Context: The UK Competition & Markets Authority (CMA) is conducting a market investigation into what it calls “UK public cloud infrastructure.” One part, related to software licensing, is heavily influenced by Amazon and Google (June 7, 2024 ai fray article).
What’s new: Last week, the CMA published various submissions made by stakeholders in response to its recent working papers (CMA market investigation webpage). Amazon and Google try to thread the needle by arguing that the cloud services market is extremely competitive and prices are going down while trying to persuade the CMA to take action against Microsoft’s software licensing terms. Part of Google’s effort to downplay the overall (apart from software licensing) need for regulatory intervention is a paragraph that says AI is not a major driver of demand for cloud services.
Direct impact: In September or October, the CMA intends to publish its provisional decision, followed by a series of hearings. The final decision has an April 4, 2025 statutory deadline, but may come down one or two months earlier.
Wider ramifications: The AI-cloud connection is a topic that has drawn regulatory interest, but primarily with a view to partnerships between large cloud operators and AI providers such as OpenAI.
Here’s the AI-related passage from one of Google’s three filings:
“AI is still an early technology and not yet an important consideration for customers’ choice of cloud providers. Google Cloud is excited about AI’s transformational potential for businesses, public sector organisations and consumers alike, and the emerging competition and dynamism displayed at all layers of the AI value chain, enabled by the vibrant competition to supply cloud compute (including AI chip capacities) to foundation model developers and providers from a dynamic range of cloud providers. Nonetheless, as the CMA notes in its Foundation Models technical update report, “FM deployment in the wider economy […] remains at an early stage […] while companies are still experimenting with these tools, many are yet to find valuable use cases”. Therefore, the impact of AI on the overall UK public cloud infrastructure market remains uncertain. Consistent with this, customers surveyed by the CMA do not currently consider AI capabilities as a particularly important consideration for their choice of cloud providers, especially relative to other factors such as the cost of and ability to use software licences in the cloud.”
Google suggests that the above is consistent with the CMA’s research. It’s true that a paragraph on AI capabilities in the CMA’s competitive landscape report says “in a handful of cases customers considered this to be important or very important” and that AI is not among the top four issues identified by the CMA. But the remainder of the paragraph on AI capabilities tries to make an argument that the CMA should take action because AI would or could become a major driver of demand:
“However, there were also multiple cases where customers said that providers’ AI capabilities are becoming an increasingly important consideration. For example, one customer said that it increasingly sees AI capabilities as a differentiator between providers”.
Should the CMA opt for aggressive intervention, it will most likely try to justify, in political more so than in legal terms, its actions by pointing to the role that cloud computing plays as an input for AI services.
The responses with a July 1 deadline addressed only the first three (of six) working papers the CMA released. Those were put out on May 23. The next round, which also discussed software licensing, followed on June 6. But Amazon and Google try to somehow draw attention to the question of software licensing even in disparate contexts.
A cynical way to paraphrase Amazon’s and Google’s messages to the CMA is this: “Please, please, don’t regulate what we are doing because the market is very competitive. But if you want to do something, we’d be happy to face less competition from Microsoft.”
Amazon and Google have a point that the market for cloud services is working. They are right that there is a clear downward trend for prices. But if software licensing was the only serious problem affecting the market, why wouldn’t the same arguments that they make with respect to committed spend agreements and egress (outgoing traffic) fees also support the conclusion that the alleged problem can’t be even half as serious as some claim, given that overall market trends are positive? They don’t explain why the absence of symptoms suggests healthy market dynamics in some contexts but not in the one in which they would actually like the CMA to impair their main rival’s competitiveness.
The Computing & Communications Industry Association (CCIA) is funded by Amazon and Google (as well as others, but those are the key cloud service providers among its backers). CCIA does not speak for the industry at large. Some major technology companies are missing from its membership directory. CCIA made a submission just to express its disappointment over the fact that the CMA did not consider a CCIA-funded study reliable. Obviously, that kind of finding is antithetical to the CCIA’s business model, but the CMA was right and should continue to ignore the CCIA’s input.
There hasn’t been much participation by stakeholders yet. That, too, is a sign of there being no major problem to be solved.