Microsoft Corp. is gaining ground over Amazon.com Inc. in the cloud computing market, and the software company’s rapid rise has caught the eye of European regulators.
The European Commission is circulating a questionnaire to Microsoft customers and competitors to assess whether the company is using its dominant market position to stifle competition with its cloud operations and licensing agreements. Analysts say while Microsoft has grown its business in leaps and bounds in Europe, the growth of multicloud strategies leaves plenty of room for competitors big and small.
The questionnaire follows an antitrust complaint filed by OVHcloud from French cloud computing service provider OVH Groupe SA and two other companies that accused Microsoft of making it very difficult for users of its cloud computing services to switch to those of a competitor. .
“We can indeed confirm that the commission has received the complaint,” a spokesperson for the European Commission told S&P Global Market Intelligence, adding that the agency could not share additional information at this stage.
OVHcloud confirmed in a press release that it had filed a joint complaint against Microsoft with two other European plaintiffs.
“By abusing its dominant position, Microsoft is undermining fair competition and limiting consumer choice in the cloud services market,” an OVHcloud spokesperson said.
In response to an email seeking comment, a Microsoft spokesperson said the company is continually evaluating how best to support its partners and make Microsoft software available to customers in all environments, “including including those of other cloud providers”.
The big 3
The world’s three largest cloud providers — Amazon, Microsoft and Alphabet Inc. — account for 69% of the European cloud market, according to Synergy Research Group. By comparison, Europe’s largest cloud provider, Deutsche Telekom, has just 2% of the European market, followed by OVHCloud with a 1% share.
Of the three major vendors, Microsoft in particular has grown rapidly in recent years and managed to gain considerable market share in Europe, said John Dinsdale, chief analyst and research director at Synergy Research Group.
“Microsoft’s growth rate has far exceeded Amazon and Google, which themselves have increased market share,” Dinsdale said. “Over the past three years, Microsoft’s share of the European cloud market has grown by nine percentage points, and Microsoft now controls more than a quarter of the market.”
Although Microsoft’s cloud ambitions share some characteristics with Amazon and Google, including a strong corporate focus on the cloud, a willingness to continue to make huge investments in infrastructure, and a global presence, a What sets it apart is the company’s longstanding relationships with enterprises through a rich history of delivering software products, Dinsdale said.
“Before AWS, Amazon was purely a consumer game and Google never had strong relationships with enterprise customers,” Dinsdale said. “Microsoft will work hard to use its existing products and relationships to help drive sales of new services.”
Microsoft’s grand vision to make its Azure cloud computing platform “the computer of the world” is also paying off as the company pursues its strategy on many fronts, said Jean Atelsek, an analyst at the cloud transformation and digital economy unit at 451 Research.
“Microsoft appeals to developers with tools that are open-source and support multiple runtimes other than its own Windows operating system,” Atelsek said. “There are alternatives to Microsoft’s productivity suite, such as Google Cloud Workspace, but they aren’t as successful in the market.”
AWS maintains its global lead
Despite Microsoft’s significant growth in recent years, the company’s cloud offerings still lag behind Amazon Web Services Inc. The Amazon unit’s revenue grew 39.5% year-on-year the other to reach $17.78 billion in the quarter ending December 2021.
Although Microsoft does not disclose exact revenue from its cloud offerings, the company’s intelligent cloud segment, which includes Azure as well as server products, grew 25.5% year-on-year to 18.33 billions of dollars. Cloud services alone saw 46% revenue growth.
Meanwhile, Alphabet’s Google Cloud, which trails the top two providers to a distant third, saw the strongest year-over-year growth in the December 2021 quarter, with revenue in up 44.6% to $5.54 billion.
“It’s pretty remarkable that if you look at the big three cloud companies, AWS not only remains the market leader, but continues to maintain steady growth rates,” said Scott Kessler, global industry leader for TMT at Third Bridge Research Company.
The path to follow
Although Microsoft has largely avoided the intense regulatory scrutiny that many Big Tech companies have attracted in recent years, it’s no surprise that it’s now drawing attention to concerns that its cloud growth could come at the expense of smaller competitors, Kessler said.
“Big tech companies have goals, and they’re put in positions where they not only have to deliver great products and services, but also try to do so in a way that’s viewed positively by everyone from customers to other groups, including regulators and legislators,” Kessler said.
Microsoft could soften the scrutiny by relaxing aggressive bundling of free software offerings in its cloud contracts, a practice competitors can legitimately claim gives the company an unfair advantage in the space, said John Freeman, vice-president. President of Equity Research at CFRA Research.
“However, many companies have developed their own applications using Microsoft’s .NET Framework software, and they could argue that they want the company to make their migration to the cloud cost-effective and easy,” Freeman added. “Thus removing these benefits to satisfy the competition could negatively impact customers who rely heavily on these offerings.”
However, in the long term, analysts believe there is plenty of room in the cloud market for Microsoft and other cloud providers large and small to further expand their respective operations due to the growing trend of rely on multiple cloud operators.
“When it comes to the cloud, it may be easier in some cases to have interoperability between different platforms and solutions, so the concept of multicloud is becoming very mainstream,” Kessler said, adding that Snowflake Inc. is a great example of a provider. whose business is based on companies pursuing a multicloud strategy.
According to 451 Research, three out of four companies now use more than one cloud provider, primarily to take advantage of the best services as well as insurance to avoid being locked into a single provider.
“We’re still in a land grab situation when it comes to bringing enterprise workloads to the cloud,” Atelsek said. “Azure and Google Cloud are emphasizing their multicloud capabilities as a way to differentiate themselves from AWS.”
451 Research is part of S&P Global Market Intelligence.