Competition regulator to investigate £7.5bn cloud services market

Britain’s £7.5 billion cloud services market is to be investigated by the UK competition watchdog, after regulator Ofcom raised concerns about the dominance of technology giants Amazon and Microsoft.

Ofcom confirmed it has referred the cloud services market, a backbone of the online world, to the Competition and Markets Authority (CMA) for an in-depth probe, after its year-long investigation uncovered concerns that business customers find barriers in their way when trying to switch suppliers.

It said it was “particularly concerned” about the position of the market leaders Amazon and Microsoft, which together held a market share of around 70% to 80%.

Google is their closest competitor, with a share of between 5% and 10%.

Ofcom said that “if left unchecked, competition could deteriorate in a critical digital market for the UK economy”.

Fergal Farragher, Ofcom’s director responsible for the market 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 CMA said it would look at whether there were competition concerns in the market and what interventions might be needed to improve the supply of cloud services for UK customers.

Sarah Cardell, chief executive of the CMA, said: “This is a £7.5 billion market that underpins a whole host of online services, from social media to AI (artificial intelligence) foundation models.

“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.”

Millions of people and businesses have come to rely on cloud computing in recent years, with Ofcom estimating the market is now worth up to £7.5 billion in the UK alone.

The cloud loosely refers to a series of massive servers around the world, which users can tap into to store photographs or emails, or run software from.

Ofcom said there was still competition in the sector, with innovative products and discounts offered to new customers.

However, it was concerned for customers trying to move from one cloud supplier to another.

The so-called hyperscaler suppliers charge “significantly higher” fees than smaller providers to move data out of the cloud and to another company’s servers, Ofcom said.

Users might also struggle to use more than one company’s services at the same time because the leading firms prevent some of their services working effectively alongside those from other suppliers.

This makes it more difficult to combine different services across cloud providers or to change provider.

Large suppliers also use incentives to encourage customers to use them for all their cloud needs through “committed spend discounts”, but this often locks them in even if better quality alternatives may be available, according to Ofcom.

Ofcom’s report also outlines concerns about the software licensing practices of some cloud providers, in particular Microsoft.

“High levels of profitability for the market leaders AWS (Amazon Web Services) and Microsoft indicate there are limits to the overall level of competition,” Ofcom said.

The CMA aims to complete its investigation by April 2025.

An Amazon Web Services (AWS) spokesman 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.”

He added: “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.”

A Microsoft spokesman 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.”