FTC Cloud RFI Comments Show Competition In IT Computing Is Thriving, But Restrictive Licensing Practices Threaten To Lock-in Customers—Reducing Choice
Last month, the FTC issued a Request for Information (RFI) seeking public comment on the business practices of cloud computing providers. Ninety comments were submitted by experts, companies, and groups alike, and two main themes clearly emerged:
1) Competition in the cloud is thriving as numerous cloud computing companies provide a variety of services and pricing models that are flexible and customized to the needs of small businesses, startups, and governments.
2) Fair licensing practices are crucial for customers to be able to use or switch between different cloud providers, which is harmed by legacy IT companies locking down customers with restrictive terms, inhibiting competition.
Below are a selection of submitted cloud RFI comments that adequately capture the state of cloud competition:
Competition In The Cloud Is Thriving, And Consumers Have Many Choices
TechNet noted, “Cloud providers allow for a wide array of options for customers to use cloud computing as part of their digital infrastructure.”
— “A healthy cloud ecosystem is one that enables customers to select best-in-breed services regardless of a cloud service provider’s size, market position, or ability to seamlessly combine offerings within or across multiple layers of the stack.”
CCIA explained the depth and complexities of cloud computing, stating, “From a competition perspective, IT services, including cloud services offerings, are highly competitive. In the context of storage, businesses also have robust options for IT services, including on-premises offerings as well as a wide range of cloud services.”
— “On-premises cloud storage options, such as those provided by Nextcloud, ownCloud, Seafile, Pydio Cells, and Syncthing, can be customized to meet and exceed the needs of organizations of all sizes. Providers, such as VMware, Dropbox, and SoftLayer, come from varying technical and corporate backgrounds and focus on specific cloud services that directly compete with other cloud service providers.”
The U.S. Chamber of Commerce explained how competitive the cloud market actually is, saying, “Cloud computing is competitive. Companies, large and small, foreign, and domestic, are vigorously competing to serve customers, and they are competing against on-premises providers of IT goods and services.”
— “Many companies offer services in the full stack while others specialize in different segments. Importantly, looking solely at the group of hyperscale providers that each offer their own full cloud stack does not fully capture the competition and innovation at all layers of the cloud stack.”
Other notable comments include:
Information Technology Industry Council, 6/22/23
— “Larger companies may operate, sell, and combine services across and within multiple layers of the cloud services technology stack, while smaller companies may compete in a single product segment within a given layer of the stack. A healthy cloud ecosystem is one that enables customers to select best-in-breed services regardless of a cloud service provider’s size, market position, or ability to combine offerings within or across multiple layers of the stack.”
Software & Information Industry Association (SIIA), 6/22/23
— “As mentioned, cloud computing is a recent innovation that cannot be viewed in isolation. Rather, it is a part of the much larger IT industry, and it is characterized by a high level of competition.”
— “As the use of cloud computing expands, companies—existing cloud service providers, traditional on-premises providers, and new entrants—compete fiercely. This competition takes many forms but, at a minimum, includes lower prices, innovation, other new product offerings, and expanded storage options. And competition is working. According to a 2020 report from the House Judiciary Committee Subcommittee on Antitrust, prices for IaaS services, for example, generally decreased from 2013-18.”
Small Business & Entrepreneurship Council, 6/22/23
— “Small business owners also feel they have ample choices in the marketplace when it comes [to] cloud providers, and they are pleased with the value they receive from their service providers, according to the survey. Regarding the availability of cloud service providers, 81% of small businesses state that they have a sufficient number of providers to choose from.”
— “Furthermore, within each of the three XaaS categories, there is a significant differentiation between market participants. There are IaaS providers that serve customers of all sizes, and there are some IaaS providers that focus on small- and medium-sized companies.”
— “Because the market and business models are so heterogeneous, companies on both sides of the equation – provider and customer – need to be able to manage their operations and allocate their own risk as they see fit.”
Although Competition Is Thriving, Some Companies Threaten To Harm This Ecosystem By Utilizing Unfair Licensing Practices To Lock In Their Customers
The Coalition for Fair Software Licensing directly called out legacy IT vendors such as Microsoft for their unfair practices.
— “Microsoft, however, which has long dominated operating and productivity software, approaches licensing differently. Rather than supporting customer choice, Microsoft is unfairly leveraging customer dependencies to its own benefit. Specifically, Microsoft is using its market power and restrictive and discriminatory licensing terms to: coerce customers into using Azure cloud infrastructure and lock them into the Azure ecosystem; tie products in the vertical stack of Microsoft ecosystem into an ever-growing suite of services, regardless of customer preferences, to advantage its products over competitors; limit integration capabilities of competing services on equal terms with its own products; and set its own products as defaults.”
— “Instead of offering a better cloud product and competing on the merits, Microsoft’s licensing and tying practices force customers into the Microsoft ecosystem and limit their choice by making it more difficult, if not impossible, to access key software without also using their other cloud products.”
Richard Wolfram echoed previous sentiments, saying, “Microsoft makes its adjacent licensed products, such as 365 and Windows, more expensive when used on third-party cloud infrastructure providers, other than Microsoft’s Azure, without obvious cost justification.”
— “Within the RFI’s competition category, we are addressing in particular Questions 4 [on cloud provider practices to enhance or secure their position across or within layers of cloud computing, and the effects on competition] and 6 [on incentives and practices cloud providers offer to customers to obtain more cloud services from a single provider]: practices by Microsoft, operating at multiple layers within cloud services – infrastructure, platform and software – to entrench and/or enhance its position; the effects of those practices on competition; incentives Microsoft is offering to customers to obtain more of the cloud services they need from Microsoft alone; and how such practices may be characterized as arguably unlawful tying and/or bundling.”
— “As a similar example of exclusionary licensing practices, CISPE cites evidence from a respondent to a survey it conducted regarding relevant anticompetitive conduct that ‘in fielding offers for its cloud infrastructure servicing, the company had received competitive offers from Amazon, Microsoft and Google. However, following the company’s decision to opt for Amazon Web[s] Services, Microsoft . . . imposed an ‘after-the-fact’ change to its software licensing policy, [. . . ] oblig[ing the company] to pay for individual Office licenses on each computing instance. This, notably, resulted in tens of millions of additional costs per annum.”
Other notable comments include:
— “In 2019, Microsoft required Office 365 users in the EU to repurchase their software licenses if they were storing data on a third-party cloud.”
— “Microsoft implemented a new policy when it launched the new version of its Bing search engine, triggering high fees for search engines that are customers of Bing should they develop their own alternatives to ChatGPT.”
— “The unusual deal structure of Microsoft’s arrangement with OpenAI may be designed to bypass the disclosure requirements of the Hart-Scott-Rodino Act.”