Ever since UK regulator Ofcom announced its market study into the cloud industry in 2022, there has been cautious optimism about whether this could be a genuine moment of truth for the hyperscalers. On 5 April 2023, we got our answer. In its interim report, Ofcom did not hold back in its criticism of the dominance that the hyperscalers, especially AWS and Microsoft, hold over the industry and the limits and even “harm” this creates for customers.

Our 5 key takeaways

Here are our 5 key takeaways from the interim report and where we think the industry needs to go next:

1. Hyperscalers’ dominance has structured the market to make it harder for customers to switch provider

This was the finding from the report that grabbed all the headlines. Ofcom’s investigation provisionally found that market features are leaving “customers ‘locked in’ to one of the leading providers”. In today’s rapidly maturing market, businesses are looking for flexibility and to innovate at pace. These restrictions are limiting their choice and the ability to switch provider or move to multi-cloud infrastructure.

2. Egress fees to move data out of a hyperscaler’s cloud are out of control

These fees are a topic that have dogged the industry for a long time, and Ofcom puts them front and centre in the report, making clear that hyperscalers “set them significantly higher than most other providers”. By doing so, customers are left in a situation where it becomes costlier to use services from more than one cloud provider or to switch. They are left in a situation, in effect, of being hemmed in with a hyperscaler’s services - even if a better product offering lies elsewhere - and therefore potentially “settling for lower quality services”.

3. Hyperscalers reward people staying - and make it hard to work with other clouds

Gartner research found that 81% public cloud users are working with two or more providers. Multi-cloud is a reality of modern IT, and Ofcom’s report makes clear that hyperscalers have created technical complexity that makes smooth interoperability between providers a difficult process. This is compounded by the steady accrual of “committed spend discounts” that incentivise staying over using “rival providers as new needs emerge”.

4. Users continue to report issues in predicting cloud spend

It was particularly welcome to see Ofcom highlight the difficulties that public cloud users regularly report in predicting spend. Our own research found that 37% of public cloud users have been stung by unexpected costs in the last 12 months. Many users of the hyperscalers face persistent problems with opaque pricing and unpredictable billing, leaving users struggling to stay on top of their cloud usage. The fact that an entire industry has sprung up just to help people manage and keep track of their public cloud bills is a sign of how far this problem has spiralled. This uncertainty is a troubling trend in the current economic climate, reducing businesses’ ability to plan expenditure and secure sustainable economic growth.

5. UK regulators are joining a global effort to put checks and balances in place on hyperscalers

It is welcome to see Ofcom’s ambition with the investigation. This interim report is not the end, with Ofcom opening a consultation now to refer the cloud infrastructure market to the Competition and Markets Authority. Such a step will be vital in tackling all the anti-competitive practices outlined in this interim report. It joins similar initiatives in Europe: the Cloud Infrastructure Services Providers in Europe (CISPE), a not-for-profit trade association, filed an antitrust complaint against Microsoft in November 2022. Another wave of complaints from smaller European cloud providers led last month to Microsoft offering to change cloud practices - in the hope, Reuters report, of staving off a formal EU investigation.

Collectively, this action puts us on the path to creating a level playing field in the future and a more competitive landscape, giving companies more freedom and choice.

Where next?

This report should be a wake-up call for hyperscalers. For too long cloud services have drifted away from what users actually want from a provider. We now need to see the regulator, in partnership with industry, build a fairer and ultimately more successful cloud space. Emerging cloud providers are rapidly stepping up to offer an alternative way forward to the hyperscalers. This vision is founded on putting the needs of the user back at the heart of cloud computing: transparent, predictable pricing; a streamlined experience; and super-fast, reliable services across the board.