AWS leads UK cloud market while Microsoft dominates growth and new customers

Microsoft is achieving the highest margins while at the same time achieving the strongest growth in the UK cloud market, according to a working paper from the competition watchdog.

In October last year, the country's Competition and Markets Authority (CMA) confirmed it would investigate the big cloud services players and their effects on competition in the UK market.

The first of a series of working papers updating stakeholders on progress shows how the UK markets are severely consolidated around two dominant players (AWS and Microsoft). The market as a whole has more than doubled in three years; UK IaaS and PaaS revenues went from between £2.5 and £3 billion ($3-3.18 billion) in 2019 to between £7 billion and £7.5 billion ($8.9-9.5 billion) in 2022, the CMA said.

"AWS and Microsoft's combined share of supply is increasing steadily year on year while the shares of smaller cloud providers are generally declining overall. Of the smaller cloud providers Google holds the largest share but it is [at most a quarter] of the size of AWS and if the current rate at which its share of supply is increasing continues it will be a long time before it catches up with AWS and Microsoft," the CMA said.

According to the share of supply by revenue, AWS was the leading provider in both infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS).

In IaaS, AWS saw its share fall slightly to between 40 and 50 percent in 2022 while Microsoft saw its share rise from to 30 and 40 percent.

The situation was similar in PaaS. Both suppliers together had increased their combined share from 40 to 50 percent in 2019 to 50 to 60 percent in 2022 as the market consolidated.

AWS and Microsoft's combined share of supply is increasing steadily year on year while the shares of smaller cloud providers are generally declining overall...

Despite AWS leading the market, Microsoft was achieving the strongest growth both in terms of revenue and new business winsm, the CMA found.

The watchdog analyzed UK shares of supply by year-on-year revenue growth and found Microsoft become the fastest growing cloud provider as of 2022 as its share of revenue growth increased from 30-40 percent in 2021 to 40-50 percent the following year.

The picture was the same in newly acquired customers: Microsoft has won 60-70 percent of new customers in each year - 2021 and 2022 - while AWS's share of new customers was around 20-30 percent over the same period.

As it dominated growth and new customer wins, Microsoft also achieved the highest margins in the UK cloud market, according to the CMA.

Earnings before interest and tax (EBIT) show AWS has consistently scored a margin of between 25 percent and 30 percent for the last eight financial years while Microsoft consistently made between 33 percent and 44 percent on the same metric for the last seven financial years.

While struggling to make an impact on market share, Google Cloud only became profitable in 2023 and has reported EBIT margins averaging "significantly lower [margins] than AWS and Microsoft."

The CMA noted that its profitability assessment does not necessarily mean the market could be more competitive. "Such findings are not in themselves causes of competitive harm," it said.

The series of cloud market updates from the CMA last week included a qualitative survey of cloud users to examine whether there were barriers to competition or not.

The regulator examined factors that could potentially harm competition in the UK cloud market. Among them was Microsoft's software licensing practices: the idea that on-prem software deals for the ubiquitous vendor's software could affect decisions in the cloud.

While the CMA found software licensing practices did not influence the choice of public cloud provider in isolation, Microsoft enterprise agreements might exert a more subtle influence.

"Participants say that these enterprise agreements and the relationships they symbolize mean they are very unlikely to consider switching from [Microsoft's cloud] Azure, but they do not see them as directly inhibiting switching – just that the status quo would make switching an illogical business decision, given the benefits these agreements provide and the effort required to disentangle their infrastructure from the Microsoft ecosystem," the report said.

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A paper on software licensing is expected from the CMA next month, sources told us.

Data egress fees — that's paying for getting your data out of your chosen cloud provider — are also under the microscope for the CMA. The risk of nasty egress surprises may have lessened in recent months: in January, Google decided to ditch egress fees for its cloud, partly owing to pressure from EU, US, and UK. The Chocolate Factory's move was soon copied by AWS and Microsoft.

While the CMA noted these developments, its examination of egress conditions will continue. "Both AWS and Microsoft have noted that they may make changes with respect to the free data transfer policies at any time," it said.

The CMA expects all parties to respond to its reports by July. It expects to produce a provisional decision in September or October and a final decision between February and April next year. ®