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As regulators around the world try to deal with uneven competition in cloud computing, they face a difficult choice. Attempting to open up the cloud market will require more detailed interventions than other technology markets, including price controls and the development of detailed technical rules.
However, doing nothing is not an option. According to research firm Gartner, cloud computing already accounts for nearly one-fifth of global information technology spending and will contribute most of the growth in the foreseeable future, growing 20% annually to reach $1.1 trillion by 2027. In the hands of Amazon Web Services and Microsoft, Google remains a distant third.
There are powerful forces supporting market concentration. Large cloud providers, known in the industry as hyperscalers, enjoy massive economies of scale. The largest customers also purchase a range of cloud services, many of which require integration, making them dependent on the most advanced providers while making switching to competitors extremely complex and difficult.
Even as customers demand better deals — as has happened over the past year as widespread corporate belt-tightening led many to seek to halt runaway cloud spending — Big Tech has found ways to stand out. For example, one strategy is to appease customers by offering deep discounts—but only if they sign a contract that guarantees a certain level of future business. This may result in savings, but it also becomes a powerful tool in preventing conversions.
A growing number of regulators say that running through it all is a strategy that IT companies have long used to “lock in” customers. Switching comes with additional costs, and technology differences make it difficult or costly for customers to switch.
UK regulators have recently taken action on these issues, launching formal investigations into Amazon and Microsoft. That puts them ahead of the United States, which began a review of cloud computing earlier this year, but behind the European Union, which has used its data bill to propose new rules to boost competition in the cloud.
Volume discounts are a ploy by UK authorities To pick out Although they acknowledged that it would be difficult to clamp down on price concessions without hurting customers. But the EU and UK are mainly focusing on two other areas.
The first involves preventing cloud companies from using onerous data transfer charges to prevent customers from moving their business to a competitor’s cloud. EU rules require a complete ban on such fees. This may sound like an obvious step, but in the complex world of cloud computing, nothing is simpler.
AWS, for example, has been criticized for charging customers only when they take data out of the cloud rather than when they bring it in — an asymmetry that appears to be designed to lock in users. There may be good business reasons for this, though. AWS said it could not tell whether the data was being exported to competitors or being used for services such as video streaming. If the latter is the case, customers may “export” the same data multiple times, making the cloud company pay for it.
The second area of action involves interoperability, or the ability of rival companies’ systems to work together. Currently, many technology differences limit this, making it more difficult for customers to use multiple cloud providers.
Potential solutions listed by the UK regulator include imposing some technical standards – a draconian move – and even requiring rival companies to establish direct communications links between their data centers so customer data can move more freely .
But they suggested action might be better targeted at specific areas where a lack of interoperability appears to lack clear justification.
There is precedent for this kind of detailed control over technology interoperability. After the United States reached an antitrust settlement with Microsoft more than 20 years ago, the software company was subject to years of technical surveillance to prevent it from using technology related to its PC monopoly to dominate other markets.
If regulators go down the path of micromanaging the boundaries between the major cloud computing providers, they will face a chaotic period. But with the future of IT largely in the hands of a handful of companies, they may have no choice.
richard.waters@ft.com
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