Cloud competition:

On the 5th October 2023, the Competition and Markets Authority (CMA) announced it was investigating the supply of public cloud infrastructure services in the UK. The CMA is focusing its investigation on, among others, the software licensing practices of cloud services providers. Competition in the cloud market has also increasingly been gaining attention from other European competition authorities, including Germany, France, the Netherlands and Spain.

The core of the issue is as follows; the world is steadily moving its workload to the cloud and in order to give businesses the best value, there needs to be competition between cloud service providers and flexibility of choice for users to work with whoever they want to. But is that happening according to the users of cloud services themselves?

Our exploration of the market
This isn’t a new topic. There are many opinions on competition, analyses of the different offerings of the cloud providers, and perspectives from the vendors themselves.

However, what we were concerned with in this study was the reality of what businesses are feeling. Are they actually experiencing such issues? And are their decisions actually being impacted by factors that restrict choice and overall competition in the market?

To answer these questions, the Computer & Communications Industry Association (CCIA Europe) asked us to survey over 1200 IT decision-makers across five European countries (UK, France, Germany, the Netherlands, Spain), in companies ranging from SMEs to large corporates, across the private and public sector.

We wanted to know what their lived experience was, so what did they tell us?

What were we told; businesses feel restricted
Given how important the transition to the cloud will be, anything that hampers a business’s ability to choose from different cloud providers, move between them, or work with multiple, is a serious issue.

One such issue that businesses are tangibly experiencing regards the licensing of on-premise productivity software, such as word processing tools and spreadsheet software.

40% of business decision makers that had considered switching provider but decided against it said that; ‘Licensing terms on our existing software prohibit us from taking our existing on premise licences to another cloud provider’

This is a major issue impacting choice. What this finding shows is that almost half of all businesses may struggle to make the move to the provider they ideally want, simply because their existing licences for productivity software don’t allow it.

There clearly needs to be significant scrutiny of what is being written into those licences and how it can be ensured that these aren’t used as a tool to keep customers locked in to a specific provider and their ecosystem.

What were we told; discounting is going too far
Everyone loves a discount, right? Right.

But the structure of how products are offered with a reduced price to customers is another factor that can impact individual businesses’ choices in a way that hampers competition.

The CMA suggests that an issue exists if; ‘the way discounts by existing cloud providers are structured acts as a barrier to entry and expansion among cloud providers in a way that leads to longer-term harm to competition.’

Our study found that this in fact is another barrier that businesses are directly experiencing. 40% say that the worry of losing existing discounts is part of what put them off changing cloud provider, and 42% of Infrastructure as a Service (IaaS) customers said that a key factor on their original choice of technology providers was discounts being offered due to existing software licences they owned.

This means both that initial provider choices are being made based on discounts offered due to existing software estates, and then down the line businesses also aren’t switching due to worries about losing discounts.

This becomes even more pronounced when we look at the relationship between cloud infrastructure and productivity software, where 39% cited ‘discounts being offered on other services with the same provider’ as a reason they selected their productivity software of choice. Even more starkly, a full 25% said that when buying productivity software, they were offered cloud infrastructure for free.

There’s nothing wrong with a discount, but given these structural discounting practices reduce the fluidity of choice between providers, this is another issue that needs to be addressed.

What does this all mean?
This is a hot topic.

While progress has potentially been slower than it could have been, competition authorities at European and national level are starting to take a closer look at the issue.

Our research supports the basis of launching antitrust investigations into those practices – particularly the aspects related to software licensing restrictions having a tangible effect on the decisions that businesses are taking.

We set out to find out whether businesses were genuinely experiencing these issues when making their decisions. The answer is a loud ‘yes they are’.