The Competitors and Markets Authority (CMA) has wrapped up its two-year investigation into the UK cloud market with a blunt verdict: “Competitors will not be working effectively.”
The end result of its closing report isn’t precisely stunning, given it echoes the provisional findings that the CMA introduced earlier this 12 months. Nonetheless, in its conclusions, the competitors authority was clear – the entrenched positions held by Amazon Internet Companies (AWS) and Microsoft are stifling alternative and innovation for British clients, and thus calls for additional investigation as to whether or not they must be designated with ‘strategic market standing’.
How a lot of the market is dominated by AWS and Microsoft?
In line with the ultimate report, AWS and Microsoft every management between 30% and 40% of UK cloud spend. That’s vital provided that UK clients spent £10.5 billion on cloud companies in 2024, with that spending having grown by practically 30% per 12 months since 2020, and solely anticipated to develop additional.
AWS and Microsoft’s dominance the CMA hyperlinks to a trio of obstacles: excessive technical and industrial switching prices similar to egress charges, incompatible architectures that lock workloads right into a single vendor, and Microsoft’s software-licensing guidelines, which the regulator says drawback rivals Google Cloud and AWS.
The CMA believes that by giving the 2 firms a strategic market standing designation, it could have the power to impose focused and bespoke interventions to handle the issues it has recognized. That might assist the market be extra aggressive, because the report states that “measures geared toward Microsoft and AWS would deal with market-wide issues by straight benefiting most UK clients and producing wider oblique results by altering the aggressive situations for different suppliers.”
The opposite large American participant within the UK market – Google Cloud – has escaped additional scrutiny for now. The CMA does state that it’ll preserve doable additional probes into different suppliers ‘underneath overview’, promising an replace available on the market in early 2026.
What have been a number of the report’s key findings?
Apart from the truth that it deems the UK cloud market to be uncompetitive on the whole, the CMA did dig deeper into the the reason why. For instance, it discovered that lower than 1% of shoppers swap cloud suppliers every year, reinforcing the position performed by hefty data-egress prices and the capital expenditure required to construct out a multi-cloud footprint.
Microsoft additionally discovered itself within the firing line because it singled out its licensing provisions, stating that “these restrictions imply that AWS’ and Google’s aggressive choices are straight affected by Microsoft’s licensing practices.” It observes that Azure hosts a ‘disproportionately’ giant share of sure Microsoft workloads and that “given the very giant distinction, that is no less than partly as a result of some clients’ alternative of cloud is influenced by Microsoft’s licensing practices.”
It did nonetheless discover that cloud credit and committed-spend reductions “don’t hurt competitors in cloud companies markets.”
Warning of overreliance on US hyperscalers
One key issue that was investigated by the CMA is the potential overreliance on a small variety of giant American companies. This has been a key situation lately, with the UK and Europe struggling to supply tech firms that may come near competing with the likes of Alphabet, Amazon, Apple, Microsoft or Meta.
Throughout its investigation, it discovered that the UK Authorities was closely reliant on the identical US hyperscalers, specifically AWS and Microsoft, a sample the CMA says ought to spur continued vigilance over public-sector tendering.
The report notes, “Public sector procurement coverage goals to take care of competitors from public sector clients, together with by requiring aggressive tendering of contracts, and better competitors in cloud companies would create better alternative for public sector clients. We propose that the UK Authorities ought to proceed to watch the outcomes of public procurement of cloud companies and drive finest follow within the software of procurement frameworks.”
Regardless of the hype surrounding AI, the regulator doesn’t consider present choices are tilting the market: “While AI-related cloud companies are prone to be an more and more necessary a part of the provide from cloud service suppliers, present proof from clients and suppliers means that AI is but to materially alter the aggressive dynamics in cloud companies,” it wrote, noting income from AI stays “nonetheless a comparatively small a part of their companies.”
Microsoft seems to disagree, nonetheless, with its most up-to-date quarterly earnings beating estimates due to a powerful efficiency of its cloud platform, because it lured new clients with the AI instruments obtainable in Azure.
The corporate has additionally voiced frustration over the CMA probe, noting, “The CMA Panel’s most up-to-date publication misses the mark once more, ignoring that the cloud market has by no means been so dynamic and aggressive, with report funding, and speedy, AI-driven adjustments. Its suggestions fail to cowl Google, one of many fastest-growing cloud market contributors. Microsoft seems to be ahead to working with the Digital Markets Unit towards an consequence that extra precisely displays the present competitors in cloud that advantages UK clients.”
Likewise, AWS was equally downbeat in regards to the CMA’s evaluation, commenting, “The Inquiry Group’s closing report disregards clear proof of sturdy competitors within the UK’s IT companies trade, which cloud computing has revolutionised by dramatically lowering prices and increasing buyer alternative and suppleness.
“The motion proposed by the Inquiry Group is unwarranted and undermines the substantial funding and innovation which have already benefited tons of of 1000’s of UK companies. It dangers making the UK a world outlier at a time when companies want regulatory predictability for the UK to take care of worldwide competitiveness. We’ll proceed to have interaction constructively with the CMA as they think about their subsequent steps.”
Google, maybe unsurprisingly, concluded that the report was a “watershed second” for the UK’s cloud market – in any case, it may have probably the most to achieve if AWS and Microsoft discover themselves having to provide concessions.
