Cloud infrastructure and services are the backbone of the modern economy. The world’s biggest companies, including many banks, hospitals, streaming services, consumer goods companies and far more, all store troves of data in the cloud and rely on cloud applications and services to operate. In light of this essential role, ILSR is deeply concerned about high levels of concentration in cloud computing and the ability of the sector’s dominant firms, led by Amazon, to exploit their control over this infrastructure and the data they glean from it.
In a comment letter to the Federal Trade Commission, ILSR urged the agency to use its enforcement and regulatory powers to address the anti-competitive conduct of Amazon’s cloud computing business, Amazon Web Services. As ILSR details in the letter, Amazon Web Services, or AWS, controls much of the cloud computing industry, and has leveraged its size and power in the sector to shut out rivals, entrench its dominant position, and advantage its other business lines. Among the letter’s key points:
Dominant Cloud Providers Have Durable Market Power and Persistently High Profits
AWS controls more than 40 percent of the cloud computing market, more than its next two largest rivals, Microsoft and Google, combined. Amazon’s enormous footprint in cloud infrastructure, with more than 125 data centers around the world, make it nearly impossible for smaller companies to compete against AWS on the basis of server space and processing power. This power has made AWS essential for businesses large and small, as well as more than 7,500 government agencies. This power has also made AWS a profit center for Amazon, with more than $23 billion in profit last year. “These persistently high margins and growth in share suggest the presence of durable market power warranting investigation and intervention by regulators,” we say in the comment letter.
Vertical Integration Across the Stack Impedes Competition
Amazon and the other cloud computing giants are all vertically integrated in the “stack” of infrastructure, platform, and software services. While it is less costly for companies to enter and compete against Amazon in the market for cloud-based software and platformservices, Amazon and the other cloud computing giants can leverage their dominance in cloud infrastructure — and the integration of their product offerings throughout the stack — in ways that make it difficult for third parties to break into the markets for software and platform services. As we explain, AWS uses various forms of customer lockin and exploitative conduct to create barriers to entry for rivals and limit competition.
Dominant Cloud Providers Erect Barriers to Switching and Multi-Cloud
Amazon lures new customers in by offering discounts for companies that sign long-term contracts and bundle AWS-owned services together, and it offers cheap or free data transfers to companies moving things onto the AWS cloud. But when companies want to move all or part of their data away from AWS to another company, Amazon charges outrageous “egress fees,” often making it too expensive for companies to leave AWS, even when a rival cloud offers higher quality, more innovative, or less expensive products.
AWS Leverages Its Infrastructure Dominance to Preference Its Own Applications and Copy the Products Developed by Independent Software Providers
As with third-party sellers compelled to use Amazon’s retail platform to sell their products online, AWS’s dominance in cloud computing has compelled independent developers to offer their applications on AWS’s marketplace. This entails agreeing to Amazon’s surveillance and access to their data and may also entail agreeing to restrictions on promoting their own products elsewhere. The gatekeeper power AWS has over access to cloud customers, and its ability to exploit the data of rivals whose applications and services run on AWS infrastructure, creates a ripe opportunity for aggressive self-preferencing and appropriation of competitors’ ideas and insights.
Amazon Has Used Acquisitions to Cement Its Dominance in Cloud
As with other lines of its sprawling business, Amazon has bought its way to cloud computing dominance. For example, Amazon acquired technology through its 2015 purchase of Annapurna Labs to develop the Graviton microchips, whose speed and power have helped attract major clients, including Twitter and Adobe, to AWS servers. The acquisition has further entrenched Amazon’s power in cloud services, and helped drive market share and revenue growth for the company. Revenue from Graviton servers exceeded $5 billion annually as of 2021.
Amazon Exploits AWS to Advantage Its Other Business Lines
Amazon’s dominance in cloud computing means that some of the company’s head-to-head rivals also rely on AWS to operate. This creates deep, untenable conflicts of interest. Amazon’s position means it can glean market intelligence from providing cloud services, which can help it move into new industries with a built-in and unfair advantage. It can also charge its direct competitors in its non-cloud business lines for cloud services, while presumably giving itself a significant discount on those same services. As our letter details, “When Amazon acquired the market-dominating live video streaming platform Twitch in 2014, it also acquired the technology behind the AWS-based Amazon Interactive Video Service (IVS).36 That technology has become the backbone of Kick, a new live video streaming service that is Twitch’s most direct and significant rival.37 This means that Amazon competitor Kick must pay sizeable fees to Amazon for cloud services, including the pivotal IVS service, while Twitch likely pays much less for these same services.”
Major Cloud Providers Control the Development of AI and Stand to Gain More Power Across Society as AI is Deployed in a Broad Array of Uses
We also noted in our letter the growing and future importance of generative artificial intelligence to transform how we conduct business, communicate with each other and otherwise live life. Amazon and the other major cloud computing providers have already begun using their enormous power in both infrastructure and data to attempt to monopolize AI — something that should be of deep concern to policymakers.
For these and other anti-competitive and dominance-enhancing practices, we urge the FTC to use its power to loosen Amazon’s grip on the cloud computing industry and open the market to needed competition. Chief among our recommendations is for the FTC to strongly consider structural changes at Amazon that would foster competition, including separating AWS from the rest of Amazon and separating AWS’s infrastructure from other products throughout the cloud stack. Both actions would help end Amazon’s endemic self-preferencing and foreclosure and open cloud computing to needed dynamism and rivalry, now and in the future.
Read the full comment letter. ILSR’s comment letter came in response to the FTC’s public request for information about business practices among cloud computing providers.
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