The UK’s communications regulator Ofcom has raised concerns about the lack of competition in the cloud computing market, which is dominated by two US tech giants: Amazon and Microsoft. Ofcom has referred the sector to the UK’s Competition and Markets Authority (CMA) to look into the issue and ensure fair and effective competition.
Cloud computing is the technology that allows data and software to be stored and accessed online, rather than on local devices. It is used by millions of people and businesses every day for various purposes, such as streaming music and videos, playing games, storing photos and documents, and running applications.
How Big is the Cloud Computing Market in the UK?
According to Ofcom, the cloud services market in the UK was worth up to £7.5bn in 2022. Ofcom estimated that Amazon and Microsoft together accounted for 70-80% of the market share, while Google had 5-10%. The rest of the market was shared by smaller providers, such as IBM and Oracle.
Ofcom said that many businesses rely on cloud services for their digital operations, but they face difficulties in switching or combining services from different providers. This could limit their choices and reduce innovation and quality in the sector.
What are the Obstacles to Switching Cloud Providers?
One of the main obstacles to switching cloud providers is the fees that they charge for transferring data to a rival service. These fees are also known as data egress fees, and they can be significant depending on the amount and type of data involved.
For example, Amazon charges $0.09 per gigabyte for transferring data out of its cloud service to another provider in Europe. This means that a business that wants to move 100 terabytes of data would have to pay $9,000 in fees.
Another obstacle is the technical and commercial lock-in that some cloud providers create by using proprietary software and standards that are not compatible with other services. This makes it harder for customers to migrate their data and applications without losing functionality or performance.
Additionally, some cloud providers may offer discounts or incentives for customers who commit to long-term contracts or purchase bundles of services. This could make it more costly or inconvenient for customers to switch or exit their contracts.
What are the Possible Solutions to Improve Competition in the Cloud Computing Market?
Ofcom has suggested some possible ways to improve competition in the cloud computing market, such as:
- Creating ethical standards and codes of conduct for cloud providers to ensure fair and transparent practices.
- Ensuring accountability and oversight of cloud providers by regulators and customers.
- Fostering public awareness and education about the benefits and risks of cloud services.
- Limiting or removing data egress fees or other barriers to switching or mixing cloud services.
- Encouraging interoperability and portability of data and applications across different cloud platforms.
- Supporting innovation and entry of new players in the cloud market.
Ofcom has referred the sector to the CMA, which is an independent authority that can investigate markets and take enforcement actions if it finds any anti-competitive behaviour or practices. The CMA has said it will conclude its investigation by April 2025.
