AWS and Microsoft could face a potential investigation into their cloud businesses in the UK, should the Competition and Markets Authority (CMA) act on a recommendation from an independent inquiry group reporting to the UK’s antitrust regulator.

Figure 1. UK Regulator Mulls Investigation into AWS and Microsoft's Cloud Operations.

In a statement released on Monday, the group urged the CMA to utilize its powers under the Digital Markets, Competition and Consumers Act 2024 (DMCCA) to designate AWS and Microsoft as having strategic market status (SMS) in relation to their cloud services activities. Figure 1 shows UK Regulator Mulls Investigation into AWS and Microsoft's Cloud Operations.

The new legislation, which came into effect at the start of the year, enables the CMA to designate firms as having "Strategic Market Status" (SMS) in a specific digital activity. According to an advisory issued on January 13 by UK law firm Macfarlanes, the UK’s equivalent of the EU’s Digital Markets Act (DMA) allows the CMA to impose "conduct requirements" (CRs) on firms or introduce "pro-competition interventions" (PCIs) to foster better outcomes for UK consumers and businesses.

Cloud customers are facing limited provider options, with AWS and Microsoft holding up to 40% of the UK cloud services market each. Google is the next largest provider but with a significantly smaller share. The inquiry group noted that technical and commercial barriers make it challenging for customers to switch between providers, potentially locking them into initial choices that may not meet evolving business needs. Furthermore, high capital investments required to supply cloud services create substantial barriers to entry and expansion, hindering the growth of alternative cloud providers.

Dario Maisto, a senior analyst at Forrester Research, commented on the recommendations from the inquiry group, pointing out that market concentration in the cloud industry isn't a new concern, not only in the UK but globally. He acknowledged that the three major US hyperscalers dominate over 80% of the market, but also highlighted that the scale of these companies allows for significant innovation and infrastructure investments that benefit businesses using their services.

Maisto argued that the claim of limited provider choice isn't entirely true, as there are several cloud vendors available. He also suggested that the US hyperscalers are meeting the evolving needs of UK clients and that the barriers to entry are a natural feature of the market, rather than being caused by the dominance of the hyperscalers. He further noted that Microsoft reached an agreement with CISPE in July 2024, related to a competition complaint against Microsoft, which contrasts with the inquiry's findings that Microsoft's strong software position hampers competition.

While Maisto agreed with the inquiry’s point about the importance of healthy competition to ensure better deals for UK businesses, he emphasized that UK companies have the freedom to leverage multiple cloud providers, including non-hyperscalers. His analysis of Forrester’s 2024 European Public Cloud Platform Wave found at least seven alternative cloud vendors offering a range of services. Maisto concluded that while the inquiry raised valid concerns, it overlooked the underlying issues in the current market structure.

The Trigger for the Investigation

The UK’s Competition and Markets Authority (CMA) might investigate Amazon Web Services (AWS) and Microsoft’s cloud businesses. This comes after an independent inquiry group recommended that the CMA designate AWS and Microsoft as having "strategic market status" (SMS) under the new Digital Markets, Competition and Consumers Act (DMCCA) of 2024. This designation would allow the CMA to impose regulations aimed at promoting competition in the cloud services market.

The Dominance of AWS and Microsoft

AWS and Microsoft are the two largest providers in the cloud services market in the UK, each holding a significant share of up to 40% of customer spend. The inquiry highlighted the dominance of these two companies, with Google trailing behind as a smaller player. This concentration of market power raised concerns about limited choice for customers and potential competitive disadvantages for smaller cloud providers.

Barriers to Competition and Switching

The inquiry raised concerns about technical and commercial barriers that make it difficult for customers to switch between cloud providers. Once customers commit to a provider, they may face challenges in moving their data and applications to a different platform, effectively locking them into their initial choice. This lack of flexibility could result in customers not being able to adapt their cloud services to changing business needs.

High Capital Investment and Barriers to Entry

One of the key challenges facing the cloud market is the immense capital investment required to supply cloud services. This makes it difficult for new or smaller cloud providers to enter the market or scale up their operations. The inquiry pointed out that these barriers contribute to the dominance of AWS and Microsoft and limit the competition in the sector, with high infrastructure costs deterring potential competitors.

Industry Reactions and Counterarguments

While the inquiry raised valid concerns, experts like Dario Maisto from Forrester Research noted that the cloud market operates differently from other industries. He argued that the scale of AWS and Microsoft actually benefits customers through innovations and powerful infrastructure. Maisto also pointed out that UK businesses are free to choose multiple cloud providers, including non-hyperscalers, and that the perceived lack of competition is not entirely due to the dominance of the US hyperscalers but rather the market's inherent challenges.

Source: NETWORKWORLD

Cite this article:

Priyadharshini S (2025),"UK Regulator Considering Investigation into AWS And Microsoft's Cloud Businesses",AnaTechmaz, pp. 64