Cloud giants point fingers at each other at CMA hearings • The Register

Google believes Microsoft's software licenses limit customer choice; Microsoft says AWS has a first-mover advantage; AWS is also attacking Microsoft's licenses – but all oppose moves in the cloud market that could affect them.

This is according to summaries of the hearings between the UK's Competition and Markets Authority (CMA) and the three major cloud operators, who do not want any real changes due to the lengthy investigation into the health of the local market for cloud services.

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Google presents itself as an outsider and stated in its hearing (PDF) that it shares the CMA's views on the general market dynamics and in particular the significant market power of AWS and Microsoft.

This is because AWS and Azure account for 60 to 70 percent of the UK public cloud market, while Google is a distant third with a 5 to 10 percent share. But we're still talking about a cloud company that generated $10.35 billion in global revenue in a single quarter this year.

According to The Chocolate Factory, Microsoft's software licensing practices severely limit customer choice and technical hurdles amplify the impact of these practices, risking “irrevocably shifting the market in Microsoft's favor.”

The licensing practices have been discussed at length and essentially involve Redmond allowing its customers to reuse licenses for its software products when running them in its own Azure cloud, but requiring them to purchase a separate license to use them in a competing cloud.

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However, when it comes to Commitment Spend Agreements (CSAs), where customers receive a discount if they agree in advance to a certain level of cloud resource usage, Google says it does not believe that a remedy for the CSAs is necessary. The company is “concerned about the unintended consequences of such a remedy.”

On the issue of egress fees – the fees charged to customers for extracting their data from the cloud – Google says that if the CMA finds there is a problem in the market here, any remedy “should only apply to cloud providers that have significant market power”, meaning, of course, the other two.

Microsoft takes a much more confrontational approach in its hearing (PDF), going so far as to claim that the CMA's emerging views on the competitive landscape “ignore the actual evidence that the market is highly dynamic and rapidly evolving, customer satisfaction is high and there is fierce competition between cloud service providers, driving down prices.”

Of its competitors, Redmond says, “AWS has strengths in the cloud space due to its first-mover advantage,” while Google, although it has not yet gained as much market share, has “unique competitive advantages, such as in advertising,” which allow it to offer its customers advertising credits almost for free to land cloud deals.

On the issue of licensing, Microsoft is dismissive, saying its competitors are “an important marketing channel” and that “it is difficult for AWS and Google, given their growth and profits, to argue that they cannot afford their licenses or that Microsoft is denying them access to them.”

In the hearing summary, Microsoft asks how other vendors can validate a license that a customer wants to import under Bring-Your-Own-License (BYOL) and determine that that license is not already being used by the customer for another purpose.

Regarding CSAs, Microsoft says the “conceptual framework” used by the CMA in its working paper “does not reflect business reality” because it assumes customers will not modernize their workloads, which would allow them to move to other clouds. Microsoft also claims that CSAs allow the company to “invest early in its customer relationships,” and without customer commitments, it would be much harder to make investments.

Likewise, the software giant claims, “Customers negotiate almost everything, but they don't increase exit fees because it's not a big problem for them.” Of course, this means that Microsoft doesn't want any remedies to the exit fees.

Interestingly, Microsoft says it will comply with EU regulations regarding multi-cloud, but stresses that it “does not see much customer interest in integrated multi-cloud except in fairly specific situations, as it is neither easy nor convenient for customers.”

That's a strange comment, given that one of the goals of the CMA is to find out if there are any barriers to running a multi-cloud environment, and Microsoft is essentially confirming here that there are.

However, the Windows manufacturer also explains that cloud providers are differentiating themselves through new products and features and that the technical differentiation between the clouds will become greater the more they are adopted by customers.

We welcome the opportunity to talk about it Microsoft Licensing practices

Finally, in its hearing (PDF) with the CMA, AWS states that it considers competition between IT providers to be working well and that its cloud services meet customers' needs in terms of price, innovation, product choice, variety and quality.

The largest cloud operator of all joined Google in saying it welcomed the opportunity to discuss Microsoft's licensing practices, saying that in its view there is a “history of cloud providers and customers being unhappy with Microsoft's behavior” which, it said, “could be easily remedied.”

AWS says it supports the principles on software licensing proposed by CISPE. This includes that customers should be free to choose which cloud provider they use their software with. AWS is a member and supporter of CISPE, a group of 27 cloud providers in Europe.

As for the company itself, poor AWS tells the CMA that, as we reported yesterday, it is facing competition from on-premises IT, and says some customers are moving from the cloud back to their own data centers.

According to AWS, the findings show that “customers can use multi-cloud and switch between cloud providers at will,” although Microsoft claims this is neither easy nor convenient.

Amazon's cloud arm also claims that many customers end up using Azure because they already use other Microsoft services or because of contractual terms – suggesting there are barriers to switching providers.

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Like its competitors, AWS does not want to see remedies against CSAs because it would lead to less predictability of its revenues and affect its investments for the future. AWS does not even want a limit on their duration because the benefit comes from the combination of the size of the commitment and its duration.

It also claims that the CMA is wrong to assume that data outgoing transfer (DTO) fees will be a problem for customers who switch. “Many customers pay a higher percentage of their cloud bill for DTO fees, simply because of the nature of the business and the way it uses the cloud,” the report says.

The remedies proposed by the CMA would reduce AWS's incentive to invest in its own network, the company complains – which means it does not want exit fees to be abolished either.

What is strange then is that Google, AWS and Microsoft are all making a big fuss about changing the output ransom Fees at the beginning of this year.

So there you have it. Based on the information given in the hearings, all the cloud giants believe that there is basically nothing wrong with the UK cloud services market and see no reason to change that, no matter what the smaller cloud operators say. Of course, when something is wrong, they say it is all the fault of their big competitors. ®