Cloud busting will mean a messy time for tech regulators

As regulators around the world try to get to grips with the lopsided competition in the cloud computing world, they face a difficult choice. Trying to open up the cloud market will require more detailed interventions than those seen in other tech markets, demanding things such as price controls and the setting of detailed technical rules.

Doing nothing, however, isn’t an option. According to research firm Gartner, cloud computing already accounts for nearly a fifth of global information technology spending and will be responsible for much of the growth in the foreseeable future, expanding 20 per cent a year to reach $1.1tn by 2027. Much of that is in the hands of Amazon Web Services and Microsoft, with Google still a distant third.

There are strong forces that favour a concentrated market. The giant cloud providers, known in the industry as hyperscalers, enjoy enormous economies of scale. The biggest customers also buy a range of cloud services, many of which need to be integrated, leaving them dependent on the most advanced suppliers while making it enormously complex and difficult to switch to a rival.

Even when customers demand a better deal — as has happened over the past year as general corporate belt-tightening led many to seek a halt to runaway cloud spending — the big tech companies have found a way to come out ahead. One tactic, for instance, has been to appease customers with the offer of substantial discounts — but only if they sign contracts guaranteeing a set level of future business. This might bring savings, but it has also become a powerful tool for preventing switching.

Woven through all this, according to a growing body of regulators, are the sort of tactics that IT companies have long used to “lock in” their customers. Switching brings extra costs, while technical disparities make it difficult or expensive for a customer to shift.

UK regulators are the latest to take on these issues, launching a formal investigation of Amazon and Microsoft. That puts them ahead of the US, which began a review of cloud computing earlier this year, but behind the EU, which has already used its Data Act to put forward new rules to promote cloud competition.

Volume discounts are one tactic that the UK authorities have singled out for scrutiny, though they admit it will be hard to outlaw price breaks without hurting customers. But the EU and UK have mainly focused their attention on two other areas.

The first involves preventing cloud companies using onerous data-transfer charges to discourage customers from taking their business to a rival cloud. The EU rules call for barring such fees altogether. This may sound an obvious step, but nothing in the complex world of cloud computing is ever so simple.

AWS, for instance, has come under fire from competitors for only charging fees when customers take data out of its cloud, not when they bring it in — an asymmetry that appears designed to lock users in. Yet there may be good business reasons. AWS says it can’t tell whether data is being exported to a rival or whether it’s being used in a service such as video-streaming. If the latter, customers might “export” the same data many times, making this a service cloud companies should be paid for.

The second area for action involves interoperability, or the ability of rival companies’ systems to work together. At the moment, many technical disparities limit this, making it harder for customers to use more than one cloud supplier.

Among the potential solutions listed by the UK regulators are making some technical standards mandatory — a draconian move — or even requiring rival companies to build direct communication links between their data centres so customer data can move more freely.

But they suggest that action might be better directed at detailed areas where a lack of interoperability seems to lack clear justification.

There are precedents for this kind of detailed control of technical interoperability. After the US settled its antitrust case with Microsoft more than 20 years ago, the software company was subjected to years of technical monitoring to stop it using technical tie-ins to its PC monopoly to dominate other markets. 

If regulators go down this road of micromanaging the borders between the dominant cloud computing suppliers, they face a messy time ahead. But with much of the future of IT in the hands of so few companies, they probably have little choice.

richard.waters@ft.com