UK cloud market consolidating around two major players, CMA says

AWS remains the market leader but Microsoft steals the show with growth and new customers

The UK cloud market is booming, with revenues more than doubling in just three years, but the market is consolidating around Amazon Web Services (AWS) and Microsoft Azure.

That's according to the Competition and Markets Authority (CMA), which released a series of working papers last week to keep stakeholders updated on the progress of its investigation into the UK cloud market.

The probe was launched last year after the communications regulator, Ofcom, found evidence suggesting anti-competitive behaviour within the UK cloud industry.

The CMA's investigation focuses on several key areas, including the overall competitive landscape of the UK cloud market, the impact of technical barriers and data transfer fees (egress fees) on cloud provider switching, as well as the potential anti-competitive effects of cloud provider discounts.

The CMA says AWS remains the market leader in terms of overall share, but Microsoft is experiencing robust growth and attracting the lion's share of new customers.

"AWS and Microsoft's combined share of supply is increasing steadily year on year while the shares of smaller cloud providers are generally declining overall," the paper [pdf] says.

Microsoft's share of revenue growth jumped from 30-40% in 2021 to 40-50% in 2022, while AWS's share remained flat.

This dominance extends to new business wins, with Microsoft capturing about 60-70% of new customers in both 2021 and 2022.

AWS, on the other hand, only managed to secure 20-30% of new customers during the same period.

Interestingly, Microsoft also boasts the highest profit margins in the UK cloud market. The CMA said Microsoft consistently earns between 33% and 44% in profit margins, compared to AWS's 25-30% range.

Google Cloud, the distant third player, only recently achieved profitability and currently operates with significantly lower margins than its bigger rivals.

The CMA is also investigating whether factors like Microsoft's software licensing practices and data egress fees - charges levied for transferring data out of a cloud platform - could be hindering competition.

Although initial findings suggest software licensing practices don't directly determine cloud provider choice, Microsoft's enterprise agreements might still subtly influence decisions.

Data egress fees are also a major concern for the CMA's investigation. Interestingly, since the probe began, all three major cloud providers - AWS, Microsoft, and Google - have abolished egress fees entirely.

Despite these recent developments, the CMA will continue its examination of data egress conditions.

The CMA's initial report also focuses on committed spend discounts. While the size of the discounts themselves is less of an issue, the conditions attached to them raise potential anti-competitive concerns. Some providers require users to reach high utilisation thresholds, exceeding 80% of their workload on the provider's cloud platform, to qualify for these discounts.

Given the dominance of AWS and Microsoft, the CMA considers that the impact on competition arising from committed spend discounts offered by these major players is likely to be greater compared to smaller providers.

The CMA's investigation is ongoing, and the watchdog is expected to release a provisional decision on the competitiveness of the UK cloud market in September or October this year.

A final decision may come sometime between February and April of 2025.