Britain's competition regulator is facing biting criticism from local cloud providers for declining to act on Committed Spend Agreements (CSAs), the sales tools that AWS and Microsoft use to lure customers.
The Competition and Markets Authority's decision to shelve the CSA component of its investigation into the health of the UK cloud industry, comes despite it being told by smaller players that these mechainisms help big tech control lucrative public and private sector contracts.
At the end of January, the CMA stated in its provisional decision report (PDR): "we investigated whether the use of committed spend agreements for customers of AWS and Microsoft harms competition in the cloud services markets.
"We found that these agreements are widespread and can influence customers' choices in relation to workload allocation, but we have provisionally found that rivals can profitably compete against these and so in their current form and application, they do not harm competition in cloud services markets."
CSAs are basically contracts between a customer and a cloud provider that specify a minimum spend for a set period and typically come with significant discounts as sweeteners.
The CMA did find the UK cloud market was not working as it should, but this was blamed on egress fees, technical barriers, and Microsoft's licensing practices. In its proposals, the CMA suggests designating AWS and Microsoft as having strategic market status (SMS) in cloud services, and so remedies need only be applied to this pair relating to areas of concern.
Hang on – doesn't the CMA itself contract with AWS?
It is perhaps of note that the watchdog itself signed a contract with AWS for the provision of cloud services, doubling its spend with the American giant in 2024, and potentially using the CSAs that the CMA now finds are not a hindrance to the health of the UK cloud industry.
Sources told The Register they are certainly concerned about perceived conflicts of interest. The CMA refused to comment on this or whether CSAs will again be examined as part of its investigation.
What do the smaller cloud providers in Blighty say?
In his response to the provisional decision, former UKCloud CEO Simon Hansford - now chief commercial officer at Civo - warned that CSAs are foreclosing entire market verticals to smaller players.
"We are already seeing this in the UK public sector through its deals with AWS (OGVA2) and Microsoft (SPA24) - both of which also enable the deployment of AWS and Microsoft's respective AI capabilities. Not only is the cloud market foreclosed to challenger suppliers, but the public sector AI market is likely to foreclose too," he wrote.
The same applies to Committed Spend Discounts (CSDs), otherwise known as cloud credits.
"Cloud Credits are not about competition; they're about customer acquisition and customer lock-in," he added, noting that smaller providers are at a disadvantage due to their inability to offer the same level of incentives.
Hansford otherwise agreed with the PDR's finding: "The CMA's report confirms what many cloud providers in the UK already know: the UK cloud market is broken, anti-competitive, and the odds are stacked against challenger cloud providers."
UKCloud was a local operator providing services to central and local government, but was forced into liquidation in 2022 as many public sector customers left to take up with contracts with the major cloud players.
Civo, another Brit cloud operator, agreed. CEO Mark Boost, said his biz "has lost business to the value of many hundreds of thousands of pounds - and while the customer always promises to return once the credits have been consumed, the reality is that the customer never does."
AWS has managed to shut off swathes of the UK public sector cloud market to local businesses for years, he claimed.
Boost calls for the provisional findings not to be finalized until the long-term impact of cloud credits and CSAs on competition has been re-examined, and urged the CMA to consider caps on credit values and limits on discount periods.
European cloud operator OVHcloud also called on the CMA to reconsider its analysis of the effect of cloud credits and CSAs.
While these credits can have a positive effect, they risk reinforcing the market's concentration around hyperscalers, it warned. They attract early-stage startups to the services of the big players, and then find there are strong barriers to switching.
On CSAs, it said that while hyperscalers can compete among themselves by dangling incentives, other cloud providers often cannot match them.
"The superior financial means of hyperscalers, their activities in adjacent markets, enable them to offer committed spend agreements with a range of services and amounts of discounts other providers can simply not match," OVHcloud said in its response to the PDR. The hyperscalers, it added, often use CSAs to "overcommit" the customer above its actual needs in order to benefit from a discount.
On the flip side of the argument, the Startup Coalition, a non-profit org that represents fledgling British tech firms, is in favor of committed spend agreements and cloud credit offers.
"Our community has been clear with us that any action to restrict discounting strategies would be unwelcome," its response stated. "Startups try to find efficiencies as they look to grow and become revenue generating and therefore derive value from being able to access services like cloud computing more cheaply in whatever form that takes - including discounting."
Guess who's happy committed spend deals are staying?
AWS, unsurprisingly, welcomed the CMA's decision on CSAs and CSDs, saying in its response that the provisional decision report "correctly acknowledges that CSDs do not lead to a weakening or marginalisation of AWS's rivals."
Microsoft likewise agreed: "CSAs are a vital and beneficial component of the competitive process in the cloud market. They are part and parcel of fierce price competition between cloud providers, encouraging customer switching / multi-homing and, at a broader level, supporting investment in public cloud infrastructure."
And Google concurred – a rare example of the big three cloud operators being in alignment on something. "We agree with the CMA's provisional finding that CSAs do not harm competition in cloud services markets and therefore do not give rise to an AEC (adverse effect on competition)."
The Mountain View megacorp insisted that discounts are "generally viewed positively by customers, including small businesses and startups, and do not impede customer switching or multi-cloud." CSAs are an important competitive tool to encourage customers to switch some or all of their workloads away from the incumbent providers, it claimed.
The problem is that while customers may currently benefit from spending discounts in the current environment, as smaller players are unable to compete and fall by the wayside, the level of those discounts may become smaller or start to disappear.
The CMA is now consulting on the findings in its provisional decision report, and said it will consider further evidence and submissions before reaching its final decisions on market remedies later this year ti improve the health of the UK cloud sector. ®