UK Cloud Services Market Investigation [pdf] (assets.publishing.service.gov.uk)

The UK Competition and Markets Authority concluded that competition in cloud services is not working well and has made remedies to address the problem. The IaaS market is highly concentrated: Microsoft and AWS each account for roughly 30–40% of UK+EEA supply in 2024, with Microsoft also leading PaaS (20–30%) and Google trailing at about 5–10%. Cloud spending in the UK reached £10.5bn in 2024 and cloud underpins AI model development and deployment, but substantial barriers — large sunk capital in data centres, strong economies of scale, product breadth, and low switching rates (under 1% per year) — limit entry and expansion. Commercial and technical lock‑in (notably egress fees, differentiated APIs/interfaces, skill gaps and latency) further impede multi‑cloud strategies. For AI/ML, the CMA warns that Microsoft, AWS and Google are vertically integrated in accelerated compute and AI services and are increasing revenue from model access, but today these AI-specific offerings affect only a small set of model developers and haven’t yet reshaped market dynamics. Nevertheless, AI could strengthen incumbents over time by increasing demand spillover into broader cloud services. The report also highlights Microsoft’s software licensing practices as a potential partial foreclosure risk — higher input prices or restricted licensing to rivals can make competing cloud bundles more expensive. Implications for AI practitioners and startups include potential vendor lock‑in, constrained choice of accelerated compute, and the importance of policy and procurement changes to preserve competition as AI demand grows.