The Cloud Services Oligopoly

By- Eric Kwas

The Cloud Services Oligopoly

Any introductory economics student will tell you that less competitive markets are, in general, worse for everyone: consumers experience cost-push inflationary pressure and lower-quality products, firms are less innovative and suffer administrative bloat, and workers struggle to negotiate higher wages. Monopoly and oligopoly markets tend to lead to a troubling combination of stagnating research and development, worse working conditions, and higher prices [1]. These impacts are exacerbated in an industry that modern life has become almost dependent on, such as the field of computing. To combat this, government intervention is often employed to prevent anti-competitive behaviour, such as the United States Department of Justice’s antitrust action against Google for monopolising the search engine [2] and advertising markets [3], and the EU’s frequent attempts to oppose Big Tech giants, most recently Apple and Meta [4, 5]. However, one silent niche of the tech industry has remained cornered by just three companies [6, 7], and we are just beginning to see the disastrous effects of the lack of competition in the cloud-services market with the recent outage that left global powerhouse firms such as Netflix, Snapchat, and United Airlines at the mercy of the engineers at Amazon Web Services (AWS) [8–10].

The Current Market

The worldwide market for public-cloud infrastructure and platform services is growing quickly, yet it remains tightly concentrated in the hands of a few giants. According to recent data, the three major players (Amazon Web Services (AWS), Microsoft Azure and Google Cloud) together account for more than 60 percent of the global cloud-infrastructure market [6, 7]. One report indicated AWS had roughly 30 percent of the market in Q2 2025, Azure around 20 percent, and Google Cloud about 13 percent [7].

Such dominance means that smaller competitors struggle to carve out sufficient scale to challenge the current giants. The large costs of constructing data centres, developing global infrastructure, and building services that span large enterprises form major barriers to entry, preventing the cloud computing market from becoming more competitive [6].

From one perspective, the cloud-market story looks like success: massive growth, rapid adoption, and innovation around services like machine learning, analytics, and edge computing. Yet from another perspective it raises a large question, even more relevant after the recent outage. If only a handful of providers dominate the infrastructure that underpins so much of our digital lives, are we storing too much faith in a narrow set of actors?

Diagnosing the Problem

When market competition shrinks, various risks emerge. Firstly, innovation may slow because the dominant players face limited threat from challengers. They may have less incentive to explore truly disruptive models or may prioritise margin and control over experimentation.

Secondly, demand is often relatively price inelastic in a less competitive market: when customers have few realistic alternatives, switching costs rise because of data-transfer fees and shoe-leather costs, and since consumers will put up with higher prices, providers may feel less pressure to keep prices low. This can classically be seen in the streaming market, where Amazon’s “stealth price rises” on Prime were largely lamented by consumers, but its market share has merely stagnated, rather than falling in recent months.

Thirdly, operational risk can easily become systemic: if the backbone of many services rests on a small number of platforms, an outage or failure in one can cascade widely. We have already seen such cascading risk recently. On 20 October 2025, AWS suffered a massive outage from its US-East-1 region that disrupted streaming platforms, social-media apps and enterprise systems globally [8–10]. Reports suggest there were millions of outage reports worldwide [10]. This kind of fragility is not just a technical concern: it is a business-continuity and societal issue. The reality of the cloud oligopoly means many enterprises implicitly rely on a provider over which they have little leverage.

Moreover, regulatory reviews have begun to call out this dominance explicitly. The UK Competition and Markets Authority (CMA) found the cloud market “is not working well” because major providers such as AWS and Azure each hold up to 30–40 percent of spending in the UK, while smaller providers remain marginal [12, 13]. The oligopolistic nature of the cloud computing market is recognised not just anecdotally, but in formal competition analysis by the UK’s market regulator.

Vulnerabilities for Malicious Exploitation

Beyond innovation slowdown or higher costs, the cloud-services oligopoly leads to a vulnerability arising from concentration of infrastructure. If a handful of providers are responsible for much of the world’s digital backbone, then targeted disruption – potentially malicious in origin – can have magnified effects. The AWS outage is a clear example of such systemic risk, and this was just a simple system bug. The effects could be magnified significantly if it had resulted from a targeted attack, especially prevalent now as we have seen the effects of such cyber-attacks on giants such as Jaguar Land Rover. Firms, including those in regulated sectors like finance, have begun to question whether they have adequate resilience when reliant on single-cloud providers [32].

There is also a risk of anti-competitive behaviour: strong incumbents may engage in practices that further entrench their position, for example through licensing terms, bundling, or preferential ties to large enterprise customers. The CMA investigation into Microsoft’s licensing practices for cloud services is a case in point [14].

Finally, the innovation risk adds to the cybersecurity vulnerabilities if dominant platforms become complacent. Researchers have long noted that public-cloud service outages happen with some frequency and that investigation of their root causes is left, crucially, to just a few large firms [15, 18].

Bullet-proofing the Future

So, what can be done? Firstly, diversification is a crucial initial step. Enterprises should consider multi-cloud or hybrid-cloud strategies, spreading infrastructure across two or more cloud providers or combining cloud and on-premises systems. This may increase complexity and cost, but for organisations with critical operations it becomes a hedge against single-provider risk. Commentators after the AWS outage urged precisely this [9, 10, 17].

Second, regulators must remain vigilant. The cloud-services market is clearly showing the characteristics of an oligopoly: a small number of large firms, high barriers to entry, and costs that disincentivise switching vendor. Competition authorities should ensure that switching costs are reduced, data portability is improved, and that emergent competitors can attempt to scale and capture some market share. The CMA’s work in the UK is a step in this direction [12, 13].

Third, building technological resilience matters. Cloud providers themselves must invest more in fault-tolerance, region-redundancy and transparent communication when outages occur. Academic work has shown that even cloud systems designed for high availability suffer from cascading failures unless proactively architected for failure [16, 18].

Fourth, for organisations using cloud services, robust contractual terms, exit strategies and disaster-recovery planning can mitigate risk. For example, ensuring that business-critical workloads are replicated or that alternative provider options exist helps reduce dependency.

Fifth, start-ups and niche providers may play a role. Although capital-intensive infrastructure poses barriers to entry as discussed above, smaller firms might be able to offer specialised cloud services for a smaller technical or geographical niche, offering flexibility and innovation, and stimulating competitive pressure on the current market leaders. [6, 11, 12].

Conclusion

Modern computing has been completely transformed by cloud services. Ordinary users mainly see the benefits of cloud computing in the forms of iCloud, OneDrive, or DropBox storage, but the remote provision of IT services has become a backbone of many companies’ operations. It allows firms extraordinary benefits including scalability and global reach, but increasing reliance on these cloud companies also presents structural risk. A small number of dominant firms creates an oligopoly that allows for less competition, weakens incentives, and creates systemic vulnerability because one outage at one firm may affect billions of users. The recent issue at AWS highlighted that digital infrastructure underpinning global economic activity is not immune to disruption, While a simple technical fault was restored in under 24 hours, a malicious exploitation of our overdependence on a small number of firms could expose governments, firms, and consumers to severe, yet avoidable, risks. Leaving our data, services, and infrastructure weakly defended in the hands of a few firms is dangerous, and we shouldn’t wait to be exploited before scrambling to improve things.

References

1. The Economist. “Why Competition Matters.” August 7 2018. https://www.economist.com/open-future/2018/08/07/why-competition-matters

2. U.S. Department of Justice. “United States and Plaintiff States v. Google LLC — Complaint (Search).” October 20 2020. https://www.justice.gov/d9/press-releases/attachments/2020/10/20/google_complaint_filed_0.pdf

3. U.S. Department of Justice. “Justice Department Sues Google for Monopolizing Digital Advertising Technologies.” January 24 2023. https://www.justice.gov/archives/opa/pr/justice-department-sues-google-monopolizing-digital-advertising-technologies

4. European Commission. “Commission Opens Non-Compliance Investigations against Alphabet, Apple and Meta under the Digital Markets Act.” March 25 2024. https://digital-markets-act.ec.europa.eu/commission-opens-non-compliance-investigations-against-alphabet-apple-and-meta-under-digital-markets-2024-03-25_en

5. European Commission. “Commission Finds Apple and Meta in Breach of the Digital Markets Act.” April 22 2025. https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1085

6. Synergy Research Group. “Q2 Cloud Market Nears $100 Billion Milestone — and It’s Still Growing by 25 % Year over Year.” July 31 2025. https://www.srgresearch.com/articles/q2-cloud-market-nears-100-billion-milestone-and-its-still-growing-by-25-year-over-year

7. CRN. “Cloud Market Share Q2 2025: Microsoft Dips, AWS Still Kingpin.” August 7 2025. https://www.crn.com/news/cloud/2025/cloud-market-share-q2-2025-microsoft-dips-aws-still-kingpin

8. Reuters. “Amazon Says AWS Cloud Service Back to Normal after Outage Disrupts Businesses Worldwide.” October 21 2025. https://www.reuters.com/business/retail-consumer/amazons-cloud-unit-reports-outage-several-websites-down-2025-10-20

9. Al Jazeera. “Amazon Web Services Says It Has Resolved Issue behind Global Web Outages.” October 20 2025. https://www.aljazeera.com/news/2025/10/20/amazon-cloud-problems-spur-outage-of-global-websites-and-apps

10. Wired. “The Long Tail of the AWS Outage.” October 22 2025. https://www.wired.com/story/aws-cloud-outage-long-tail

11. Statista. “Worldwide Market Share of Leading Cloud Infrastructure Providers (Q2 2025).” August 21 2025. https://www.statista.com/chart/18819/worldwide-market-share-of-leading-cloud-infrastructure-service-providers

12. UK Competition & Markets Authority. “Cloud Services Market Investigation — Final Decision and Materials.” July 31 2025. https://www.gov.uk/cma-cases/cloud-services-market-investigation

13. Microsoft. “Response to CMA Provisional Decision.” February 24 2025. https://assets.publishing.service.gov.uk/media/67d1bea40c569e0d48fb0a6f/Microsoft_response_to_provisional_decision_2.pdf

14. Financial Times. “CMA Panel Says Microsoft’s Software Rules Harm Cloud Competitors.” April 2025. https://www.ft.com/content/364036c5-524c-40ed-a9ad-cd2c969c211f

15. Li, Z. et al. “A Systematic Survey of Public Cloud Service Outage.” arXiv preprint arXiv:1312.6485 (2013). https://arxiv.org/abs/1312.6485

16. Buckley, Sean. “Cloud Market Closes in on $100 B in Q2.” Lightwave Online. August 7 2025. https://www.lightwaveonline.com/home/article/55308474/cloud-market-closes-in-on-100b-in-q2

17. Northflank. “Today’s AWS Outage Is Another Reminder That You Need a Multi-Cloud Strategy.” October 19 2025. https://northflank.com/blog/aws-outage-today-october-2025-multi-cloud-strategy

18. Li, Y. et al. “Modeling and Solving Cascading Failures across Interdependent Infrastructure Systems.” arXiv preprint arXiv:2407.16796 (2024). https://arxiv.org/abs/2407.16796

19. Financial Executives International. “What Financial Executives Must Learn about Cloud Risk Management.” October 2025. https://www.financialexecutives.org/FEI-Daily/October/aws-outage-2025-cfo-cloud-risk-management.aspx