The cloud computing market is already a very dynamic one. There are a lot of companies and offers out there, and some big changes are afoot, whether the market wants them or not.
There are a few reasons for this. One of the major ones is that early in April 2023, UK regulators raised their concerns towards two of the biggest players in the cloud market – Amazon and Microsoft. Another reason is the natural development and evolution of technology, and the interests of the clients and the market as a result. We have multi- and hybrid cloud setups battling not just for clients, but for entire regions. Cloud players are expanding their investments into more countries which brings both innovation, but also challenges for local cloud companies, and here we are going to explore these developments.
Hyperscaler fees bring concerns for regulators
Ofcom, the United Kingdom’s telecom regulator, escalated its investigation which it launched in September 2022. It explores Microsoft and Amazon’s business practices when it comes to their cloud services. Ofcom announced it has found enough to warrant to refer the matter to the Competition and Markets Authority (CMA) in the UK, Telecoms.com reported.
Since the investigation is ongoing, the regulators aren’t publishing all the details. However, they have said there are several issues that discourage or make it more difficult for businesses to switch their cloud providers.
One of these practices is the egress fee. It’s a fee that gets charged to customers who transfer their data out of the cloud. According to Ofcom, the hyperscalers charge significantly higher egress fees than smaller cloud providers. The regulator thinks this higher fee is preventing businesses from switching their provider or using a multi-cloud setup.
The second problem, according to Ofcom, is the committed spend discounts. On paper, they should be beneficial to customers, whereas in reality, they are structured in a way to encourage clients to use a single hyperscaler for most or all their cloud needs, the regulator says. Of course, this isn’t viewed as a good thing for competition and market choice by the institution.
The next issue is a bit surprising. According to Ofcom, there are technical restrictions on interoperability with these services. The regulator thinks hyperscalers are preventing the possibility for some of their services to work well with other cloud providers. Most often it’s possible for the client to get the service to work with other providers, but it requires additional effort to do so, thus lowering the possibility of them choosing this option.
“These market features can make it difficult for some existing customers to bargain for a good deal with their provider. There are indications this is already causing harm, with evidence of cloud customers facing significant price increases when they come to renew their contracts. In addition, some customers are concerned about their ability to switch and use multiple providers where this limits their ability to mix and match the best quality services across different providers,” said Ofcom, in a statement.
The regulator noted that Microsoft Azure and Amazon Web Services together hold the majority of the cloud market in the UK – between 60% and 70%. Google Cloud is a distant third with a 5-10% market share. All the other smaller and/or local players hold the rest.
Ofcom thinks the higher profitability of the big names along with the consistent growth in this area, “indicate there are limits to the overall level of competition.” The regulator says it wants to ensure smaller companies have a chance against hyperscalers when it comes to getting a slice from the market and that the investigation will aid in finding the needed remedies. It claims that if no action is taken, the UK cloud market could become too concentrated and limit users to less choice and higher prices while pushing away the smaller providers.
“Making a market investigation reference would be a significant step for Ofcom to take. Our proposal reflects the importance of cloud computing to UK consumers and businesses, the significant concerns we have about the cloud infrastructure market and our view that the CMA is best placed to undertake any further investigation,” Ofcom said.
There are some key details to add. First, that’s not Ofcom’s final decision. These are the initial concerns that prompted the additional checks. The regulator has requested feedback from the companies, and they have until 17th May 2023 to respond. Then Ofcom will have until 5th October 2023 to release its final report. CMA on the other hand will still decide what actions to take if any.
Naturally, the mentioned IT giants don’t really agree with the regulators. “We design our cloud services to give customers the freedom to build the solution that is right for them, with the technology of their choice. This has driven increased competition across a range of sectors in the UK economy by broadening access to innovative, highly secure, and scalable IT services,” Amazon said to the Financial Times in a statement.
“We remain committed to ensuring the UK cloud industry stays highly competitive, and to supporting the transformative potential of cloud technologies to help accelerate growth across the UK economy,” said Microsoft.
The investigation and the possible outcomes from it could have an effect in other countries, too. While the UK is no longer part of the EU, and the EU will be activating its own Digital Markets Act in May from this year, the UK continues to remain a big global market. As such, businesses and regulators from other countries are keeping a close eye on the activities there and will take relevant actions, too when and if needed.
Other big markets are changing, too
There are cloud rumblings not only in the UK. The entire Asia Pacific (APAC) region is changing, says DataCenterDynamics. It notes that data center growth is going to accelerate in the region and again hyperscalers will be one of the main reasons for it. They will need more data centers to accommodate the rising demand for cloud services in the region.
But there’s a key difference. Asian businesses and institutions love the multi-cloud setups, so they do and will want to use services which support these configurations. As a result, even the big players are taking note.
Multi-cloud configurations are properly big in Asia, the publication notes. For example, the Singaporean government agency GovTech is also developing a multi-cloud architecture. Singapore’s cloud market has more variety than three big players in the region. Apart from the obvious ones, Asia also has three more – Alibaba Cloud, Huawei Cloud, and Tencent Cloud. Plus, the number of people and businesses is also quite a lot bigger.
So, the western IT giants must be a bit more careful with their behavior, or they risk losing customers to the local IT heavy lifters. In Asia the race is all about who will be the best multi-cloud platform, and who also works well with the complexities that come with such a setup.
And as big as Asia is, what happens there has the potential to change the entire global market. Since the multi-cloud is a popular approach, there’s a high chance it will become a global trend, too, and the first indications of this happening are already here.
A San Francisco-based company called HashiCorp has developed an entire suite of open-source tools for the development and deployment of multi-cloud setups and large-scale cloud infrastructure. The message here is that the trends in Asia create new needs for solutions and they are being met not only via local companies, but ones from the other side of the world, too.
This shows clear intentions to run a big business on and from the multi-cloud segment in other regions around the world. Right now, that seems like a strange prospect, considering that the UK’s probe is exactly because of a concern there’s not enough room for the multi-cloud setups. Yet, in Asia that’s the main trend.
So, it seems like a natural path is forming for the future of the cloud market, and that is going multi-cloud with higher interoperability from all players. And it won’t change.
According to HashiCorp’s State of Cloud Strategy Survey 2022, over 80% of APAC respondents have chosen multi-cloud setups. 46% of them are already using such services, and 38% are in the process of starting to use them within the next 12 months. The survey shows strong interest in multi-cloud from a lot of key industries, led by finance, retail, resource, telecommunications, and the public sector.
Western IT giants are not stopping their expansion, either. Amazon announced recently that it will invest more than $13 billion in Australia over the next five years. The money will go towards the expansion of Amazon Web Services and related infrastructure in Melbourne and Sydney. This includes new data centers and making them – and the existing ones – run entirely on renewable energy.
The company has already spent $9.2 billion since 2012 when it first entered the region. It’s also working to expand within other cities in Australia like Perth and Brisbane. Amazon also wants to reach 100% renewable energy for its infrastructure there by 2025.
“Economic and infrastructure investment from cloud providers like Amazon Web Services helps create jobs, advances digital skills, boosts innovation and uplifts local communities and businesses. The Australian government acknowledges AWS’s investment into the nation over the past decade and welcomes its planned investment over the next five years, the full-time jobs supported annually and contribution to the nation’s GDP,” says the Australian prime minister, Anthony Albanese.
Naturally governments are thrilled by such big investments. This also means the multi-cloud approach has even more options to evolve in more regions and improve the competition even further. It won’t be equally easy in all regions and there will be some challenges to overcome in some countries, but in the end, the multi-cloud approach has the biggest chance of big success, and it will drive the next phase of the market and the evolution of the cloud in general.