October 11, 2022
The recent announcement by UK telecom and media regulator Ofcom that it plans to investigate how well (or not) the cloud services market is working suggests that there are growing concerns, perhaps even some alarm, about the increasingly dominant role of the three US-based hyperscalers, namely Amazon Web Services (AWS), Google Cloud and Microsoft Azure.
For now, Ofcom has parked itself in neutral mode as it seeks comments from interested parties, including cloud providers, independent software vendors, suppliers of professional services and customers. "We are embarking on this study with an open mind and may find that the markets for cloud services are working well," Ofcom said. "If we do identify any competition concerns, either present today or that could arise in the future, we will assess the most appropriate route for addressing them."
However, the regulator took care to note that the UK's cloud market is currently worth £15 billion (US$16.7 billion) and that the three hyperscalers generate around 81% of revenues in the UK public cloud infrastructure services market, according to data from Synergy Research Group (SRG). In 2021, AWS accounted for 40%, Microsoft for 25% and Google for 16% of the total revenues.
Figure 1: Racks of servers in one of Google's data centers.
All other cloud providers lag far behind. John Dinsdale, chief analyst and managing director at SRG, told Light Reading that the trio is "followed at a distance by IBM, Salesforce, Oracle, Rackspace, BT, SAP and iomart."
SRG provides regular reports on global cloud markets and the companies that operate within them. In September this year, the research firm found that the European cloud market is now over five times as big as it was in early 2017, reaching €10.4 billion ($10.9 billion) in the second quarter of 2022.
Over that same period, European service providers increased their cloud revenues by 167%, but their market share declined from 27% to 13%. The main beneficiaries of the market growth have been Amazon, Microsoft and Google. SRG observed that the three cloud providers now account for 72% of the regional market, and their share continues to rise steadily.
Local clouds, for local people
Ofcom clearly intends to examine potential anti-competitive practices including emerging concerns about cloud lock-in, where companies that have moved IT resources into data centers maintained by one of the hyperscalers risk being unable to port their workloads to a rival provider.
One aspect the regulator does not appear to be exploring is the issue of data sovereignty, leaving this thorny matter to others. However, the strength of the big US and Chinese cloud players has raised concerns about where data is kept amid the continued use of non-UK or non-EU hosting options.
Such concerns prompted the 2020 launch of the EU Gaia-X initiative that aims to establish a federated data infrastructure built on European data privacy principles. The Gaia-X European Association for Data and Cloud AISBL, which is the body that runs the initiative, launched in January 2021.
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Nevertheless, its 355-strong membership still includes those companies to which it was expected to be providing some sort of European counterbalance. Amazon, Google and Microsoft are also all members, albeit listed under European incorporated companies. Two of the 17 Gaia-X Hubs are also located outside of Europe, with one in Japan and one in South Korea.
Gaia-X, which aims to provide secure public clouds at a European level, has also not stopped telcos such as Deutsche Telekom (DT) and Orange from creating sovereign clouds at a national level. In both cases, however, the operators are apparently forced to rely on US public cloud providers: Google Cloud for DT, and Microsoft Azure for Orange.
Although it is very much an EU-led project, a handful of UK companies have joined Gaia-X, including OpenUK, semiconductor startup Graphcore, The London Internet Exchange, Vodafone Services Group and 21st Century Technologies.
One UK company has been exploring the idea of creating a British Gaia-X in a post-Brexit world. UKCloud, a multicloud provider specializing in providing services to the public sector, expanded its "sovereign cloud platform," drawing on data centers physically located under UK jurisdiction. It is also a member of VMware Sovereign Cloud, along with OVHcloud, AUCloud, Datacom, NxtGen, Noovle, Telefónica, TietoEvry, Telmex and ThinkOn.
Earlier in 2022, UKCloud was acquired by Hadston 2, a newly created special purpose investment company with a mission to create a portfolio of enterprises focused on the "sustainable and ethical use of data and digital infrastructure, through acquisitions, joint ventures and strategic partnerships."
Meanwhile, the hyperscaler juggernauts rumble on. For example, AWS announced in March of this year that it expects to spend £1.8 billion ($2 billion) in the next two years on building and operating data centers in the UK. The cloud provider launched the AWS London Region in December 2016.
— Anne Morris, contributing editor, special to Light Reading
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