Regulators sound out users on cloud services competition concerns

Research by the UK’s Competition and Markets Authority (CMA) has uncovered concerns that cloud users’ established commitments with hyperscalers may limit their future cloud computing options.

Public cloud infrastructure services were referred to the CMA for a market investigation by Ofcom, the communications regulator, which is investigating concerns that technical and business barriers such as software licensing conditions make it difficult for UK enterprises to either make use of multiple cloud service providers or to switch between them.

Factors such as egress fees — which service providers charge customers for extracting data from their cloud — and preliminary discounts might be contributing to vendor lock-in, regulators fear.

These, along with issues such as software licensing, could disincentivise customers from using rival cloud providers, thereby stifling innovation and inhibiting competition in the cloud service market.

Expert panel

The CMA commissioned research among 50 medium to large UK public cloud customers (pdf) who use one of the five largest cloud providers in the UK, Amazon Web Services, Microsoft Azure, Google Cloud, IBM Cloud, and Oracle Cloud. The study focused on perceptions of their infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) offerings.

Private clouds and software-as-a-service offerings were considered out of scope.

Switching concerns

Few of those interviewed had chosen to switch between public cloud providers. Switching was motivated by anticipated reductions in costs and promises of improved performance. Those who had switched tended to report that the process was more challenging and time-consuming than anticipated.

Egress fees failed to emerge as a major concern for most participants, even though there were complaints about pricing transparency in this area. Committed spend discounts might also disincentivise switching.

Software licensing practices were not widely viewed, in isolation, as influencing the choice of public cloud provider. Microsoft shops may pick Microsoft Azure, for example, as the most convenient option.

However technical barriers such as a lack of code portability, especially in the context of PaaS and databases, emerged as a bigger barrier to cloud customers considering either a multi-cloud approach or switching cloud providers.

Survey participants were also concerned that as artificial intelligence becomes a more integral component of cloud computing services it will become more difficult to switch providers.

A lack of transparency in public cloud charges emerged as the greatest source of complaint in the survey, which will inform the next steps in the CMA’s investigation.

In response to queries from Network World, AWS said it was committed to “work constructively with the CMA” through its investigation.

“We believe the CMA will recognize how the increased competition, improved security, and lower costs of IT services introduced by cloud technologies benefits UK companies and the overall economy,” an AWS spokesperson said. “AWS designs cloud services to give customers the freedom to choose the technology that best suits their needs, and the cloud has made switching between providers easier than ever.”

Microsoft, which also said it was ready to work with the CMA, said the cloud services market was already competitive.

“The cloud industry is innovative, highly competitive and an accelerator for growth across the UK economy,” it said. “While Amazon, Google and Microsoft’s cloud offerings all continue to grow at a healthy pace, competition is not limited to these providers, and many other companies have thriving cloud businesses.”

Wider perspective

Adrian Bradley, head of cloud transformation at KPMG UK, told Network World that the focus of the CMA’s review was too narrow.

“Hyperscale cloud, traditional IT, and on-premises environments are all important parts of an organisation’s cloud strategy, and enterprises should consider every option,” according to Bradley.

Bradley disagreed that contract terms such as committed spend discounts were inhibiting competition.

“Many organisations benefit from the up-front financial incentives that these providers offer, without which they may not be able to afford digital transformation,” Bradley explained. “At the macro level, these incentives are important to the wider UK technology services economy.”

The CMA investigation needs to keep pace with a fast-evolving market, Bradley concluded.

For example, some major cloud players have stopped charging customers an egress fee to leave their storage platform, according to Bradley.

“If the CMA can effectively navigate the nuances of this already dynamic market, they will create an environment with fair and efficient access to the cloud and the next generation of technologies,” Bradley said.