15 November 2023
Microsoft and Amazon are facing scrutiny from the U.K.’s Competition and Markets Authority (CMA) in a new investigation into their cloud services licensing practices.
This investigation stems from concerns raised in October by the telecoms regulator Ofcom, which identified various issues in the provision of cloud services that hindered customers’ ability to switch between providers. These issues include charges for data migration, exclusive discounts with a single provider, and technical barriers.
Ofcom also voiced concerns about software licensing practices, specifically citing Microsoft. The CMA’s independent inquiry group will investigate the competition within the U.K. cloud services market, aiming to address any identified issues.
Although Amazon is not explicitly named, Ofcom’s market study highlighted that Microsoft and Amazon control a significant portion of the U.K.’s public cloud infrastructure, making them particular subjects of concern.
The CMA’s market investigation could span up to 18 months. During this period, the regulator will outline potential consumer harms and suggest remedies. The CMA holds the authority to enforce remedies if necessary, up to and including requiring companies to divest parts of their business to enhance competition.¹
Meanwhile, in an application of the cloud for industrial use, Google Cloud and Unilever have joined forces to introduce the My Unilever app, aimed at connecting Unilever’s 53,000+ factory-based employees worldwide to the company’s digital resources. This app aligns with Unilever’s goal of prioritizing the digital transformation of its workforce and leveraging technology for employee support.
Built on Google Cloud infrastructure, the My Unilever app offers a swift, secure, user-friendly gateway to essential Unilever systems, conveniently consolidating them into a single platform. It further grants one-click accessibility to Google Workspace’s collaboration tools, including email, chat, and document sharing, which are relied upon by over three billion users and more than 10 million Google customers.
Additionally, My Unilever extends access to third-party tools, such as learning and payroll resources, which previously required time-consuming, paper-based methods. By streamlining these processes, the app not only saves time but also boosts productivity—a benefit that will expand as the app finds more applications within the company.²
Company Specific Updates
Microsoft’s recent uptick in share value (its most substantial gain in three months) is due in large measure to a resurgence in cloud-computing growth and escalating demand for innovative artificial intelligence (AI) products. In fiscal Q1 ending September 30, the tech giant reported a 13% increase in revenue, reaching $56.5 billion, surpassing analyst expectations. A standout performer was Azure cloud services, which exhibited a remarkable 29% growth, an improvement over the previous quarter’s 26% growth. Corporate cloud product revenue also surged, rising by 24% to $31.8 billion.
Microsoft, under the leadership of CEO Satya Nadella, is in the process of enhancing its product suite by integrating OpenAI technology into offerings such as Office, Windows, and security software. This strategic partnership has helped attract corporate clients keen to leverage ChatGPT and other cutting-edge technologies. Azure sales received a boost from OpenAI product adoption, with 18,000 customers now using these tools, up from 11,000 in Q4 last year. Microsoft is also introducing AI-based security software, attracting a substantial user base for its Azure cloud offering that incorporates OpenAI tools. Azure revenue is expected to grow by 26% to 27% in Q2, with Azure’s growth in the second half of the year anticipated to be steady, with an increasing influence of AI.³
Amazon reported strong Q3 results, with sales exceeding estimates in their online store, advertising, and merchant services. And while Amazon Web Services (AWS), the company’s cloud computing unit, fell slightly short of projections, CEO Andy Jassy stated that the business is stable and positioned for growth. The company recently signed a series of new deals, and according to Jassy, the demand for generative artificial intelligence is expected to drive future growth for AWS.
Cloud unit sales increased to $23.1 billion—a 12% rise that marked the first quarter-to-quarter revenue growth for AWS in nearly two years. Operating income for the business was $6.98 billion, exceeding analyst expectations by $1.3 billion, with AWS reporting its highest operating margin since Q1 2022.
CEO Jassy outlined Amazon’s ambitions to become a major player in generative AI given that technology’s potential to generate substantial revenue for AWS in coming years. He cited as an example the recently announced partnership with AI startup Anthropic, which will see the AI company use AWS technology to distribute its products via the cloud and bolster AWS’ presence in generative AI.⁴
Investing in Cloud Computing with DATA ETF
If you’re interested in investing in a cloud computing ETF, consider the Evolve Cloud Computing Index Fund (DATA ETF), Canada’s first cloud computing ETF. DATA ETF invests primarily in equity securities of companies located domestically or internationally that have business operations in the field of cloud computing. To learn more about DATA ETF, please click here: https://evolveetfs.com/data/.
Portfolio Strategy and Activity
For the month, Microsoft Corporation made the largest contribution to the Fund, followed by Amazon.com Inc and SAP SE. The largest detractors to performance for the month were VMware Inc, followed by Alphabet Inc and Intuit Inc.
- Warren, T., “Microsoft and Amazon face U.K. regulator investigation over cloud services,” The Verge, October 5, 2023; https://www.theverge.com/2023/10/5/23904375/U.K.-cma-microsoft-amazon-cloud-investigation
- “Google Cloud and Unilever connect factory-based colleagues with new app,” Unilever, October 11, 2023; https://www.unilever.com/news/press-and-media/press-releases/2023/google-cloud-and-unilever-connect-factorybased-colleagues-with-new-app/
- Bass, D., “Microsoft Gains After Cloud Growth Drove Revenue Surge,” Bloomberg, October 24, 2023; https://www.bloomberg.com/news/articles/2023-10-24/microsoft-sales-top-estimates-as-cloud-computing-growth-recovers
- Day, M., “Amazon Strong Results Point Toward Boost for Cloud Business,” Bloomberg, October 26, 2023; https://www.bloomberg.com/news/articles/2023-10-26/amazon-reports-revenue-that-tops-estimates-on-strong-web-sales