The Competition and Markets Authority (CMA) probe into the cloud computing market marks a serious turn in the anti-trust debate, and it will have global implications.
Other major pieces of European antitrust regulation, most notably the European Commission’s Digital Markets Act, have thus far neglected to scrutinize cloud market competition with much detail.
However, this CMA probe has now marked the hyperscale capacity for large-scale market influence as a serious regulatory concern, particularly regarding cloud storage.
Two of the major points the probe will investigate include market concentration and data portability.
The points are connected because hyperscalers have amassed significant market share, giving them power over market terms and pricing norms. Meaning: their dominant position, with more cloud customers using hyperscaler services than not, allows hyperscalers to put unfair pricing structures in place which help them ‘lock in’ customers without the appearance of unfair practice.
Equally, addressing one point helps with the other. By removing barriers to switching away from hyperscaler clouds and releasing clients from lock-in, other providers will be able to claim more market share as customers will have the freedom to choose the best storage solution for their needs.
Barriers to switching
The CMA has so far marked out three critical barriers to switching used by hyperscalers to lock customers in. Egress fees, discounts, and technical barriers. Of the three, egress fees are particularly impactful to customers, especially as we go through an economic downturn that’s forcing everybody to watch their bottom line.
Egress fees and API call fees are charges for calling forward or withdrawing data from a vendor’s cloud. Egress fees are lucrative as the cost of withdrawing a customer’s data is close to nothing for the vendor.
Complex egress and API pricing structures are common and feed hyperscaler bottom lines by allowing them to keep raw storage prices low, drawing customers in, and making the money back by springing on unexpected fees later down the line.
Wasabi's own research surveyed over 1000 IT decision-makers globally and found that 48 percent of respondents’ cloud storage bills are allocated to fees, 52 percent went over budget on cloud storage services, and 41 percent incurred higher fees than expected.
These fees also make it very difficult for customers to leave hyperscalers, as high egress costs can mean it’s more financially viable to keep your data in hyperscaler clouds and pay the fees than it would be to move large amounts of data to a new provider.
We don’t need to leave hyperscalers, but we must be able to
Beyond their sheer size and name recognition, companies flock to hyperscalers because they have a breadth of offerings which work well enough. Hyperscalers can typically cover any cloud service a customer might need, which is convenient.
However, many companies need best-of-breed services and this is where specialist providers must be able to, and do, compete very effectively.
Let’s extrapolate the situation into a metaphor - we can imagine hyperscalers as superstores, like Debenhams or John Lewis, and best-of-breed providers as specialist stores. You might be able to pick up some trainers in Debenhams but, if you’re a runner, you’d probably go straight to the specialist shop known for the best quality trainers and more dedicated staff.
We should not live in a world where Debenhams trainers are our only viable trainer option. The ability to pick some ‘superstore’ hyperscale products and some best-of-breed products from specialty vendors with multi-cloud is a right that must be protected through the elimination of lock-in practices.
A multi-cloud utopia
The dream is not necessarily to knock hyperscalers out of the market completely, but to open the floor for specialty providers so that innovation and expertise can flourish, and customers can ultimately benefit.
Multi-cloud is a very viable option where customers can use multiple vendors to best serve their needs, but current lock-in practices like egress fees prevent customers from being able to take advantage of this option. Many specialty providers are finding great success with customers already taking advantage of the multi-cloud option. Nevertheless, in a world where hyperscalers continue to operate largely unchecked, everybody but the hyperscalers lose.
Whichever way this CMA investigation concludes, it’s clear that the hyperscalers’ influence over the cloud computing market will be subject to much greater scrutiny going forward.