Behind the sleek veneer of Britain's digital revolution lies a fierce contest for control of the nation’s cloud infrastructure—a contest now coming under hard governmental scrutiny. This summer, the UK’s Competition and Markets Authority (CMA) drew a definitive line in the sand: its final report accused Microsoft, as well as co-dominant Amazon Web Services (AWS), of using their market might and opaque licensing terms to stifle fair competition, inflate costs, and restrict innovation in the nation’s booming cloud sector. In the coming years, the outcomes of this investigation may not only reshape British tech but also chart the regulatory terrain for hyperscale cloud markets worldwide.
Beneath the surface of everyday business and government IT, the UK’s cloud computing market—now valued at approximately £9 billion annually—is increasingly monopolized by two titans: AWS and Microsoft Azure. Recent figures from both the CMA and independent analysts estimate that AWS and Azure each command between 30% and 40% of total UK cloud consumer spend. Together, their collective share may reach as high as 70–80%, leaving Google Cloud a distant third with approximately 5–10% market share.
This level of concentration is not merely a British phenomenon, but in the UK context, where government, healthcare, finance, and retail operations have become deeply entwined with cloud platforms, it sets the stage for profound market power and policy dilemmas. While the cloud is often billed as a driver of agility and competition, the CMA’s inquiry paints a picture quite the opposite: a landscape governed by entrenched gatekeepers, high switching costs, and growing barriers to entry.
1. Opaque and punitive software licensing—especially by Microsoft:
The CMA singles out Microsoft’s licensing model for close scrutiny. According to the report, Microsoft’s approach—particularly its ‘bring-your-own-license’ rules—makes it more difficult and expensive for customers to run Microsoft technologies (such as Windows Server or SQL Server) on rival clouds compared to Azure. Enterprises attempting to adopt a multi-cloud or hybrid strategy often find themselves paying higher fees and confronting technical obstacles, thereby limiting their ability to ‘shop around’ for the best offers. This, the CMA claims, damages both direct rivals and ultimately the customers Microsoft serves.
2. Data egress fees and vendor lock-in:
Both AWS and Microsoft impose sizable charges—known as egress fees—on customers wishing to move their data out of a provider’s cloud platform. While framed as necessary to recover infrastructure costs, these charges functionally act as exit barriers. Customers, especially those with large volumes of data, face significant financial and operational hurdles if they attempt to switch providers. This has amplified fears of “cloud lock-in,” reducing negotiating leverage and making the market less dynamic.
3. Poor interoperability and lack of open standards:
Technical incompatibilities—rooted in proprietary APIs, architectures, and software toolchains—compound the inertia. Workloads tightly coupled to vendor ecosystems become hard to migrate. The CMA’s investigators point out that, in contrast to open banking or other regulated digital sectors, the absence of robust portability standards for cloud computing reinforces incumbent power and stifles competitive entry.
This creates a direct incentive for enterprise customers—across sectors as diverse as finance, healthcare, and retail—to stay within Microsoft’s ecosystem, even when rival cloud options may offer better performance or lower base prices. In practice, organizations seeking flexibility or resilience through a multi-cloud strategy are often confronted with a mountain of extra costs. For many, the aspiration of “cloud neutrality” remains distant.
Microsoft has vigorously defended its model, asserting that the cloud market is “dynamic and competitive, with record investment and rapid AI-driven changes” and that the CMA’s report “misses the mark by failing to reflect Google’s growth or the competitive pressures from new technology”.
The regulator’s report reflects deep engagement with technical and market realities:
Enterprise IT teams contemplating their cloud strategy stand to benefit in several ways should the CMA’s recommendations take effect:
A healthier market ecosystem could mean:
Moreover, both Microsoft and Amazon’s arguments—that only innovation and excellence underpin their dominance, and that competitive pressure comes not just from Google, but also from new entrants and changing technological paradigms—cannot be wholly discounted. True digital dynamism often comes from disruptive change, and the regulatory process risks lagging behind the technology.
Nevertheless, the evidence accumulated by the CMA and corroborated by outside experts points to a strong case that today’s market, as configured, is not delivering fair outcomes. Absent transparent, enforceable rules around licensing, interoperability, and portability, the odds remain stacked against upstart entrants and even against large, established companies aiming to differentiate themselves outside of Microsoft’s or Amazon’s ecosystems.
As the regulator prepares the ground for the next phase, the stakes for digital Britain—and, indeed, for the world—have never been higher. The future of competition, innovation, and user freedom in the era of cloud computing will be decided not just in boardrooms and product launches, but within the evolving interplay between industry giants and the public interest, as mediated by smart, adaptive regulation.
Source: AInvest Microsoft's Software Licensing Terms Under Investigation by UK's CMA
A Cloud Market at the Crossroads
Beneath the surface of everyday business and government IT, the UK’s cloud computing market—now valued at approximately £9 billion annually—is increasingly monopolized by two titans: AWS and Microsoft Azure. Recent figures from both the CMA and independent analysts estimate that AWS and Azure each command between 30% and 40% of total UK cloud consumer spend. Together, their collective share may reach as high as 70–80%, leaving Google Cloud a distant third with approximately 5–10% market share.This level of concentration is not merely a British phenomenon, but in the UK context, where government, healthcare, finance, and retail operations have become deeply entwined with cloud platforms, it sets the stage for profound market power and policy dilemmas. While the cloud is often billed as a driver of agility and competition, the CMA’s inquiry paints a picture quite the opposite: a landscape governed by entrenched gatekeepers, high switching costs, and growing barriers to entry.
Probing the Competitive Deficit
The CMA’s final report delivers its verdict with unambiguous language: “the UK cloud computing market is not working well.” Underpinning this conclusion are a trio of critical barriers to competition:1. Opaque and punitive software licensing—especially by Microsoft:
The CMA singles out Microsoft’s licensing model for close scrutiny. According to the report, Microsoft’s approach—particularly its ‘bring-your-own-license’ rules—makes it more difficult and expensive for customers to run Microsoft technologies (such as Windows Server or SQL Server) on rival clouds compared to Azure. Enterprises attempting to adopt a multi-cloud or hybrid strategy often find themselves paying higher fees and confronting technical obstacles, thereby limiting their ability to ‘shop around’ for the best offers. This, the CMA claims, damages both direct rivals and ultimately the customers Microsoft serves.
2. Data egress fees and vendor lock-in:
Both AWS and Microsoft impose sizable charges—known as egress fees—on customers wishing to move their data out of a provider’s cloud platform. While framed as necessary to recover infrastructure costs, these charges functionally act as exit barriers. Customers, especially those with large volumes of data, face significant financial and operational hurdles if they attempt to switch providers. This has amplified fears of “cloud lock-in,” reducing negotiating leverage and making the market less dynamic.
3. Poor interoperability and lack of open standards:
Technical incompatibilities—rooted in proprietary APIs, architectures, and software toolchains—compound the inertia. Workloads tightly coupled to vendor ecosystems become hard to migrate. The CMA’s investigators point out that, in contrast to open banking or other regulated digital sectors, the absence of robust portability standards for cloud computing reinforces incumbent power and stifles competitive entry.
Microsoft’s Licensing: The Core Controversy
The most acute criticism falls on Microsoft’s licensing practices. The CMA asserts 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”. In effect, Microsoft software remains easier and cheaper to run on Azure, while those who wish to deploy identical workloads on AWS or Google Cloud can face significant surcharges and technical compliance challenges.This creates a direct incentive for enterprise customers—across sectors as diverse as finance, healthcare, and retail—to stay within Microsoft’s ecosystem, even when rival cloud options may offer better performance or lower base prices. In practice, organizations seeking flexibility or resilience through a multi-cloud strategy are often confronted with a mountain of extra costs. For many, the aspiration of “cloud neutrality” remains distant.
Microsoft has vigorously defended its model, asserting that the cloud market is “dynamic and competitive, with record investment and rapid AI-driven changes” and that the CMA’s report “misses the mark by failing to reflect Google’s growth or the competitive pressures from new technology”.
Conduct Requirements: The CMA’s Proposed Path Forward
To address these structural disadvantages, the CMA panel has called for a package of regulatory reforms, most notably the designation of AWS and Microsoft as providers with “Strategic Market Status” (SMS) under the UK’s new Digital Markets, Competition and Consumers Act 2024. This designation, reserved for the most powerful ‘gatekeeper’ firms, would grant the CMA unprecedented powers—bespoke conduct requirements, ongoing oversight, and rapid dispute resolution mechanisms.Potential Remedies Under SMS
If and when this regime is implemented, a range of targeted interventions are on the menu:- Mandatory licensing parity: Microsoft could be required to offer truly equivalent “bring-your-own-license” (BYOL) terms across all cloud providers, not just Azure, bringing a level playing field for competitors and customers.
- Capped or prohibited egress fees: Providers may have to make data export either free or strictly cost-reflective, removing one of the main financial disincentives to switching. This would empower organizations to pursue multi-cloud or hybrid strategies without punishing cost barriers.
- Interoperability mandates: The introduction of open API requirements and standardized data schema would lower technical obstacles and encourage competition from both large and niche cloud providers.
- Transparency and reporting obligations: Enhanced requirements for price transparency and fair contracts would restore negotiating power to customers and foster a more predictable market.
Timeline and Global Relevance
Notably, the decision to open a full SMS probe is delayed until at least 2026, as the regulator is currently prioritizing similar work for Apple and Google in the mobile ecosystem. This slow process risks entrenching incumbent advantages, though it reflects just how complex and critical hyperscale cloud competition has become. Whatever the schedule, the world will be watching—much of the regulatory thinking in the UK will likely serve as a blueprint elsewhere, from the European Union to Australia and the Americas.Industry Reactions: Discord, Denial, and Divergence
The CMA’s recommendations have already drawn sharply contrasting opinions from the industry’s key participants:- Microsoft staunchly disputes the consumer harm thesis, arguing that the “cloud market has never been so dynamic and competitive, with record investment and rapid, AI-driven changes.” It points to Google’s swift growth as evidence of competitive pressure and argues that the regulator’s critique is out of step with market reality.
- Amazon Web Services (AWS) delivers an even sterner rebuke, labeling the proposed actions “unwarranted and undermining the substantial investment and innovation that have already benefited hundreds of thousands of UK businesses.” AWS warns that heavy-handed regulation could stifle the very investment and product development that has made the UK a digital leader.
- Google Cloud, in stark contrast, welcomes the CMA’s scrutiny—describing the findings as a “watershed moment.” Google leadership has called for urgent reforms to foster fair pricing, innovation, and open market conditions in the UK, aligning itself with many smaller providers who struggle to compete on equal terms.
Risks, Strengths, and the Path Ahead
Strengths of the CMA’s ApproachThe regulator’s report reflects deep engagement with technical and market realities:
- Thorough data-driven analysis: Drawing on varied sources—customer interviews, vendor data, and third-party market intelligence—the inquiry moves beyond top-level accusations to map out granular market dynamics.
- Global context: By benchmarking UK market concentration against broader trends, the CMA avoids national myopia and recognises the interconnectedness of cloud technology.
- Nuanced focus on licensing: The focus on software licensing is well judged. For many organizations, the details of enterprise IT agreements are both critically important and notoriously complex.
- Implementation delays: With SMS intervention delayed until 2026 and focus shifting to mobile platforms, the risk is that competitive harm becomes even more entrenched, and the window for effective remedy narrows.
- Ecosystem complexity: Critics—including AWS, and some independent IT analysts—argue that market health in the cloud sector intertwines price, interoperability, and technical depth. The CMA’s reliance on market share may underplay new innovation or shifting customer preferences.
- Implications for investment and dynamism: Both Microsoft and AWS warn that overzealous regulation could drain investment, slow product development, and undermine Britain’s edge in digital competitiveness at precisely the wrong moment—especially as AI and quantum cloud approaches begin to scale.
- Technical and legal hurdles in enforcement: Mandating uniform licensing terms or abolishing established pricing practices could spur significant legal pushback and create enforcement headaches due to legacy contracts and complex global service operations.
The Real-World Impact: What’s at Stake?
For Businesses and GovernmentEnterprise IT teams contemplating their cloud strategy stand to benefit in several ways should the CMA’s recommendations take effect:
- Lower switching costs and enhanced multi-cloud flexibility would empower organizations to mix-and-match best-of-breed offerings.
- Transparent and predictable costs support better IT procurement planning and risk management.
- A more competitive landscape drives innovation—potentially giving customers earlier access to breakthrough cloud features or more robust price/performance value.
- AWS and Microsoft risk losing a core advantage if forced onto a “level playing field.”
- Smaller and UK-based tech providers see opportunity for new growth in a market less dominated by legacy giants.
A healthier market ecosystem could mean:
- Lower prices, as cloud vendors compete directly on service value, not vendor lock-in.
- Greater choice in digital vendor capabilities, architecture, security, and resilience.
- Broader participation and innovation in the UK’s booming AI, fintech, and digital public sector programs—all reliant on foundation cloud infrastructure.
Critical Perspective and Open Questions
Though the CMA’s findings are built on robust evidence and resonate with independent expert opinion, some warnings remain warranted. Cloud is a notoriously dynamic sector, and market share does not always track innovation or ultimate consumer benefit. Regulatory overreach has, in other industries, sometimes sapped initiative and locked legacy approaches into law.Moreover, both Microsoft and Amazon’s arguments—that only innovation and excellence underpin their dominance, and that competitive pressure comes not just from Google, but also from new entrants and changing technological paradigms—cannot be wholly discounted. True digital dynamism often comes from disruptive change, and the regulatory process risks lagging behind the technology.
Nevertheless, the evidence accumulated by the CMA and corroborated by outside experts points to a strong case that today’s market, as configured, is not delivering fair outcomes. Absent transparent, enforceable rules around licensing, interoperability, and portability, the odds remain stacked against upstart entrants and even against large, established companies aiming to differentiate themselves outside of Microsoft’s or Amazon’s ecosystems.
Looking Forward: A Global Template
The next steps rest with both regulators and the industry. The UK’s willingness to apply its Digital Markets, Competition and Consumers Act—the most ambitious digital regulatory reform passed in the country’s history—will act as a testbed for similar efforts worldwide.- If enacted well, these reforms could break up entrenched advantage, boost innovation, and deliver improved technology outcomes for businesses and everyday users.
- If bungled, the risk is a new layer of bureaucracy, confusion, and lost investment that blunts rather than sharpens the cutting edge of cloud.
As the regulator prepares the ground for the next phase, the stakes for digital Britain—and, indeed, for the world—have never been higher. The future of competition, innovation, and user freedom in the era of cloud computing will be decided not just in boardrooms and product launches, but within the evolving interplay between industry giants and the public interest, as mediated by smart, adaptive regulation.
Source: AInvest Microsoft's Software Licensing Terms Under Investigation by UK's CMA
