Google accuses Microsoft of ‘anti-competitive’ cloud practices

Google has accused Microsoft of anti-competitive practices in its cloud business in a scathing letter to US regulators examining the state of the industry. 

Responding to a call for testimony from the Federal Trade Commission (FTC), which is examining competition in the US cloud market, Google claimed that Microsoft imposes inhibitive license terms on customers to “lock in clients”. 

The letter from Google specifically targeted Microsoft, as well as other industry players such as Oracle, for alleged anti-competitive behaviors, which it said is harming both customers and the broader industry landscape. 

In particular, Google argued that Microsoft leverages the dominant position of Microsoft Office and Windows Server product lines, dubbing it a “complex web” that has created a difficult operating space for organizations seeking alternatives to Azure services. 

According to reports from CNBC, Microsoft and Oracle are “not only forcing customers toward a monolithic cloud model but also limiting choice, increasing costs for customers, and disrupting growing and thriving digital ecosystems in the US and around the world”. 

Cloud market competition

The claims from Google come amid a period of heightened regulatory scrutiny for cloud providers globally. 

In April, UK regulator Ofcom proposed that cloud services providers in the UK be referred to the Competition and Markets Authority (CMA) due to concerns that hyperscaler dominance in the space is stifling competition. 

Ofcom specifically targeted Amazon Web Services (AWS) and Microsoft’s Azure cloud division as part of its initial investigation, raising concerns that the duo has somewhat of a stranglehold on the UK market. 

Collectively, the two providers hold a market share of between 60-70%. Google Cloud commands a 5-10% share of the market, Ofcom found. 

Ofcom also highlighted ‘concerning’ practices around ‘egress fees’, whereby customers pay to transfer data out of the cloud or to other providers. 

The regulator said that hyperscaler set fees at “significantly higher rates than other service providers”.

Egress-related fees were found to be highly discouraging for customers, deterring them from switching to an alternative provider. 

Limiting cloud customer mobility

Responding to the FTC, consumer rights group NetChoice suggested that the threat to cloud competition in US markets wasn’t due to a “lack of quality participants” in the ecosystem, but rather cloud providers’ policy of locking in customers. 

“The threat to cloud competition is not a lack of quality participants offering quality services. There are plenty. In fact, there is so much competition that the greatest threat to a healthy market is some cloud providers forcing their legacy consumers into their own clouds, avoiding competition altogether,” the NGO said. 

“The single greatest threat to cloud competition is thus the attempt by some providers to lock in their customers – businesses of all sizes and government agencies especially – into specific clouds by limiting mobility through pernicious contract clauses, predatory discounting, and other dangerous schemes that leave consumers with limited or unpalatable options.”

Is Google baiting regulators?

While Google’s argument does align with longstanding concerns over vendor lock-in within the cloud market, the claims do raise eyebrows. 

Of the three main western hyperscaler providers, Google Cloud by far holds the smallest market share, standing at around 11% based on late 2022 figures. 

Additionally,  while the company has been making headway, its share still stands at around half of Microsoft’s and just one-third of that commanded by AWS. 

Google is also no stranger to receiving anti-competition allegations, as reports in recent years show. 

The company’s advertising business has faced repeated antitrust lawsuits on both sides of the Atlantic, with regulators arguing that the company holds a dominant position in the space that is harming competition. 

A lawsuit filed in 2020 which accused the company of limiting competition in the internet search market is expected to go to trial in September this year.