Google and AWS gang up on Microsoft in UK cloud investigation

The Competition and Markets Authority (CMA) has just shared a handful of responses to the working papers that form part of its ongoing probe into cloud services. There is nothing new from Microsoft, one of the main subjects of the investigation, but Google and AWS have both submitted comments and there is a common thread between them: they both think Microsoft is the problem.

Specifically, it's Microsoft's licensing practices that the other two are railing against. And that's just one part of the broader CMA investigation.

The UK competition watchdog opened its probe into the supply of public cloud infrastructure services in the UK at the back end of last year on the recommendation of Ofcom. It is focusing on AWS and Microsoft in particular, whose dominance of the market is only increasing over time. Google Cloud is also an important player here, holding a much stronger position than other cloud services firms, but lagging AWS and Microsoft by some margin.

As a reminder, that competitive landscape working paper showed that AWS is the largest provider in the IaaS and PaaS markets combined, with a 30%-40% share as of 2022 – the data the CMA is using – which is stable compared with three years earlier. Microsoft comes in second also with a 30%-40% share, but in its case the figure has grown by around 10 percentage points. Google comes in third at 5%-10%, while IBM and Oracle each claim up to 5%.

Like the CMA, Google Cloud sees evidence of market dominance in those figures. "Consistent with feedback from customers, Microsoft's licensing practices and certain related artificial technical barriers (e.g., in respect of IAM services) pose the most significant challenge to customers' ability to explore and/or adopt a multi-cloud or switching strategy," Google Cloud said, in its response to that working paper, picking up on a key tenet of the investigation: customers' ability to move provider or adopt a multi-cloud strategy.

And there was a similar response from AWS, which is naturally a little more upbeat on the market as a whole, given its position, but also critical of Microsoft's software licensing approach.

"The evidence in the working papers presents a clear picture of a market for IT services that is well functioning, innovative, dynamic, highly competitive, and produces considerable benefits for customers. The only reasonable interpretation of the evidence before the CMA is that this market requires no regulatory intervention," AWS said in its response statement. "One exception to the well-functioning nature of the market for IT services is Microsoft's licensing practices," AWS said.

However, it added that it is encouraged by the fact that the CMA is looking at that particular area and hints that it will move to ensure customers can choose any IT provider to run Microsoft's software.

"Software licensing issues are distinct from the rest of the CMA's emerging views in the working papers as they relate to Microsoft leveraging its legacy 'must-have' productivity software to restrict customers' ability to choose the IT provider of their choice," AWS said. "Unlike Microsoft, most of the other IT providers tend not to have 'must-have' legacy software that could be leveraged to distort competition to the detriment of customers. Indeed, licensing practices should not be leveraged to artificially restrict customer choice and make switching more difficult."

The egress fees charged by the hyperscalers – that's the fees users have to pay to move their data out of a cloud – are also on the CMA's radar from the point of view that they too could restrict movement within the market.

Again, AWS and Google Cloud are in agreement, despite their different market positions, that egress fees are a non-issue.

AWS refers to these as data transfer out (DTO) fees and insists they are a necessary cost to provide customers with a premium service. It also cited a survey that it says shows customers do not consider egress fees to be a factor when choosing a cloud provider.

Google holds the same view. "The only reasonable conclusion to draw from the quantitative and qualitative evidence in the Egress Working Paper is that egress fees are not a meaningful barrier

to switching," it said. "Rather, technical and licensing barriers are consistently cited by customers as being far more significant."

And smaller player IBM is in agreement too. "IBM considers that egress fees are not a significant barrier to switching or multi-clouding," it said. "While egress fees can on paper appear to be such a barrier, this is a red herring."

Interestingly, there has been no comment at this stage from Microsoft on the latest round of working papers, be it on the competitive landscape, egress fees, or its own licensing practices. Doubtless, it holds strong views across the board.

The CMA investigation is due to run until next April though, so the software giant will have plenty of time to make its feelings known.