The CMA's investigation into the UK cloud services market comes at crucial time

Ofcom's referral to the CMA underscores the gravity of competition concerns in the cloud services sector

In an era defined by rapid technological advancements, the cloud has emerged as a transformative force. The global IT landscape is experiencing profound shift, with a significant portion (60%) of corporate data finding its home in the cloud.

It is no surprise that the UK is taking a closer look at its £7.5 billion cloud services market. Ofcom's recent referral to the Competition and Markets Authority (CMA) to investigate competition concerns within this growing sector thus becomes a pivotal moment that warrants careful exploration.

As the digital age evolves, so does our reliance on cloud services. This shift has been accelerated by the ongoing economic uncertainty and a growing desire for cost optimisation. The International Data Corporation (IDC) predicts we will have seen a reduction in worldwide IT spending in 2023, with a clear trend away from on-premise infrastructure. In this context, the cloud market is projected to swell to a staggering $376.36 billion by 2029, emphasising the critical role it plays in our interconnected world.

Barriers to switching

Ofcom's referral to the CMA is not merely a regulatory formality; it underscores the gravity of competition concerns in the cloud services sector. One of the key issues identified by Ofcom is the difficulty faced by customers when attempting to switch between cloud providers or use multiple providers simultaneously. This includes issues like egress fees, charges for moving data out of the cloud, discounts that encourage exclusive use of a single provider, and technical barriers that impede switching.

The importance for cloud providers to address these concerns cannot be overstated, especially in times of economic uncertainty. Cost optimisation is a paramount consideration for businesses of all sizes, and many companies, especially small and medium-sized enterprises (SMEs), find themselves lacking the appropriate resources and expertise to effectively manage their cloud spend.

Cost optimisation increasingly finds itself an afterthought, leading to problems further down the line. A recent survey even found that SMEs are actually missing out on £6.9 billion by failing to embrace the cloud. Results from the CMA's investigation should present benefits to businesses of all sizes as well as cloud providers, poised to pave the way for increased supply and widespread adoption of cloud services.

The cloud has offered businesses a lifeline in turbulent times, granting them the agility and scalability required to navigate market shifts. However, to fully capitalise on these benefits, providers must address cost-related issues. Egress fees and data migration charges drive up costs for those looking to switch or optimise their spending. By tackling these challenges, providers can empower businesses to make informed decisions about their cloud usage and expenditure.

Furthermore, enhancing the customer experience becomes essential in the cloud services market. Leading providers like AWS have recognised this and are increasing their efforts to collaborate with customers, helping them optimise their cloud spend. This collaboration enhances existing relationships, fostering long-lasting partnerships.

By realigning their cloud strategy, businesses can access a broader array of services and operate more efficiently. This includes increasing agility, driving down costs, and promoting innovation, all while tapping into a suite of tailored services that cater to their unique organisational requirements.

Safeguarding competition

In response to Ofcom's findings and the impending CMA investigation, AWS issued a statement expressing disagreement. AWS believes that the concerns raised by Ofcom are based on a "fundamental misconception of how the IT sector functions" and asserts that "UK companies, and the overall economy, benefit from robust competition among IT providers." While AWS may have a valid point about the competitive landscape, it is important to acknowledge the challenges faced by businesses in navigating the complex world of cloud services, particularly when it comes to managing costs.

The CMA's role in this investigation is crucial. It serves as a safeguard to ensure that competition in the cloud services market remains robust, preventing market power from consolidating in the hands of a few dominant players. Effective competition not only benefits businesses, but also consumers and the broader UK economy, unlocking the full potential of rapidly evolving digital markets.

As cloud services continue to dominate, the market will continue to play a pivotal role in shaping our technological landscape. Ofcom's referral and the subsequent CMA investigation are necessary steps to ensure that this market remains fair, competitive, and accessible to all businesses, regardless of their size or resources. It is an opportunity to address the legitimate concerns of customers, promote a fair and open market, and enhance the overall customer experience.

Closing thoughts

The cloud services market in the UK is at a crossroads. It is a market of immense potential, but also one riddled with challenges that must be addressed. Ofcom's referral to the CMA is a significant development that underscores the importance of competition and cost optimisation in this dynamic sector.

As businesses increasingly turn to the cloud to weather economic uncertainties, it is imperative that we create an environment that fosters innovation, efficiency and fair competition. The CMA's investigation will play a pivotal role in shaping the future of cloud services in the UK, ensuring that businesses can harness the full power of the cloud to thrive in an ever-changing digital landscape.

Josh Boer is director of VeUP