How the UK's cloud strategy was hijacked by a hyperscaler duopoly

The cost of lock-in

Fewer than 1% of customers switch cloud providers annually. Why? Because the system is rigged - from opaque egress fees to proprietary APIs and binding enterprise agreements, the cost of leaving is simply too high. For many public bodies, once you're in, you’re in - indefinitely.

This is not just market inefficiency - it’s economic entrapment.

Take Microsoft’s latest move: a 41.6% price hike on Office 365 Personal and Family subscriptions in the UK - from £59.99 to £84.99 - justified by the addition of AI-powered Copilot features.

But here’s the catch - customers can avoid the hike by choosing the “Classic” subscription, a fact Microsoft has conveniently buried. Most individuals - and organisations - won’t know they have a choice until it’s too late. This isn’t value creation - it’s value extraction.

Beyond just stifling competition, this lock-in also undermines the UK government’s ambition to become an AI powerhouse. With AI workloads increasingly dependent on high-performance cloud infrastructure, continuing to rely on just two dominant hyperscalers risks concentrating capability, control, and innovation in the hands of a few.

The status quo limits choice, inflates costs, and creates systemic dependencies that are incompatible with a sovereign, secure, and globally competitive AI ecosystem.

Price gouging in plain sight

Let’s not pretend this squeeze isn’t profitable. Microsoft just reported a 17% year-on-year revenue increase, with Azure revenue soaring 39%. Amazon Web Services (AWS) followed with a 30.6% increase in quarterly operating income, from $14.7bn in Q2 2024 to $19.2bn in Q2 2025.

These aren’t the earnings of companies in a fiercely competitive market. These are the spoils of market dominance - fuelled, in part, by the very public sector customers that were promised choice and efficiency.

What we’re witnessing is not “cloud transformation” - it’s price gouging with a glossy interface.

A public sector let down

Let’s revisit the 2011 cloud strategy. Instead of driving costs down through shared services and multi-cloud models, we’ve outsourced our infrastructure and leverage to a couple of hyperscalers. The projected central government savings of £120m per year by 2014-15 have evaporated into long-term enterprise agreements and opaque billing models.

Procurement has consolidated around familiar incumbents, multi-cloud adoption remains rare, and “cloud first” has been reinterpreted as “pick your monopolist.”

The CMA’s diagnosis — and a sliver of hope

The CMA’s recommendation to designate Microsoft and AWS as holding Strategic Market Status is a crucial step. If adopted under the Digital Markets, Competition and Consumers Act, it would unlock a toolkit of regulatory remedies - from fair licensing requirements to mandatory interoperability.

But we’ve been here before. The ambition is welcome - but only if it's matched by political will and enforcement rigour. A passive stance from the government risks signalling to industry that dominance is not only tolerated, but expected.

We need bolder steps: a reassessment of public sector cloud procurement frameworks, mandatory support for multi-cloud architecture, and a rebirth of the SME-friendly marketplace we promised in 2011.

What comes next: Why remedies matter now

The CMA’s final report is not just a diagnosis - it is a call to action. If we’re serious about making cloud markets work for customers, especially the public sector, then decisive and timely remedies are essential.

A subdued remedy framework risks being toothless in tackling entrenched dominance by the large hyperscalers. Fortunately, the CMA has already signposted “targeted interventions” under new powers from the Digital Markets, Competition and Consumers Act 2024. This includes the designation of AWS and Microsoft as firms with Strategic Market Status.

Potential remedies include mandatory interoperability standards and open APIs, requiring cloud providers to publish standardised APIs, export tools, and schemas that enable seamless data portability and integration to dismantle technical barriers.

Non-discrimination in software licensing would be equally crucial - Microsoft’s Azure Hybrid Benefit and other licensing advantages reinforce lock-in, so the CMA could mandate cloud-agnostic licensing terms across all providers.

Finally, pro-competition conduct rules should ensure that Strategic Market Status comes with teeth through mandatory exit support, prohibitions on tying, and binding conduct requirements to break down artificial integration.

These remedies are not theoretical. The CMA’s 2017 retail banking investigation led to open banking - a world-leading initiative that dismantled structural barriers and gave rise to a thriving fintech ecosystem. Cloud markets deserve the same resolve.

Remedies must be mandatory, not voluntary; timebound, with clear implementation deadlines within six to 12 months; and enforceable, with substantial penalties for non-compliance.

Half measures won’t curb dominance. AWS and Microsoft are rapidly reinvesting their profits into even deeper infrastructure entrenchment. Meanwhile, AI is becoming embedded in every business strategy. Delay now only makes meaningful reform harder - and more expensive - later.

Time to reboot, not rebrand

Let’s be clear - this is not about being anti-cloud. Cloud technology has delivered immense benefits. But the current market structure is anti-choice, anti-competitive, and increasingly anti-affordable.

As the UK’s digital economy becomes ever more reliant on AI, compute, and scalable infrastructure, allowing two US hyperscalers to dictate terms is not just commercially naive - it’s a sovereignty issue.

If we want to restore trust in digital government and deliver real value for taxpayers, then cloud-first needs a reboot. Not in name, but in spirit.

Bill McCluggage was director of IT strategy and policy in the Cabinet Office and deputy government CIO from 2009 to 2012.