Microsoft’s booming cloud business draws EU scrutiny

Microsoft Corp. is gaining ground on Amazon.com Inc. in the cloud computing market, and the software company’s rapid rise has drawn the attention of European regulators.

The European Commission is distributing a questionnaire to Microsoft’s customers and rivals to assess whether the company may be using its dominant market position to stifle competition with its cloud business and licensing deals. Analysts say that while Microsoft has grown its business by leaps and bounds in Europe, the growth of multi-cloud strategies leaves plenty of room for competitors large and small.

The questionnaire follows an antitrust complaint filed by OVHcloud against French cloud computing service provider OVH Groupe SA and two other companies that accused Microsoft of making it difficult for users of its cloud computing services to switch to those of a competitor. .

“We can confirm that the commission received the complaint,” a European Commission spokesman told S&P Global Market Intelligence, adding that the agency cannot share any additional information at this stage.

OVHcloud confirmed in a statement that it filed a joint complaint against Microsoft with two other European plaintiffs.

“By abusing its dominant position, Microsoft undermines fair competition and limits consumer choice in the market for cloud computing services,” said an OVHcloud spokesperson.

In response to an email seeking comment, a Microsoft spokesperson said the company is continually evaluating how to better support partners and make Microsoft software available to customers in all environments, “including other cloud providers.

the big 3

The three largest cloud providers in the world (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 only a 2% share of the European market, followed by OVHCloud with a 1% share.

Among the top three vendors, Microsoft in particular has been growing rapidly in recent years and has managed to gain considerable market share in Europe, said John Dinsdale, chief analyst and director of research at Synergy Research Group.

“Microsoft’s growth rate has comfortably outpaced both Amazon and Google, who have been increasing their market share,” Dinsdale said. “In the last three years, Microsoft’s share of the European cloud market has increased by nine percentage points and it now controls more than a quarter of the market.”

Microsoft’s Strengths

While 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 large investments in infrastructure, and a global presence, one thing that sets it apart is the company’s long-standing relationships. company with businesses through a rich history of supplying software products, Dinsdale said.

“Before AWS, Amazon was a pure consumer game and Google never had strong relationships with enterprise customers,” said Dinsdale. “Microsoft will work hard to use its existing products and relationships to help drive sales of new services.”

Microsoft’s grand vision of making its Azure cloud computing platform “the world’s computer” is also paying off as the company pursues the strategy on many fronts, said Jean Atelsek, an analyst with the digital economy unit. and cloud transformation at 451 Research.

“Microsoft is appealing to developers with open source tools and supports multiple runtimes in addition to its own Windows operating system,” Atelsek said. “There are alternatives to Microsoft’s productivity suite, like Google Cloud Workspace, but they don’t have as much traction in the market.”

AWS maintains world leadership

Despite Microsoft’s significant growth in recent years, the company’s cloud offerings continue to lag behind Amazon Web Services Inc. Revenue for the Amazon unit grew 39.5% year-on-year to $17.78 billion in the quarter ended December 2021.

Although Microsoft does not disclose exact revenue from its cloud offerings, the company’s intelligent cloud segment, which includes Azure and server products, grew 25.5% from a year earlier to $18.33 billion. Cloud services alone saw revenue growth of 46%.

Meanwhile, Alphabet’s Google Cloud, which trails the top two providers in a distant third, saw the most significant year-over-year growth in the December 2021 quarter, with revenue up 44.6% to 5,540. millions of dollars.

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“It’s quite noteworthy that if you look at the big three cloud companies, AWS not only remains the market leader, but continues to maintain consistent growth rates,” said Scott Kessler, global industry lead for TMT at the firm. of research Third Bridge.

road ahead

While 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 calling attention to concerns that its growth in the cloud could come at the expense of competitors. smaller, Kessler said.

“The big tech companies have targets on them, and they’re being put in positions where they have to not only provide great products and services, but also try to do it in a way that’s perceived positively by everyone, from customers to other groups, including regulators and lawmakers,” Kessler said.

Microsoft could soften scrutiny by lessening the aggressive bundling of free software deals in its cloud contracts, a practice that competitors may rightly argue gives the company an unfair advantage in the space, said John Freeman, vice president of research at Microsoft. capital at CFRA Research.

“However, there are many companies that have developed their own applications using Microsoft’s .NET framework software, and they could argue that they want the company to make it cost-effective and easy for them to migrate to the cloud,” Freeman added. “Therefore, removing these benefits to satisfy the competition could negatively affect customers who rely heavily on these offerings.”

rising tide

In the long run, however, analysts believe there is plenty of room in the cloud market for Microsoft and other cloud providers, both large and small, to further grow their respective operations due to the increasing trend of relying on multiple cloud operators.

“When it comes to the cloud, in some cases it can be easier to have interoperability between different platforms and solutions, so the multi-cloud concept is becoming very prevalent,” Kessler said, adding that Snowflake Inc. is a great Provider example. whose business is based on companies pursuing a multi-cloud strategy.

According to 451 Research, three out of four companies now use more than one cloud provider, primarily as a way to take advantage of best-in-class services and insurance to avoid being locked into a single provider.

“We are still in a land grab situation when it comes to bringing enterprise workloads to the cloud,” Atelsek said. “Azure and Google Cloud emphasize their multi-cloud capabilities as a way to differentiate themselves from AWS.”

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451 Research is part of S&P Global Market Intelligence.

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