An independent group inquiry by the Competition and Markets Authority (CMA) has found that there isn’t enough competition in the UK cloud services market.

According to the provisional findings from the in-depth assessment, the lack of competition could be leading to higher costs, less choice, less innovation and a lower quality of service for organisations in the UK.

The report found that Microsoft is using its strong position in software to make it harder for Amazon Web Services (AWS) and Google to compete effectively for cloud customers that want to use Microsoft software on the cloud. The CMA said this reduces the competitive challenge that AWS and Google can provide in cloud services and to Microsoft’s position. 

AWS and Microsoft are the largest providers of cloud services, with a share of around 40 per cent each, which the inquiry group said limits the choice for customers. It added that technical barriers also make it difficult for them to switch between providers, locking them into their initial choices, which may not suit evolving business needs.

Additionally, the report found that there are significant barriers to entry and expansion due to the very large capital investment needed to supply cloud services, which makes it harder for alternative cloud suppliers to enter and grow in these markets.

The CMA estimates that financial services firms, retailers and digital start-ups spent about £9 billion on cloud services in 2023, with this figure growing by around 30 per cent each year.

The inquiry group has provisionally recommended that the CMA use its powers under the Digital Markets, Competition and Consumers Act 2024 (DMCCA) to consider whether to designate the two largest providers, AWS and Microsoft, with strategic market status (SMS) in relation to their respective digital activities in cloud services.

“Our provisional view is that competition in this market is not working as well as it could be,” said Kip Meek, chair of the CMA’s independent inquiry group. “So, we propose that the CMA considers investigating the largest cloud service providers using its new digital markets powers.

“Effective competition in the delivery of these vital services could drive choice, quality and competitive prices – not only helping UK businesses but boosting innovation, productivity, growth and investment across the UK economy.”

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