Without urgent action from the CMA and others, the systemic competition challenges of the cloud landscape will be replicated elsewhere, according to former Cabinet Office and UKCloud executive Nicky Stewart
Regulators are finally scrutinising the cloud market, long dominated by Amazon Web Services and Microsoft.
These giants previously dismissed data transfer fees – the cost of moving data out of their platforms – as no more than a minor hurdle for switching providers. However, a timeline of events reveals a recent shift.
First, regulators across Europe, the US and the UK began investigating the dominance of hyperscalers, in particular AWS and Microsoft. In the UK, the Competition and Markets Authority’s ‘theories of harm’ model has cited transfer fees as an issue for competition – which all of the large tech firms dismissed as a small hurdle.
Then, in a surprising move, Google announced it would waive data transfer fees for customers leaving its Google Cloud Platform. This bold move in early 2024 put pressure on its competitors.
Within weeks, AWS responded by offering a similar global waiver on data transfer fees for departing customers. Microsoft followed suit shortly after, also making the waiver global, though the vendor linked it to the EU Data Act.
While these moves might seem like progress, the core issue remains. The voluntary waivers only address a small part of the switching cost. Unless regulations are enforced to tackle the true barriers and promote a more balanced market, competition in the cloud may not see a significant shift.
Because there is a much bigger picture here. Cloud and AI are inextricably linked and cannot be treated as separate markets.
As all the cloud providers pointed out in their submissions to the CMA, the conditions around a full-blown exit from any cloud platform are complex and data transfer fees are just a fraction of the costs. The costs of re-architecting an application so it can move to another platform are significant. As are the costs of reskilling your cloud engineering team so it can ‘drive’ the new cloud platform efficiently and effectively.
And that’s before you factor in other costs.
The trade association for European cloud providers, CISPE, has recently pointed out that unfair software licencing practices, such as restrictions on multi-session use of Microsoft software outside of Azure, makes the costs of running Microsoft’s software on rival cloud platform up to 2.5 times higher. This is a strong disincentive to switch from Azure to any other cloud and will almost certainly eliminate any gains made from data transfer waivers.
The link with AI
Clouds are complex, and the instruments and market forces that keep customers locked in are complex too. While the waivers in data transfer fees for customers that want to switch cloud providers, or move away from cloud altogether, are steps in the right direction, they are only baby steps.
But what these events do show is that regulation can drive change, even if the changes are small.
If it wants to make a difference, the CMA needs to take a holistic and systematic view of the cloud market in the UK. It will be a sub-optimal outcome if the CMA continues to focus on discrete ‘theories of harm’ in isolation from the labyrinth of connected issues that keep customers locked into cloud platforms or the wider issues surrounding the future of the global market.
Because there is a much bigger picture here. Cloud and AI are inextricably linked and cannot be treated as separate markets. What happens in the global cloud market will impact and shape the global AI market and vice versa.
All regulators, including the CMA, need to take encouragement from today’s baby steps and recalibrate their ambitions for cloud. Because it’s a giant leap from waiving data transfer fees to fostering a genuinely open and competitive cloud market that underpins a genuinely open and competitive AI market.
Neither market must fall into the hands of any single organisation. It is right that the CMA is probing Microsoft’s relationship with OpenAI, and it is right that the European Commission is probing Microsoft’s relationships with Mistral AI and OpenAI.
But it’s wrong that the regulators have separated cloud and AI into individual silos. A winner could take all: the lion’s share of the global AI market, powered by the winner’s proprietary cloud.
We need our regulators to understand and act now with a meaningful probe of the relationship and dynamics between the cloud and AI markets. Anything else will just be regulatory tinkering around the edges and the systemic competition issues we see in cloud will extend and deepen in AI.
Nicky Stewart led the Cabinet Office government/industry commercial workstream for G-Cloud. Nicky left government in 2011 and was the commercial director of UKCloud. She has been a member of the European Commission’s Expert Group on Cloud Computing Contracts and the CISPE Code of Conduct for data protection Task Force. Nicky has taken an active role on the European Commission’s Cloud Special Interest Group, was the vice chair of techUK’s Central Government Council and is on the Open Cloud for Research Environments Expert Advisory Board. Nicky is also a non-executive director to Yellow Sub, an AI start-up.
