Competition in the cloud services sector ‘is not working as well as it could be’ with consumers facing limited choices, the UK Competition & Markets Authority reported on Tuesday.

In its report of ‘provisional findings following an in-depth assessment into cloud services’, published by its independent inquiry group, the CMA explained that ‘competition is not working as well as it could be, which is likely to be leading to higher costs, less choice, less innovation and lower quality of service for businesses and organisations across the UK economy’.

The CMA said the inquiry provisionally found that customers face a limited choice of cloud providers, with Amazon Web Services and Microsoft Corp each having a share of up to 40% of UK spending on cloud services. (The next largest provider, Alphabet Inc’s Google, has ‘a much smaller share’.)

In particular, the competition regulator said Microsoft is using its strong software position to make it harder for AWS and Google to effectively compete for cloud customers who want to use Microsoft software, reducing their ‘competitive challenge’.

‘Technical and commercial barriers make it difficult for cloud customers to switch between and use different cloud providers, locking them into their initial choices which may not reflect their evolving business needs,’ the CMA added.

As for other alternative cloud providers, the CMA said they face ‘significant barriers to entry and expansion due to the very large capital investment needed to supply cloud services’.

‘The ability of UK businesses to put healthy pressure on cloud providers to offer better deals is key to ensuring good outcomes and to unlocking the potential benefits of cloud services,’ it said.

The regulator said the inquiry group provisionally recommends that it use its powers under the Digital Markets, Competition & Consumers Act 2024 to consider designating AWS and Microsoft with strategic market status, regarding their respective digital activities in cloud services.

‘Effective competition in the delivery of these vital services could drive choice, quality and competitive prices - not only helping UK businesses but boosting innovation, productivity, growth and investment across the UK economy,’ commented the inquiry group’s Chair Kip Meek.

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