Ofcom has expressed its worry over a lack of competition making it difficult for businesses to switch providers, with the media watchdog revealing that the two platforms make up 70-80% of the sector in the UK, while closest rival Google has 5-10%.
A Delve Into Cloud Computing
Cloud computing refers to the storage of data online that can be accessed anywhere at any time, and it has become an essential bit of infrastructure for both businesses and individuals.
It’s how millions of people store large amounts of data, use software remotely, stream music and videos and play games.
It is sometimes described as using “other people’s computers”, vast networks of powerful machines stored in massive data centres around the world, and many of those belong to either Amazon or Microsoft.
Businesses across the UK use cloud computing services, and Ofcom estimated that in 2022 the cloud services market in the UK was worth up to £7.5bn.
But, due to concerns over a lack of competition, Ofcom has referred the cloud computing sector to the UK’s Competition and Markets Authority (CMA) to look into the issue.
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Investigation Into the Market
The CMA has the power to force companies to change practices, block purchases or even sell off parts of their businesses if it feels there is a legitimate threat to the market.
“Many businesses now completely rely on cloud services, making effective competition in this market essential,” said CMA chief executive Sarah Cardell.
“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.
“The CMA’s independent inquiry group will now carry out an investigation to determine whether competition in this market is working well and if not, what action should be taken to address any issues it finds.”
“All credit to Ofcom for addressing the anti-competitive issues such as data egress fees, technical and commercial lock-ins that have damaged and distorted the UK’s growing cloud infrastructure market for too long,” said Nicky Stewart, former head of ICT at the Cabinet Office.
“It’s imperative that the CMA thoroughly investigates all the deep-seated issues in this critical market which underpins so much of our nation’s digital infrastructure – and that includes anti-competitive licensing.”
The CMA said it would conclude its investigation by April 2025.
Difficulties Switching Services
Today, cloud computing is like “the hidden plumbing that underpins many of the digital services that businesses and consumers use every day”, explains Fergal Farragher, Ofcom’s consumer protection director.
“Some UK businesses have told us they find it difficult to switch, and mix and match the best services from different cloud providers,” Mr Farragher said.
Not only is Ofcom concerned that competition is not working as well as it should be in the cloud computing market, but there are obstacles to switching to using different services, due to the fees providers charge for moving data to a rival.
Mr Farragher suggests that these fees should be limited, or removed entirely, to ease this process. He continued that Ofcom’s referral of the cloud services market to the CMA should also help to make sure that the market “is working well for UK consumers and businesses in the future”.
This should allow rivals such as IBM and Oracle should be able to challenge the more dominant players.
“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 Microsoft spokesperson said.
Amazon said it believed Ofcom’s findings were “based on a fundamental misconception” of the sector.
“Only a small percentage of IT spend is in the cloud, and customers can meet their IT needs from any combination of on-premises hardware and software, managed or co-location services, and cloud services,” a spokesperson for the company said.
“Customers make hundreds of millions of data transfers each day in the ordinary course of business, and over 90% of our customers pay nothing for data transfer because we provide them with 100 gigabytes per month for free.”