Context: Earlier this year, the UK Competition & Markets Authority (CMA) handed down a preliminary ruling on the cloud computing market (January 28, 2025 ai fray article). The regulator indicated an inclination to let Google off the hook while contemplating the use of a new law, the Digital Markets, Competition and Consumers (DMCC) Act 2024, against Microsoft and Amazon. The CMA is now preparing a final ruling to be released in the summer, which could actually be non-final in terms of merely passing the matter on to its Digital Markets Unit (DMU), which applies the DMCC Act. The CMA had actually inherited this matter: Ofcom, the country’s telecommunications regulator, was first to look into the topic and referred it to the CMA.
What’s new: The CMA has published summaries of its recent hearings with the three largest cloud providers: Amazon, Microsoft, Google. Yesterday, Google parent Alphabet held its earnings call for the first quarter of 2025 (recorded YouTube stream). Its executives portrayed cloud market dynamics in a way that contrasts with the company’s representations to the CMA and other regulators (such as the European Commission’s Directorate-General for Competition (DG COMP)). It is striking that Google, which had denied that AI was a major driver of cloud computing demand (July 8, 2024 ai fray article), treated cloud computing primarily as part of its overall AI stack when discussing its Q1 earnings and further outlook.
Direct impact: At some point the CMA may start to wonder not only about the weight it should give Google’s complaints but also about whether the market has moved on during the years since Ofcom first opened a market inquiry. At this point the investigation is about the cloud market of the 2010s and early 2020s, and the to some extent about role that legacy software from the 1990s and 2000s plays in it.
Wider ramifications: The current UK government under Prime Minister Keir Starmer has given the CMA clear directions. It should focus on growth, foreign investment and consumer issues related to the cost of living. Against that backdrop it is farcical what is going on in this investigation of a market in which prices are going down anyway, and which is about business-to-business transactions that are far from impacting consumer prices. The agency could put the same resources to use in contexts where there is more of a need to act and more of an opportunity to achieve improvements.
It is not new for Google to be inconsistent when talking about the cloud market. Wearing the antitrust complainant’s hat, Google downplays its competitiveness and overstates the relevance of legacy software to that business. To get the real picture, it is instructive to listen to Google’s earnings calls. For example, in January they announced their numbers for the fourth quarter of 2024 and were really bullish on their Google Cloud Platform business unit (February 9, 2025 ai fray article).
The contrast is even starker between Google’s representations to the CMA on the relevance of AI to the cloud services business and what it is telling investors. Last year, Google wrote that “AI is still an early technology and not yet an important consideration for customers’ choice of cloud providers” (July 8, 2024 ai fray article). In yesterday’s earnings call, however, Google made it sound like its cloud business was an integral part of its full-stack (everything from chipsets to cloud services to LLMs) AI offerings. Previously, except in filings with the CMA, Google described AI as a growth opportunity for its cloud business. Google’s “[cloud ] revenue increased by 28% to $12.3 billion in the first quarter, reflecting growth in [Google Cloud Platform] across core and AI products at a rate that was much higher than Cloud’s overall revenue growth rate.” That means Google is, in fact, gaining market share.
There is a distinction there between “core” and AI products, but just about one minute into his summary, Alphabet CEO Sundar Pichai said this:
“[Google’s cloud business] grew rapidly with significant demand for our solutions, and you saw our leadership in AI at Cloud Next across infrastructure, agents, and more.
“Our differentiated, full-stack approach to AI continues to be central to our growth. This quarter was super exciting as we rolled out Gemini 2.5, our most intelligent AI model, which is achieving breakthroughs in performance, and it’s widely recognized as the best model in the industry.”
Google invests in AI hardware to grow its cloud business:
“A strong relationship with NVIDIA continues to be a key advantage for us and our customers. We were the first cloud provider to offer NVIDIA’s groundbreaking B200 and GB200 Blackwell GPUs and will be offering their next-generation Vera Rubin GPUs.”
It’s all about AI until they talk to the CMA.
The CMA’s hearing summary contains the following assertions by Google, designed to downplay the importance of AI to the growth opportunities for its cloud business and to overstate the relevance of legacy software licensing terms:
13. Google said that traditional enterprise migration would continue to dominate the demand for cloud for years to come because analysts estimate only 30%of workloads have completed the migration to cloud. Google said that Microsoft was capturing a disproportionate amount of traditional enterprise workloads which are moving to the cloud.
14. Google said that its competitive position would remain as a challenger and that AI would not fundamentally change the market structure. Google said that industry analyst research shows that generative AI workloads will account for ten to 15 per cent of workloads from traditional enterprise and digital native customers by 2030.
…
17. Google said that AI is not going to fundamentally change cloud competition to the extent that the harms found by the CMA will quickly become outdated.
18. Google said that, to the extent AI grows in importance, it was wrong for anyone to suggest Google is particularly well-positioned to benefit.
Particularly the last sentence about Google not being particularly well-positioned to benefit from the shift to AI is the very opposite of what its executives said yesterday about the importance of its full-stack AI approach to its cloud business, the huge opportunities and the partnership with NVIDIA.
Here’s another quote from what Alphabet CEO Sundar said yesterday:
“Our Vertex AI platform makes over 200 foundation models available, helping customers like Lowe’s integrate AI. We offer industry-leading models, including Gemini 2.5 Pro, 2.5 Flash, Imagine 3, Vo2, Chirp, and Lyria, plus open-source and third-party models like Llama 4 and Anthropic. We are the leading cloud solution for companies looking to the new era of AI agents, a big opportunity. [emphasis added]
“Our Agent Development Kit is a new open-source framework to simplify the process of building sophisticated AI agents and multi-agent systems. An Agent Designer is a low-core tool to build AI agents and automate tasks in over 100 enterprise applications and systems. We are putting AI agents in the hands of employees at major global companies like KPMG. With Google Agentspace, employees can find and synthesize information from within their organization, converse with AI agents, and take action with their enterprise applications.”
| Google to CMA | Google to investors |
| “Google said that, to the extent AI grows in importance, it was wrong for anyone to suggest Google is particularly well-positioned to benefit.” | “We are the leading cloud solution for companies looking to the new era of AI agents, a big opportunity.” |
Google is also making a major acquisition now to strengthen its cloud business:
“This quarter, we were excited to announce our intent to acquire Wiz, a leading cloud security platform that protects all major clouds and code environments. Together, we can make it easier and faster for organizations of all types and sizes to protect themselves end-to-end and across all major clouds.”
That is a $32 billion deal (March 18, 2025 press release by Google). The CMA has recently announced that it doesn’t have to have a seat at the table when large tech mergers are reviewed and there are no UK-specific issues. It probably won’t block this deal then. But that is not the type of deal a company unable to compete in the cloud business would make, and just like the CMA has concluded that it doesn’t have to review every merger, there are no UK-specific issues in the cloud services context.
The CMA should recognize that its preliminary ruling has obvious shortcomings. The line between Amazon and Microsoft on the one hand and Google on the other hand is arbitrary. There is no objective justification for it. With the passage of time since Ofcom’s initial investigation and this CMA market inquiry that resulted from it, the market has moved on, and it is now AI hardware and software that is driving growth. Yesterday it became clearer than ever.
The CMA’s DMU has other issues to focus on, such as mobile app stores (where it really is UK consumers and partly UK-based developers that get overcharged and overregulated by Apple and Google). The CMA could make better use of its resources by concluding that there are no pressing problems to address in the cloud services market than by launching yet another investigation under yet another legal framework, of a deflationary segment where there is no risk of consumers being impacted even indirectly to any appreciable extent, and based on complaints that run counter to what the primary complainant, Google, tells investors. The smartest thing to do at this point would be to wait and see how the market evolves now that a large part of the new demand is related to AI.