Databricks and Microsoft are forging deeper ties with an expansion to the duo’s decade-long partnership, with a fresh focus placed on data management.

As part of the move, Databricks said it plans to expand use of Azure Databricks in core business operations and build a new, unified data lakehouse.

The move will also see the firm adopt Microsoft’s Arm-based VM infrastructure, Azure Cobalt, to “improve performance and efficiency”.

Microsoft, meanwhile, plans deeper integration of Databricks’ Data and AI platform across core product lines in a bid to provide customers with new tools such as Genie, the company’s flagship AI chatbot.

Databricks CEO and co-founder Ali Ghodsi said the expansion builds on long-standing ties and aims to accelerate customer data transformation efforts.

“For nearly a decade, Databricks and Microsoft have helped enterprises innovate with data and AI,” he said.

“Today, our partnership is stronger than ever. With Databricks Genie and Unity AI Gateway deeply integrated across Microsoft’s products, we’re helping enterprises unify their data and ground AI in business knowledge.”

Delivering business context

The partnership expansion aims to address key recurring hurdles for enterprises dabbling in AI innovation: data preparation and management.

AI systems, particularly agents, require fine-tuned data grounded in domain-specific context, according to the duo. Simply put, this means AI systems need to understand enterprise products, customers, operations, and general business processes to run efficiently.

A significant portion of enterprises are still struggling to bridge these gaps, however, and it risks derailing adoption processes, according to Judson Althoff, CEO of Microsoft’s commercial business.

“The next generation of AI will be defined by how effectively organizations turn their unique knowledge into intelligence,” Althoff said.

“Microsoft and Databricks are helping customers connect data, AI, and business context to accelerate decision-making and drive measurable impact.”

Databricks targets performance gains

A key focus of the partnership rests on expansion of Azure Cobalt for Databricks. The company said this will help improve performance and efficiency for agentic AI and ‘data-intensive’ workloads for customers.

The data analytics firm currently uses Cobalt 100. Looking ahead, the company plans to adopt Cobalt 200, which Microsoft noted offers up to 50% better performance and includes memory encryption by default.

Expansion of core business operations through Azure Databricks will also deliver performance improvements, the duo noted, enabling the firm to scale up capabilities for customers.

Genie integration

Deeper integration of Databricks’ Genie AI service within Azure also aims to simplify data management capabilities for customers, according to the firm.

Running the AI system directly within Microsoft environments will enable customers to ground and operate agents on data hosted within the cloud service. This means the AI tool will be “deeply integrated” with key Microsoft products, including:

• Azure Data Lake Storage
• Power BI
• Microsoft Foundry
• Microsoft 365, Teams, and Copilot

“These capabilities bring governed, real-time data and AI into business workflows, giving organisations the context, control, choice, and cost efficiency needed to drive impact,” the company said in a blog post.

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Kyndryl is aiming to boost sovereign capabilities through a new deal with Microsoft designed to help customers keep up with evolving data residency requirements.

Governments and highly regulated industries are increasingly facing geopolitical uncertainty, expanding data localization preferences, and ever more complex IT environments, according to Kyndryl.

With this in mind, the company argues that regulatory frameworks such as GDPR, DORA, and NIS2 need to be translated into practical architectures. The aim of this deal is to combine Kyndryl’s advisory, engineering, and operational experience with Microsoft’s sovereign cloud offerings to address these needs.

The collaboration combines Kyndryl Sovereignty Solutioning with Microsoft Sovereign Cloud capabilities, and brings to the table the full spectrum of Microsoft’s public cloud capabilities and private cloud solutions using Azure Local.

This, Kyndryl said, will help organizations address sovereignty across data and operational domains, helping to reduce regulatory framework complexity.

“Kyndryl understands the reality of sovereignty through our first-hand experience with government expectations in Europe, and our strategic alliance with Microsoft brings together complementary strengths to help customers operationalize sovereignty in a practical, scalable way,” said Giovanni Carraro, global strategic alliances leader at Kyndryl.

“By collaborating with Microsoft, we can help customers align their sovereignty goals with real-world architectures, thus balancing control, resilience and performance across hybrid and distributed environments.”

Kyndryl eyes sovereign ‘readiness’

Customers can use Kyndryl’s Sovereignty Readiness Assessment to evaluate their current posture across data, operational, and technical domains, identify any gaps and dependencies and develop a phased roadmap.

The firm said it aims to support implementation using sovereignty-ready architectures that incorporate Microsoft Sovereign Cloud capabilities.

This includes public cloud solutions using Microsoft Azure and Microsoft 365, along with sovereign private cloud solutions using Azure Local in connected and disconnected deployment models.

These are designed to support varying levels of data residency, operational independence, and jurisdictional control as needed.

This unified approach, Kyndryl noted, supports sensitive and regulated workloads, including AI-enabled use cases, with a focus on data governance and model locality.

"Kyndryl’s deep expertise in designing and operating complex, regulated environments complements Microsoft’s comprehensive sovereign cloud capabilities, including controls designed to support data residency requirements, access governance and regulatory compliance,” said Ihab Foudeh, EMEA enterprise partner solutions general manager at Microsoft.

“Together, we are helping organizations adopt cloud services in ways that respect their local requirements while still enabling modernization and innovation.”

Sovereignty momentum

The move by Kyndryl comes amid a concerted focus on digital sovereignty across Europe. Recent research from Gartner, for example, revealed that a third of countries will be locked in to region-specific AI platforms within the next two years.

This shift is driven by a mixture of regulatory pressure, geopolitics, cloud localization, national AI missions, corporate risks, and national security concerns.

In a separate survey of UK IT decision makers last year, almost two-thirds told OVHcloud they were happy to pay between 11% and 30% more for a sovereign technology product that would meet all of their regulatory and sovereignty needs.

More than half acknowledged data sovereignty as a crucial aspect of their data management strategy.

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Microsoft is facing a class-action lawsuit from shareholders in the US, accusing it of failing to come clean about the state of its Azure business.

The lawsuit, which names several senior Microsoft officials as defendants, including chief executive Satya Nadella and chief financial officer Amy Hood, has been filed by a Michigan pension fund, the City of St Clair Shores Police and Fire Retirement System.

It alleges that Microsoft failed to give investors a full picture of Azure's performance and the financial demands of its AI expansion between May 1, 2025 and January 28 this year – the date on which Microsoft issued its Q2 results.

It reported 39% revenue growth in its Azure and other cloud businesses, down from 40% in the previous quarter, and said it expected growth of between 37% and 38% growth in the first three months of this year. And following this, around $357 billion of the company's market value was wiped out in a single day, representing the company's biggest one-day decline in nearly six years.

Microsoft invested heavily in AI infrastructure, research, and products such as Copilot, the pension fund claimed, while overstating the strength of products such as Copilot and the benefits of its partnership with OpenAI.

According to the lawsuit, the company attributed both the slowing growth of Azure and the higher spending to capacity constraints as it diverted resources to AI-related research and development and Copilot.

It failed to disclose that the Copilot family of products had experienced significant brand positioning, user experience, usage, data siloing, computational capacity, organizational, and interoperability problems, the lawsuit claimed.

The company ranked well below its competitors on a number of benchmark tests, and needed to increase its capital expenditures by billions of dollars. It also needed to divert GPU and CPU capacity away from fulfilling demand for its profitable Azure services, in order to improve the competitive positioning of its Copilot family of products and increase its AI-related research and development, the pension fund said.

"As a result, Microsoft had failed to convert a significant percentage of its commercial Microsoft 365 users to paid Copilot subscriptions and Microsoft's Copilot offerings had lost market share to rival products, a trend that was increasing," said Rosen Law Firm, which is handling the case.

"When the true details entered the market, the lawsuit claims that investors suffered damages."

Microsoft told Reuters that the claims were without merit, adding, "Microsoft stands by the integrity of its public statements and will vigorously defend itself in court".

Microsoft and Amazon have announced changes to cloud practices following a lengthy probe by the Competitions and Markets Authority (CMA), provoking mixed reactions from industry stakeholders.

While the regulator concluded in 2025 that both hold “positions of significant market power”, neither were given a Strategic Market Status (SMS) designation.

This is a label given to organizations that hold a disproportionate influence on markets and allows the CMA to impose “conduct requirements or introduce pro-competition interventions” under the Digital Markets, Competition, and Consumer Act (DMCC).

In the wake of the investigation, both hyperscalers have agreed to take action on key issues such as cloud egress fees, interoperability, and the ability of customers to switch providers.

In a statement, the CMA said this will “support greater choice” for businesses and public sector organizations across the country.

“These changes will reduce expense and effort for UK customers when using more than one cloud provider,” the regulator said.

As part of the announcement, the CMA revealed plans to launch a separate SMS probe into Microsoft’s software practices due to competition concerns. Expected to begin in May, the investigation will see the regulator examine the firm’s business software licensing practices.

In a blog post reacting to the cloud market decision, Microsoft president Brad Smith said the company is committed to working “quickly and constructively” to address the CMA’s concerns.

“We appreciate the opportunity we have had for direct and constructive conversations with the CMA and its staff and look forward to an ongoing dialogue in relation to relevant cloud issues in the future,” he wrote.

Amazon said it is working toward a “new UK Addendum that formalizes our commitment to customer choice through clear, comprehensive rights around multicloud adoption, data portability, and switching processes”.

Industry stakeholders aren’t sold

Experts have mixed reactions to Amazon and Microsoft’s moves to address issues flagged in the cloud market probe.

CCIA senior director Matthew Sinclair said the decision will avoid “overly broad and prescriptive interventions” that could harm UK cloud innovation.

“The regulator can focus its efforts on action to address specific issues, particularly restrictive software licensing terms for legacy software, which are costing UK users a fortune,” Sinclair noted.

Nicky Stewart, senior advisor at the Open Cloud Coalition, urged the regulator to take “swift action” against both organizations if they fail to meet commitments on egress fees and interoperability.

“Slow progress on these issues continues to hamper growth, innovation, and resilience in the UK cloud marketplace,” Stewart commented. “Decisive action will set a benchmark for competition authorities across Europe and beyond.”

In contrast, Mark Boost, CEO at UK-based cloud provider Civo, questioned whether the voluntary actions by both firms will deliver changes called for by industry stakeholders.

“Voluntary arrangements made with parties outside of the SMS framework will not provide real impact, and by delaying its final decision regarding Microsoft and excluding AWS altogether, there is a risk for CMA to unnecessarily prolong uncertainty and miss an opportunity to future-proof the UK’s digital infrastructure,” he said.

Boost added that the CMA’s decision does not provide “adequate solutions” to solve lingering concerns over the dominance of both hyperscalers in the UK market. Last year, the regulator found Amazon and Microsoft controlled a share of the market ranging between 30-40%.

“There needs to be a fair digital market in which domestic innovation is encouraged, alongside continuing to help build opportunities for international collaboration and trade,” he said.

“If the CMA is serious about delivering on this, it will need to adopt an integrated approach as opposed to only partially regulating these hyperscalers. If the same standards are not applied to both parties, the UK will jeopardize its objectives related to digital sovereignty and economic stability.”

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The Met Office has marked one year since it transitioned to cloud supercomputing hosted in Microsoft Azure to generate its critical weather data.

Best known for its weekly weather forecasts, the Met Office is a trading fund within the UK government. But beyond its role at a consumer level, it’s also a critical partner for government and industry as the unique provider of past and present weather data, as well as detailed projections for real-world decision making.

Charles Ewen, chief data and information officer at the Met Office, told assembled media that since partnering with Microsoft in 2024, the Met Office has worked to improve its scalability, flexibility, and resilience while also markedly increasing its compute capacity.

This is the Met Office’s first foray into enterprise-scale cloud computing, and as of last year, has seen the organization move away from on-premises computing for its forecasts.

Microsoft now hosts a cloud cluster for the Met Office, which delivers approximately 60 petaflops of computational performance for functions that could normally only be carried out on a scientific supercomputer, such as climate simulations and weather forecasting.

Ewen explained that cluster is one of the top five CPU clusters in the world, with 1.8 million cores operating at three-nines uptime.

The Met Office’s history of innovation

The Met Office has a storied history of supercomputing, having first used the EDSAC computer at Cambridge in 1952 and in 1959 adopting its first full-time forecasting computer in the form of a Ferranti Mercury computer dubbed ‘Meteor’.

In the decades since, the organization has been through numerous upgrades and reinventions. Even the past 18 years have marked major shifts.

When Ewen joined the Met Office, it was still authoring its own relational databases, he noted, adding that even then it was “an odd thing to be doing”.

The Met Office is now chasing collaboration, agility, scalability, and resilience across all its systems – a process that Ewen described as a significant overhaul.

Chasing resilience

Indeed, uptime and operational resilience were key drivers for the Met Office in partnering with Microsoft and migrating to its cloud supercomputer offering.

One year on from going live on Azure, the Met Office is now recording 99.95% availability for its integrated services, 99.77% supercomputer availability, and 100% critical workload availability.

Erin Chapple, CVP for Commercial Solution Areas at Microsoft, explained that the Met Office is making full use of Azure’s managed services, validated models, robust data workflows, and resilience.

“The platform is delivered with telemetry really built in as the standard and at the scale we operate, it allows us to focus on large-scale identification and resolution of incidents,” Chapple said.

“So the observability and the levels of automation that we have right really have eclipsed what we have been able to deliver in [the] past on premises, leading to identification of issues faster and quicker resolution. This also really enables us to support long running workflows in a consistent manner with minimal or zero impact on those jobs.”

This last point is critical for Met Office operations, Ewen explained, as many of its ongoing scientific research projects last for “ten or more years” and need constant variables to produce usable results.

“So the ability to maintain that direction of travel, to continue to develop pioneering science and understanding, to be able to implement that in next generation codes on new technologies, is vital.”

Ewen added that with the built-in telemetry possible on Azure, the Met Office can now identify and address large-scale incidents at a level not before possible.

“So the observability and the levels of automation that we have really have eclipsed what we have been able to deliver in the past on premises, leading to identification of issues faster and quicker resolution,” he explained.

For digital sovereignty purposes, Microsoft offers workloads based in the UK and provides dedicated protections for data sovereignty.

New frontiers

In February, the Met Office announced it had implemented a new and improved weather model, which would not have been possible without its Microsoft partnership.

The new model allows for more accurate local and global forecasts, driven by improved model physics, a greater range of aircraft data, and an overhaul of the Met Office’s prediction system.

Practically speaking, this means the Met Office is now able to produce more realistic rainfall forecasts, better cloud cover forecasts – hugely important for helping schedule aircraft take-offs, for example – and better UK temperature predictions.

The new model is also able to extend forecasting to 10 days, allowing for better medium-range predictions that feed directly into private sector and military decision-making.

Ewen said the Met Office and Microsoft have now formed a true partnership and that the two will continue to work together on meteorological and climate breakthroughs.

Although the bulk of the organization’s work is rooted in computational physics, Ewen acknowledged that AI is a potential catalyst for innovation. The Met Office will continue to assess the role a hybrid approach to AI and traditional compute can play, he explained, but he cautioned against focusing on it too much.

“People are struggling because they're looking through the narrow lens of, typically, AI at the moment and before that, it was cloud,” he said.

Going forward, Ewen said the Met Office will build on its trusted partnership with Microsoft to maintain its national reputation and deliver groundbreaking research.

“Of course, real world progress is measured in our outputs,” Ewen said.

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Microsoft has expanded its Sovereign Cloud for AI and regulated environments, as CEO Satya Nadella hypes up the full extent of AI support the firm now offers.

Azure Local disconnected and Microsoft 365 Local disconnected are now generally available, allowing organizations to run critical infrastructure and productivity apps with Azure governance and policy controls, without the need for cloud connections.

Used via Microsoft 365 Local, customers get full control of their data, access, and compliance across the productivity suite, with core server workloads such as Exchange Server, SharePoint Server, and Skype for Business Server supported until at least 2035.

For the first time, qualified customers will also be able to use Foundry Local to run multimodal LLMs inside their on-premises, private cloud environments.

Speaking to assembled media at the Microsoft AI Tour in London, Alistair Speirs, GM for AI Infrastructure at Microsoft, said Foundry now covers “workstation class” infrastructure, including edge and air-gapped hardware, in addition to locally-hosted small language models (SLMs) on IoT devices, desktops, and laptops.

This includes tailored support for racks with AMD and Nvidia chips. Speirs added that there are currently no plans for Foundry Local to support Maia 200, with Microsoft primarily focused on AMD and Nvidia hardware.

“We’ve built the Maia chip so that it’s so focused on Azure it knows exactly where it’s running in the data center,” Speirs said.

He noted that this allows Microsoft’s global infrastructure to leverage an “unprecedented” amount of control over the chip.

Microsoft is doubling down on sovereign cloud

In the event keynote Microsoft CEO Satya Nadella said the firm is committed to sovereignty and aims to meet growing customer demands on this front.

"As you build out the data center, the requirement that now is absolutely front and center for everybody is how to ensure that in every region and every country you have sovereign controls," he said.

Nadella added that sovereign workloads form a “portfolio” for organizations to meet data residency and confidentiality requirements, across Sovereign Public Cloud, Sovereign Private Cloud, and Microsoft’s Sovereign Partner Ecosystem.

Speirs told assembled media that Microsoft is seeing new regulations targeting AI, cybersecurity, or data privacy introduced every four days.

To date, he added, over 1,000 global policy initiatives have been introduced across 69 countries – making compliance very complex.

Microsoft has positioned Azure Local disconnected as a key continuity option for sovereign environments, as well as classified and isolated workloads.

This is because it allows businesses to maintain ownership and control over their core environments, regardless of supply chain disruptions or geopolitical uncertainties.

“If you were to build some sovereign cloud infrastructure five years ago you would have made some assumptions,” said Speirs.

“But policies change, regulations change, geopolitics change. And so the ability to be able to flex and change that infrastructure is something we're really looking to build out so that as customers’ needs change, we help match that infrastructure as well.”

Nadella warned that organizations must ensure increased sovereignty doesn’t itself lead to increased risk and data exposure.

“Cyber resilience is a signals game – cyber resilience, fundamentally, is about having global intelligence to help you with your cyber resilience,”

“And so this is something that you want to think about which is, whenever you have a sovereign operation, how do you ensure that the sovereign operation does not lead to some cyber exposure?”

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Digital sovereignty has quietly become one of the most urgent requirements in the tech sector. Once a matter for policy debate, this is now a critical business issue and as much a matter of resilience as one of compliance.

Indeed while we’ve spoken about the need for digital sovereignty before, recent geopolitical developments have cast the debate in far starker light. With European governments and businesses leaning heavily into digital sovereignty, it’s clear there’s an emerging race to secure critical workloads.

Just how important will digital sovereignty be in 2026?

In this episode, Jane and Rory discuss all things digital sovereignty – how it’s being realized, the scale of the transformation, and how we could see things play out.

Highlights

"Gartner has projected that worldwide, sovereign cloud is spending. So that's infrastructure is set to surge to 80 billion in 2026 which is a 35.6% increase from 2025 and in 2027 Gartner thinks that spending is going to reach $110 billion so it's a lot of money. It's a lot of money, and especially as it's growing."

"These facilities that we're talking about, they take time and money, they are an investment. This is a buying of a house versus a buying of a phone. The way that Gartner is talking about projecting this growth is quite remarkable, really. [It's] less like houses, more like airports, something where there is a deep investment at an infrastructure and time level versus just going out and buying a consumer good or something you might refresh every five years."

"If I were a European policymaker, politician, I would be nervous about how much is sitting with American companies potentially, when they could just be hauled over the calls under the CLOUD Act or whatever. And I do appreciate that these companies, you know, it's in their business interest to try and reassure their European customers and they're clearly making steps in that direction. But as you say, it's untested. So you can see why digital sovereignty is such an important consideration, both at the national level and at a business level as well."

Footnotes

• Sovereign infrastructure spend to triple in Europe as fifth of workloads stay local
• What is a sovereign cloud?
• Sovereign cloud services are now the “bare minimum” expected by customers, and hyperscalers are scrambling to meet demand
• What the new AWS European Sovereign Cloud means for enterprises
• What the new Microsoft Sovereign Cloud push means for European customers
• CIOs wrestle with Europe's new digital sovereignty approach
• Can the UK achieve AI sovereignty?

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Microsoft has issued patches for more than 60 flaws this month, including six zero-day vulnerabilities that are already being targeted by hackers.

As part of this month's "Patch Tuesday", Microsoft listed 58 vulnerabilities in its own software, as well as four in other tools, including Chromium.

While this number of flaws isn’t out of the ordinary, security expert Dustin Childs noted that the volume under active attack is “extraordinarily high”.

"Microsoft lists six bugs being exploited at the time of release, with three of these listed as publicly known."

Of the six zero-day flaws, five are rated as important and one moderate, rather than the more serious critical. As such vulnerabilities are already being targeted by hackers in the wild, quick patching is advised.

One targets Microsoft Word, allowing attackers to bypass local security features to access advanced control settings and possibly allow code execution. However, as Microsoft noted: "An attacker must send a user a malicious Office file and convince them to open it."

Another security feature bypass flaw being patched also requires user interaction, with a malicious link or shortcut file clicked before the attacker can make use of this bug to slip in.

"Successful exploitation lets the attacker suppress or evade the usual “are you sure?” security dialogs for untrusted content, making it easier to deliver and execute further payloads without raising user suspicion," said Malware Bytes security researcher Pieter Arntz in a blog post.

While users need to be tricked via a malicious link, Childs noted: "Still, a one-click bug to gain code execution is a rarity."

Other zero-day flaws being addressed by Microsoft include a denial of service bug targeting Windows Remote Access Connection Manager, an elevation of privilege vulnerability in Windows Remote Desktop Services, and a bug in Desktop Window Manager.

The last of the six zero-days affects Internet Explorer – though it may be long gone as a browser, it still lingers in Windows. Once again, users need to be fooled into clicking a malicious link to enable this attack.

"The bypass here is simply the ability to reach IE, which shouldn’t be possible," noted Childs, adding that calling IE "always results in a vulnerability somehow."

Patches issued for Azure, GitHub Copilot flaws

The remaining flaws patched by Microsoft included a trio of critical bugs spotted in Azure as well as vulnerabilities that could allow remote code execution in GitHub Copilot.

These flaws all center on a command injection vulnerability, noted Kevin Breem, senior director for cyber threat research at Immersive Labs, and can be triggered via prompt injection.

Breem said this could allow a hacker to embed a malicious prompt that's triggered when a developer uses an agent workflow, potentially slipping past existing security restrictions to run code or commands.

That's particularly problematic as developers may have access to sensitive data such as API keys, he added.

"Coupled with organizations enabling both developers and automation pipelines to use LLMs and Agentic AI with the right prompt, an attacker could have a significant impact," he noted.

"This is not to say stop using AI, but to ensure developers understand the risks and identify what has access to AI Agents, and lastly, least privilege can limit the impact if a developer's secrets are compromised."

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Global spending on cloud infrastructure continues to skyrocket, new research shows, as enterprise demand for AI moves from early tests into full production deployment.

New figures from Omdia show global spending on cloud infrastructure services reached $102.6 billion in the third quarter of this year, up 25% year-on-year and marking the fifth consecutive quarter in which growth has been above 20%.

Amazon Web Services (AWS), Microsoft Azure, and Google Cloud kept the same market rankings as in the previous quarter – collectively accounting for 66% of global cloud infrastructure spending. Together, they saw 29% year-on-year growth.

AWS’s revenue grew by 20% – its strongest performance since 2022 – with a 32% market share. Omdia attributed this growth to an easing of compute supply constraints and incremental demand driven by its partnership with Anthropic.

Microsoft Azure maintained its place as the world’s second-largest cloud provider during the quarter, with a 22% market share and 40% year-on-year revenue growth.

Meanwhile, recorded 36% year-on-year growth and increased its market share to 11%, mostly thanks to enterprise AI offerings.

Backlog levels among leading cloud providers continued to rise, with all three reporting further increases during the third quarter.

AWS, for example, reported a total backlog of $200 billion by the end of the quarter, while Google Cloud saw levels increase to $157.7 billion, up sharply from $108.2 billion in Q2.

Hyperscalers target platform gains

Omdia noted that ss enterprises look beyond AI platforms' model capabilities towards multi-model strategies and agent-based applications, hyperscalers are moving towards platform-level AI capabilities.

AWS, Microsoft Azure, and Google Cloud are all integrating proprietary foundation models alongside an expanding array of third-party and open-weight models.

This approach by the trio is centered around leveraging managed platforms and services such as Amazon Bedrock, Azure AI Foundry, and Vertex AI’s Model Garden to expand support.

“Collaboration across the ecosystem remains critical,” said Rachel Brindley, senior director at Omdia.

“Multi-model support is increasingly viewed as a production requirement rather than a feature, as enterprises seek resilience, cost control, and deployment flexibility across generative AI workloads.”

Real-world impact still a struggle

Notably, many organizations are struggling with real-world deployment, and hyperscalers are stepping up investment in agent build-and-run capabilities, Omdia revealed.

Recent examples of this trend include AWS AgentCore and Microsoft’s Agent Framework, which provide standardized foundational capabilities aimed at helping enterprises more efficiently build, deploy, and operate AI agents in production settings.

“Many enterprises still lack standardized building blocks that can support business continuity, customer experience, and compliance at the same time, which is slowing the real-world deployment of AI agents,” said Yi Zhang, senior analyst at Omdia.

“This is where hyperscalers are increasingly stepping in, using platform-led approaches to make it easier for enterprises to build and run agents in production environments.”

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Dell Technologies argues that there's no longer a debate between public cloud or private – instead, the focus is on using all of the available options and finding ways to manage that complexity.

"The conversation around enterprise IT is changing," said Caitlin Gordon, Vice President of Multicloud Product Management for Dell Technologies in a blog post. "It’s no longer about choosing between public cloud and on-premises infrastructure."

"Nor is it a simple decision between running traditional or modern workloads. Today, the real challenge is how to manage all of these different environments and application types together, simply and consistently."

To help, Dell is expanding its existing partnership with Microsoft – which already offers AX System for Azure Local, later adding PowerFlex to the mix – and will offer support for Dell Private Cloud and PowerStore on Azure Local, Microsoft's system for running Azure services on in-house data center infrastructure.

"Microsoft and Dell Technologies share a vision of empowering businesses to achieve more through innovation and collaboration," said Dean Paron, VP of product management for Azure Edge Infrastructure at Microsoft.

"By bringing Microsoft Azure Local to Dell Private Cloud and PowerStore, we’re helping customers simplify their IT operations and unlock the full potential of their hybrid cloud strategies," he added.

The partnership comes amid a rising debate over cloud repatriation – the idea of moving workloads from the cloud back to on-premise infrastructure to help reduce costs, increase control, or improve flexibility.

While firms like Basecamp and Ahrefs have saved millions making such a move, hybrid remains the most popular option at 68% of companies, according to one survey.

Private Cloud on Azure

Gordon said the partnership delivered a first for private setups on Azure, and this latest announcement shows the duo want to take things further.

"Dell Private Cloud is the first Azure Local offering… a full-stack solution across compute, external storage, and networking, delivered from a single vendor, with end-to-end solution-level support included," Gordon said.

With Dell Private Cloud, Azure Local users will get automated lifecycle management, with end-to-end automation to help reduce complexity, as well as independent scaling, allowing compute and storage to be managed separately to reduce costs.

Plus, the system offers a disaggregated approach – as Dell puts it – that gives businesses a future-ready, adaptable system.

"This combination of Dell Private Cloud and Dell PowerStore delivers the simplicity, flexibility, and performance customers need to manage both traditional and modern workloads across their IT estate, Gordon said.

PowerStore for flash storage

The addition of PowerStore, Dell's enterprise-grade, all-flash storage solution, will give flexible scalability with built-in data protection, Gordon added.

"Always-on data reduction lowers storage costs without impacting performance, backed by the industry’s best 5:1 DRR (Disaster Risk Reduction) guarantee," Gordon added.

Early access for Azure Local with Dell Private Cloud and PowerStore will begin in Spring 2026, the company confirmed.

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Microsoft has confirmed its Azure cloud services are back online after a major outage impacted services across multiple regions.

It's a tough time to be a cloud provider, with the Azure incident coming hot on the heels of an AWS outage that knocked a wide range of companies and services offline last week.

According to Microsoft, the Azure outage was caused by a CDN configuration error, lasted eight hours, and saw a wide range of Microsoft customers affected, including Alaska Airlines, websites for Heathrow, NatWest, and more.

Even Microsoft's own 365 suite was affected by the outage while proceedings at the Scottish Parliament in Edinburgh were paused due to technical difficulties.

In a service update, Microsoft said error rates and latency are “back to pre-incident levels”, but warned that a “smaller number of customers may still be seeing issues” akin to the turbulent recovery period experienced by AWS customers last week.

The outage was due to a configuration fault in a content delivery network (CDN) system. As with the AWS incident, once the outage started, the interlinked nature of these systems meant the disruption quickly cascaded into a wider problem.

What happened with the Azure outage?

Microsoft has detailed its initial take on the outage on the Azure status page, noting that the incident started at 3.45pm UTC and was spotted within 20 minutes, with manual recovery beginning at 6.45pm. The outage was resolved by midnight.

The outage affected customers and Microsoft services using Azure Front Door (AFD), which is Microsoft's content delivery network service, causing latency issues, timeouts and errors.

"An inadvertent tenant configuration change within Azure Front Door (AFD) triggered a widespread service disruption affecting both Microsoft services and customer applications dependent on AFD for global content delivery," the update said.

Microsoft added that this wasn't spotted because protection mechanisms failed due to a software bug.

"The change introduced an invalid or inconsistent configuration state that caused a significant number of AFD nodes to fail to load properly, leading to increased latencies, timeouts, and connection errors for downstream services."

As the nodes failed, they dropped out of the global pool, meaning traffic distribution across the nodes that remained became unbalanced. Microsoft noted that this exacerbated the outage and expanded the impact, meaning some regions that weren't affected by the AFD issues also saw service degradation.

To recover, Microsoft blocked all configuration changes and rolled back to the "last known good" version, which required reloading across a large number of loads. The recovery was slow to avoid overloading systems as they came back online.

"This deliberate, phased recovery was necessary to stabilize the system while restoring scale and ensuring no recurrence of the issue," Microsoft said, adding it would publish a more detailed review in the next two weeks.

Time to diversify?

With two major outages at US hyperscalers impacting organizations around the world, it's no surprise that questions are being raised about concentrating too much in the hands of a few American tech providers.

AWS holds about 30% of the market, for example, while Azure commands a 20% share, underlining the tight grip both these companies have on the broader cloud computing landscape.

Mark Boost, CEO of Civo, said this latest incident should serve as a warning about diversification within the industry.

"Two of the world’s biggest cloud providers have suffered major outages in the space of a week," he said.

"It’s a wake-up call for governments and enterprises alike, why are so many critical UK institutions, from HMRC to major banks and airports, reliant on infrastructure hosted thousands of miles away?"

Nicky Stewart, Senior Advisor to the Open Cloud Coalition, echoed Boost’s comments on diversification, adding that interoperability and resilience are two key issues that need to be addressed.

"Successive outages on this scale show how a single technical fault can ripple through essential services, public infrastructure, and the wider economy," said Stewart.

"The pattern of repeated disruption underlines the urgent need for diversification, and the CMA must move at pace to implement remedies that foster a more open, competitive, and interoperable cloud market, one where resilience comes from choice, not dependence on the two dominant providers.”

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Microsoft has announced the launch of a new ‘marketplace’ which allows customers to pick and choose a variety of in-house and third-party products.

In an announcement on 25 September, the tech giant confirmed Microsoft Marketplace will offer customers a “trusted source for cloud solutions, AI apps. and agents”.

The new marketplace will essentially act as an extension of Microsoft Cloud, allowing partner organizations to engage with customers and providing a broader array of options.

Part of the move includes the unification of Azure Marketplace and Microsoft AppSource to create a single point of contact.

Here's what customers can expect from the new service.

What to expect with Microsoft Marketplace

A key feature highlighted by Microsoft includes the launch of a new AI Apps and Agents category. This, the tech giant said, will act as a single source for AI applications and agents offered by the company’s partner ecosystem.

This category boasts over 3,000 apps and agents, the company said, such as Azure AI Foundry or Microsoft 365 Copilot.

“Microsoft Marketplace gives you access to thousands of AI apps and agents from our rich partner ecosystem designed to automate tasks, accelerate decision-making and unlock value across your business,” said Alysa Taylor, CMO for commercial cloud & AI at Microsoft.

“With a new AI Apps and Agents category, you can easily and confidently find AI solutions that integrate with your organization’s existing Microsoft products."

Elsewhere, the marketplace looks to consolidate the tech giant’s range of cloud solutions, allowing customers to pick and choose based on their specific industry and use-cases.

This spans all of the company’s core product lines, from Microsoft 365 to Azure.

“Microsoft Marketplace offers solutions across dozens of categories ranging from data and analytics to productivity and collaboration, in addition to industry-specific offerings,” Taylor said.

“Microsoft Marketplace is a seamless extension of the Microsoft Cloud, uniting solutions integrated with Azure, Microsoft 365, Dynamics 365, Power Platform, Microsoft Security and more.”

A chip off the Amazon block

The new setup from Microsoft bears similarities to Amazon Bedrock, the hyperscaler’s own ‘marketplace’ for AI solutions. The service, which launched in 2023, allows customers to choose from a range of in-house and third-party AI models.

As ITPro reported at the time of launch, the managed service offered AWS a quick route into the generative AI race, simplifying access for customers.

The tech giant framed Bedrock as the “easiest way to build and scale enterprise-ready generative AI applications”.

It’s proven highly successful in recent years, with Bedrock receiving repeated updates, including a sweeping batch of new offerings at its annual conference in Las Vegas last year.

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Amazon Web Services (AWS) still leads the pack in the rapidly-growing Infrastructure as a Service (IaaS) cloud market – but its lead is narrowing.

According to research from Gartner, AWS maintained its lead in the IaaS space across 2024 with a 37.7% market share and revenues of $64.8 billion.

However, analysis from the consultancy showed a poorer performance compared to the year prior, when it held 39% of the market.

While this represents a marginal decline, gains at key competitors highlight growing pressure on the hyperscaler. Microsoft, for example, saw its market share rise from 23% to 23.9% while Google's increased from 8.2% to 9%.

Elsewhere, market share at Alibaba and Huawei also dipped across the year, Gartner found.

“Cloud providers are investing heavily in AI infrastructure and capabilities to become leaders in the rapidly evolving AI-optimized IaaS market," said Hardeep Singh, principal analyst at Gartner.

"They expect that AI will become a much larger revenue contributor in the future, even though it currently remains a relatively small slice of their overall revenue within the IaaS space."

Overall, the worldwide infrastructure as a service (IaaS) market grew 22.5% in 2024, reaching $171.8 billion.

This growth, Gartner noted, is driven by a demand for flexibility with data residency and sovereignty, as enterprises seek to gradually transition to the cloud while keeping control over their data and operations.

"As enterprises continue to seek greater flexibility, improved resilience and optimized performance, there is sustained demand for cloud migration and modernization services," Singh added.

"Enterprises want to transform their IT infrastructure by leveraging multiple platforms for AI and prioritizing modernization by migrating existing workloads to the cloud. They are also deploying cloud native applications across diverse environments.”

Meanwhile, emerging AI-optimized IaaS offerings from non-hyperscalers or GPU as a service (GPUaaS) providers are also playing a key role in addressing immediate capacity requirements by offering flexible, high-performance compute on demand.

Amazon’s cloud dominance faces big challenges

Gartner’s research isn’t the first to point to a declining state of affairs for AWS in recent months. A report from Canalys earlier this year showed sluggish growth rates for the hyperscaler, recording just 17% in the first quarter of 2025.

This not only marked a decrease compared to the 19% recorded in Q4 2024, but came in sharp contrast to growth rates of more than 30% at Microsoft and Google Cloud.

Growth is being driven by both enterprise end-users and providers, said Canalys, with leading hyperscalers ramping up their efforts to optimize infrastructure to accommodate AI adoption.

Amazon is also facing increased pressure in the UK alongside Microsoft over its market dominance.

After a three-year investigation, the UK's Competition and Markets Authority (CMA) issued a report late last month concluding that the two companies have "significant unilateral market power" in the UK's cloud infrastructure services market.

Combined, the two cloud computing giants command a 70% market share, dominating in both the IaaS and PaaS domains, the CMA found.

The competition watchdog recommended that both companies be assessed for Strategic Market Status (SMS), which could lead to targeted interventions to encourage greater competition.

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The UK Competition and Markets Authority (CMA) has accused Microsoft and Amazon of harming competition in the country’s cloud computing market.

Following a long-running probe into the state of the industry, the regulator warned competition in the space is “not working well”, highlighting an array of business practices it said hampers competition.

The probe pointed specifically to a trend of market concentration in the Infrastructure as a Service (IaaS) space, noting that Amazon and Microsoft command “significant unilateral market power”.

Amazon and Microsoft are the two largest providers in this domain, each of which controlled a share of the market ranging between 30-40%, as of 2024.

The Platform as a Service (PaaS) market also showed signs of concentration, according to the CMA, with Microsoft’s share having increased to 20-30% since 2020.

All told, this market concentration is hampering the ability of competitors to enter the space, the CMA alleges.

“There are substantial barriers to entry and expansion in cloud services, particularly in IaaS as this requires significant capital investment in fixed assets such as data centers, networks and servers, and components which become largely a sunk cost,” the CMA report reads.

“There are also economies of scale, meaning that larger cloud providers have lower average costs compared to smaller providers,” it added.

“The largest cloud providers are making substantial investments in IaaS and AI capabilities to expand their services in coming years, and while this investment can have pro-competitive effects and benefit cloud customers, it may also deter market entry or expansion by potential rivals.”

The enterprise impact of cloud practices

A key focus of the CMA probe has been egress fees. The regulator noted that the number of customers switching suppliers each year was low – only around 1% – it suggested this could be more to do with barriers to doing so rather than businesses’ preferences.

“Customers face both commercial and technical barriers when seeking to multi-cloud or switch their cloud provider and many currently think that the costs outweigh the benefits,” the report noted.

“Barriers to multi-cloud negatively affect many customers’ ability to use and integrate multiple public clouds, and this limits customers’ ability and incentive to exercise choice over their cloud provider."

This applies equally to small businesses and larger enterprises, the CMA said, with the former lacking the financial resources and the latter facing high fees due to the large quantities of data they have stored in the cloud.

In addition to cloud-related concerns, the CMA also took issue with Microsoft’s licensing practices. It argued that the tech giant incentivizes customers to use Windows Server through its Azure cloud service rather than competing options.

This, the regulator noted, “further restricts” the limited choices faced by enterprises.

Recommendations outlined by the CMA report include a further investigation into AWS and Microsoft under the Digital Markets, Competition and Consumers (DMCC) Act.

“We recommend that the CMA Board use its digital markets powers to prioritize commencing SMS investigations to consider designation the two largest providers, Microsoft and AWS, with strategic market status in relation to their respective digital activities in cloud services,” the report states.

Microsoft and AWS hit back at CMA ruling

Microsoft and AWS have hit back at the regulator in the wake of the ruling. A Microsoft spokesperson said the report “misses the mark again”, and claimed the industry has “never been so dynamic and competitive”.

“Its recommendations (also) fail to cover Google, one of the fastest-growing cloud market participants,” the spokesperson said.

“Microsoft looks forward to working with the Digital Markets Unit toward an outcome that more accurately reflects the current competition in cloud that benefits UK customers.”

A spokesperson for AWS issued an equally scathing response to the report, saying it “disregards clear evidence of robust competition” in the UK IT services industry.

“The action proposed by the Inquiry Group is unwarranted and undermines the substantial investment and innovation that have already benefitted hundreds of thousands of UK businesses,” the spokesperson said.

“It risks making the UK a global outlier at a time when businesses need regulatory predictability for the UK to maintain international competitiveness. We will continue to engage constructively with the CMA as they consider their next steps.”

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EU-based cloud providers have seen their local revenues triple in recent years, new research shows, but there’s still a long way to go until they can break the dominance of US tech giants.

Analysis from Synergy Research Group shows US providers - including Amazon, Microsoft, and Google Cloud - command a 70% share of the European market compared to just 15% for regional firms.

Compounding the situation for European firms is the fact the market has grown by a factor of six over the last eight years, meaning the market share for local providers has fallen from 29% in 2017.

There is light on the horizon, however. Synergy noted that this 15% share has held steady since 2022, suggesting no further inroads from US giants.

The figures come amid a period of renewed demands for local cloud infrastructure and concerns over data sovereignty, with regional IT leaders reportedly ‘skittish’ over the influence of US cloud companies.

Despite calls for a more localized approach to cloud computing, the reality is that cloud is a market where size really does matter, according to John Dinsdale, chief analyst at Synergy.

"The cloud market is a game of scale where aspiring leaders have to place huge financial bets, must have a long-term view of investments and profitability, must maintain a focused determination to succeed, and must consistently achieve operational excellence," he said.

"No European companies have come close to that set of criteria and the result is a market where the five leaders are all US companies."

US cloud providers are investing heavily

The big American players have set aside whopping sums for capital expenditure programs with AI sparking new infrastructure demands and capacity.

Earlier this year, Microsoft detailed plans to spend around $80 billion on infrastructure expansion while Google recently announced an additional $10 billion, taking its total to $85 billion for the year.

A significant portion of this investment is flowing into Europe, with Microsoft spending $400 million to expand its Swiss data centers and $2.1 billion for cloud and AI infrastructure in Spain.

AWS, meanwhile, plans to spend £8 billion in the UK over the next five years.

"As US cloud providers continue to invest some €10 billion every quarter in European capex programs, that presents an impossible hill to climb for any companies who wish to seriously challenge their market leadership," Dinsdale added.

Some of that investment has been driven by efforts by American cloud providers to build sufficient local infrastructure to hold European data in Europe - and protect that from external pressure.

Both Google and Microsoft have pledged to protect local data via their sovereign cloud services. Last year, AWS revealed a €7.8 billion investment into AWS European Sovereign Cloud over the next 15 years.

American cloud providers have been hit by regulatory action in Europe, with Microsoft recently settling with Cloud Infrastructure Services Providers in Europe (CISPE) over a long-running licensing disagreement.

European cloud growth

That American dominance has left local providers battling it out for a small handful of customers, Dinsdale noted, creating an incredibly strained and competitive marketplace.

SAP and Deutsche Telekom each hold 2% of the European market, for example, followed by OVHcloud, Telecom Italia, and Orange.

Other regional players and smaller American and Asian cloud providers are also in the mix.

"Consequently European cloud providers have mostly settled into positions of serving local groups of customers that have some specific local needs, sometimes working as partners to the big US cloud providers," Dinsdale added.

"While many European cloud providers will continue to grow, they are unlikely to move the needle much in terms of overall European market share.”

Synergy said European cloud infrastructure service revenues were €36 billion in the first half of 2025, predicting annual spend would grow by a quarter versus last year.

Public IaaS and PaaS services make up the bulk of the market, the report added, with AI driving the market with up to 160% growth in relevant services.

The UK and Germany remain the biggest markets for cloud, but Ireland, Spain, and Italy are seeing the highest growth rates.

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Microsoft has announced fresh details on its European cloud sovereignty scheme, confirming that data stored by customers will stay in the region and adhere to European legislation.

The new scheme, dubbed Microsoft Sovereign Cloud, will offer enterprises across the region access to three distinct options, including Sovereign Public Cloud, Sovereign Private Cloud, and National Partner Clouds.

Sovereign Public Cloud will be offered to all existing European data center regions, the company revealed, and will apply to core enterprise services including Azure, Microsoft 365, Microsoft Security, and Power platform.

This offering marks an “evolution and expansion” of the Microsoft Cloud for Sovereignty service, the company revealed in a blog post.

“Sovereign Public Cloud ensures customer data stays in Europe, under European Law, with operations and access controlled by European personnel, and encryption is under full control of customers,” the blog post reads.

Microsoft added that this service is “enabled for all customer workloads running in our European data center regions” and will not require migration.

Elsewhere, the Sovereign Private Cloud option is aimed at protecting workloads in Azure Local and Microsoft 365 Local, the company’s on-prem infrastructure service for virtual machines (VMs), and containerization.

This service is fully integrated with Microsoft 365 Local and Azure Local, which the firm said will provide “consistent capabilities for hybrid air-gapped environments”.

“While strengthening sovereign controls in public cloud environments is critical, we also understand that some scenarios require certain workloads be run in a physical environment under full customer control to support business continuity risk mitigation,” Microsoft said in a blog post.

“Azure Local delivers Microsoft cloud services in customer locations, enabling organizations to meet specific data residency and sovereignty requirements.”

Microsoft commits to National Partner Clouds

A key talking point of the announcement this week is the expansion of National Partner Clouds in France and Germany. This service will allow enterprises to access Microsoft 365 and Azure in an “independently owned and operated environment”.

In France, for example, Microsoft will work with Bleu, a joint venture between Orange and Capgemini, to run a “cloud de confiance” for public sector organizations, critical infrastructure providers, and essential service providers.

The tech giant will also collaborate with Delos Cloud, an SAP subsidiary, to run a sovereign cloud for German public sector organizations. This is designed specifically to meet the German government’s Cloud Platform Requirements scheme.

Big tech ramps up cloud sovereignty in Europe

The move from Microsoft marks the latest in a string of big tech sovereignty announcements across Europe, with providers looking to shore up data protection and security practices for customers in the region.

A key factor in this industry-wide push has been lingering concerns over US overreach and access to both enterprise and consumer data in the European Union.

Earlier this year, Microsoft President Brad Smith said the tech giant would resort to legal action to protect EU customers from US demands to shut down services, for example.

CEO Satya Nadella unveiled the plans during an appearance at the AI Tour in Amsterdam, and in a post on X reaffirmed the tech giant’s commitment to the region.

“We’ve operated in Europe for more than 40 years – and we have been and always will be a steadfast partner to Europe,” he said.

“With Microsoft Sovereign Cloud, we’re committed to offering the most comprehensive set of sovereignty solutions for customers across Sovereign Public Cloud, Sovereign Private Cloud, and the National Partner Clouds operated by our European partners,” he said.

Microsoft isn't alone in its sovereignty push, with Google Cloud recently announcing a host of new features and capabilities specifically for European enterprise customers.

AWS and Oracle have also ramped up sovereign cloud services, with the latter in particular focusing heavily on the trend. Last year, for example, Oracle chairman and CTO Larry Ellison said he expects a wholesale shift toward national sovereign cloud setups in the near future.

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We’re past the peak cloud hype of the 2010s and now well into the era of cloud maturity. But even as businesses have come to terms with multi-cloud and hybrid cloud models, new considerations have arisen, such as the growing push for cloud sovereignty and regional data center demand.

AI has put additional pressure on firms to figure out exactly what they’re running in the cloud – as agentic AI drives organizations to consider ‘always on’ workloads and whether this is feasible in a public cloud model.

How can leaders navigate this changing cloud landscape and what is on the horizon?

In this episode, Rory speaks to Alex Grimshaw, CTO at Microsoft Azure UK, to explore what he sees as the key trends for the cloud and how AI will shape it in the coming years.

Highlights

"So cloud maturity for me, certainly for my engagement, whether that's from C-level or IT leaders, we're very comfortable with IaaS. But now, what's our approach to becoming more pervasive or using more sophisticated services like AI? And how do we enable or garner an internal culture and kind of process where we can adopt these faster moving services like AI, microservices, etc, in this new, bold world? That's certainly when I'm seeing that shift happen."

"We made, in November 2023, a huge commitment to the UK government that we would make a huge investment in UK AI infrastructure particularly. And obviously, a skilling commitment is there because, of course, it's not only ideal just to have infrastructure in the UK but of course you want to be able to skill up people so they can actually utilize that infrastructure."

"The research of Microsoft, we released a paper that challenged, almost the idea that the copilot type technologies were almost dumbing down our ability to critically think about scenarios, because a lot of people may utilize a tool like that and just take for granted what the response is. It's not augmenting human thought, it's almost replacing human thought, which is clearly not the idea here."

Footnotes

• UK government inks five-year cloud and AI deal with Microsoft
• “A long time coming” - Microsoft data residency plans will see firm store all cloud customer data in the EU
• What is a sovereign cloud?
• Small language models are growing in popularity — but they have a “hidden fallacy” that enterprises must come to terms with
• “The tech guys want to move to the cloud, the finance people want the savings”: IT leaders feel ‘rushed’ to the cloud – here’s why slow and steady wins the race
• Microsoft says AI tools such as Copilot or ChatGPT are affecting critical thinking at work – staff using the technology encounter 'long-term reliance and diminished independent problem-solving'

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Microsoft has said it will protect European data from American overreach in the courts if necessary — and will increase its investment in data centres in the EU.

The move is seen as a response to the Trump administration's irritation over EU rules that have supposedly impacted American big tech firms, and suggested retaliation looms.

Trump signed a memorandum earlier this year pledging to defend American companies from "overseas extortion", specially naming the EU Digital Markets Act (DMA) and threatening tariffs.

In a blog post, Microsoft president Brad Smith said the company would resort to litigation to protect EU customers from US demands to shut down services and pledged to increase investment in the region, continue efforts to protect data from legal demands and hackers alike, and boost the local economy via AI.

"We are at a moment in time when business needs to be a bridge across the Atlantic," he said in a separate speech in Brussels.

In his blog post outlining Microsoft's "European digital commitments," Smith added the company would respect European values and comply with its laws.

"In a time of geopolitical volatility, we are committed to providing digital stability," he said, without directly referencing the US administration.

"We in fact believe that even amidst current trade and tariff disputes, there is a strong consensus in Washington supporting the sustained flow of digital services from the United States to Europe."

But Microsoft isn't relying on that belief, and will build in further protections to cloud contracts.

Microsoft pledges no EU shutdown

Beyond the recently finished EU Data Boundary Project, Microsoft said European data center operations would be overseen by a European board of directors made up entirely of European nationals.

This also includes a new European Digital Resilience Commitment in all contracts. One aspect of that would be to fight any demands to stop working in Europe.

"In the unlikely event we are ever ordered by any government anywhere in the world to suspend or cease cloud operations in Europe, we are committing that Microsoft will promptly and vigorously contest such a measure using all legal avenues available, including by pursuing litigation in court," Smith said.

Smith pointed to four lawsuits filed during the Obama administration to protect user privacy, as well as a Supreme Court case from Trump's first term in which Microsoft sought, successfully, to uphold the rights of employees who are immigrants.

Similarly, Smith said the company had consistently fought legal demands that conflict with European law with regards to accessing user data.

"When necessary, we're prepared to go to court," Smith said.

That said, Smith added that Microsoft will set up partnerships with European companies to keep services up and running in case it was required by a court to suspend services.

"We will store back-up copies of our code in a secure repository in Switzerland, and we will provide our European partners with the legal rights needed to access and use this code if needed for this purpose," he noted.

Expanding European data center investments

Smith also announced that Microsoft plans to increase European data center capacity by 40% over the next two years as part of efforts to expand its operations in 16 European countries.

"When combined with our recent construction, the plans we’re announcing today will more than double our European datacenter capacity between 2023 and 2027," he wrote. "It will result in cloud operations in more than 200 data centers across the continent."

Those data centers will be split across public cloud and sovereign cloud. Smith pointed to a partnership in France with Capgemini and Orange, under a joint venture named Bleu, for a "cloud de confiance", or trusted cloud platform.

A similar project is in the works between Microsoft, SAP, and Arvato Systems to create a sovereign cloud for the German public sector.

Additionally, Smith noted that the firm is working with European cloud providers to offer its apps and services on local cloud infrastructure, and developing new licensing solutions for European providers — though the company has to do so following a settlement with Cloud Infrastructure Service Providers in Europe (CISPE).

These efforts naturally fall under local laws, such as European competition rules and the Digital Markets Act, he added.

"Microsoft is investing tens of billions of dollars annually in expanding its data centers across Europe," he said.

"These investments aren’t on wheels. They are permanent structures and subject to local laws, regulations, and governments. Like every citizen and company, we don’t always agree with every policy of every government. But even when we’ve lost cases in European courts, Microsoft has long respected and complied with European laws."

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Google’s acquisition of cloud security startup Wiz could have monumental implications for the sector, according to industry analysts, with the company raising the stakes for both key competitors and security vendors.

The acquisition, announced this week as a $32 billion all-cash transaction, will see Wiz bundled within the tech giant’s cloud computing division. It’s been a long time coming, as well.

Talks last year fell through at the final hurdle amid a raft of concerns, not least of all regulatory considerations and whether it would continue as an independent entity.

Founded in 2020, Wiz has emerged as a leading figure in the cloud security space; the broader industry has become a key focus for enterprise IT leaders in recent years amidst the widespread shift to the cloud, and more recently, hybrid and multi-cloud setups.

Research from CrowdStrike in 2024, for example, noted that the cloud has become a “major battleground for cyber attacks”, highlighting the escalating threats faced by enterprises across a range of industries.

Wiz specializes in cloud native security, providing enterprises with cloud native application protection platforms (CNAPP), threat detection, and incident response capabilities.

It’s the CNAPP element here that will be a key differentiator for the tech giant, analysts believe. These solutions differ from traditional security tools by offering users a unified platform aimed at bolstering security across the entire lifecycle of cloud native applications.

The advantage for enterprises is that by consolidating their cloud security toolkit, they can improve visibility across their cloud estates and better secure applications.

CNAPP has been growing in appeal among IT leaders in recent years. Research from Westcon-Comstor this month, for example, revealed that 84% of UK firms intend to invest in CNAPP solutions over the next 12 months.

Similarly, the market is growing at a significant pace. Analysis from Dell’Oro Group in July 2024 valued the CNAPP market at around $2 billion. But this is expected to surge to over $6 billion by 2028, representing a compound annual growth rate (CAGR) of 25%.

Given the value of the Wiz deal is more than five-times the expected value of the CNAPP market, it’s clear that Google is trying to capitalize on a lucrative opportunity.

Combine that with the need to ramp up multi-cloud security offerings and keep pace with competitors in the space, and the price tag attached to Wiz makes perfect sense.

Wiz deal could be the key to pipping customers

Microsoft has made significant strides in its cloud native security capabilities in recent years through notable acquisitions, according to Andras Cser, VP principal analyst at Forrester.

But Cser noted that while Google Cloud has been developing built-in CNAPP capabilities to bolster GCP security, these tools have “predominantly focused only on protecting GCP endpoints/assets”.

“After Microsoft’s 2021 early acquisition of CloudKnox and development of Defender for Cloud, Google is feeling the pressure to offer a true, multi-cloud-capable CNAPP tool given that so many organizations are multi-cloud today,” he said.

Cser added that, post-acquisition, the consultancy expects most CNAPP capabilities in GCP to be replaced by Wiz’s offering. With the firm bundled under the Google Cloud umbrella, this could become a tantalizing draw for prospective customers.

From a competition perspective, the deal also raises the stakes. With Microsoft’s acquisitions in this domain having placed pressure on Google to react, the Wiz deal will likely have the same effect on Amazon Web Services (AWS), another key competitor in the cloud space.

AWS provides tools such as Guard Duty and Config for customers. However, Cser insisted these “fall short” of the capabilities offered by a CNAPP solution, particularly with regard to multi-cloud coverage.

“If AWS is to maintain its position in cloud infrastructure, it has to beef up its productized, multi-cloud CNAPP (with coverage for CSPM, CIEM, agent-based and agentless CWP, container security, and IaC scanning) and, in general, cloud security offerings.”

The Wiz acquisition could hit vendors hard

While Google got what it wanted from the Wiz acquisition, independent vendors operating in the CNAPP space could feel immense pressure in the coming years, according to Cser.

A host of major vendors, including Fortinet, Palo Alto Networks, Rapid7, Sysdig, and Trend Micro offer CNAPP solutions, and Cser said they can not expect “fierce competition” to stay ahead in features.

“The planned acquisition plus Microsoft’s continued investments in CNAPP and app security will make it harder for these vendors to maintain and realize their growth,” he added.

Allie Mellen, principal analyst at Forrester, echoed Cser’s comments on this front, adding that this will place pressure on vendors to consolidate their offerings.

“Wiz’s key detection and response offering, Wiz Defend, takes a different approach to cloud detection and response,” she said.

“Instead of relying on built-in detection capabilities in its own cloud protection tools, it offers a unified tool solely for detection and response that takes in alerts and data from other tools and does detection engineering on them.”

All told, this reduces alert volumes from the cloud at a “critical time”, Mellen noted, thereby alleviating pressure on security practitioners and streamlining operations.

“With this acquisition, it will put pressure on other vendors to consolidate in a similar way — a big win for security operations teams.”

While some vendors will be bracing themselves in the wake of the acquisition, others are taking a more optimistic approach. Bill Welch, CEO of the aforementioned Sysdig, said there will be advantages for industry vendors.

“Regarding the potential $30B+ Google acquisition of Wiz – as Sysdig’s CEO, I say bring it on! This is great validation for the cloud security market,” he said.

Following communication with CISOs, investors, and cloud partners, Welch noted that one key talking point has emerged - mainly that “being forced into a single vendor is not good for business”.

“Most - if not all - cloud users and multi-cloud, and you can guarantee multi-cloud Wiz customers will struggle once the acquisition goes through. With a Google acquisition, this story ends well for the VCs, founders, and employees, but the customers are the ones who ultimately lose in a deal like this.”

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Microsoft has announced plans to end support for its Remote Desktop application in just over two months, according to a recent post on the firm’s blog.

The tool will reach end of life (EOL) on May 27 2025, at which point it will no longer be supported or available to download and install from the Microsoft store.

Users must migrate to the replacement Windows App to continue using Windows 365, Azure Virtual Desktop, and Microsoft Dev Box.

Microsoft said the Windows App offers many improvements to Remote Desktop, including unified access to multiple Windows services such as Cloud PCs and virtual desktops.

It offers customizable home screens, multi-monitor support, and dynamic display resolutions, as well as enhanced remote work experiences via features like device redirection, Microsoft Teams optimizations, and account switching.

To prepare for the transition, Microsoft advised Windows 365, Azure Virtual Desktop, and Microsoft Dev Box users to head straight to the Microsoft store to download the Windows App.

Remote Desktop and Remote Desktop Service users are advised to switch initially to the ‘Remote Desktop Connection’ and ‘RemoteApp and Desktop Connection’ services respectively, until these connection types are available in the Windows App.

Users should then review any known issues and feature limitations of the Windows App to get ahead of any potential migration challenges before uninstalling the Remote Desktop App.

“IT administrators can help prepare their organizations by encouraging users of Remote Desktop app for Windows to start their transition to Windows App, and by updating internal resources such as user guidance, help desk documentation, and administrative materials, as needed,” Microsoft said.

Remote Desktop alternatives are available

As Microsoft pushes users off the Remote Desktop platform, some users may want to consider what other similar platforms are available on the market.

TeamViewer is one alternative, offering remote access to computers and other devices through its platform, along with supporting tools designed for IT technicians and support agents.

The cheapest TeamViewer license costs £15.90 a month and provides access to three devices, moving up to £35.90 a month for access to 200 devices on the TeamViewer Business plan.

The TeamViewer Premium and TeamViewer Corporate plans cost £67.90 and £139.90 a month for access to 300 and 500 devices, respectively.

Anydesk is another option for remote desk functionality, coming available in three different payment plans. The solo plan costs £19.90 for three devices, while the standard plan costs £30.90 for 20 devices and the advanced plan costs £67.90 for 100 devices.

There are also open source alternatives to Remote Desktop such as RustDesk, which can be accessed easily on almost any platform and boasts a high level of security.

RustDesk is one of the cheaper alternatives out there, priced at $9.90 a month and going up to $19.90 for a customizable plan that can include as many additional devices as needed for $0.10 per device extra a month.

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Microsoft has completed work on a project that will allow EU data to stay in Europe while using the tech giant's cloud services.

The EU Data Boundary for the Microsoft Cloud, as the system is called, holds protected data within countries that are part of the EU or the European Free Trade Association, which extends the coverage to Liechtenstein, Iceland, Norway and Switzerland.

In a blog post detailing the project, Julie Brill, corporate VP and chief privacy officer, and Paul Lorimer, corporate VP of Microsoft 365, said European commercial and public sector customers will now be able to store and process customer data and pseudonymized personal data in the region.

This will apply to a raft of key services, including Microsoft 365, Dynamics 365, Power Platform, and most Azure services.

"In addition, Microsoft will store professional services data from technical support interactions for the core cloud services within the EU and EFTA regions," they added.

Microsoft added that some customer data could be shifted outside of the EU network in order to help battle cybersecurity threats.

"In limited security instances that require a coordinated global response, essential data may be transferred with robust protections that safeguard customer data," the blog post said.

"In these circumstances, Microsoft provides transparent information and implements comprehensive security measures, including encryption, strict access controls, and other resilient protections."

Microsoft’s EU data boundary has been a long time coming

Microsoft first announced the data boundary back in 2021, aiming to give EU customers the ability to store and process their data locally instead of routing it to the US or elsewhere.

That became necessary after a 2020 court ruling invalidated a data transfer mechanism between the EU and US known as Privacy Shield on the grounds that American surveillance techniques could breach GDPR rules.

The work was initially expected to be completed by the end of 2022, but Microsoft unveiled the first phase at the beginning of 2023, starting with storage of customer data across the Microsoft Cloud suite of online services, including Microsoft 365, Dynamics 365, Power Platform, and Azure.

A year later, the second phase added pseudonymized personal data. One year on, Microsoft has extended that to include what it calls ‘professional services data’, such as logs or case notes when customers ask for tech support.

When phase two was announced in January 2024, critics said the project had taken too long. Gartner analyst Nader Henein told ITPro at the time it had been "a long time coming", while Civo CEO Mark Boost said data should always have been held sovereign.

"The lack of commitment from hyperscaler providers to guarantee this has always been perplexing," he said.

In the blog post announcing the project's completion, Brill and Lorimer said: "At Microsoft, we believe cloud technology can be innovative, secure, and built to honor European values."

Alongside AI, the data boundary project has sparked huge investment in EU cloud infrastructure by Microsoft, including plans announced last year to invest €3.2bn in Germany, $2.1 billion in Spain and €4.3 billion in Italy.

The tech giant isn’t the only major industry player driving data sovereignty efforts, however. Other cloud giants, including Oracle and AWS, have also unveiled sovereign cloud services for customers based in the EU.

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Microsoft posted revenue and earnings growth in its latest quarterly results, but shares still tumbled after reporting higher than expected costs in its cloud segment.

Microsoft posted second quarter revenue of $69.6bn, up 12%, while operating income hit $31.7bn, up 17%.

Breaking down the results, Microsoft highlighted 14% growth in productivity and business processes. This included a 15% leap in Microsoft 365 commercial products and cloud services revenues, with an 8% increase in Microsoft 365 for consumers.

On the devices front, Windows OEM and devices revenue was up 4%.

"We are innovating across our tech stack and helping customers unlock the full ROI of AI to capture the massive opportunity ahead," said Satya Nadella, chairman and chief executive officer of Microsoft.

"Already, our AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year."

Cloud cost concerns hamper Microsoft earnings

Notably, Microsoft’s Intelligent Cloud division drew attention from investors despite a 19% increase in revenue to $25.5 billion. This segment not only performed below expectations but also saw rising costs.

Forrester principal analyst Lee Sustar said this highlights the significant investment required to maintain Microsoft’s sharp AI focus and associated infrastructure expansion efforts.

"While Microsoft's topline earnings continue to rack up big gains as the result of its AI offerings, the company’s Intelligent Cloud segment, which includes Azure and various other services, saw operating expenses spike 10%, a sign that maintaining AI momentum is getting expensive," he said.

"Tensions with OpenAI, Microsoft's planned $80 billion in investments in data centers, and a potential AI services price war driven by DeepSeek pose new challenges," Sustar added.

"Investors and customers are watching closely to see if Microsoft can continue to deliver after the company noted a 70% decline in gross margin for Microsoft Cloud as the result of scaling out AI infrastructure."

Amy Hood, executive vice president and chief financial officer at Microsoft, noted that cloud revenue was $40.9 billion — up by more than a fifth year on year — but acknowledged the concerns around rising costs.

"We remain committed to balancing operational discipline with continued investments in our cloud and AI infrastructure."

In a conference call to discuss the results, Hood revealed that more than half of cloud and AI-related spending at the firm was directed toward “long-lived assets that will support monetization over the next 15 years and beyond”.

"The remaining cloud and AI spend was primarily for servers, both CPUs and GPUs, to serve customers based on demand signals including our customer contracted backlog."

The AI investment surge is not over

Despite the cost concerns — and the disruption sparked by the arrival of cheaper model DeepSeek, which reportedly cost just $6 million to build — Microsoft and other tech giants said that AI investment would continue.

In that conference call, when asked about investing in future training for OpenAI's models, Nadella said Microsoft remained "very happy with the partnership with OpenAI".

"And as AI becomes more efficient and accessible, we will see exponentially more demand,” he added.

Hood, meanwhile, said Microsoft will increase spending on AI next year but at a slower rate, explaining that the company was racing to catch up in terms of infrastructure and capacity.

Microsoft has previously said it will invest up to $80 billion in AI this year.

That was echoed by Meta, which said it plans to invest heavily in this domain over the course of 2025, spending as much as $65 billion.

Discussing Meta’s results, CEO Mark Zuckerberg said on a conference call: "Investing very heavily in capital expenditure and infrastructure is going to be a strategic advantage over time."

But investors continued to call for evidence that big tech’s AI bet would pay off.

Futurum Group analyst Daniel Newman told Reuters that the combination of DeepSeek and these results was a "wake up call".

"For AI right now, there's too much capital expenditure, not enough consumption,” he added.

Microsoft CEO Satya Nadella has unveiled the launch of a new internal AI division focused on advancing the tech giant's agentic AI capabilities.

The new ‘CoreAI – Platform and Tools’ division looks to improve synergy between the company's software engineering and AI divisions, as well as other key teams from the office of the CTO such as AI Supercomputer, AI Agentic Runtime, and Engineering Thrive.

Building a complete Copilot and AI stack through this division will allow customers to build and deploy AI applications and agents, Nadella said. The division will also build out GitHub Copilot.

Jay Parikh will lead the group as EVP of Core AI, with Eric Boyd, Jason Taylor, Julia Liuson, Tim Bozarth, and their respective teams reporting to Parikh.

in a blog post unveiling the move, Nadella said the new division aims to interoperate with other departments at Microsoft to build closer collaborative ties.

“Ultimately, we must remember that our internal organizational boundaries are meaningless to both our customers and to our competitors,” he said.

“When we talk about operating as One Microsoft, we are effectively talking about how we are continually increasing our customer focus, raising the bar on our innovation, and driving accountability, so we can truly live up to our mission."

Microsoft’s agentic AI focus

Nadella said a key factor behind the shake up is due to the fact the industry is approaching the next stage of AI development, with enterprises globally focusing heavily on agentic AI adoption.

With this in mind, 2025 will be shaped by 'model-forward' applications, he said.

Microsoft’s focus in the year ahead will be on building out its agentic AI capabilities, and how the firm builds, deploys, and maintains these platforms from an engineering standpoint will see a fundamental change.

“This is leading to a new AI-first app stack — one with new UI/UX patterns, runtimes to build with agents, orchestrate multiple agents, and a reimagined management and observability layer,” Nadella said.

Azure will continue to underpin AI infrastructure and Microsoft will build its AI platform on top, Nadella noted. As platforms and tooling capabilities come together, agents will be created that change every SaaS application category.

“Our success in this next phase will be determined by having the best AI platform, tools, and infrastructure. We have a lot of work to do and a tremendous opportunity ahead, and together, I’m looking forward to building what comes next,” Nadella said.

Microsoft’s latest move is part of a continuing focus on AI agents. In October 2024, the firm unveiled that it would launch agents for Copilot in preview for its customers to automate workflows and business processes.

Other customer-focused moves by the firm saw Microsoft unveil Azure AI Foundry in a bid to help enterprise customers scale AI adoption.

Google has asked the US Federal Trade Commission (FTC) to break up Microsoft’s partnership with OpenAI over competition concerns.

The firm is asking the regulator to examine an exclusive agreement that ensures OpenAI’s technology is hosted on Microsoft’s cloud platform, reports from The Information suggest.

A conversation over the potential move occurred after the FTC asked Google about business practices at Microsoft as part of a wider investigation, the report said. The source cited was a person directly involved in the conversation.

The report said companies such as Google want to host OpenAI’s models on their cloud servers so that customers don’t need to rely on Microsoft for access.

Customers using OpenAI’s technology via Microsoft may face additional charges if they are not already Microsoft customers and using the firm’s servers, the conversation also revealed.

Google, along with other competitors, has highlighted that these additional charges will be damaging to customers.

Google’s puts the pressure on Microsoft

The move by Google marks the latest in a series of attempts by Google to disrupt Microsoft's alleged anti-competitive practices in the broader cloud computing industry and the generative AI space.

Google has been a vocal critic of Microsoft's practices in recent years, having taken a series of jabs at its long-time rival.

Most significant has been Google's aggressive stance on Microsoft’s cloud and software licensing regimes.

In February 2024, Google Cloud VP Amit Zavery hit out at Microsoft, suggesting it was pursuing a monopoly in the industry that could harm long-term competition.

Microsoft has been subject to intense regulatory scrutiny in the EU, and was locked in an intense battle with CISPE over its cloud computing practices, which the organization described as anti-competitive.

In July this year, Google reportedly offered a $512 million sweetener to CISPE in a bid to scupper a deal between the trade body and Microsoft to end a long-running lawsuit.

The attempt failed, however, and Microsoft has since settled with the organization.

The issue was not put to bed here though, with Zavery labeling the settlement a “payoff.”

Google also recently filed another complaint with the EU on this matter, doubling down on the accusation of Microsoft's anti-competitive cloud practices in the market.

Criticism of Microsoft hasn't been entirely restricted to its activities in the cloud industry, however.

In May, Google criticized Microsoft for its "inadequate security culture" after a series of email security blunders saw Chinese-backed threat actors gain access to communications between US government officials.

The scathing critique suggested Microsoft can't be trusted on cybersecurity matters, and urged organizations to consider alternative productivity platforms, such as its own Workspace service.

As firms across the world aim to meet net zero targets, it’s become increasingly clear that leaders need a better understanding of the carbon footprint of their entire supply chain rather than just their immediate emissions.

Scope 3 emissions, which are currently optional to report, refer to those produced by all the entities in an organization’s supply chain. While tracking these emissions is an essential part of the private sector embracing sustainability and clamping down on carbon emissions, this is a challenge as by definition they originate from sources outside an organization’s direct control.

Mondra is an environmental product footprinting platform, which works to help food companies identify the emissions in their supply chain.

Leaning on the Microsoft Azure cloud computing platform, Mondra provides AI predictions for where emissions might be in a customer’s supply chain. In practice, this means combining AI and digital twins to make a copy of existing data from which emissions numbers can be extrapolated, using Azure Databricks.

“We set out on a thesis to prove that if you could do LCA at speed, at scale for 30,000 products – that's what you're talking about with a retailer – then you end up with a really high resolution map of how your scope 3 is made up,” says Jason Barrett, CEO at Mondra, in conversation with ITPro.

“You can target investment, you can collaborate with suppliers.”

Marco De Sanctis, CTO at Mondra, tells ITPro that identifying where in your supply chain emissions originate is one of the most important steps to reducing your company’s carbon footprint.

“This is technically an incredibly challenging exercise, because the data is often incomplete and sometimes even wrong,” de Sanctis says.

These results are scored according to their estimated accuracy, so that leaders can check how Mondra’s inference approach produced the results. They can then take this data to their suppliers, to double check the accuracy and find out where emissions can actually be reduced.

To highlight the complexity of the task, Barrett tells ITPro that Mondra has paired with a leading UK retailer that had previously attempted to track its food-linked emissions internally. The retailer had been forced to stop after realizing that the task would take a century – a time that Mondra has now shortened down to just four hours.

Mondra is now working with 85% of UK retailers, representing 20% of the total footprint of the UK, but aims to go further and offer retailers more granular emissions insights.

To achieve this it’s developed a new chatbot offering called Sherpa, a natural language layer for interfacing with Mondra data powered by OpenAI’s large language model (LLM) GPT-4o.

This is rooted in Microsoft Azure OpenAI’s servers, and individually grounded in the dataset for each customer. The cloud architecture, which provides Microsoft customers with a range of generative AI models for differing use cases, has also allowed Mondra to offer Sherpa as a multi-agent offering meaning it uses other AI models in tandem with GPT-4o.

De Sanctis tells ITPro that Mondra is in the process of integrating OpenAI’s o1 model to assist customers with ‘what if’ questions about their supply chain emissions.

Through Microsoft Azure, Mondra’s customers can also check the carbon emissions of their AI model use, which can apply to Sherpa as well as any other AI models on which they rely.

Barrett says that although Mondra only measures scope 3 in the food and beverage industry, it’s aware of the need for responsible AI use and will work to ensure its AI use doesn’t undo its environmental benefits. De Sanctis adds that this is a prime benefit of its partnership with Microsoft:

“Microsoft Azure, as a cloud platform, allows you to do this very measurement quite precisely, projected over your usage of the platform itself.

“So you can literally see reports where your carbon footprint, for the services that you're using, is presented and justified much like we do for food. And it’s amazing because it allows you to see, for example, when we optimize our code, when we improve the efficiency of our code, the benefits this is generating in terms of less CO2 being released into the environment.

“Or even being able to choose the data centers in regions which could be more carbon efficient, depending on the power sources in the given country where your services are deployed.”

Microsoft is facing a £1 billion lawsuit in the UK over claims that it's been overcharging customers for using rival cloud platforms.

Those using Amazon Web Services (AWS), Google Cloud Platform (GCP) or Alibaba Cloud rather than Microsoft Azure, it claims, were charged higher licensing fees for Windows Server.

Customers licensing Windows Server via AWS, Google Cloud Platform, or Alibaba are subject to the Services Provider License Agreement (SPLA). The lawsuit alleges users face differences in price and quality compared with the Microsoft Azure licensing deal.

The case has been filed in the UK’s Competition Appeal Tribunal by Dr Maria Luisa Stasi, a competition law and digital markets regulation expert, through the disputes resolution law firm Scott+Scott.

"Put simply, Microsoft is punishing UK businesses and organisations for using Google, Amazon and Alibaba for cloud computing by forcing them to pay more money for Windows Server,” said Stasi.

“By doing so, Microsoft is trying to force customers into using its cloud computing service Azure and restricting competition in the sector.

"This lawsuit aims to challenge Microsoft’s anti-competitive behavior, push them to reveal exactly how much businesses in the UK have been illegally penalized, and return the money to organisations that have been unfairly overcharged."

According to Stasi, many thousands of businesses and organizations in the UK are likely to have been affected by the charges, with small businesses hit particularly hard.

Microsoft’s cloud computing practices, including those addressed in the claim, are already under investigation in the UK and elsewhere.

Communications regulator Ofcom, for example, last year referred the company to the Competition and Markets Authority (CMA), saying it was concerned that "cloud providers are using their strong position in software products to distort competition". A ruling is likely next summer.

Similarly, earlier this year Microsoft paid €20 million to CISPE to settle an antitrust complaint about its cloud computing licensing practices, thus avoiding an EU antitrust investigation.

It also promised to make changes to some of its software licensing practices within nine months.

"Collective actions level the playing field and allow organisations to fight back against anti-competitive behaviour from some of the biggest companies in the world," said James Hain-Cole, partner at Scott+Scott.

"Dr Stasi’s case against Microsoft aims to do exactly that. We are proud to support her efforts to secure compensation for the class and hold Microsoft to account for its conduct that affects businesses and organisations across the UK economy."

The US Federal Trade Commission (FTC) is investigating Microsoft over antitrust issues, according to sources cited in multiple reports.

While the reports suggest the FTC is examining multiple facets of Microsoft's business, including AI, Office, and security, the focus appears to be cloud computing and how its Azure services are bundled with its other products and services.

According to the New York Times, the FTC has formally requested information about Microsoft's cloud computing, security and AI products.

Bloomberg reports the information request runs into the hundreds of pages, with the FTC and Microsoft set to meet next week. Beyond the cloud, the reports suggest Microsoft's AI business is coming under specific scrutiny.

Those reports follow one in the Financial Times earlier this month which suggested the FTC was set to launch an investigation specifically into Microsoft's cloud computing business amid claims the company makes it too hard to move data from Azure to rival providers.

Last year, the FTC ran a consultation about the cloud computing market, finding concerns around software licensing, egress (or data transfer) fees, and minimum spend contracts.

Meanwhile, the FTC already has an industry wide inquiry into partnerships between technology companies and AI startups. Microsoft has invested nearly $14 billion into OpenAI.

As yet, the FTC has made no statement regarding the investigation. IT Pro contacted Microsoft for comment, but has not responded at the time of publishing.

Microsoft’s cloud woes continue

The FTC's investigation into the cloud market echoes similar activity by regulators in the UK and Europe. The UK Competition and Markets Authority (CMA) is looking into antitrust issues in the cloud market centered on Microsoft and Amazon.

Meanwhile, a formal complaint was filed to the EU concerning Microsoft's cloud practices, but any action was cut short after the company signed a controversial deal with complainants in July.

Generally, the complaints center around how Microsoft bundles its products, which critics claim makes it more expensive to use a rival cloud provider with Microsoft software than to use Microsoft's Azure alongside its Office and other products.

Companies using Azure will end up paying more to switch to another provider, as they'll need to shell out for additional licenses, critics say.

Of course, this isn't the first battle between the government and Microsoft, and comes more than two decades after Microsoft was sued by the US government over antitrust concerns, with the company narrowly dodging being broken up.

Microsoft is seeking to help enterprises scale their AI adoption and unlock the full value of AI with Azure AI Foundry, its new unified AI application platform.

Announced at Microsoft Ignite 2024 in Chicago, the platform aims to help businesses leverage AI and generative AI by connecting their current business applications with the latest AI technology.

In a blog post accompanying the announcement, Microsoft said as businesses undergo an AI-oriented transformation two things have become clear: the tangible results of implementing AI and the innovation potential for the technology.

The post cited recent research by Deloitte that found 70% of organizations have productionized 30% or fewer of their generative AI experiments, concluding there is “a lot of innovation and results ready to be unlocked.”

“Azure AI Foundry helps bridge the gap between cutting-edge AI technologies and practical business applications, empowering organizations to harness the full potential of AI efficiently and effectively,” wrote Jessica Hawk, corporate VP of data, AI, and digital applications product marketing at Microsoft.

Microsoft announced it has set about unifying the AI toolchain in a new Azure AI Foundry SDK, which brings together Azure AI capabilities from popular tools such as GitHub, Visual Studio, and Copilot Studio.

It said it would also be ‘evolving’ Azure AI Studio, its service for using AI to create applications, into an enterprise-grade management console and portal within Azure AI Foundry.

Microsoft also unveiled a new management center experience to provide enhanced observability and collaboration capabilities. This will collate subscription information into a single pane, allowing business leaders to manage resources, access privileges, and quota usage from a centralized location.

A single pane of glass to develop, scale, and manage AI applications

Microsoft is targeting a number of stakeholders with Azure AI Foundry including developers, AI engineers, and IT leaders.

For developers, Azure AI Foundry will be integrated into IDEs such as Visual Studio, Visual Studio Code, and the entire GitHub platform. This will provide a more streamlined workflow for developers to take advantage of the latest AI advancements.

Azure AI Foundry will give developers access to a wide range of models, services, and capabilities to help them build generative AI applications for their organizations and ground them in their own data.

Microsoft added the platform will also enable developers to scale their creations more effectively for the enterprise, transforming proof of concepts into mature production applications that will produce tangible value for the business.

Developers will benefit from a new Azure AI Agent Service, which will help them orchestrate, deploy, and scale AI applications to automate business processes.

The new platform will also help IT leaders measure how these new AI implementations are benefitting their business, Microsoft claimed, helping them drive adoption, align the technologies to organizational goals, and get board members onside for further investment.

Azure AI Foundry will also bring an update to Microsoft’s Azure Essentials documentation with comprehensive guidance for AI adoption and architecture to help scale AI adoption in your organization.

This will include access to Microsoft’s best practices, product experiences, reference architectures, skilling, and resources, from a single location.

“Azure AI Foundry is designed to empower your entire organization—developers, AI engineers, and IT professionals—to customize, host, run, and manage AI solutions with greater ease and confidence,” Microsoft explained.

“This unified approach simplifies the development and management process, helping all stakeholders focus on driving innovation and achieving strategic goals.”

The big three cloud providers have posted largely strong growth despite a slight falter from Microsoft Azure, but experts have told ITPro that flagging cloud earnings are to be expected.

All three hyperscalers recently delivered Q3 earnings results, with AWS posting a 19% increase in sales year-on-year to $27.5 billion. The Amazon-owned cloud provider clocked an operating income of $10.4 billion, up from $7 billion last year.

Google Cloud generated $11.4 billion in revenue, up 35% year-on-year, according to the firm’s CEO Sundar Pichai, with operating margins of 17%.

Over at Microsoft, revenue from server products and cloud services grew by 23%, while revenue from other cloud services grew by 33%. Microsoft’s CFO Amy Hood said the firm predicts a growth rate of 31% to 32% in Azure.

Though this growth rate fell slightly below analyst expectations of 32.25%, Forrester analyst Tracy Woo told ITPro that slowing cloud growth is no surprise.

“What always shocks me is the Wall Street expectation is that they're going to see the same astronomical growth,” Woo said. Cloud has become more mainstream and adoption projects less feverish, she explained, so smaller cloud growth is expected.

“It's not going to be this astronomical growth that we've seen in years past, unless there's some other new sort of paradigm that cloud and cloud-based services can bring - and I think that's what generative AI is,” Woo added.

With generative AI adoption, public cloud is not always the answer Woo said.

Localized AI systems, small language models (SMLs), and sovereignty concerns all contribute to a shift in thinking about what makes sense in the public cloud.

Other issues bite at Microsoft

While there’s no need to ring the alarm bells on cloud growth, Microsoft is definitely facing some challenges on the AI front.

CEO Satya Nadella pointed to this as part of the firm’s earnings call, saying the firm does not have enough data center capacity to meet AI demand and that the company is facing constraints in building out more.

This is an issue across the board for the hyperscalers, Woo said, though it’s hit Microsoft particularly hard. By comparison, AWS' infrastructural strength has insulated it from these challenges.

AWS’ other revenue sources - such as its online retail presence - have also been able to pick up the slack for the firm’s generative AI investment, Woo added, affording the company some breathing room. Microsoft, on the other hand, is all in on the technology.

“Microsoft knows how to deliver an enterprise software suite - that's their business, that's their bread and butter - and that's why Copilot has gotten the amount of attraction and excitement that it has,” Woo said.

“But they don't necessarily have other things to fall back on, other than Windows and M365 and it's not nearly in the way that AWS is able,” she added.

With so much investment going into generative AI and data center constraints on the supply chain front, Woo said some anxiety has been created in the market about Microsoft. That being said, she thinks Microsoft can still perform.

“I'm not super concerned. I don't think Azure is going to fail, I don't think they're going to flop, but it will depend a lot on how quickly and are they going to be able to deliver on time all these generative AI offerings that they have,” Woo said.

AI spending at Microsoft has been a slight cause for concern among investors, with the company having recorded a significant uptick in capital spending in its full-year results in August.

The tech giant reported a 77% increase in capital spending, a large portion of which was attributed to AI investment. It isn’t alone here, either.

Google owner Alphabet also warned in August that its AI-related spending would remain high in the coming year. The tech giant’s results showed capital expenditure was up more than expected to over $13 billion in the second quarter alone.

This AI-fueled spending spree prompted somewhat of a rethink at Microsoft over how it reports financials, with the company reorganizing its results to better highlight AI gains across the business.

There’s a new cloud lobby group on the scene in Europe, but it’s not gone down well with one major industry player.

Launched this week, the Open Cloud Coalition is a "new alliance of leading cloud providers and users," as the organization describes itself. Alongside Google, the OCC has ten other members, including Centerprise, Civo, Clairo AI, ControlPlane, DTP Group, Gigas, Prolinx, Pulsant, and Room 101.

The OCC's executive committee is also made up of a representative of each member company, including Benoit Tabaka, the director of government affairs and public policy for Google Cloud.

Though Google Cloud is unquestionably the biggest player at OCC, Nicky Stewart, who holds the title of OCC's senior advisor, was careful to stress that "each member will have an equal voice".

Stewart previously led the UK Cabinet Office's commercial workstream for G-Cloud, departing in 2011 to move to UKCloud. Stewart has worked with the European Commission's Cloud Special Interest Group and was vice chair of techUK's central government council.

Google’s involvement in this new lobbying group is a contentious topic, at least from Microsoft’s perspective. The tech giant published a blistering statement earlier this week describing the OCC as an ‘astroturf group’ designed to discredit the company.

In its statement, Microsoft was keen to point out further details of Stewart's career, saying in a blog post that Stewart "personally penned complaints against Microsoft and Amazon Web Services (AWS) in the UK Competition and Market Authority’s ongoing investigation into the cloud computing market."

Research and lobbying

So what’s all the fuss about here? The OCC says its aim is to encourage openness in the cloud market, a topic that’s prompted an intense back and forth between major industry players in recent months amidst claims of anti-competitive practices.

“As cloud infrastructure becomes indispensable, many businesses find themselves trapped in restrictive agreements, facing high costs and barriers when trying to switch or adopt multi-cloud strategies," said Stewart in a statement.

"The OCC is determined to reverse this trend by promoting a more competitive and flexible market and driving the adoption of open standards."

How will the OCC achieve this massive undertaking? The OCC has urged European regulators to be "rigorous and brave" in their investigations of the sector, promising an "open dialogue" with competition authorities. To assist those efforts, the OCC intends to release research on the state of the UK and EU cloud markets.

"The launch of the Open Cloud Coalition couldn’t come at a more critical time. As regulatory scrutiny increases, it’s vital that all voices are heard to ensure the cloud ecosystem remains competitive and innovative,” Stewart added.

CISPE's role

If you haven't been paying attention to rumblings in the European cloud market, Microsoft's strong comments on Google propping up another cloud industry group may come as a surprise.

But this is a long running dispute that stems from Google's reaction to Microsoft's Azure licensing rules, as well as complaints from others in the cloud market that Microsoft attempts to lock in users and punish companies that mix and match its software with rival cloud providers.

The most recent flashpoint resulted in a settlement agreed earlier this year between Microsoft and another industry group, the Cloud Infrastructure Services Providers in Europe (CISPE). In 2023, the lobbyist group threatened to take Microsoft to regulators over alleged anti-competitive software licensing terms.

CISPE and Microsoft spent many months in negotiations attempting to find a solution, but at the last gasp Google tried to swoop in and scupper the deal. Google reportedly offered CISPE members $15 million in cash and $495 million in cloud credits to continue with the complaint and rope in regulators rather than settling.

Google failed in its approach, and CISPE chose to settle with Microsoft. But that $22 million agreement came amid complaints of a pay off — and Google Cloud, AWS, and Alibaba Cloud were excluded from the final deal.

Microsoft alleges that the OCC was set up in response, though Stewart has said the OCC was years in the making.

Why is Microsoft so angry?

Rima Alaily, deputy general counsel at Microsoft, said in a lengthy blog post that the launch of OCC follows Google's failure to "weaponize" CISPE, and that Google is attempting to appear like a "backseat member rather than its leader" when it’s nothing of the sort.

Alaily even went so far as to suggest Google may have offered cash or discounts on its cloud service to get smaller companies to join up, though admits that "remains to be seen".

"This week an astroturf group organized by Google is launching," Alaily wrote. "It is designed to discredit Microsoft with competition authorities, and policymakers and mislead the public."

Alaily claimed that a cloud company approached by the new industry group revealed details of its founding, saying the OCC was created in the immediate aftermath of the CISPE settlement, with Google hiring a consultancy to create and run the cloud organization.

"One of the companies approached, who ultimately declined, told us that the organization will be directed and largely funded by Google for the purpose of attacking Microsoft’s cloud computing business in the European Union and the United Kingdom," she said.

What's next?

Naturally, Google has hit back at Microsoft’s claims, with a spokesperson noting that it’s been highly vocal on the topic of anti-competitive practices in recent years.

The tech giant cited its many blog posts on the subject, going back to 2022, and discussing points including security as well as its own complaint to the European Commission over Microsoft's cloud practices.

In that last post, Google accuses Microsoft of "restrictive" behaviors that lock in customers using massive price markups for those who try to move Microsoft workloads to rival clouds.

"Microsoft is the only cloud provider to use these tactics, which have significantly harmed European companies and governments," the post said.

While Google and Microsoft are choosing to duke it out via blog posts and cloud industry organizations, the real focus will be on regulators.

The UK Competition and Markets Authority in September extended its investigation into the market, while — as OCC noted — regulators in Spain and Denmark are looking into the issue.

Microsoft forecasted slowing growth in its Azure business at the firm’s most recent earnings call, with company executives noting that demand is currently outstripping capacity.

Amy Hood, Microsoft’s CFO, said the tech giant predicts a growth rate of 31% to 32% in Azure, falling below the average analyst expectation of 32.25% according to reporting by Reuters.

Hood also said the contribution of AI to Azure growth would remain roughly the same as last quarter, owing to capacity constraints. Demand continues to be higher than available capacity, Hood said.

That being said, Microsoft expects Azure growth to accelerate in the second half of the year as available AI capacity increases and allows Microsoft to serve more of the growing demand.

When questioned by an analyst over the perceived constraints to building out this capacity, Microsoft CEO Satya Nadella said the firm remains confident despite facing some challenges.

The speed at which demand for AI arrived is one such challenge, Nadella explained. Taking the opportunity to talk up Microsoft’s AI credentials, he mentioned that all the big products of the AI boom - including ChatGPT and Copilot - are running on Microsoft platforms.

“I mean pick the top 4 or 5 products of this generation. They're all sort of in and around our ecosystem. And so, therefore, we ran into a set of constraints, which are everything because DCs (data centers) don't get built overnight,” Nadella said.

There is also the issue of power, which Nadella described as a short-term constraint. Some of the demand issues Microsoft has can be attributed to third-party issues, he said.

“In the long run, we do need effective power and we need DCs. And some of these things are more long lead. But I feel pretty good that going into the second half of even this fiscal year, that some of that supply/demand will match up,” he said.

Demand outstripping capacity isn’t a problem restricted to Microsoft. According to research from CBRE earlier this year, there were 601 Megawatts (MW) of data center up-take in 2023 compared to just 561 MW of new supply.

Regional power limitations are also causing issues, with JLL’s data centers global outlook report 2024 explaining that huge power demands are causing a scarcity of data center colocation supply.

There are more than 1,000 data centers in operation globally as of August 2024 with hyperscale data centers booming and currently accounting for over 40% of total data center capacity.

Microsoft has fired shots at Google over its activity in the European cloud market, accusing the latter of conducting ‘shadow campaigns’ in the region.

Rima Alaily, competition and market regulation lead at Microsoft, took to the company blog and claimed Google has played a part in creating a new organization designed specifically to discredit Microsoft.

She called it an “astroturf” organization, one which is driven by ulterior motives though presented as a grassroots effort, adding that Google has gone to lengths to obfuscate its involvement in the group's funding and control.

“When the group launches, Google, we understand, will likely present itself as a backseat member rather than its leader. It remains to be seen what Google offered smaller companies to join, either in terms of cash or discounts,” Alaily said.

Following Alaily’s comments, Google was revealed as a member of the newly formed ‘Open Cloud Coalition’ which, in its own words, seeks to drive openness and competition across the EU, UK, and global markets.

According to Alaily, Google hired a lobbying and communications agency to establish this new organization. One company that declined to join the group reportedly told Microsoft the group would be directed and funded to attack Microsoft’s cloud computing business in the EU and the UK.

Alaily added that Google’s motivation for the move is two-pronged – to distract from ongoing regulatory scrutiny against Google around the world and to tilt the regulatory landscape in its favor instead of competing on its own merits.

"It is disappointing that, with the foundation of their business facing jeopardy, they have sought to bolster their cloud computing service – Google Cloud Platform – by attacking ours,” she said.

Google and Microsoft’s long-running feud 

As part of her seething criticism, Alaily mentioned an incident in July 2024 whereby Google attempted to scupper a Cloud Infrastructure Services Providers in Europe (CISPE) settlement with Microsoft.

Google offered CISPE $512 million in a combination of cash and software licenses to keep up its litigation with Microsoft, though CISPE ultimately declined.

More recently, Google filed a formal EU complaint against Microsoft over cloud practices, alleging the latter to be guilty of anti-competitive practices by locking users into its Azure platform.

Google claimed that Microsoft’s licensing terms stop European customers from moving Microsoft workloads to competitor’s clouds.

The rival hyperscaler certainly isn’t the only organization with concerns about Microsoft’s competitive practices.

AWS has chimed in with its criticisms of the firm, while regulators in both the UK and EU have probed Microsoft’s market control.

Google has since responded to Microsoft's claims, with a spokesperson noting that the firm has been "very public about our concerns with Microsoft's cloud licensing".

"We and many others believe that Microsoft's anticompetitive practices lock-in customers and create negative downstream effects that impact cybersecurity, innovation, and choice," the spokesperson said.

Microsoft has announced plans to invest €4.3 billion over the next two years to expand its hyperscale cloud and AI data center infrastructure in Italy, marking its biggest investment in the country yet.

The move means that Italy North will become one of Microsoft’s largest data center regions in Europe, with the development playing a crucial role in meeting European data boundary requirements. It will also serve as a key data hub for the Mediterranean and North Africa, the tech giant confirmed.

"This landmark investment underscores our long-standing commitment to Italy’s digital transformation," said Brad Smith, vice chair and president of Microsoft.

"By expanding access to our AI technology and expertise, we are equipping the Italian government, businesses, and the broader workforce with the tools to build an AI-driven economy that creates jobs and drives prosperity."

The company is also pushing its green credentials as part of the investment scheme, signing three power purchase agreements (PPAs) for renewable energy, and looking for more. Its data centers are registered under the EU Code of Conduct for energy efficiency and the use of direct evaporative cooling systems to help reduce water use.

Water is used for cooling less than 5% of the year, Microsoft said, and is mostly harvested rainwater that's discharged back to the local wastewater utility treatment plant.

Northern Italy is emerging as a hotspot for data centers, with Amazon Web Services (AWS), Oracle, Equinix, and Google all launching cloud regions in the area over the last four years.

Microsoft eyes digital skills boost in Italy

Microsoft also revealed it will provide digital skills training to more than a million Italians by the end of 2025 through collaboration with certified training services partners, industry partners, universities, non-profit organizations, government institutions, and associations.

The focus of this training will be on AI fluency, technical AI skills, AI business transformation, and the promotion of safe and responsible AI development, the company confirmed.

"This new investment confirms our commitment for the sustainable growth of Italy by helping organizations harness the power of cloud and generative AI while providing Italians with the skills to maximize these technologies," said Vincenzo Esposito, general manager, Microsoft Italy.

"Our Italy North Region will continue in accelerating digital transformation and skills in Italy, ensuring that no one is left behind."

Over the last year, more than 320 companies have joined the company's AI LAB program initiative, creating more than 450 generative AI projects - of which half are already up and running.

"Thanks to the strategic collaboration with Microsoft and the use of the latest solutions, we have strengthened trust and drive to innovation, both for a general transformations and digital transformation in particular within our academic community," commented Angelo Saccà, director of the Information Systems Portal, E-Learning Department of the University of Turin.

Google has lodged a complaint with the European Commission accusing Microsoft of anti-competitive practices in the cloud market.

The move follows Microsoft agreeing a deal with European cloud body CISPE regarding an antitrust complaint over its cloud computing licensing practices, with the trade group threatening to take the matter to the EC if a solution wasn’t found.

The final settlement agreement between Microsoft and CISPE did not include AWS or Google Cloud.

Google claimed — in a blog post attributed to head of platform Amit Zavery and Google Cloud EMEA president Tara Brady — that Microsoft was attempting to lock customers into using its Azure cloud platform.

"Microsoft’s licensing terms restrict European customers from moving their current Microsoft workloads to competitors’ clouds – despite there being no technical barriers to doing so – or impose what Microsoft admits is a striking 400% price markup," the post said.

Google noted in a summary of its complaint to the EC that it shared with ITPro that the settlements agreed with CISPE and its members "do not fix the underlying market-wide licensing issues or solve the continued harm to EU customers".

Because of that, Google said regulatory intervention is necessary, calling for "simple yet necessary fixes" to solve the issue: allow customers with existing Windows Server licenses to use those in any provider's cloud at no additional cost; force Microsoft to offer the same prices for Windows Server regardless of cloud provider; and ensure parity in security support and updates for everyone, even if not using Azure.

Microsoft practices are costing Europeans

Google pointed to research originally cited by CISPE that such tactics cost European businesses as much as €1 billion a year, stifle innovation, and cause security risks, pointing to the CrowdStrike debacle.

"As highlighted by the massive security outage two months ago, Microsoft’s lock-in tactics can result in a single point of failure that harms businesses, industries, and governments," the post added.

Google said it had attempted to engage directly with Microsoft and via a wider industry dialogue, claiming to have "advocated on behalf of European customers and partners who fear retaliation in the form of audits or worse if they speak up."

As that has failed, Google felt compelled to take further action.

"To give voice to the complaints we hear from customers – and from across the industry – and to seek a resolution that will benefit everyone, we are now taking the next step of filing a formal complaint with the European Commission," the post said.

Microsoft responds

When approached for comment by ITPro, Microsoft sent a written statement: "Microsoft settled amicably similar concerns raised by European cloud providers, even after Google hoped they would keep litigating. Having failed to persuade European companies, we expect Google similarly will fail to persuade the European Commission."

The EC must still decide if it will open a formal investigation into the issue.

In its filing, Google noted that Microsoft previously had been targeted by the EC with an investigation into its bundling of Teams with Office 365, stating that “the products are new, but the strategies are not."

Google has itself faced a long list of investigations from the EC, and was fined €2.4 billion in 2017 over shopping search practices, €4.3 billion in 2018 for search on Android and €1.49 billion for online advertising tactics.

Amazon Web Services (AWS) has unveiled plans to invest £8 billion in the UK over the next five years as part of a major push to expand data center infrastructure across the country.

The investment, which forms part of the company’s long-term commitment to the UK, is expected to support an average of more than 14,000 full-time equivalent (FTE) jobs across the country.

Tanuja Randery, VP and managing director for EMEA at AWS, said the investment will help meet surging demand from customers and partners and play a crucial role in fuelling the “transformation of the UK’s digital economy”.

“The next few years could be among the most pivotal for the UK’s digital and economic future, as organizations of all sizes across the country increasingly embrace technologies like cloud computing and AI to help them accelerate innovation, increase productivity, and compete on the global stage,” Randery said.

“We’re proud to announce our plans to invest £8 billion in digital and AI infrastructure over the next five years.”

The move by AWS represents the latest major investment in the UK and brings its total investment in the country to around £11 billion.

The hyperscaler first launched an AWS Region in the UK in December 2016. Since then, the firm has ramped up services across the country, expanding the region to include three availability zones, two ‘WaveLength’ zones, and two edge locations in London and Manchester.

Since the turn of the decade, AWS has also invested £3 billion to help meet customer demand, and the company says it is estimated to have supported around 6,000 jobs.

This included a £1.8 billion investment in 2022 to expand data center infrastructure.

AWS’ parent company, Amazon, has also made direct investments of more than £56 billion in the UK since 2010. This, the company says, includes both capital expenditure on data center infrastructure, fulfillment centers, and corporate offices.

AWS’ UK investment the latest by the three big hyperscalers

AWS isn’t the only cloud computing giant pouring money into the UK at present, with rivals Google Cloud and Microsoft also unveiling large investments so far this year.

In January, Google Cloud announced plans to invest $1 billion as part of a move to expand data center infrastructure. The expansion scheme includes the development of a new data center in Waltham Cross, Hertfordshire

Debbie Weinstein, VP of Google and managing director of Google UK and Ireland, said the investment underlined the hyperscaler’s commitment to the UK.

“Investment in our Waltham Cross data center is the latest in a series of investments that support Brits and the wider economy at large and is further evidence of Google’s continued commitment to the UK — a key country for our business and a pioneering world leader in AI, technology and science,” she said.

Similarly, in February 2024, Microsoft confirmed plans to spend around £2.5 billion to expand AI data center infrastructure across the country over the next three years.

This funding boost will see the tech giant bring more than 20,000 of the most advanced GPUs to the UK by 2026, and forms part of a broader, pan-European investment strategy to meet surging AI-related data center demands.

At the time, Microsoft’s UK CEO Clare Barclay noted the country is “well placed” to establish itself as a global leader in the AI space. That potential, however, is dependent on the country’s approach to data center infrastructure and AI innovation.

"As one of the most digitally advanced economies in the world, the UK is well placed to lead the way in AI development and deployment,” Barclay said.

“The home of innovative businesses, research institutions and world leading universities, the UK is quick to adopt emerging technologies and use them to solve real-world challenges.”

Microsoft is reorganizing its results to better highlight AI gains in its business as investors keep a close watch on the costs of rolling out the technology. 

Last month, Microsoft posted its full year results, with revenue up 16% to more than $245 billion — but capital spending, largely on AI and cloud, also climbed by a whopping 77% to $19 billion in the fourth quarter alone.

Many were watching to see the impact of AI spending on its bottom line, in particular whether the technology was as yet contributing much to revenue.

Microsoft broke that down in detail in an earnings conference call, specifying that eight points of Azure's 29% growth was from AI services, for example.

Now, Microsoft is looking to clarify its results to highlight how AI is contributing to its various lines of business.

Microsoft reporting changes look to calm confusion

The key change, according to Microsoft in a slide deck posted to its investor relations site, is that revenue from commercial components of Microsoft 365 – notably Enterprise Mobility and security (previously in Azure) and Windows commercial products – will be included in the Productivity and Business Processes (PBP) segment. 

Beyond lumping the segments together based on how they are managed, it means the Microsoft 356 aspects will now be reported in SEC filings, too.

Additionally, Copilot Pro is being removed from Office Consumer to Search and news advertising, while the AI and speech recognition unit Nuance is shifting out of Server to the PBP segment. Windows revenue and devices revenue will be lumped together in SEC filings to highlight PC market-driven areas of the business. Meanwhile, some search revenue will shift to Azure.

Such detail may sound like something for accountants to ponder, and Microsoft itself said the purpose was to align reporting to reflect how the business is managed. But the move follows criticism that Microsoft wasn't being clear enough about its AI revenue — despite it being one of a few companies to actually break out the figure, according to Reuters.

Microsoft restated aspects of its last round of full year results under the new system, showing Microsoft 365 Commercial cloud revenue growth was up 18%, Azure and other cloud services revenue growth were up 33% rather than the 30% previously reported.

Similarly, search and advertising revenue were up 9% versus 12% previously while Windows OEM and Devices revenue growth was flat.

Investor worries

After the last round of results, analysts criticized Microsoft for not being clear enough with how the billions it was spending on AI would eventually pay off. At the time, Forrester principal analyst Lee Sustar told ITPro that the numbers were positive but lacked clarity — specifically around AI. 

"Investors and customers wondering whether Microsoft's AI offerings are still hauling in revenue got some assurance amid lingering questions following the company's quarterly earnings," Sustar said.

"The company's 20% growth in its Intelligent Cloud earnings resulted in quarterly revenue of $28.5 billion. However, that segment includes both the Azure cloud as well as other properties, so there are no specific numbers to back Microsoft's claim that 'Azure and other cloud services' grew 29 percent."

"Given Microsoft's record in recent years, Wall Street hasn't much cared that precise Azure numbers aren't disclosed," Sustar continued.

"However, the company noted that operating expenses for Intelligent Cloud grew 5% compared to the same period a year earlier due to the scale-out of AI infrastructure in Azure. Investors and Azure customers will be keeping an eye on that trend as an indicator of AI market success for Microsoft and the cloud providers generally."

The new format of reporting looks to address such complaints, at least in part.

More widely, investors are looking to companies for proof that AI is capable of benefiting bottom lines, rather than just expanding costs. The day after the company posted its most recent results, Microsoft's share price fell about 7 per cent, with Barron's pinning the blame on Microsoft saying AI investment would take a long time to pay off.

Microsoft says it plans to continue spending heavily on AI, though admits it will take a long time for a return on that investment — a message mirrored throughout much of the rest of the industry. 

Microsoft posted its quarterly and full year results this week. For the second quarter, revenue was up 15% to $64.7 billion. Devices revenue fell 11% in the quarter while Windows revenue was up 7% and Intelligent Cloud increased 19% to $28.5bn. For the full year, revenue was up 16% to $245.1bn, with net income of $88bn.

"Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft," said CEO Satya Nadella in a statement. 

“As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era.”

Capital spending rose by 77.6% to $19 billion for the fourth quarter — and most of that was on AI and cloud. Microsoft's total spend for the previous year was $55.7 billion.

In a conference call discussing the results, Microsoft said more spending would happen in the coming year. Microsoft Group CFO Amy Hood said the heavy investment was necessary to build up an AI business, but added that it "will be monetized over 15 years and beyond," according to a Reuters report.

Microsoft Azure growth 

Microsoft Cloud overall was up 21%, while Azure leapt 29% year-on-year in the second quarter. What Microsoft calls "Intelligent Cloud" posted revenue of $28.5bn versus $23.9bn the year before. 

“We closed out our fiscal year with a solid quarter, highlighted by record bookings and Microsoft Cloud quarterly revenue of $36.8 billion, up 21% (up 22% in constant currency) year-over-year,” Hood said in a statement.

While positive, that was below some investor expectations — and even though cloud revenue only just missed estimates, analysts said investors would want to see more dramatic improvements.

Daniel Morgan, senior portfolio manager at Synovus Trust, which holds shares in Microsoft, told Reuters that investors have little patience when billions of dollars are being spent. 

"If these companies do not hit it out of the ballpark and are far better than the estimates then they are going to be knocked back," he said.

The results will calm some fears that AI won't be benefiting the bottom line, but it's clear investors will continue to keep a close watch on the segment, said Forrester’s principal analyst Lee Sustar in a statement sent to ITPro.

“Investors and customers wondering whether Microsoft's AI offerings are still hauling in revenue got some assurance amid lingering questions following the company's quarterly earnings," Sustar said.

“Given Microsoft's record in recent years, Wall Street hasn't much cared that precise Azure numbers aren't disclosed," Sustar added. 

"However, the company noted that operating expenses for Intelligent Cloud grew 5% compared to the same period a year earlier due to the scale-out of AI infrastructure in Azure. Investors and Azure customers will be keeping an eye on that trend as an indicator of AI market success for Microsoft and the cloud providers generally.”

AI spending mirrored at industry rivals

The latest round of quarterly results in the tech industry highlighted analyst and investor concern around the rising costs of building AI systems and when such investments might pay off. 

Google owner Alphabet last week warned that its AI-related spending would remain high in the coming year, after posting results showing capital expenditure was up more than expected to over $13 billion in the second quarter alone.

Yesterday, Meta posted a 22% leap in revenue to $39bn — topping expectations — helped by "healthy global advertising demand", said Meta CFO Susan Li, according to Reuters.

Li said that was boosted by the use of AI to improve its digital advertising segment. While income from longer term bets like AI chat assistants will take longer to arrive, the apparent immediate benefits on advertising helped allay concerns about rising costs, which were up 7% in the second quarter.

Amazon also announced its results yesterday, recording $26.3 billion in revenue which exceeded analyst expectations. This marks a significant increase compared to the same period last year.

Capital expenditures were once again in the spotlight. Amazon CFO Brian Olsavsky said the tech giant spent just over $30 billion in the first half of 2024, and attributed much of this spending to heightened demand for cloud and generative AI services.

Olsavsky told investors the company expects AI and cloud-related investments to continue increasing in H2 2024.

Alibaba Cloud price cuts won’t be enough to stave off western hyperscaler advances, experts have told ITPro, as the firm will likely end up damaging its own revenue streams. 

The cloud vendor revealed plans to slash prices for its customers outside of China by an average of 23% across a wide range of its cloud products, with price cuts reaching as big as 59% in some cases.

The price reductions are now available to users in Singapore, Indonesia, the United Arab Emirates (UAE), Japan, the US, and Germany, as well as some other regions.  

This builds on previous price cuts from the cloud provider, which slashed costs for services in early 2023 by up to 50% in a bid to stave off increasingly stiff competition across Asia. 

These cuts were made in areas of elastic computing services and services reliant on Nvidia-based V100 and T4 graphics processors. 

This earlier move highlighted a long-running trend among Chinese cloud providers in the APAC region centered around undercutting western competition. 

Analysis from the Wall Street Journal in early 2023 found that Chinese cloud companies typically offer prices between 20% to 40% lower than their American counterparts. 

The move also comes in the wake of some serious strategic changes in Alibaba’s cloud division in which plans for an initial public offering (IPO) were scrapped over uncertainties about chip exports. 

Alibaba Cloud is on a “race to the bottom” 

Alibaba’s current plans point toward a concerted effort to essentially keep its neck in the game due to intense competition in Asia. 

The company does boast a strong foothold and has invested significantly in the region in recent years, unveiling a new cloud region in Singapore in late 2022 supported by up to $1 billion in funding. 

But western hyperscalers such as AWS, Microsoft, and Google Cloud are also establishing an ever-stronger grip on the region - particularly in key battlegrounds like Southeast Asia and Japan. 

The trio have all unveiled huge investments in Singapore, Malaysia, Thailand, and Japan in recent years, with Microsoft and Google both confirming plans to expand in Japan within the last month. 

With competition heating up, industry stakeholders have questioned whether Alibaba’s tactics can be sustained long-term. Eldar Tuvey, CEO and founder of Vertice, told ITPro the recent cuts will likely deliver negligible benefits in terms of its market standing outside of China. 

“A race to the bottom in a fight over unit costs for compute or other resources is unlikely to make Alibaba a major player or wrestle dominance from established players,” Tuvey said. 

While these cuts are good for the consumer, Tuvey said, driving down prices will ultimately lead to a situation where other major players end up cutting prices to stay competitive. 

“Some customers may jump ship to the likes of Alibaba in the short term, but ultimately users will go for the vendor that is best aligned to what they need,” Tuvey added.  

Alibaba’s footing in the global marketplace is tenuous

Though the firm dominates in China, holding over 30% of the Infrastructure as a Service market according to Statista, AWS still leads the pack in the Asia Pacific (APAC) region as a whole.

AWS, along with Microsoft Azure and Google Cloud Platform (GCP), also hold significant sway in the global cloud market landscape, and it’s unlikely that Alibaba is poised to gain a significant share of that. 

“Making headway against industry giants like Amazon (AWS) and Microsoft (Azure) is a formidable challenge for Alibaba, predominantly due to these firms’ entrenched positions in the Western markets,” Kate Leaman, chief market analyst at AvaTrade, told ITPro. 

Leaman was careful to point out, however, that Alibaba’s foothold in Asia constitutes a “strong base” from which the firm could expand its services globally, providing it was able to leverage certain strengths.

“The most important element for Alibaba is leveraging its strengths in data analytics, artificial intelligence (AI), and e-commerce integrations, which allows it to offer differentiated services that resonate with an international audience,” Leaman said.

While the company’s price cut could prove successful, she added, the strategy is very much dependent on whether Alibaba can function at a viable level while also operating at a radically lower price point. 

“This strategy could prove to be successful in attracting price-sensitive customers and those looking to diversify their cloud service providers,” Leaman said. 

“However, the success is also dependent on Alibaba’s ability to continue providing high service quality and innovation at lower price points,” she added.   

Microsoft has announced it will allow unrestricted free data transfers out of its Azure cloud ecosystem for customers looking to switch cloud providers.

The move comes after fellow cloud giants Google and AWS announced they would be scrapping egress fees earlier in 2024. All three appear to be in doing so in preparation for the upcoming European Data Act, which looks to clamp down on vendor-lock in stifling competition in the cloud market.

Like AWS, Microsoft Azure previously offered the first 100GB of egressed data per month for free to all customers, regardless of which Azure region they were in.

Now, customers will be able to transfer an unlimited amount of data out of their Azure environment and migrate to another cloud provider as they choose.

Microsoft’s blog post announcing the policy shift included a statement about the firm's commitment to supporting customer choice and outlined how customers can go about migrating their cloud services.

Customers looking to take all of their data out of Azure will need to create a support request providing their Subscription ID and a rough estimate of the amount of data to be transferred.

The customer will then have 60 days to egress their data, incurring fees as normal, and will need to cancel all of the Azure subscriptions associated with the account. 

After this, customers can contact Azure support to request to claim invoice-level credit for the egress fees they paid.

As such, much like Google’s policy, Microsoft will only allow free cloud migrations to customers looking to switch cloud providers wholesale, and cancel all of their existing accounts. 

AWS on the other hand, did not include a cancellation requirement for customers to enjoy free data transfers out of the ecosystem.

Microsoft matches AWS and Google, but how big of a problem is cloud lock-in?

The decision by Microsoft to scrap egress fees did appear inevitable given both its leading competitors in the cloud computing market struck a lead in this regard. 

Speaking to ITPro earlier this month, Gartner VP analyst Sid Nag said he expected Microsoft to follow suit after Google and AWS’ moves in the space. 

Nag noted the specific language in Google’s announcement that appeared to be singling out Microsoft, referring to “overly restrictive contracting terms or punitive licensing practices”.

Google has not been alone in highlighting anti-competitive practices from Microsoft’s cloud arm, the UK’s communication regulator Ofcom has also singled out the hyperscaler

The UK’s Competition and Market Authority (CMA) launched an investigation into the cloud industry in October 2023.

The announcement highlighted egress fees, provider discounts, and technical barriers to switching ecosystems as a key focus for the investigation, referencing an Ofcom report that raised concerns around the licensing practices of some cloud providers, “in particular Microsoft”.

Nag suggested this was the ulterior motive behind Google’s early action, suggesting the decision had more to do with putting pressure on its competitor, rather than bolster consumer choice in the cloud space.

Cloud vendor lock-in is not as widespread a problem as many are making it out to be, according to Nag, who said moving into a cloud ecosystem is a big decision that requires rigorous planning. 

As such, waiving egress fees for wholesale cloud migrations is not the silver bullet for realizing a multi-cloud future.

“I think the vendor lock-in story is overblown… you don’t move into a cloud without thinking through your move, it's a very well thought out and carefully planned process.”

Nag argued these moves have more to do with marketing than material improvements for customers, who still will have a serious amount of configuration and integration work to do when switching providers.

“In general, I don’t think there’s a vendor lock-in problem. It's a nice talking point, but in practicality I don't think it happens, especially in today’s world where you don't just randomly go into a cloud provider without thinking it through,” he explained.

"In reality, how often do people actually move out or decide to move out and then find that the fees are a barrier? I don’t think that happens a lot, does it happen? Of course it does. But does it happen wholesale? I don’t think it does.”

Analysts have hailed AWS’ decision to waive egress fees for customers as a positive step for the industry - but questions still remain over whether Microsoft will follow suit. 

The hyperscaler revealed this week that customers will no longer be forced to pay data transfer charges to move their data to another cloud provider, or to an on-premises storage solution.

AWS already offered 100GB per month of free data transfers from its servers, but will now allow unrestricted data transfers free of charge as standard.

The announcement makes AWS the second of the three main western hyperscalers to remove egress fees for data transfers, following Google which announced it would stop the practice in January.

The driving force behind these moves is a new regulatory framework introduced by the European Union (EU), the European Data Act, which looks to improve competition among cloud companies and eradicate cloud vendor lock-in.

The UK government is also exploring how it can promote a more open marketplace, with the Competition and Market Authority (CMA) launching an investigation into cloud industry competition in October 2023.

Jamil Ahmed, distinguished engineer at data platform Solace, said the announcement is a positive move towards an interoperable future, bringing an end to the previous ‘walled garden’ approach.

“The recent announcement from AWS that it’s eliminating egress fees for data transfers to other cloud providers is a positive step towards open cloud ecosystems, aligning perfectly with the EU and UK regulations pushing for greater interoperability”, Ahmed explained.

“These regulations demonstrate a commitment to empowering businesses in their digital transformation, specifically by breaking down barriers between cloud providers. Previously, businesses had a "walled garden" approach with limited flexibility and visibility, but now they can migrate between clouds and embrace multi-cloud architectures much more easily.”

The appetite amongst European businesses for a more interoperable industry landscape was highlighted in recent research from Wasabi Technologies, which found EMEA respondents were becoming increasingly disillusioned with vendor lock-in.

Many, the study noted, are increasingly moving to a multi-cloud strategy in which they rely on the services of several providers, but long-standing practices such as egress fees were pinpointed as a leading impediment to this approach.

AWS move comes at a pivotal time in the cloud industry

Speaking to ITPro, Sid Nag, VP analyst at Gartner, also hailed the AWS announcement as a positive step for the industry, noting that the move comes amid a period of intense focus on generative AI adoption, which is prompting a rethink of data strategies at enterprises globally. 

“This is a good development for the cloud industry and the cloud buyer community. Especially in light of the need for federated data for workloads such as gen AI”.

Nag said a key problem facing companies seeking to leverage generative AI lies in the barriers between the various cloud providers.

“Gen AI implementations are based on different large language models that are being housed within each of these cloud provider’s estates. There’s no easy way to federate these different large language models that are contained within these estates,” he explained.

“One of the things that’s really going to matter when we start to federate is the data, data has to move around right? So, l I think [AWS’ move] is a good thing.”

How will Microsoft respond?

Discussing the motivation behind AWS’ decision to waive its egress fees, Nag claimed it most likely just to match Google’s initial move. However, he suggested Google's earlier announcement was deliberately intended to put pressure on Microsoft, citing the language used in the blog announcing the decision.

In the blog, Google described a case where a ‘legacy’ cloud provider has locked its customers in with “punitive licensing practices”.

“The ulterior motive was really to put pressure on Microsoft, whereby Microsoft charges these punitive fees – Google claimed – for running their applications on foreign clouds. So there are some licensing issues that Google was trying to highlight in the case of Microsoft.”

Microsoft is yet to make a public announcement regarding its position on egress fees, but this latest development could force its hand, Nag suggested. There are unique considerations at play for Microsoft, however, such as licensing issues.

This could prove troublesome for Microsoft given the way its cloud services and solutions are structured.

“I think Microsoft has a different challenge because they’re going to have to (a) respond to the data egress piece, but how will they respond to the licensing piece from an application portability perspective…which is today a different licensing structure… will they now eliminate licensing fees? I think that’s a tall order.”

Microsoft’s multi-year partnership with Mistral AI has drawn the attention of European regulators amidst concerns over the extent of the deal between the two firms. 

The partnership, officially unveiled this week, will enable Mistral AI to access Microsoft’s Azure and cloud-based AI infrastructure, in turn aiding the development and deployment of future Mistral large language models (LLMs).

The deal also represents an opportunity for Mistral AI to “unlock new commercial opportunities,” Microsoft said, through expanded access to global markets. 

Microsoft revealed the partnership will focus on three key areas, including enabling Mistral to leverage the tech giant’s Azure AI supercomputing infrastructure to enhance the scale and performance of models. 

Microsoft will also scale Mistral’s current offerings to market, making its premium offerings available to customers in the Azure AI studio and Azure Machine Learning model catalog, allowing Mistral to “promote, sell, and distribute their models to Microsoft customers worldwide.” 

The partnership will allow for collaborative research and development, as the firms experiment with testing and training purpose-specific models for different customer bases, including “European public sector workloads.” 

Mistral AI chief executive Arthur Mensch hailed the partnership as a “major milestone” for the French startup. In recent months, the company has positioned itself as a leading European contender to the US-based dominance in generative AI. 

Last year, Mensch targeted the goal of “creating a European champion” capable of competing with OpenAI and other major industry players. 

But while the partnership with Microsoft might represent a major seal of approval for the firm, regulators in the EU have flagged concerns over the scope of the deal. 

Lawmakers in the union appear to have been broadsided by the announcement, and concerns have already been raised over Microsoft’s investment in the firm. 

"The commission is looking into agreements that have been concluded between large digital market players and generative AI developers and providers," a spokesperson for the European Commission told Politico. "In this context, we have received the mentioned agreement, which we will analyze." 

Initially, it was revealed the tech giant had pledged $16 million in funding for the Paris-based startup. But confusion over this followed after a Microsoft spokesperson told Reuters that it had invested in the firm without a stake. 

Microsoft later clarified the investment would convert into equity in an upcoming fundraiser. 

Alex Haffner, competition partner at UK law firm Fladgate said a key talking point for regulators in this instance is the “extent of Microsoft’s minority interest” in Mistral. 

“EU merger control rules only bite if one party acquires a “decisive influence” over another, meaning in essence that they have the ability to influence the target’s business behavior through their rights as a shareholder or otherwise through any related contractual means,” he said. 

Haffner added that lawmakers will be keen to establish the full extent of the relationship between the two firms following the deal. 

“The likely initial questions European lawmakers will focus on is how the new deal works in practice and, more specifically, what rights Microsoft has acquired over Mistral in the context of the EU’s merger control framework/rules.”

Microsoft is no stranger to regulatory scrutiny

Microsoft’s relationship with partners in the generative AI space - specifically OpenAI - has been a source of contention in recent months. 

In late 2023, competition regulators in the UK, US, and EU opened preliminary investigations into the relationship between the two companies amid concerns that the tie-up could harm competition in the artificial intelligence (AI) market. 

A key factor in these investigations is the scale of Microsoft control over OpenAI activities. The UK’s Competition and Markets Authority (CMA) flagged concerns over whether Microsoft’s multi-billion-dollar investment in OpenAI amounts to an “acquisition of control.” 

Similar views were flagged by both the Federal Trade Commission (FTC) and EU merger regulators, both of which noted that recent controversy surrounding OpenAI CEO Sam Altman’s ousting - and subsequent inclusion of Microsoft figures on the board - raise further questions about the scope of control. 

A senior Google Cloud executive has heavily criticized Microsoft’s cloud computing practices amid claims that the tech giant is pursuing a monopoly in the industry that could harm long-term competition. 

Google Cloud vice president Amit Zavery told Reuters the company has serious concerns over Microsoft’s current trajectory in the cloud computing industry, warning that it could be seeking to establish a stranglehold in the space akin to that it held in software.

“We worry about Microsoft wanting to flex their decade-long practices where they had a lot of monopoly on the on-premise software before, and now they are trying to push that into cloud now.”

"They are creating this whole walled garden, which is completely controlled and owned by Microsoft, and customers who want to do any of this stuff, you have to go to Microsoft only," he said.

Long-term, the company’s practices could create a monopoly over emerging technologies such as generative AI, Zavery warned, and result in it creating a “walled garden” in which customers are locked into platforms such as Azure.

"If Microsoft cloud doesn't remain open, we will have issues and long-term problems, even in next generation technologies like AI as well, because Microsoft is forcing customers to go to Azure in many ways,” he warned.

Zavery urged regulators on both sides of the Atlantic to act on the matter.

"I think regulators need to provide some kind of guidance as well as maybe regulations which prevent the way Microsoft is building the Azure cloud business, not allow your on-premise monopoly to bring it into the cloud monopoly," he said.

The criticism marks the latest in a long-running spat between Microsoft and competitors in the cloud computing industry amid heightened regulatory scrutiny over its practices.

Regulators in the UK, for example, are investigating whether providers such as Microsoft and Amazon Web Services (AWS) maintain a stranglehold over the country’s cloud computing market.

In October 2023, Ofcom called for an official antitrust investigation into the state of competition in the industry, specifically highlighting Microsoft and AWS as potentially inhibitive to growth and competition in the space.

Ofcom, which has referred the investigation to the Competition and Markets Authority (CMA), said its probe identified “features that make it more difficult for UK businesses to switch and use multiple cloud suppliers”.

A key concern highlighted by the probe centered around ‘egress fees’, whereby customers are required to pay to switch providers entirely, or adopt a multi-cloud method in which they use multiple providers.

“Our market study has identified features that make it more difficult for UK businesses to switch and use multiple cloud suppliers,” Ofcom said at the time.

“We are particularly concerned about the position of the market leaders Amazon and Microsoft.”

Late last year, tensions between the three hyperscalers escalated after AWS and Google both hit out at Microsoft licensing practices. The two firms claimed that Microsoft is creating “challenging conditions” for customers as its licensing practices deter them from switching to alternative providers.

Microsoft changed its licensing terms in 2019 and 2022 following complaints to EU regulators in a bid to make it easier for smaller providers to compete in the European cloud computing market.

But AWS and Google contested the benefits of these changes, arguing that they resulted in little change and are still locking customers into Microsoft products and services.

“To use many of Microsoft’s software products with these other cloud services providers, a customer must purchase a separate license even if they already own the software,” AWS said at the time. “This often makes it financially unviable for a customer to choose a provider other than Microsoft.”

Microsoft has made efforts to calm industry concerns and potential antitrust scrutiny in recent weeks. In early February, the tech giant revealed it had begun talking with European cloud industry trade body, CISPE. 

In 2022, CISPE filed a complaint with EU regulators over its alleged anti-competitive practices. 

CISPE confirmed that talks with the tech giant could focus on resolving lingering concerns related to “unfair software licensing” practices for infrastructure providers and customers.

in a post on X today (February 27), Zavery said he welcomed the move, describing it as a positive step to improving competition.

“We are glad MSFT is coming to the table to negotiate with CISPE regarding its complaint with the EC on anticompetitive licensing in Europe,” he said. “This is a step in the right direction, acknowledging that these restrictions have no technical basis and can be modified at MSFT discretion

Microsoft is making serious gains in cloud computing and AI

Microsoft’s success in the cloud computing and generative AI markets over the last 18 months has been no secret. 

Since the emergence of ChatGPT in November 2022, the tech giant has recorded remarkable growth on a wave of interest in AI technologies.

Working with OpenAI, Microsoft has embedded generative AI features and tools across the entirety of its core product offerings, spanning Windows, Azure, and even security products.

In January, Microsoft leapfrogged Apple as the world’s most valuable company, reaching a market capitalization of $2.887 trillion. Much of this has been due to its huge successes in cloud computing and generative AI.

Microsoft’s Q2 earnings for 2024, released at the end of January, showed it recorded a 24% year-on-year growth across its overall cloud business.

The tech giant’s Intelligent Cloud segment, which includes Azure, recorded $25.8 billion in revenue.

Speaking at the time, Microsoft CEO Satya Nadella attributed the growth to surging interest in generative AI, noting that the company had expanded its customer base.

“We now have 53,000 Azure AI customers, over one-third are new to Azure over the past 12 months,” Nadella said. “Our new models of service offering makes it easy for developers to use LLMs from our partners like Cohere, Meta, and Mistral on Azure, without having to manage underlying infrastructure.”

Akamai recently announced the launch of its Gecko ‘Generalized Edge Compute’ project, which will expand the company's edge computing network by 85 regions over the course of 2024.

The cloud firm said the launch of the new service will cement it as a major player in the cloud computing space, and will see 10 new regions added in the first quarter of 2024 alone, followed by a further 75 over the rest of the year. 

The US-headquartered firm is building on its existing edge computing infrastructure, which includes numerous content delivery networks (CDN) across the globe.

Following its acquisition of infrastructure-as-a-service (IaaS) provider Lenode in 2022, Akamai has been using these CDNs to bolster its position as a cloud provider.

Rene Buest, senior director analyst at Gartner, told ITPro the move is an ambitious one that aims to rapidly expand its services and offer customers a more varied product portfolio.

“What Akami is doing strategically well is to extend their current portfolio,” Buest told ITPro. 

“They finally connect the two different offerings they have, their CDN and their edge, with the cloud environment they have acquired through Linode,” he added. 

Why edge computing is so important in the current cloud climate 

Edge computing has grown in popularity at enterprises globally in recent years following a rapid shift to the cloud, with organizations seeking to maximize value, efficiency, and crucially, speed. 

Essentially, edge computing denotes data processing systems that are located closer to an end user, or at the edge of the cloud network. 

“Typically when we speak about cloud, we are actually quite far away from where the actual user, or the customer of a cloud solution, sits,” Buest said. 

The decentralized nature of cloud computing, whereby data centers sit great distances away from customers, is an issue that can create problems in terms of speed and latency, Buest said. For cloud providers, then, the ideal scenario involves being able to process data closer to the actual customers. 

That’s where edge computing comes in, acting as a mid point between large data centers and end user digital touchpoints.

“The edge provides more proximity between the user and the cloud service,” said Buest. “It’s about [bringing] compute power, data, everything, [much] closer to [where the action actually happens].”

For cloud providers, edge computing is becoming an increasingly important aspect of their offerings, enabling them to ensure services are hitting the ground running for end users and maximizing efficiency. 

Akamai is “catching up” to the hyperscalers

Akamai is certainly making moves in edge computing, but it’s not like the hyperscalers are resting on their laurels either, according to Buest. 

“All the big providers already have solutions for edge,” he said. “Of course, they don't do everything themselves, so they are partnering with telecommunication providers.”

Microsoft has a range of offerings, including Azure IoT edge, Azure Stack Edge, and Azure Data Box, to name but a few, while Google offers several distributed edge-focused solutions.  

Amazon also offers its AWS for the Edge platform, as well a partnership with Verizon that delivers mobile edge computing. 

Akamai has an increasing amount of skin in the game, though, and could be said to be “catching up” with the hyperscalers, Buest noted.

“The advantage that Akamai has is, [because of their legacy,] they have a large presence around the world,” he said.

“They have a very, very well connected network across the world,” he added. “This is their core business, these CDNs. They certainly have, at least from a connectivity standpoint, an advantage [over] the hyperscalers.”

Buest was careful to point out, however, that in many ways, hyperscalers can offer end users more with regard to edge capabilities than Akamai can at this stage.

He made reference to AWS outpost, a product which allows end users access to on-premises edge solutions.

So, while Akamai has an impressive level of connectivity, it doesn’t necessarily have the end user capabilities needed for a competitive advantage in the cloud service industry as a whole. 

There is perhaps also limited marketability to Akamai’s offering, which relies on a fundamentally niche unique selling point in terms of network size.

“Do customers really need that? That’s the biggest question here,” Buest said. “Do I really need compute power in Alaska?”

He accepted that, of course, in some instances a far reaching network is an advantage, such as for research and development teams. On the whole, though, it might not capture a sizable market.

 “So it's not me-too offering but it's also not something that I would say gives them a competitive edge against the hyperscalers,” he said.

Buest suggested looking not to cloud data centers or to their edge mediums, but rather at the end points, the digital touchpoints in which customers interact with the cloud.

That way, businesses can truly decide what’s the most important thing for their customers and, in turn, what they need to focus on in their cloud environment.

“You have this connectivity, you have these points of presence, the CDNs, the compute power, the storage. What will you do on top of that? And that's a question that the hyperscalers are able to answer these days,” he said. 

Security specialists have raised concerns about an ongoing malicious campaign affecting dozens of Microsoft Azure environments that has already compromised hundreds of user accounts. 

The campaign was first detected In November 2023 by Proofpoint researchers who noted how the attack integrated credential phishing and cloud account takeover (ATO) techniques.

The attack involves embedding phishing lures disguised as ‘view document’ links within shared documents. For example, links to ‘view document’ were planted throughout a file, which if clicked would redirect users to a phishing site.

Frequently targeted positions include sales directors, account managers, and finance managers, with executive positions such as vice president, chief financial officer, as well as president and CEO also among the popular marks, according to Proofpoint.

Proofpoint said the diverse range of targets shows a pragmatic approach from the threat actors focusing their efforts on accounts with access across the enterprise.

“The varied selection of targeted roles indicates a practical strategy by threat actors, aiming to compromise accounts with various levels of access to valuable resources and responsibilities across organizational functions.”

Threat analysts at the security company have identified a particular indicator of compromise (IOC) for attacks associated with the campaign, which are the use of a specific Linux user-agent used during the access phase of the attack chain.

This user-agent is predominantly used by the hackers to access the ‘OfficeHome’ sign-in applications as well as unauthorized access to further native Microsoft365 apps.

Proofpoint said its cloud security response team will continue to monitor the threat and add further IOCs as they are discovered.

Cloud account takeover campaign includes MFA manipulation and data exfiltration

Threat analysts at Proofpoint also recorded a sequence of unauthorized post-compromise activities that often follow an initial breach.

Attackers were observed registering their own MFA methods in order to ensure they had continued access to the compromised system, including adding an authenticator app or alternative phone numbers for SMS authentication.

The threat actors were also recorded exfiltrating data for possible extortion attempts and launching internal phishing campaigns aimed at compromising further accounts across the organization.

The compromised enterprise’s email system is also used to create a set of new obfuscation rules used to mask the hackers’ presence on the network and erase any evidence of their activities from the victims’ mailboxes.

Forensic analysis carried out by Proofpoint was able to uncover a series of entities comprising the threat actors’ operational infrastructure, including proxies, data hosting services, and hijacked domains.

The proxies were used to help the attackers mimic the location of the target and evade any geofencing policies the network may have in place.

Proofpoint’s cloud security response team recommended organizations monitor for the specific user agent string and source domains in their logs to detect and mitigate potential threats.

In addition, ensuring all compromised and targeted users change credentials immediately, as well as enforcing periodic password changes for all users, can help prevent threat actors from persisting on a network.

Organizations are also advised to implement security tools that can detect and alert admins when account takeover events occur as soon as possible to mitigate the damage an initial breach can cause.

It’s been ten years since Satya Nadella took the reins at Microsoft and in that time the firm has undergone something of a market revolution.

When Nadella took on the title of chief executive in February 2014, Microsoft’s market cap sat at approximately $314 billion (£250 billion). Today, it’s exceeded $3 trillion (£2.39 trillion) and shows every sign of continuing to rise.

Looking back at the Microsoft of 2014 – embarking on further investment in the ill-fated Windows Phone and without a strong direction of travel for cloud – only goes to highlight how far things have come with Nadella in charge.

Satya Nadella had his head in the clouds

Microsoft’s expansion in the past decade has been driven in no small part by its cloud offering, Azure.

While Azure got underway under Nadella’s predecessor Steve Ballmer, it has been under Nadella’s tenure that the cloud platform has cemented itself as one of the dominant options for enterprise and given Amazon Web Services review (AWS) a run for its money.

Now in its sixteenth year, the service has become a mainstay for enterprise cloud operations and successfully argued its case with a strong offering of complementary technologies such as generative AI.

In its Q1 2023 results, Microsoft returned better results than analysts had expected, with revenue growth of 13% buoyed by Azure’s AI offerings. At the time, Nadella said Microsoft was moving to install AI across “every layer of the tech stack and for every role and business process to drive productivity gains for our customers”.

Microsoft is all-in on AI, having invested more than $10 billion in OpenAI to date and releasing a multitude of generative AI offerings in its ‘Copilot’ range throughout 2023.

It’s clear that generative AI has had a profound impact on Microsoft’s market cap, leading the firm to surpass Apple. While AWS and Google Cloud have AI offerings of their own, Microsoft’s sprint to ally itself with OpenAI and its race against time to bring AI to Bing ahead of similar efforts by Google speak to a focus and urgency on the technology.

Nadella has described Google as an “800-pound gorilla” in the browser market and previously emphasized the opportunity for Microsoft to claw back a share for itself through its AI features. This strategy appears to be paying off, with Bing hitting 100 million daily users for the first time ever in March 2023 driven by AI interest.

Microsoft’s control of GitHub has also teed it up nicely for the AI boom, with Nadella’s focus on enterprise AI being key. Early fears that Microsoft’s $7.5 billion acquisition of the developer platform would see it snuff out open source competition haven’t come to fruition, ensuring the platform retains its 100-million strong developer community.

This, in turn, has allowed Microsoft to capture a hefty chunk of the AI pair-programmer market through GitHub Copilot Enterprise, which leverages generative AI to improve developer productivity.

It’s this joined-up, long-term vision for the company that Nadella has helped craft. With its firm cloud offering, AI capabilities, and ever-growing portfolio of services, the firm is in a stronger position than it ever has been and has grown far less reliant on consumer shocks.

Business visionary or well-placed diplomat?

In Nadella’s decade of power, he’s been forced to contend with some serious challenges at Microsoft, both direct and indirect. His leadership of Microsoft on its journey to a cross-platform provider of cloud and intelligent computing services has been largely successful, but course corrections have been necessary along the way.

As early as 2016, Nadella was pitching the potential of human-machine collaboration and predicting a future defined by talking bots. Microsoft had been burned by the scandal around its Tay chatbot, which had been given its own Twitter account in a public-facing test of its conversational AI abilities.

Malicious users flooded Tay with discriminatory tweets, causing the chatbot to quickly begin producing racist and inflammatory tweets of its own, leading Microsoft researchers to turn Tay off just 16 hours after setting it live.

This was a humiliating chapter in Microsoft’s journey toward useful AI. Nadella later stated that Tay forced Microsoft to “take accountability” for its projects and subsequent endeavors have not become public-facing without extensive testing beforehand. 

But his vision for Microsoft, in which it would deliver AI services that respond to natural language inputs and backed by the power of Azure’s processing capabilities, has now been brought to life.

A recent example of this can be found in the chaos at OpenAI in November, which saw CEO Sam Altman ousted for several days amidst an apparent board revolt. The much-publicized spat lasted five days, in which time OpenAI had two interim CEOs and ended with Altman returning to the firm alongside a heavily reshuffled board.

The chaos put Nadella in a difficult position. Microsoft had worked hard for the previous year to make OpenAI core to its value proposition, with GPT-4 powering Copilot and the firm’s models forming the backbone of Azure’s AI offerings. After publicly welcoming OpenAI CTO Mira Murati as interim CEO, Nadella was forced to welcome her successor Emmett Shear just three days later as Murati left the post.

On November 20, 2023, Nadella announced that Altman and Greg Brockman, former president of OpenAI, would be joining Microsoft to lead a new “advanced AI research team”. This role seemingly evaporated just a day later with the news that Altman was back in charge at OpenAI.

The week of confusion put a spotlight on Nadella’s interest in OpenAI, and by extension the relationship between the startup and Microsoft. Shortly after, the Competition and Markets Authority (CMA) announced an initial review into OpenAI and Microsoft’s relationship and impact on competition in the AI market.

Nadella has described OpenAI and Microsoft’s ties as a “pro-competition partnership”, but depending on the temperament of regulators may come to regret the lengths to which his bet on OpenAI has extended.

Tackling controversy head-on

Nadella’s reign has arguably been one of curious contradictions. While he has overseen the undisputable rise of the company in its cloud and intelligent computing segments, he has also been the de-facto steward of decline when it comes to Microsoft’s devices division.

There are a number of factors at play here, as PC shipments have suffered their worst decline in history and initial pandemic spend on devices wanes amid a return to office and economic woes.

Aside from Tay, Nadella has also had to deal with his fair share of controversy.

HoloLens is a prime example of a Microsoft misstep under Nadella. The firm pinned great hopes on its augmented reality headsets, through which it hoped to carve out a solid place for itself in the burgeoning wearables market. At the time they were announced, Business Insider reported Nadella describing them as “the new desktop”, but the market responded with apathy.

HoloLens hasn’t quite suffered the same fate as Google Glass, which finally ended life in March 2023 after its enterprise model failed to generate business interest. The goggles have endured as mixed reality headsets for industrial environments, from manufacturing floors to construction sites in collaboration with the industry solutions firm Trimble.

The devices that Nadella initially sold as the future of consumer computing have also found a second life at the US Department of Defense. A $480 million contract with the US Army, signed in 2018, sparked protests within the firm. 

Nadella spoke out in defense of the deal in 2019, telling CNN that Microsoft “made a principled decision that we’re not going to withhold technology from institutions that we have elected in democracies to protect the freedoms we enjoy”.

This could be a fight that Nadella will be forced to revisit, as Microsoft scored a $22 billion order for HoloLens in 2021 – though Congressional reductions on this spending have reduced its value to approximately $165 million.

Reports by The Intercept that OpenAI’s fresh leadership team has removed its ban on using its models for military usage could add to these concerns for Nadella, as his work to align Microsoft closer with the AI firm puts him in the firing line for future discussions on ethical AI.

Insight Enterprises has signed a new global agreement with Microsoft that includes a multi-year Microsoft Azure consumption commitment as well as a new strategic partnership framework.

Building on the pair’s existing relationship, the agreement will expand the global systems integrator’s range of cloud offerings to include digital solutions built on Azure and Microsoft 365.

The firm said the move will provide clients with streamlined transactions and more competitive Microsoft-aligned products from its ecosystem of partners. 

“We have worked with Microsoft for more than 25 years to provide clients with world-class technology,” said Insight CEO Joyce Mullen. “Our clients worldwide want to run as efficiently as possible, and the Azure platform is core to our expertise in cloud, data, AI, cyber security and edge as we address their critical business needs. The power of Microsoft Azure and Microsoft 365 productivity tools accelerates their ability to digitally transform.”

As a global systems integrator, Insight specializes in architecting, building, and managing solutions for complex IT environments and offers a range of digital transformation services augmented by its network of over 6000 partners. 

The firm already collaborates with Microsoft to develop AI-powered solutions for automating complex tasks and driving productivity. It was also one of the first partners to publish offers for Microsoft 365 Copilot and offers a custom Microsoft 365 Copilot Readiness Fast Start accelerator to provide clients with a strategic roadmap for Azure OpenAI Service and the Copilotstack.

Insight said its new agreement will now solidify the growth of its Azure-based ecommerce platform, which will serve as an incubation hub for new offerings on Azure Marketplace. 

Commenting on the new agreement, Microsoft’s vice president of worldwide channel sales, David Smith, praised Insight’s “instrumental role” in helping accelerate AI adoption and transformation for customers around the world.

“As leaders across industries seek to keep pace with today’s advancements, they turn to Microsoft and solutions integrators like Insight to innovate on our trusted platform to make their AI strategy a reality,” he said. “Together with partners like Insight, we are bringing comprehensive industry expertise, scale and co-pilot capabilities to organizations seeking to transform every role and business function within their industry.”

As an Azure expert managed service provider and Microsoft solution assessments partner of the year for 2023, Insight boasts 22 Microsoft specializations, the complete set of six Microsoft solutions partner designations, as well as all four available Microsoft security specializations.

Hackers are redoubling their attempt to break into business applications and cloud infrastructure, according to an analysis of incidents investigated by one security operations center (SOC).

Managed detection and response company Expel said that ‘identity threats’’ – attempts to break into email or other business applications - accounted for 64% of all incidents its SOC investigated, and that these had increased in volume by 144% over 2022.

Analysis from the firm showed a 72% increase in cloud infrastructure incidents across the last year, with stolen or leaked credentials responsible for two-in-five incidents.

The identity threat incidents were either unauthorized email logins (accounting for 60%) or authentications to identity platforms, like Microsoft Entra ID (which was formerly known as Azure Active Directory), Okta, Ping, and Duo.

Organizations saw an average of eight identity-based incidents over the year, although one nonprofit organization was targeted 255 times, Expel said in its report.

Two-thirds of these incidents involved malicious logins from suspicious infrastructure, such as unexpected hosting providers or proxies. Expel said it had seen a shift toward using more proxies and VPNs by attackers, and that this would continue until organizations consistently put “effective roadblocks” in place like multifactor authentication (MFA).

Expel said the increasing volume of these attacks was a direct result of more phishing platforms becoming available, which make it easier to create convincing login pages that can trick unsuspecting users into handing over passwords.

The firm said one particular group known as “The Com” was responsible for the largest number of targeted identity attacks its SOC investigated this year. This group primarily targeted Okta and Microsoft accounts, attempting to abuse password policies.

These attackers will call into IT help desks, pretending to be a member of staff locked out of their account and asking for passwords be reset. If requests via the helpdesk or self-service system are successful, the attacker sends MFA pushes to the real user. If the user accepts the MFA push, the attacker gains access to the account.

Expel said it classifies any evidence of a compromised user password as an identity incident, even if the login is then blocked by MFA.

“Many authentication blocking methods are but a small speed bump for attackers and require our analysts to take further action to prevent potentially successful attempts,” the firm said. 

“In fact, we’ve seen many instances when an attacker tried to login, was blocked by conditional access based on geolocation or MFA, and immediately switched to a bypass method, like a VPN or legacy protocol, resulting in successful login.”.

As such, organizations should thoroughly investigate any situation where users could have unknowingly compromised their passwords, the report said.

Expel said cloud infrastructure incidents were also accelerating, with stolen or leaked cloud credentials the biggest risk. These stolen credentials allow attackers to maintain persistent access to a cloud environment with the permissions connected to that identity or role.

Expel’s definition of an incident is an attacker gaining at least control plane or data plane access in the cloud environment.

The company said 96% of the incidents it detected or responded to occurred in AWS, while the other 4% were split evenly between GCP and Azure. That’s even though about half of its cloud customers use AWS, around 33% use Azure, and roughly 17% use GCP.

It said this heavy skew towards AWS is likely the result of more AWS security research and auditing tools available for attackers to abuse.

Exposed credentials were the top cause of cloud infrastructure incidents seen by Expel: these can give attackers access to the cloud control plane either through a framework or command-line utility. These secrets can be exposed through accidental upload to repositories, vulnerability exploitation, or information stealing malware.

The secrets users accidentally uploaded to digital repositories were the ones most exposed. All in all, stolen or leaked credentials accounted for over 40% of the cloud incidents it investigated.

Server-side request forgery attacks, which trick a public-facing web application into exposing sensitive information, was the second most common incident type used to trick AWS EC2 instances into exposing secrets. The third most frequent incident type resulted from use of default credentials (19%), which were most often abused by attackers scanning the Internet to deploy crypto miners.

Expel said that to keep cloud infrastructure safe companies should ensure they are following strong identity management practices, regularly removing unnecessary keys and rotating access keys – and insisting on MFA for access to cloud consoles.

However, it acknowledged that “sometimes people forget to change passwords, no matter how often they’re told.” In this case, it said, companies should maintain an inventory of Internet-facing assets and ensure the availability of web-access logging. This data aids in investigating and identifying the root cause of an incident, it said.

Whether it’s attempts to compromise email accounts or business applications, or gain access to cloud infrastructure, there are key lessons to learn, Expel said.

Be careful with passwords and other credentials, watch out for odd log-in behavior, and use MFA where you can.

AWS has announced it will invest $15.5 billion in Japan to expand its data center portfolio in a move that analysts say is indicative of a wider rush to meet surging demand in the region.

With its latest major investment, the cloud computing giant is looking to capitalize on the anticipated explosion in generative AI.

AWS made its first major foray in Japan in 2011, unveiling data centers in the Tokyo area.  Since then, the hyperscaler has added to this offering with the opening of an Osaka region in 2021, which it said at the time was due to high demand for data infrastructure in the country.

Between 2021 and 2022, AWS invested nearly $10.2 billion in Japan to shore up its infrastructure, signaling it expects considerable demand for data-intensive computing tasks to continue for some time.

AWS already provides digital infrastructure solutions designed for generative AI applications for a number of large enterprise customers in the region, including the Asahi Group, Marubeni, and Nomura. 

In October 2023, the firm's flagship generative AI service, dubbed Amazon Bedrock, was also made available in the Asia Pacific (Tokyo) AWS region. 

Amazon Bedrock provides users with access to a variety of foundation models that customers can privately customize and fine-tune using their internal data in order to create bespoke AI tools tailored to their business needs.

Speaking to ITPro, Gartner VP analyst Wataru Katsurashima said growing enterprise demand for data infrastructure will have made this investment a welcome announcement. 

“AWS is the market leader in Japan's IaaS market, with a wide range of customers ranging from large enterprises to small and medium-sized enterprises. This announcement of this major investment has been generally welcomed by various organizations in Japan.”

Katsurashima also noted the cloud giant’s strong relationship with domestic authorities.

“AWS has a very good relationship with the Japanese government, and Mr. Hirai, who was the first digital minister of the Japanese government, was present at AWS’s press conference,” Katsurashima said. “Mr. Hirai gave a short presentation and said that Japan's ruling Liberal Democratic Party welcomed this investment.”

AWS isn’t along in targeting big gains in Japan

AWS is not the only member of the big three western hyperscalers looking to capitalize on growing demand in Japan. Microsoft and Google Cloud, both fierce competitors in the global cloud computing space, also appear to view the country as ripe with opportunities. 

Google opened its first Japanese data center in 2023, with the Inzai data center beginning operations in March as part of a $730 million investment in infrastructure first announced in October 2022.

Microsoft, meanwhile, has had the longest cloud infrastructure presence in the country with its first two data centers hosting Windows Azure cloud services coming online in February 2014.

Microsoft also recently signed its first power purchase agreement (PPA) with Shizen Energy to provide renewable energy for its data centers in October 2023.

The virtual PPA will see Microsoft procure renewable energy from a 25 MW capacity solar farm in Inuyama CIty, Aichi Prefecture.

The Asian market appears to be an enticing one for cloud infrastructure vendors with elevated AI adoption rates compared to other global regions.

Furthermore, Katsurashima said to the cloud market growth rate in the Asia Pacific and Japan (APJ) region is higher (24.3%) than in the Americas (17.9%) and EMEA (20.3%), making APJ a “key region for continued growth for hyperscale cloud provider”.

Japan in particular is one of the fastest growing countries in the APJ region, he added.

“The cloud market growth rate in Japan is the 2nd largest in APJ (after China), making Japan an important country for hyperscale cloud providers. Japan's total cloud market is expected to reach more than $37 billion in 2027.”

Mark Kidd, executive vice president and general manager of data center management company Iron Mountain, told ITPro more investment should be expected as the hyperscalers try to drastically expand their capacity to capture the soaring demand for AI solutions.

“We know that the boom in Generative AI will require large quantities of data center capacity. This could mean that by 2030 the world will require 500-1000% more capacity than we currently have."

Kidd noted the attention these firms are paying to sustainability concerns as users continue to demand increased capacity and compute speeds.

“However, with the ceaseless human demand for better, faster digitalisation, and data volumes expected to grow exponentially year on year for the foreseeable future, data center operators and its customers have an opportunity and responsibility to ensure that 'more data' doesn't mean 'more emissions'.”

Microsoft’s meteoric rise over the last 18 months has been nothing short of remarkable, with the company having recently overtaken Apple to become the world’s most valuable company. 

The tech giant leapfrogged Apple last week after reaching a market capitalization of $2.887 trillion, and much of this has been due to its huge successes in cloud computing and, notably, generative AI.

While Apple competes with flagging smartphone demand, Microsoft has focused its efforts on generative AI.

The company’s close relationship with OpenAI, which has prompted scrutiny from regulators on both sides of the Atlantic, has enabled it to capitalize on the generative AI ‘boom’ sparked by the launch of ChatGPT in November 2022.

Microsoft isn’t alone in its generative AI ambitions, however. Major competitors in the cloud computing space, including Google and AWS, are also on a relentless march to achieve AI dominance.

Notably though, Microsoft struck an early lead in this race, which has proven vital and left competitors scrambling to catch up.

Speaking to ITPro, Greg Silverman, global director of brand economics at Interbrand, said Microsoft’s recent share price surge has been “well earned”, adding that the company serves as an example of how an ambitious corporate strategy can be delivered successfully.

“They have made product moves, communicated their strategy, and played an active role in their ecosystem to ensure the integrity of their vision,” he said. “And the growing expectations of their brand’s performance has led them to rise above Apple.”

“If you consider that the core business of Microsoft has been doing exceedingly well over the past few years, the addition of AI has driven expectations of their performance even higher,” Silverman added.

“Investors see the traditional strength of Microsoft married to the upside value of an AI startup.”

Generative AI investment has worked wonders for Microsoft

Microsoft’s close relationship with OpenAI has been a key differentiator for the tech giant and has enabled it to rapidly accelerate its generative AI ambitions over the last year. 

OpenAI-powered features are now intricately woven throughout the entirety of Microsoft’s core product offerings, with GPT-4, for example, underpinning its flagship Copilot AI assistant. From Azure to Windows and its productivity suites, generative AI is now part of the woodwork at Microsoft.

On the consumer side, the company has pushed the use of Copilot onto customers through a dedicated icon on Windows operating systems, and they’ve gone so far as to launch the Copilot tool on Windows 10 despite great efforts to push users onto the newer Windows 11 operating system.

Microsoft also doubled down on this by announcing the addition of a new, physical Copilot keyboard button, encouraging widespread adoption in a move that is helping to usher in the era of the AI PC.

Microsoft leads the way in AI-powered cloud services

Microsoft’s cloud service Azure hasn’t been spared the AI makeover either, and it will continue to form a significant part of the company's strategy going forward. 

In mid-2023, Microsoft announced its plans to adorn Azure with a suite of AI-related updates and products.

These included the streamlining of Azure OpenAI data sources, a new retrieval system for Azure Cognitive Search, and enhanced document and conversation summarization from the Azure Cognitive Service Function.

Apple and Microsoft could face a market cap battle

While Microsoft may be riding high after overtaking Apple, Silverman warned that fortunes can quickly change. Apple has been dealing with a well-publicized slump in recent months prompted by falling demand for flagship products such as the iPhone. 

Apple has overcome market challenges in the past, however, and Silverman said there’s little doubt the company will bounce back. This, he suggested, could result in a “market capitalization battle” between the two firms.

“Apple emerges as a consistent overperformer,” he said. “While they have had tough periods of performance before, they have the brand strength to rebound, and often rebound quickly.”

“Microsoft has underperformed on its price-earnings ratio (P/E) relative to its peers. So, if history predicts the future, the conclusion would be that Microsoft will not outplay Apple over time.

“However, given the leadership that Microsoft has now and the momentum they have built, it is highly likely that this will be a market capitalization battle for the foreseeable future”.

Vodafone and Microsoft have agreed on a $1.5 billion, 10-year partnership that will transform Vodafone’s cloud capabilities through Microsoft’s Azure platform.

The telecoms giant said the deal will enable it to accelerate digital transformation efforts as part of a virtual data center migration to Microsoft Azure. 

Long-term, Vodafone expects the move to curb maintenance and energy costs across operations in both Europe and Africa.

In a statement confirming the partnership, Microsoft chief executive Satya Nadella said the tech giant will support Vodafone in applying “the latest cloud and AI technology” to enhance customer experiences.

Vodafone Group chief executive Margherita Della Valle said the partnership represents a “bold commitment” from the telecoms giant, and one that will benefit both consumers and businesses alike.

“This unique strategic partnership with Microsoft will accelerate the digital transformation of our business customers, particularly small and medium-sized companies, and step up the quality of customer experience for consumers.”

Vodafone looks to generative AI-powered services 

Cloud transformation is just one of five key areas of collaboration identified by the two companies. 

The deal will grant Vodafone access to Microsoft’s Copilot AI capabilities, allowing them to develop a range of customer-facing generative AI tools. Vodafone said it wants to improve customer service through reactive, personalized digital assistants.

Microsoft also intends to help scale M-Pesa, a fintech subsidiary of Vodafone that dominates the financial transaction market in Africa. Microsoft will host M-Pesa on Azure, while both companies will also launch a digital literacy and outreach program in the region.

As part of the deal, Microsoft also plans to “invest heavily” in Vodafone’s standalone Internet of Things (IoT) connectivity platform, which connects 175 million devices and platforms worldwide.

Vodafone will also extend its commitment to distributing Microsoft’s cloud, security, and productivity services across Europe. This keeps in line with Microsoft’s strategy to become the region's leading platform for business. 

The focus here is on small and medium sized businesses (SMBs), who will benefit from deploying Microsoft services at a slower and more adaptable pace.

Leveraging their respective strengths, Vodafone and Microsoft look to scale their digital platforms to more than 300 million businesses, public sector organizations, and consumers across Europe and Africa as a result of the deal.