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The UK antitrust regulator has singled out Microsoft for using its dominance in software to stifle rivals in the £9bn UK cloud services market, as the watchdog warned competition “is not working”.
An independent panel acting for the Competition and Markets Authority said on Tuesday that a lack of competition in cloud services was “likely to be leading to higher costs, less choice, less innovation and lower quality of service for businesses and organisations”.
“Microsoft is using its strong position in software to make it harder for Amazon Web Services and Google to compete effectively for cloud customers that wish to use Microsoft software on the cloud,” the panel said in its provisional decision.
It also recommended the CMA use its new powers under the digital markets regime to decide whether Amazon and Microsoft should receive “strategic market status” as a result of their influence in the area.
Under new legislation, which came into force this month, the UK regulator can designate a small group of companies as having such status and impose certain conduct requirements to try to increase competition.
The decision comes as the CMA is under intense pressure from the government to show it is promoting growth, as Labour attempts to increase business investment in the UK. In an unexpected move last week, CMA chair Marcus Bokkerink was ousted by business secretary Jonathan Reynolds and replaced with former Amazon UK head Doug Gurr.
Writing in the Financial Times on Tuesday, Gurr said the agency would look to speed up its investigations to try to unlock greater investment in the country and bring in greater sector expertise so that businesses did not have to waste time educating the regulator about the industry.
The cloud services investigation has been continuing in various forms for more than two years. Ofcom opened a market study in October 2022 and published an interim report before referring it to the CMA a year later.
The CMA inquiry group said a general lack of competition was interfering with customers’ ability “to switch cloud provider or use multiple clouds, which may ultimately impact the price and quality of cloud services”.
Amazon and Microsoft are the two largest providers of cloud services, each with a share of up to 40 per cent of UK customer spend, followed by Google.
Rima Alaily, Microsoft’s deputy general counsel and head of its competition law group, said in a statement that the report “should be focused on paving the way for the UK’s AI-powered future, not fixating on legacy products launched in the last century”.
“The cloud computing market has never been so dynamic and competitive, attracting billions in investments, new entrants and rapid innovation. What could be better for UK businesses and government?” added Alaily.
Amazon Web Services said the CMA’s proposed intervention was “not warranted” and urged the agency to “carefully consider how regulatory intervention in other areas will stifle innovation and ultimately harm customers in the UK”.
“The evidence demonstrates the IT services industry is highly competitive,” AWS said. “Cloud computing has lowered costs for UK businesses with on-demand services and pay-as-you-go pricing, expanded product choice, and increased competition and innovation.”
Chris Lindsay, Google Cloud’s vice-president for customer engineering in Europe, the Middle East and Africa, said: “Restrictive licensing harms UK cloud customers, threatens economic progress and stifles innovation, and we are encouraged that the CMA has recognised the harm of these practices.”
The CMA must publish a final decision by August 4.