UK Cloud Market Under CMA Scrutiny: Impact on Competition & Innovation

The UK’s cloud computing sector stands at a critical juncture, as a landmark investigation by the Competition and Markets Authority (CMA) concludes that dominant players Amazon Web Services (AWS) and Microsoft are harming competition. The findings mark an inflection point not only for British businesses but for the broader global debate on platform power, digital regulation, and the future of cloud innovation.

Understanding the CMA’s Final Cloud Market Report​

The CMA’s final report, published at the end of an exhaustive independent inquiry, delivers a comprehensive critique of the current state of cloud competition in the UK. Estimated to be worth £9 billion annually, the country’s cloud sector mirrors global trends: AWS and Microsoft’s Azure command a duopoly, each capturing up to 40% of consumer cloud spend, while Google’s cloud platform trails in third place with a significantly smaller share.
The report’s core assertion is stark: the UK cloud computing market is “not working well.” At the heart of these concerns lie alleged anti-competitive behaviors, the opacity of licensing terms, and technical and financial barriers that limit customers' ability to switch between providers. Such restrictions, the CMA asserts, threaten to drive up costs, erode consumer choice, stifle innovation, and ultimately lower the quality of digital services offered to UK businesses and end users.

Key Findings: Microsoft’s Licensing Under Fire​

The CMA reserves particular scrutiny for Microsoft’s software licensing practices. The report states unequivocally, “Microsoft’s licensing practices are adversely impacting the competitiveness of AWS and Google in the supply of cloud services, particularly in competing for customers that purchase cloud services which use the relevant Microsoft software as an input.”
This points to so-called “bring-your-own-license” (BYOL) restrictions, whereby Microsoft allegedly charges higher fees or imposes technical obstacles for its software (such as Windows Server or SQL Server) when run on rival clouds versus Microsoft’s own Azure offering. According to the CMA, this creates an uneven playing field: AWS and Google face greater hurdles in winning customers with workloads heavily reliant on Microsoft technologies, weakening their ability to constrain Microsoft’s market power.
In practical terms, this affects UK businesses in sectors as diverse as healthcare, financial services, and retail, most of which are deeply embedded in Microsoft’s enterprise software stack. Switching cloud providers—or even running a hybrid, multi-cloud environment—can become prohibitively costly or technically convoluted due to such restrictions.

Competition, Innovation, and Market Power​

Beyond licensing, the report flags broader structural barriers to competition, including:

• Data Transfer Charges: Egress fees, imposed when customers wish to move data out of a provider’s cloud, can be significant—making it painful for businesses to switch providers or adopt true multi-cloud strategies.
• Technical Incompatibilities: Proprietary APIs, architectures, and implementations can create “lock-in” scenarios for customers that tether them to a single vendor’s ecosystem.
• Lack of Interoperability: The report notes a “deficiency of standards” that hampers the ease with which workloads and data can migrate between clouds.

The net result, the CMA warns, is a marketplace in which incumbent giants exercise “significant market power,” suppressing price competition and inhibiting the entry or expansion of smaller rivals and innovators.

Strategic Market Status: CMA’s Proposed Remedies​

The most consequential recommendation from the inquiry panel is for the CMA to consider assigning AWS and Microsoft a new regulatory designation: Strategic Market Status (SMS). This status would allow the CMA to impose bespoke, targeted interventions on cloud infrastructure providers whose conduct has a disproportionate impact on digital markets and the wider economy.
Significantly, the CMA suggests a phased approach. The SMS designation inquiry for cloud is not expected to commence until 2026, as the authority is currently prioritizing similar assessments for Apple and Google’s dominance in mobile platforms—a testament to the intertwined challenges of platform power across digital sectors.

What Might SMS Look Like for Cloud Providers?​

If enacted, SMS remedies could include:

• Mandated changes to software licensing terms to ensure rivals receive fair and equivalent access to essential software on reasonable terms.
• Restrictions or transparency requirements on technical practices that impede switching (such as cloud data egress fees or storage format compatibility).
• Enhanced consumer choice provisions, empowering businesses to more easily adopt, leave, or combine cloud services from different providers.
• Ongoing regulatory oversight and reporting obligations to ensure compliance and market responsiveness.

Such interventions, the CMA contends, are necessary to “remedy the harms to competition that we have found,” and to foster a more vibrant, innovative, and resilient UK digital infrastructure sector.

Industry Reactions: Defensiveness and Denial​

The response from the cloud giants has been predictably combative. A Microsoft spokesperson accused the CMA of missing the mark: “The CMA panel’s most recent publication misses the mark again, ignoring that the cloud market has never been so dynamic and competitive, with record investment and rapid, AI-driven changes. Its recommendations fail to cover Google, one of the fastest-growing cloud market participants. Microsoft looks forward to working with the digital markets unit toward an outcome that more accurately reflects the current competition in cloud that benefits UK customers.”
Similarly, AWS contested the CMA’s conclusions: “The report disregards clear evidence of robust competition in the UK’s IT services industry. The action proposed by the inquiry group is unwarranted and undermines the substantial investment and innovation that have already benefited hundreds of thousands of UK businesses. It risks making the UK a global outlier at a time when businesses need regulatory predictability for the UK to maintain international competitiveness.”
Both firms highlight rapid cloud growth, ongoing price reductions, and the proliferation of new cloud entrants as evidence of robust market health. Yet, as the CMA notes, headline metrics on cloud adoption and investment may obscure subtler anti-competitive practices that can have long-term implications for innovation and consumer welfare.

Examining the Evidence: Are AWS and Microsoft Harming Competition?​

To understand the merits of the CMA's findings, it is important to evaluate both the specific claims and the broader context of cloud market structure.

Market Concentration and Its Dangers​

• Market Share Data: Multiple independent analyses, including recent figures from Synergy Research Group, corroborate the CMA’s estimate that AWS and Azure together control roughly 70-80% of the UK (and broader European) cloud infrastructure market. Google’s share, while growing, remains well below 10% in most regions.
• Historical Precedents: Technology markets have repeatedly demonstrated how network effects and platform lock-in can entrench incumbents—consider the history of operating systems, web browsers, or mobile app stores.
• Customer Responses: Numerous businesses surveyed by both the CMA and other industry watchdogs report difficulty negotiating with cloud providers, high switching costs, and a sense of being “locked in” by bespoke contracts or technical dependencies.

Licensing: A Barrier to Rivalry​

• Microsoft’s BYOL restrictions have been the subject of consistent regulatory scrutiny, with previous investigations by the European Commission mirroring the CMA’s concerns. While Microsoft has announced adjustments to reflect regulatory pressure, many third-party providers—such as OVHcloud and AWS—contend such changes are inadequate or contain loopholes favoring Azure.
• Impact on Cloud Ecosystem: Allegations of discriminatory licensing practices are not theoretical. Multiple independent software vendors (ISVs) confirm that customers are discouraged from running Microsoft workloads outside Azure due to cost or compliance burdens.

Switching Costs and Egress Fees​

• Data Egress Charges: Evidence from both user organizations and analyst firms highlights that egress fees—often opaque and difficult to model upfront—act as a de facto deterrent to switching. While most providers assert such fees cover genuine infrastructure costs, CFA complaints suggest such charges are higher than necessary and wielded strategically.
• Technical Lock-In: Independent technology consultancies such as Gartner and Forrester have catalogued a range of proprietary features across leading clouds that can inhibit true “multi-cloud” adoption, from idiosyncratic networking models to custom monitoring tools and unique APIs.

Counterarguments: Is the Market Really Failing?​

Cloud incumbents and some independent analysts challenge the premise that intervention is warranted, citing:

• Rapid Growth and Falling Prices: UK cloud adoption continues to post double-digit annual growth, with visible downward pressure on the cost of raw compute and storage. Both AWS and Microsoft frequently trumpet price reductions and enhanced service offerings.
• Entry of Challengers: Several challenger providers—such as IBM Cloud, Oracle, and Huawei—continue to make inroads, especially in regulated sectors or for specialized workloads.
• Dynamic Technological Change: The rise of cloud-native and open-source technologies (e.g., Kubernetes, containerization, open APIs) may reduce long-term lock-in, with companies now architecting systems for greater portability.

Yet, critics of this optimistic view point out that price and innovation often coexist with anti-competitive market dynamics, particularly where “winner-take-all” effects operate on platform economics. The CMA's stance is that a growing market is not a guarantee of healthy competition, particularly if dominant players can set the rules to their advantage.

Critical Analysis: Opportunities and Risks of Regulatory Intervention​

If the CMA presses forward with SMS and other bespoke remedies against Microsoft and AWS, the effects will reverberate far beyond Britain’s borders.

Strengths and Potential Benefits​

• Unlocking Competition: Well-designed remedies could lower the barriers for rivals, enabling true head-to-head competition and enhancing overall digital resilience.
• Consumer Empowerment: Easier switching and interoperability benefit UK businesses, particularly smaller firms and startups, by aligning cloud procurement more closely with value and service quality.
• Long-Term Innovation: By curbing the ability of incumbents to entrench their position through “soft” forms of power (licensing, switching costs), the CMA could stimulate the emergence of disruptive new services and cloud models.

Risks and Challenges​

• Overreach and Unintended Consequences: Heavy-handed or poorly targeted regulation may stifle the very innovation it seeks to protect or lead to providers scaling back UK-specific offerings and investment.
• Regulatory Arbitrage: Cloud is a global business; requirements unique to the UK may prompt providers to adjust their strategies elsewhere, with limited effect on market structure.
• Implementation Complexity: Crafting licensing and interoperability rules that genuinely foster competition, without loopholes or perverse incentives, will demand deep sector expertise and constant regulatory vigilance.
• Timing and Technological Change: By delaying its SMS inquiry until 2026, the CMA risks missing a window of maximal leverage, especially given the breakneck pace of change in cloud and AI infrastructure.

Global Implications: A Template for Platform Regulation?​

The CMA’s recommendations follow a growing international movement to subject digital giants to sector-specific oversight. The EU’s Digital Markets Act has begun to enforce interoperability and anti-bundling requirements, while the US Federal Trade Commission is investigating similar issues around cloud and platform power. Whether the UK ultimately acts as a leader or an international “outlier” will depend on the design and impact of its regulatory regime.
Notably, the report’s omission of Google from immediate, targeted remedies has itself become a flashpoint: Microsoft contends that Google Cloud, as one of the fastest-growing market participants, should face the same scrutiny, highlighting the need for regulators to remain vigilant as market balances shift.

Conclusion: The UK Cloud Market at a Crossroads​

The CMA’s final report into cloud competition is as consequential as it is contentious. Its portrait of a UK cloud sector hamstrung by the commercial and technical might of two global superpowers comes well-sourced, but not without detractors. The remedy—designating AWS and Microsoft as Strategic Market Status firms—promises to be a regulatory experiment watched by policymakers, businesses, and technology leaders worldwide.
Ultimately, the stakes extend beyond price or market share. At issue is the future direction of the UK digital economy: whether it will foster a landscape where innovation flourishes on a level playing field, or where access and opportunity are determined by the licensing terms and technical design choices of a small handful of firms. With new regulatory action likely deferred until at least 2026, businesses and consumers face a period of uncertainty, even as the cloud continues to underpin the next generation of digital services, AI workloads, and critical national infrastructure.
As the CMA prepares for the next phase of its intervention, the eyes of the tech world—and the broader public—will remain fixed on how the UK charts a path through the shifting, contested terrain of cloud competition and platform power. The outcome will not only shape the landscape for British business but could provide a lasting template—good or ill—for regulating digital markets in the era of hyperscale cloud.

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Source: Jersey Evening Post Amazon and Microsoft harming competition in cloud computing, finds CMA - Jersey Evening Post

 

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The UK’s cloud computing sector is currently under intense scrutiny, igniting debate and concern throughout the technology industry and the wider business community. A recent and comprehensive investigation from the UK’s Competition and Markets Authority (CMA) has fired a warning shot across the bows of Amazon Web Services (AWS) and Microsoft Azure, the two cloud giants dominating this multibillion-pound industry. The findings raise urgent questions about competitive fairness, innovation, costs, and the future direction of a market that has become foundational to business operations nationwide.

The CMA’s Final Report: Breaking Down the Findings​

The Competition and Markets Authority’s final report delivers a frank assessment: the UK cloud computing market “is not working well.” According to an independent inquiry group within the regulator, systemic issues are stunting competition, with Amazon and Microsoft’s conduct cited as primary culprits. The CMA’s meticulously detailed review concludes that the structure of the industry and specific practices by its leading players could be resulting in higher prices, reduced innovation, limited customer choice, and an overall decline in service quality for UK businesses.
Notably, the report reserves stern censure for Microsoft. It states unequivocally that the tech giant has established “significant market power” through its expansive suite of software products, many of which are closely entwined with its Azure cloud platform. The panel highlights concerns that Microsoft’s licensing practices—especially the way it charges competitors like Amazon and Google for running its software in their respective clouds—may be driving up industry costs and making it prohibitively expensive for rivals or new entrants to compete on a level playing field.

Strategic Market Status and Regulatory Levers​

The CMA inquiry doesn’t merely diagnose; it prescribes. The report recommends invoking new regulatory levers by granting both Microsoft and AWS what it calls “strategic market status.” Should the watchdog move forward with this designation, it would unlock targeted, bespoke powers to intervene and address perceived market failures. This could involve mandating certain conduct requirements, imposing limits on exclusionary practices, or even restructuring contractual relationships between vendors and their customers.
Curiously, the rollout of such regulations has a long lead time: the CMA suggests that any probe into strategic market status for Amazon and Microsoft will not begin until at least 2026. The regulator currently prioritizes similar scrutiny for Apple and Google—especially on the mobile platform front—leaving the cloud sector’s most significant reforms still on the horizon.

Underlying Data: Who Owns the UK Cloud?​

The stakes are considerable, given the sector’s size and strategic importance. The CMA estimates the UK cloud services market is worth approximately £9 billion annually. Amazon Web Services and Microsoft Azure each command as much as a 40% share of consumer spend, with Google Cloud trailing far behind in third. These numbers line up with other respected industry analyses, such as Synergy Research Group’s 2024 UK Cloud Market Share report, which also paints a continuing duopoly, albeit with shifting boundaries as newer entrants and niche providers slowly try to carve their own space.
These massive proportions—nearly four out of every five pounds spent on public cloud services flow to just two companies—establish the context for the CMA’s concerns. In a market with such outsized leaders, even relatively minor shifts in licensing terms or bundling practices can have outsized competitive impacts.

Microsoft’s Licensing: The Flashpoint for Controversy​

Drilling into the report, one particularly contentious area comes through: Microsoft’s software licensing model. The regulator finds that Microsoft charges competing cloud platforms—chiefly AWS and Google—effectively more to run workloads with Microsoft software, such as Windows Server and Microsoft SQL Server. Customers opting to deploy Microsoft software on third-party clouds face higher prices and complex entitlements, compared to running software within Microsoft Azure itself.
The result, the CMA says, is a “substantial adverse effect on competition.” The awkward economics push customers toward Azure simply to avoid punitive licensing terms—an ecosystem lock-in that damages the prospects for truly robust, price-driven market dynamics.
Microsoft has responded with a mixture of defensiveness and pushback. In an official statement, the company claims the CMA “misses the mark,” arguing that today’s cloud market is more dynamic and competitive than ever, with record investment and rapid, AI-driven innovation unfolding across services. Notably, Microsoft takes issue with what it sees as a regulatory blind spot for Google, which, despite lagging AWS and Azure, is arguably the fastest-growing of the main cloud challengers.

The View from AWS: Warning of Regulatory Overreach​

Amazon, aiming to preserve the status quo that has made AWS the world’s dominant cloud platform, echoes similar themes of concern. An AWS spokesperson accuses the CMA of “disregarding clear evidence of robust competition,” adding that regulatory intervention risks “making the UK a global outlier” and introducing destabilizing uncertainty at a time when regulatory predictability is critical for international competitiveness.
Both Microsoft and Amazon warn that burdensome obligations or hastily assembled rules could stifle the very investment and innovation the government says it wants to encourage. Here, their arguments, while perhaps self-interested, are not entirely without merit: It is a delicate balance to strike between enforcing competitive fairness and allowing dynamic market evolution.

Critical Analysis: Do the Claims Stack Up?​

The claims by both sides deserve methodical scrutiny. Is the UK cloud computing sector, in fact, beset by anticompetitive behavior—or is it a healthy but naturally concentrated industry where dominant players have simply executed better than their peers?

Strengths in the CMA’s Approach​

• Thorough Data Gathering: The CMA’s report shows a commitment to data-driven analysis, referencing sizable industry statistics and significant consultation with customers, vendors, and industry analysts.
• Global Context: The inquiry acknowledges that cloud computing is an inherently global business, with technology, investment, and expertise circulating across national borders. By benchmarking UK market shares with those from other major economies, the CMA seeks to avoid insular conclusions.
• Focus on Licensing: The regulator’s deep dive into licensing terms is well-founded, given the technical and contractual complexity of modern enterprise IT. In many cases, even savvy IT leaders can struggle to understand the full competitive implications of cloud vendor agreements.

Potential Risks and Critiques​

• Timing and Priority: The most powerful remedies may not be on the table for years, given the decision to delay strategic market status until after Apple and Google’s mobile ecosystems are addressed. This means the window for meaningful competition to emerge could inch closed still further.
• Ecosystem Complexity: Critics, including AWS and many independent cloud consultants, argue that true market health is hard to measure in an industry where price, interoperability, and technical features intersect with enterprise inertia, skills gaps, and long-term contracts. A simplistic focus on market share may overlook creative new offerings or user-driven migration patterns.
• Risk of Overregulation: Heavy-handed or poorly designed market interventions can sometimes backfire, generating more compliance burdens for downmarket providers while failing to unseat entrenched giants. Past international examples, including European efforts to tackle other forms of digital dominance, show decidedly mixed results.
• International Disconnect: Unique UK regulations could, in theory, make the UK less attractive as a cloud services hub, deflecting investment elsewhere. However, there is little concrete evidence that appropriately targeted competition rules fundamentally deter global technology providers from investing in major economies.

Innovation, Cost, and Choice: What’s Really at Stake?​

At the heart of the debate is the concern that UK businesses—whether start-ups, multinational corporations, or public sector organizations—could end up with worse service and higher bills if competition falters. Cloud infrastructure now underpins nearly every sector, from banking and retail to healthcare and government administration. When a market’s main players wield the power to tilt the playing field through software licensing or integration strategies, the risk is not just theoretical.
The positive case for greater regulation draws historical parallels with telecoms, energy, and even banking—markets where unchecked concentration led to inefficiency and consumer harm. Supporters of the CMA’s stance argue that, just as in those sectors, rigorous oversight and targeted remedies can foster a more open, productive market for all.
Critics, on the other hand, counter that rapid technological innovation and strong global competitors—including Google, IBM, and a host of cloud-native European firms—render heavy intervention unnecessary. They warn of bureaucratic creep, regulatory capture, or the prospect of stifling exactly the next generation of competitors the rules are intended to nurture.

The Google Question: Fast-Growing Contender or Overlooked Titan?​

One of Microsoft’s most pointed rebuttals is that the CMA’s recommendation “fails to cover Google, one of the fastest-growing cloud market participants.” This is not without factual basis: In recent years, Google Cloud (now the third largest provider) has posted annual growth rates that dwarf both AWS and Azure, in percentage terms—though from a smaller baseline.
Still, the gulf in market share remains vast. Google holds less than 10% of UK market spend, according to the most recent available analysis. There is little suggestion that, absent structural shifts, Google will soon displace either of its larger rivals. Nonetheless, many industry observers argue that Google’s technical strengths and unique offerings—particularly in AI-centric workloads and next-gen developer platforms—mean regulators should tread carefully. Efforts to stimulate one competitor can inadvertently disadvantage another, replacing one set of distortions with another.

Lessons from Past Technology Oversight​

The digital economy is replete with cautionary tales: highly concentrated industries, left unregulated, have often failed their customers—but hasty or ill-designed interventions have sometimes entrenched incumbents and ossified market structures.
For instance, in the European Union’s prolonged antitrust moves against Microsoft twenty years ago (involving Windows and Internet Explorer), some analysts argue the net result did less to foster competition than hoped. Conversely, the regulation of telecoms networks and spectrum allocation in the UK is generally credited with bringing down prices and igniting competitive investment.
Transposing these lessons to cloud computing, it seems clear that any future interventions—whether on licensing, interoperability, or migration rights—ought to be carefully scoped, technology-neutral, and periodically reviewed for real-world impact.

The Road Ahead: 2026 and Beyond​

With any industry moving at cloud-driven speed, government action that could be years away is already late by competitive standards. By setting out its findings in detail—yet delaying the lion’s share of intervention until after Apple and Google’s mobile platforms are addressed—the CMA walks a tightrope. Businesses seeking alternatives or hoping to negotiate better cloud agreements will likely face another period of uncertainty.
For UK enterprises, the outcome will affect not only costs and supplier choice but also the ability to adopt cutting-edge tools in artificial intelligence, cybersecurity, and data analysis—technologies increasingly baked into cloud offerings themselves.

Recommendations and Watchpoints for UK Businesses​

• Review Cloud Contracts: Customers should scrutinize licensing terms carefully, particularly when running Microsoft workloads on rival clouds.
• Stay Agile: Avoid long-duration, inflexible cloud contracts where possible, to maintain the freedom to shift vendors as market circumstances change.
• Monitor Regulatory Developments: Engage with industry groups and monitor the CMA’s progress. Public comment periods and consultations will provide opportunities to surface specific pain points or competitive concerns.
• Embrace Multi-Cloud: Diversifying cloud spend across multiple providers—even at some cost of convenience—can reduce exposure to lock-in and take advantage of best-of-breed services.

Final Thoughts: A Pivotal Moment for Tech Competition in the UK​

The CMA’s investigation into the UK cloud computing market shines a rare spotlight on a hugely consequential area of the digital economy. While much remains uncertain—both in terms of regulatory timing and the specific interventions that might follow—the underlying issues will remain front and center for years to come.
Whether the outcome is a more diversified, innovative, and affordable cloud landscape, or simply a more burdened and bureaucratic one, will depend on the precision and pragmatism with which these findings are translated into action. The conversation, both for UK regulators and the global technology sector, is just beginning.

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Source: Nation.Cymru Amazon and Microsoft harming competition in cloud computing, finds CMA