AWS sees customers repatriating workloads as cloud war intensifies

Brief description of the dive:

• AWS told the U.K. Competition and Markets Authority that its cloud business “faces competition from on-premises IT” and provided the regulator with examples of customers repatriating workloads, according to a summary of the hearing released Monday.
• According to a July 2 hearing summary, the hyperscaler pointed to the “significant effort” it put into building an on-premises data center as evidence that its customers are open to moving workloads back to the cloud.
• According to a summary of the CMA’s July 16 hearing, published on Monday, Microsoft also acknowledged that in some cases, on-premises IT solutions compete with cloud solutions, but did not provide specific examples.

Diving Insight:

The CMA launched an investigation into competitive practices between AWS and two major rivals for cloud market share — Microsoft and Google — in October. The agency found potential technical, structural and contractual barriers to moving workloads to and from clouds that could result in vendor lock-in and predatory pricing in a report published earlier this year.

The friction between the three largest hyperscalers intensified as the tech giants tried to appease regulators and avoid further scrutiny during a series of hearings in July, with each company having its own arguments — and axes to grind.

AWS noted that the cloud accounts for just 15% of the IT services market, which still relies on on-premises infrastructure, citing analyst data. The company cited a number of reasons for the repatriation, including financial priorities and companies’ desire for greater ownership of IT assets, data and security.

Analysts confirm that most enterprises have settled into a hybrid balance, integrating on-prem capabilities with the cloud. Garner expects half of critical enterprise applications to remain off public cloud infrastructure by 2027.

But the balance shifted earlier this year as hyperscalers took decisive control of computing power, according to Synergy Research Group. Large cloud providers now control 41% of global data center capacity, dwarfing the 37% that remains local, the market analytics firm found.

The hearings revealed a variety of reasons why companies choose to keep their calculations in-house.

“AWS stated that perceived benefits of implementing an on-premises solution may include greater control over resources and proximity,” according to the transcript.

AWS, Microsoft and Google have all made concessions on multicloud in the past year, removing exit fees that enterprises pay when moving workloads from one cloud to another. Microsoft also separated Teams from its 365 productivity suite in April in response to an EU antitrust investigation.

However, the European Commission, in a statement in June, set out its preliminary view that Microsoft “has infringed EU antitrust rules by tying its Teams communication and collaboration product to the popular productivity apps included in its Office 365 and Microsoft 365 business suites.”

AWS and Google used software licensing practices to accuse Microsoft.

“AWS believes that cloud service providers and customers have long been dissatisfied with Microsoft’s conduct,” the CMA said.

Google highlighted Microsoft’s lead among customers using the company’s enterprise software solutions during testimony on July 19. While Google touted its success competing for digital natives who don’t have a “pre-existing Microsoft software footprint,” it said those customers make up a small portion of the broader cloud services market.

Microsoft responded to Google and assured that the company is on par with AWS in the enterprise sector.

“Microsoft stated that it could leverage its experience working with enterprise customers in traditional IT as it relates to cloud services, while Google did not have that capability, likely resulting in poor service delivery for enterprise customers,” according to the transcript.

“While AWS had no experience serving enterprise customers when it first entered the cloud services market,” the statement continued, “it nonetheless had strong capabilities to deliver services and support to enterprise customers.”