Once you’re in the cloud, the top providers want to make sure you stay there. A panel of technology and economic experts told the Federal Trade Commission (FTC) cloud giants have a slew of anti-competitive tricks up their sleeve to lock customers into their infrastructure. And one panelist pointed to Amazon as the one who is often pioneering new acts.
Speaking during an FTC hearing last week, Uncorrelated Ventures founder Salil Deshpande likened today’s cloud environment to a shopping mall in which the cloud providers own not just the mall building itself, but also the stores and products inside those stores.
“There are other stores in the malls, but for the most popular products the stores and the products belong to the malls, the clouds,” he said.
The reason for this, he said, is widespread tying and bundling of cloud infrastructure and software.
Frédéric Jenny, an economic expert and chair of the competition committee at the Organization for Economic Co-operation and Development, said tying and bundling are two of three primary practices cloud providers use to lock in customers.
Tying is where cloud infrastructure is linked to a provider’s software, such that if a client wants to use the software, they must also use that provider’s cloud. Bundling, he said, creates a technical or legal link between two products. So, for instance, a provider's software will work better if it is run on their cloud, or clients are offered a discount on the software if they use a provider’s cloud service as well.
A third common tactic, Jenny noted, is predation. There, the dominant software firm can subsidize the sale of an infrastructure service through the sale of its software service. This means it can offer the infrastructure service at a price that is impossible for infrastructure providers alone to match.
According to Jenny and Deshpande, all three of these practices are fairly common across the industry. Deshpande claimed “it’s usually Amazon that trailblazes these practices” before others follow suit.
Amazon could not immediately be reached for comment. But Amazon was far from the only one mentioned by name.
Jenny highlighted an example from 2019 in which Microsoft told Office 365 users they would have to repurchase their licenses if they were stored in a third-party cloud. He also said Microsoft has used bundling of Azure services as a retention tool when a customer is thinking of churning. Additionally, Jenny said Oracle has imposed software licensing restrictions that can lead to a tenfold cost increase if that software is used with a third-party provider.
The hearing is part of a probe launched by the FTC earlier this year, through which the agency hopes to gain more insight into market power and competitive practices in the cloud industry. Among other things, FTC Chairwoman Lina Khan said during the hearing it is looking at the factors driving market concentration and downstream security and resiliency risks related to that concentration.
University of California Berkley professor Steven Weber encouraged the FTC to scrutinize licensing agreements during the hearing, noting terms can “tell us a lot about the ways in which people are trying to parse technical constraints and business model constraints.”