The UK’s Competition and Markets Authority (CMA) has concluded that competition in the cloud services sector is “not working well,” warning that market concentration, barriers to switching, and Microsoft’s licensing practices are restricting customer choice and driving up costs.
In a final decision published on Thursday, the CMA said its investigation found that Microsoft and Amazon Web Services (AWS) hold entrenched market power in public cloud infrastructure services (IaaS) and platform services (PaaS), commanding significant market shares and earning sustained returns well above their cost of capital. Together, the two firms accounted for more than 60% of the UK market in 2024, with Google trailing at less than 10%.
The watchdog found that customers spent £10.5 billion on cloud services last year, with demand growing nearly 30% annually since 2020. But despite strong growth and innovation in the sector, the CMA said outcomes for customers remain suboptimal. “A more competitive market would deliver consistently lower prices, higher quality, and faster innovation,” the authority said.
Barriers to Switching and Multi-Cloud Use
The CMA noted that fewer than 1% of UK customers switch providers each year, while multi-cloud adoption remains rare among small and medium-sized enterprises. High egress fees for data transfers, technical incompatibilities between platforms, and complex contract structures have deterred customers from moving workloads.
“These barriers lock customers into their initial choice of provider,” the report found, adding that they reduce incentives for suppliers to compete aggressively for rivals’ customers.
Microsoft’s Licensing Under Scrutiny
A central focus of the investigation was Microsoft’s software licensing practices. The CMA concluded that Microsoft has leveraged its dominance in software such as Windows Server, SQL Server, and Office productivity suites to tilt competition in favor of its Azure platform.
In some cases, the authority found, AWS and Google face higher licensing costs than Microsoft’s own customers, making their offerings less attractive. In addition, certain Microsoft products are not available for use on rival clouds or cannot be transferred under existing licenses.
“These practices are reducing competition by disadvantaging AWS and Google in competing for customers reliant on Microsoft software,” the CMA said, warning that this has led to weaker constraints on Microsoft’s pricing and service quality.
AI’s Growing Role
The report acknowledged that artificial intelligence services are reshaping cloud demand, with Microsoft, AWS, and Google all investing heavily in accelerated compute and AI partnerships. However, the CMA said AI capabilities have yet to materially alter competitive dynamics, though their impact is expected to grow.
Recommendations for Strategic Market Status
To remedy the harms identified, the CMA recommended that its board use new digital markets powers under the DMCC Act to launch Strategic Market Status (SMS) investigations into Microsoft and AWS. Such a designation would allow the authority to impose targeted interventions, including conduct requirements designed to curb anti-competitive practices.
“The measures would directly benefit UK customers while improving competitive conditions for other providers,” the CMA said. It added that the flexible design of the new regime would allow interventions to adapt to market developments and align with similar regulatory efforts in Europe.
The CMA board is expected to consider the next phase of investigations in early 2026. In the meantime, the authority urged continued monitoring of cloud procurement, particularly in the public sector, and close scrutiny of cloud providers’ conduct.
