Cloud services underpin much of the UK’s business and organisational infrastructure, with expenditure in this sector growing by over 30 per cent each year, reaching £9 billion in 2023. However, the CMA’s independent inquiry group has identified several significant issues within the market, particularly concerning barriers to competition and customer choice.

The investigation has found that the UK cloud services market is highly concentrated, with Amazon Web Services (AWS) and Microsoft each holding a market share of between 30 and 40 per cent. Google, the next largest provider, maintains a considerably smaller share.

One key concern is the difficulty of new providers entering the market.

"There are significant barriers to entry and expansion due to the huge capital investment needed for cloud infrastructure — this makes it harder for alternative cloud suppliers to enter and grow in these markets," the report states.

Additionally, the CMA found that technical and commercial obstacles make it challenging for customers to switch between providers or operate across multiple cloud services (multi-cloud strategies). These restrictions often lock customers into their initial choice, even if their needs evolve.

The inquiry has focused mainly on Vole’s software licensing practices, which the CMA believes hinder competition.

The report notes: "Microsoft is using its strength in software to make it harder for AWS and Google to compete effectively for customers who wish to use Microsoft software on the cloud—this reduces the competitive challenge to Microsoft in the supply of cloud services."

The CMA has suggested that ineffective competition could increase prices and reduce service quality for UK businesses.

"To illustrate the possible detriment to UK customers: given £9 billion spent in the UK on these services, if prices are on average five per cent above those in a well-functioning market, this would amount to around £430 million per year. If the recent annual growth in cloud services of 30 per cent continues, this figure would grow rapidly," the findings indicate.

The report said that with better competition, cloud providers would be incentivised to improve their services in key areas such as scalability, flexibility, and resilience. More effective competition could also unlock greater business opportunities to innovate and grow.

To address these concerns, the inquiry group recommends that the CMA board consider using its new digital market powers to designate AWS and Microsoft as having strategic market status (SMS) in cloud services.

If such a designation is made, the CMA could implement measures to tackle key market issues, including egress fees, technical barriers, and Microsoft’s licensing policies.

The report acknowledges that due to the scale of investment required, the number of cloud providers able to compete effectively will remain limited. However, the CMA stresses that ensuring effective competition between even a few providers is crucial to delivering better outcomes for UK businesses and the broader economy.

The CMA is now inviting industry feedback on these provisional findings before making its final decision.