Cloud-busting will be a difficult time for tech regulators

Regulators around the globe are faced with a tough choice as they try to deal with the unfair competition in cloud computing. To open the cloud market, more detailed intervention will be required than in other tech markets. This includes things like price controls and detailed technical rules.

But doing nothing is not an option. Gartner research shows that cloud computing accounts for nearly half of all global IT spending. It will continue to grow at a rate of 20 percent per year, reaching $1.1 trillion by 2027. Amazon Web Services, Microsoft and Google are the main players in this market.

Strong forces are in favour of a highly concentrated market. Hyperscalers are giant cloud providers that enjoy huge economies of scale. These customers buy many cloud services that need to be integrated. This makes them dependent on only the most advanced providers, and it is difficult to switch.

The big tech companies are able to make money even when their customers ask for a better deal. This happened in the last year, as corporate budget cuts led to many seeking to stop the runaway cloud spending. For example, one tactic has been to offer substantial discounts, but only after the customer signs contracts that guarantee a certain level of business in the future. It may bring savings but has also been used to prevent switching.

According to an increasing number of regulators and industry experts, the tactics used by IT companies to “lock-in” their customers are woven throughout all of this. Switching is expensive, and technical differences make it hard or costly for customers to switch.

UK regulators are the latest to take these issues on, and have launched a formal investigation into Amazon and Microsoft. This puts the UK ahead of the US which started a cloud computing review earlier this year. However, they are behind the EU which has used its Data Act in order to introduce new rules that promote cloud competition.

The UK authorities have singled out volume discounts as a tactic for close scrutiny. However, they acknowledge that it would be difficult to ban price breaks without harming customers. The EU and UK are concentrating their efforts on two areas.

First, cloud companies should not be able to use high data transfer fees to deter customers from switching to rival clouds. EU regulations call for a complete ban on such fees. It may seem like an obvious step but the world of cloud computing can be complex.

AWS has been criticized for charging customers only when they take their data out of the cloud. They do not charge fees when users bring in data. This asymmetry appears to be designed to lock in users. There may be valid business reasons. AWS claims it cannot tell if data is exported to a competitor or if it’s used for a video-streaming service. In the second case, customers may “export” data multiple times. Cloud companies should therefore be compensated for this service.

Interoperability is the second area of action, which involves the ability for rival systems to communicate with each other. Currently, there are many technical differences that make it difficult for customers to choose more than one cloud provider.

The UK regulators have listed a number of potential solutions, including making certain technical standards mandatory – a drastic move – or requiring rival companies build direct communication links among their data centers so that customer data can be moved more freely.

They suggest, however, that it might be more effective to focus on specific areas where the lack of interoperability does not seem to have a clear justification.

This level of control over technical interoperability is not new. Microsoft was monitored for years after the US settled their antitrust case more than 20 year ago. This was to prevent the company from using its PC monopoly as a tool to dominate other markets.

Regulators will have a difficult time if they continue to micromanage the borders of the cloud computing providers. They may not have much choice, however, as the majority of IT is in the hands a few large companies.

Post Disclaimer

The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.

This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.

The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.