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CMA: AWS and Microsoft deny cloud discounts have anti-competitive effect on market

May 23, 2024
in Technology
CMA: AWS and Microsoft deny cloud discounts have anti-competitive effect on market
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The CMA finds that IT buyers do not see the anti-competitive impact that discounts can have on the UK cloud market, despite acknowledging that preferential pricing can dictate their choice of cloud provider


Caroline Donnelly

By

Caroline Donnelly,
Datacentre Editor

Published: 23 May 2024 17:25

Cloud customers are failing to see how the offering of committed spend discounts could contribute towards them becoming locked in to hyperscale cloud platforms, according to the interim findings of an anti-trust probe into the inner workings of the UK cloud industry.  

The Competition and Markets Authority (CMA) has published the first of a series of working papers designed to update stakeholders on how its investigation into the UK cloud services market is progressing.

As previously reported by Computer Weekly, the UK cloud services market was referred to the CMA for further examination by the communications regulator, Ofcom, whose own investigation into the market found evidence of alleged anti-competitive behaviour.

The CMA has previously ruled that the scope of its investigation would include a look into the impact that technical barriers and interoperability issues have on the ability of cloud buyers to switch providers or adopt a multicloud approach to sourcing services.

Also in scope of its investigation is the practice of charging customers egress fees to transfer their data to a competitor’s environment, along with the offering of discounts to lure in new customers or encourage existing ones to use more of a certain provider’s services.

The working papers include one examining the UK cloud market’s overall competitive landscape, along with others separately looking at how the charging of egress fees and the offering of committed spend discounts might impact which providers companies choose to use.

The CMA has stated that while the papers might give an indication of the areas its investigation is focusing in on, its contents do not contain any provisional details on the stance or actions it may or may not take to address any of the areas under investigation.

Against that backdrop, the competitive landscape working paper confirms that Amazon Web Services (AWS) and Microsoft are the two dominant players in the UK cloud market, with Google in third place.

“Many large customers do not see any suitable alternatives to AWS and Microsoft as their main cloud provider,” the paper stated.

“[The enterprises] do not perceive other smaller providers to have comparable offerings to AWS and Microsoft, albeit Google is perceived as being closer than Oracle and IBM and other smaller providers.”

In the wake of the CMA’s investigation being launched, AWS, Microsoft and Google have all publicly committed to abolishing egress fees

It added: “Smaller providers may still be seen as suitable alternatives for certain workloads, as they have strong offerings in relation to certain segments or types of customers.”

Where egress fees are concerned, the working paper suggests this is less of a top-of-mind concern for customers, with the working paper stating that “only a few customers that we spoke to spontaneously identified egress fees as a challenge”.

Incidentally, in the wake of the CMA’s investigation being launched, AWS, Microsoft and Google have all publicly committed to abolishing egress fees.

On the topic of offering committed spend discounts, the working paper said the anti-competitive concern here is less about how big the discounts being offered are and more to do with the conditions laid down by providers about how consumers benefit from them.

For instance, some suppliers state that to access discounts, users must reach a certain – usually relatively high – percentage usage threshold, whereby, for example, 80% of their workloads must be running in their particular cloud for the discounts to kick in.

Because of the hold AWS and Microsoft have on the UK cloud market, the working paper states: “We consider that any impact on competition arising from [committed spend discounts] is likely to be greater than any impact from [committed spend discounts] offered by smaller providers.”

This working paper revealed a slight difference in opinion between suppliers, customers and the CMA about the competitive impact committed spend discounts have.

“IBM said that CSDs [committed spend discounts] reinforce the technical barriers to multicloud and present a challenge from customers’ standpoint, as they can limit customers’ ability to switch providers,” the paper stated.

Meanwhile, members of the independent software vendor (ISV) community told the working paper authors that “CSDs are reasonable business practices” but they raise barriers to entry and expansion for smaller cloud service providers.

In contrast, AWS is quoted in the working paper as saying the idea that CSDs dampen competition by incentivising customers to use a single provider is not true.

“The hypothesis that CSDs can dampen competition by incentivising customers to use a single provider for most or all of their needs, or that cloud services providers require customers to increase their spend commitment upon renegotiation of their agreements, does not hold,” said the quote from AWS.

“It said that discounts are pro-competitive and directly benefit customers, and that a closer look at its pricing and discounts makes it clear that they do not raise barriers to entry and expansion.”

Microsoft contributed similar commentary by describing CSDs as a “key aspect of price competition for new and existing customers and lead to lower prices for customers in the UK”, while Google described CSDs as being “mutually beneficial” for customers and cloud providers.

“The prevalence of discounting practices is typically one indicator of a market that is functioning well,” Google added.

The working paper also stated that cloud buyers are “unlikely to identify any harm brought about by CSDs” because they are “unlikely to internalise the effect” of them on the overall competitive structure of the cloud market, because they are too focused on the financial benefits these deals bring.

“Therefore, it is likely that most customers would see CSDs in a positive light, even if CSDs were having an anti-competitive effect,” the working paper stated.

Despite this, the working paper stated that most customers said it was “somewhat likely or very likely” that a CSD will have an impact on their choice of which cloud to use for new workloads because of the impact it could have on their ability to unlock further discounts with their existing provider.

Mark Boost, CEO of UK-based cloud provider Civo, told Computer Weekly that Microsoft and AWS’s take that the offering of CSDs is promoting competition within the UK cloud market, rather than stifling it, is wide of the mark.

“It’s clear for everyone else, except the hyperscalers, that offering huge amounts of free credit and discounts is swaying businesses’ decisions when it comes to choosing a provider, which ultimately limits competition and stifles innovation,” he said.

“As the CMA’s report highlights, big tech [firms] are enticing customers into contract negotiations with offers of discounts between 5% and 20%, which are difficult to ignore and often a gateway into bigger deals.”

He added: “The bigger issue is when you look at the length of contracts offered. The higher discounts apply when you commit to staying for more years. While this might help the business with better deals in the short term, it’s also locking them into a single provider.”

The offering of CSDs to public sector entities, in particular, is widespread, with a Computer Weekly investigation revealing in November 2023 that the CMA was among 15 public sector bodies to have received discounts on AWS services through the first iteration of the One Government Value Agreement (OGVA).

As a follow-on to this, Computer Weekly further revealed earlier this month that the CMA is on course to double its spend with AWS over the next three years after renewing its contract with the company, which will see it continue to receive discounts on AWS products.

Commenting on the contents of the working papers, Nicky Stewart, former ICT chief at the UK government’s Cabinet Office, told Computer Weekly: “Given the CMA’s thinking on spend commitment discounts, in particular customers’ blindness to them, I will await the CMA’s provisional decision later this year with interest. Particularly in light of the extent of the government and the CMA’s reliance on them, which only serve to underline the CMA’s findings to date.”

Read more on Infrastructure-as-a-Service (IaaS)


CMA to double spend with AWS while overseeing anti-trust probe into cloud giant

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By: Caroline Donnelly


CMA set to tackle interconnected web of strategic AI partnerships

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By: Cliff Saran


The CMA anti-trust investigation into AWS and Microsoft explained: Everything you need to know

CarolineDonnelly

By: Caroline Donnelly


UK government quietly renews public sector preferential pricing agreement with AWS

CarolineDonnelly

By: Caroline Donnelly

>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : Computer Weekly – https://www.computerweekly.com/news/366586292/CMA-AWS-and-Microsoft-deny-cloud-discounts-have-anti-competitive-effect-on-market

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