Amazon and Microsoft’s cloud dominance referred for UK competition probe
Ofcom said it received evidence showing Microsoft makes it less attractive for customers to run its Office productivity apps on cloud infrastructure other than Microsoft Azure.
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Britain’s anti-competition regulators have been tasked with investigating Microsoft and Amazon‘s dominance of the cloud computing market.
Media watchdog Ofcom on Thursday referred its inquiry for further investigation to the Competition and Markets Authority, kickstarting the process.
Ofcom said that it had identified features which make it more difficult for U.K. businesses to switch cloud providers, or use multiple cloud services, and that it is “particularly concerned” about the position of market leaders Amazon and Microsoft.
“Some UK businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well,” Fergal Farragher, Ofcom’s director responsible for the market study, said in a statement Thursday.
“So, we’re referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services.”
Ofcom is concerned that so-called “hyperscalers” like Amazon Web Services and Microsoft Azure are limiting competition in the cloud computing market. These are companies that allow businesses of all stripes to carry out critical computing tasks — like storage and management of data, delivery of content, analytics and intelligence — over the internet, rather than through servers stored on site, or “on premise.”
AWS and Microsoft Azure are the biggest players in the market. AWS’ cloud solution is primarily targeted at startups, while Microsoft prioritizes big enterprises. AWS and Microsoft Azure account for roughly 60% to 70% of cloud spend, according to an Ofcom estimate. Combined, Amazon, Microsoft and Google generate roughly 81% of revenues in the U.K.’s cloud infrastructure services market, according to Ofcom, which estimates the market to be worth £15 billion ($18.2 billion).
The CMA probe comes amid the fast adoption of AI — cloud services, which are enabled by vast data centers, underpin many of the power-intensive generative AI models, such as OpenAI’s ChatGPT, Microsoft’s Bing Chat and Google’s Bard.
The Competition and Markets Authority said in a statement that it welcomes the Ofcom probe referral, adding that the cloud space “underpins a whole host of online services – from social media to AI foundation models.”
“Many businesses now completely rely on cloud services, making effective competition in this market essential,” Sarah Cardell, CEO of the CMA, said in a statement Thursday.
“Strong competition ensures a level playing field so that market power doesn’t end up in the hands of a few players – unlocking the full potential of these rapidly evolving digital markets so that people, businesses, and the UK economy can get the maximum benefits.”
The CMA’s independent inquiry group will now examine the market and identify what, if any, action should be taken. The CMA will conclude its investigation by April 2025.
Competition concerns
Ofcom, the agency responsible regulating technology, broadcast and telecom operations in the U.K., said that it identified a number of practices in the cloud industry that were of particular concern.
The regulator said that so-called “egress fees” charged by cloud vendors like Amazon and Microsoft make it tougher for businesses to move their data between providers, or to “multi-cloud” by using multiple cloud providers. Egress fees are charges for cloud companies to remove the data of firms from a cloud environment.
Ofcom also said that cloud companies have introduced “technical barriers” to interoperability — the ability of different cloud platforms and services to work together and exchange data without any barriers or disruptions. The authority said that this “makes it more difficult [for firms] to combine different services across cloud providers or to change provider.”
Lastly, Ofcom raised alarm bells over committed spend discounts, or incentives to give customers a discount if they spend a certain amount of money. While this can reduce customer costs, it also encourages companies to use a single cloud provider for all or most of their cloud needs, even when a cheaper alternative is available.
Competing cloud firms including Google, as well as regulators, have flagged concerns with Microsoft Azure, in particular — namely, allegedly unfair licensing terms that serve to “lock in clients,” keeping them attached to only Microsoft’s technology and making it harder to switch to other providers.
Microsoft’s cloud licensing terms are the subject of a separate European Union inquiry. The EU isn’t formally investigating Microsoft’s Azure cloud computing platform, but it has been assessing complaints from companies including France’s OVHCloud about Microsoft’s licensing terms.
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Applied Digital shares jumped 16% on Friday after the company posted strong first-quarter revenue that was boosted by artificial intelligence data center demand, putting the stock up more than 350% for the year.
Here’s how the company did compared to LSEG estimates:
- Loss per share: Loss of 7 cents vs. a loss of 13 cents expected
- Revenue: $64.2 million vs. $50 million expected
First quarter revenue of $64.2 million was up 84% from a year ago, when it reported $34.85 million in revenue.
The data center company reported earnings after the bell on Thursday.
During the quarter, Applied Digital built on its $7 billion lease agreement with CoreWeave that was announced in June for another 150 megawatts at the firm’s Polaris Forge 1 campus in North Dakota. The additional capacity brings the anticipated contracted lease revenue for the project up to $11 billion.
“With hyperscalers expected to invest approximately $350 billion into AI deployment this year, we believe we are in a prime position to serve as the modern-day picks and shovels of the intelligence era,” CEO Wes Cummins said in a release.
The new 150 MW building will join two other data cell blocks, each hosting 100 MW and 150 MW. The company noted that one building is nearly complete and construction will begin on the other.
Applied Digital also secured funding from Macquarie Equipment Capital for a second campus in North Dakota, dubbed Polaris Forge 2. The estimated $3 billion factory will hold two 150 MW buildings, bringing the total leased capacity to 600 MW across both campuses.
An initial 200 MW of power is expected to come online in 2026 and reach full capacity in 2027, the company said.
The company had a net loss of $18.5 million in the first quarter, a loss of 7 cents per share. A year ago, the company posted a net loss of $4.29 million, a loss of 3 cents per share.
Analysts polled by LSEG expect a loss of 15 cents per share for the second quarter on revenue of $76 million.
Applied Digital 5-year stock chart.
Cheng Xin | Getty Images
Rocket Lab shares have added more than a quarter in value this week as the aerospace company inked new launch deals in the burgeoning space tech industry.
The stock was flat on Friday, but has surged over 20% this week. Shares were up nearly 50% over the last two weeks and traded near fresh highs on Friday.
The stock has nearly tripled since the start of the year.
On Friday, the company said it secured two launches with the Japan Aerospace Exploration Agency, scheduled for December and in 2026.
Earlier in the week, Rocket Lab announced a multi-launch agreement with Japanese space start Q-shu Pioneers of Space. That’s on top of four contracted missions.
Late last month, the company also secured 10 additional launch missions for Synspective, bringing its total with the Japanese satellite company to 21. The first is scheduled for later this month.
Rocket Lab’s extreme stock movement could also be a result of some short covering, which occurs when short sellers buy a security to close a position and mitigate losses. Short interest accounted for nearly 14% of Rocket Lab’s float at the end of September.
Investors have poured more money into the space sector this year as the government greenlights more contracts and funding.
The space sector, currently dominated by billionaire-backed ventures like Elon Musk‘s SpaceX, has also seen a wave of initial public offerings this year from the likes of Firefly Aerospace, Voyager Technologies and Karman Holdings.
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