announcement, a Microsoft spokesperson said: “We are committed to ensuring the UK cloud industry remains innovative, highly competitive and an accelerator for growth across the economy.
“We will engage constructively with the CMA as they conduct their Cloud Services Market Investigation.”
A spokesperson for AWS said: “We disagree with Ofcom’s findings and believe they are based on a fundamental misconception of how the IT sector functions, and the services and discounts on offer.
“UK companies, and the overall economy, benefit from robust competition among IT providers, and the cloud has made switching between providers easier than ever.
“Any unwarranted intervention could lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.”
Why is the cloud market so important?
The cloud market is crucial to the UK’s digital economy because it is the basis for many technologies used in public and private sectors.
“The entire UK cloud market is worth far more to our economy than the £15bn we spend on cloud service providers,” said Adrian Bradley, head of cloud transformation at KPMG UK.
“Cloud is the main route to access capabilities like generative AI or high-quality analytics capabilities and it’s quick and scalable to use, so choice is critical,” he added.
In a multi-cloud age, businesses also need “greater flexibility” to move data securely between clouds, argued Paul Mackay, EMEA vice president of cloud at software company Cloudera.
“A unified data platform can help by providing a layer of abstraction that makes it easier to securely move data from cloud to cloud or from on-premise to any cloud.
“Having the choice to switch cloud providers is one thing, but having the ability to do so is another,” he said.