How to regulate the cloud
The CMA is about to release a provisional decision in its investigation into the cloud, but seems to have started with a fundamental misunderstanding of how customers buy IT, says Chris Hayman
As the CEO of Rayo, a cloud and AI consultancy, and a veteran of the UK’s technology sector, I’ve had a front row seat to our nation’s remarkable journey in cloud. The UK’s light-touch regulatory approach and forward thinking cloud-first policy have propelled us to the forefront of the global digital economy. However, as the Competition and Markets Authority (CMA) prepares to release its provisional decision as part of its investigation into cloud, we stand at a critical juncture that demands careful consideration.
The success of cloud computing in the UK is undeniable. Analysis commissioned by my former employer AWS estimates that the economic impact of cloud computing in the UK accounted for over £42bn in 2023 alone. Looking ahead, research from Microsoft says that the UK could make more than half a trillion pounds in the next decade by fully embracing AI and cloud technology. If that all sounds like marketing spin look at the hard investment cash the UK is attracting: this year alone AWS committed £8 billion to the UK over the next 5 years, Google announced a £1bn data centre in Hertfordshire, and Microsoft heralded a £2.5bn AI infrastructure expansion. Or look at how, over the last decade, UK start-ups have raced ahead of their European counterparts in fundraising and hiring, or how the UK Government’s cloud native policy has helped propel it to the top of digital government rankings.
The CMA, however well-intentioned, risks undermining this hard-won progress. I take issue with the regulator’s work on two fronts. First, they seem to have started with a fundamental misunderstanding of how customers buy IT. Cloud computing isn’t a separate market; it’s a delivery model for IT services, competing with traditional on-premises solutions. Or put another way it’s simply wrong to think that customers buy services like compute or storage from cloud providers like AWS, Microsoft, Google or Oracle, with no thought to what the same services might cost via other means. Compute is compute, whether you are renting in from someone’s else data centre, or buying it in a tin.
Second, and more practically, I worry about the impact of the remedies the CMA have said it might want to impose. For example, the regulator says it’s concerned about the fees cloud providers charge some customers to move data. Today a small number of very large customers – think banks or online gaming platforms – pay these charges to cloud providers in order to move data around the globe. Most businesses will never transfer the amounts of data required to trigger these costs, which for most providers only kicks above 100GB per month, roughly the equivalent of sending over 1m emails every 31 days. While transparency is crucial, forcing cloud providers to eliminate these fees risks hampering investment in UK networking capability, or more likely pushing cloud providers to spread out these costs across all customers.
Regulators wading in
The CMA also appears to take issue with the discounts cloud providers offer. Going by the submissions the CMA has received, very few customers agree. Instead, they worry that the interventions considered by the CMA will make cloud services more expensive, especially for start-ups and scale-ups that rely on these cost efficiencies to fuel their growth. It could also slow the pace of digital transformation by making large-scale migrations less economically viable.
Finally, the CMA appears to be toying with the idea of mandating interoperability between providers. While laudable in theory, I worry about a regulator wading into this space, with limited technical understanding, and inadvertently increasing costs for customers, and limiting choice. To be clear no customer I’ve ever worked with believed that switching providers for complex IT systems was pain free, but more often than not the underlining reason for this sat with the expertise assembled within that organisation. Most customers prefer to build an IT function that is specialised, even if this means it harder for them to change suppliers, because they believe they will get more out of their primarily suppliers as a result. I’ve not seen evidence so far from the CMA that there is something about cloud computing that adds additional complexity here, or that cloud providers are doing anything artificial or underhand to increase these costs.
We will find out in the coming weeks how far the CMA intends to push these ideas when its provisional findings are published. When they are, I expect some pretty sensationalist headlines to follow, with some of cloud’s habitual naysayers out in force in response. But once the dust settles, and as the CMA considers its final recommendations, I hope it will alight on an approach that promotes competition among start-ups, SMEs and tech giants, without stifling the very innovation and investment that has made the UK a frontrunner in cloud. If like me you believe the UK’s future prosperity and security hinges on our ability to lead in the emerging AI revolution, we must build upon the success we’ve had with enabling technologies like cloud, rather than risk squandering our hard-earned advantage.
Chris Hayman is CEO of Rayo