Are the big 3 an oligopoly? Some thoughts….

Skyscrapers cloudy sky

Today in Diginomica Derek Du Preez asked… “Did the government kill off the Oligopoly or just send it back to the (US) cloud?” The article considers the advent of the G-Cloud and a stricter procurement policy sought to break up the original Oligopoly a decade ago. But do the same rules apply to Oligopoly 2.0?

Full disclosure about me; as a Civil Servant and a Local Government Officer and then more latterly as an entrepreneur I have been a public cloud advocate for government for more than a decade. Notbinary are an AWS partner and have also delivered large scale Microsoft Azure and Google Cloud Platform projects to public sector clients.

Despite my commercial interests in public cloud, I fully support Senior Civil Servants questioning the impact of a small number of dominant players (in any market). In terms of public cloud I understand their general sense of unease but I worry about the damage that could be caused, both to public service delivery and the wider economy, by unsophisticated over corrections or mitigations.

This is a complex and nuanced question, and one where crude responses will be costly, both to the Exchequer and to users of public services. Government should understand and engage with these platforms and suppliers. Where appropriate, regulation and compliance can be used but at the same time public service users must be allowed to benefit from their undeniable technical excellence. The “Office of Public Cloud” is a less outlandish idea than it might at first sound and would certainly be preferable to excluding them.

My view is based on the following three perspectives:

AWS, Azure and GCP are the leading public cloud providers for a reason.
AWS, Google and latterly Microsoft are very different organisations but they have one thing in common: prior to providing enterprise cloud services they already had wildly successful extant businesses underpinned by the provision of massive, scalable compute capacity. AWS, retail; Google, search; and Microsoft, enterprise servers, databases and applications. Creating that kind of power and scale from scratch is virtually impossible. And, even then, this is about more than compute power. Their position gives them access to network effects, the brightest talent, serious capital – and in the case of AWS and Google – modern, digital business cultures (Microsoft is changing but has a longer legacy). The latter means they instinctively understand the value of platform-based business models. Their DNA tells them that they are more successful through being the marketplace rather than merely having a few stalls in the market.

Being a scaled provider of cloud services is no trivial matter. You need the best engineers and talent, huge amounts of capital and an inherent understanding of the value of an ecosystem and the “channel”. Over the years we have worked with all types of cloud platform providers and that experience always brought us back to the Big 3. When our clients choose more niche platforms, talent attraction is challenging because the best developers want to work on global, leading edge platforms. Financially, it’s hard for niche UK operators to attract the level of capital required to take on the Big 3. It is a noble aspiration to compete with them but I worry that that boat sailed before most people knew that public cloud was a thing.

The UK public sector accounts for roughly 40% of our GDP. Almost all of our public services are enabled by technology. We can’t afford to be in the slow lane, using suboptimal infrastructure and services because we are worried about the dominance of the companies that do this stuff really well. That doesn’t mean they should get things all their own way though.

This is Bigger Than Government
I speak to clients across Europe about their technology plans. Anecdotally, I would say that almost every reasonable size organisation in the world either has or is planning to move workloads to AWS, GCP or Azure. If they have operations in China, some are looking at Alibaba too. If data is the new oil, then most organisations, public and private, are handing over “control” of that oil to three US technology businesses. Conceptually, is that a good thing? No. Do you solve it by investing £5 million pounds in a UK competitor to those businesses? No. You solve it through regulation and compliance. You accept that your economy can’t function competitively without using these platforms, but that doesn’t mean they are allowed to operate at any cost and with impunity. You invest time, money and expertise in intelligent regulation, compliance and taxation. If the current regulators aren’t up to the job, a new one should be created. Long-term risk needs to be balanced with short- term needs.

In other words, even if the government tackled this issue by banning or restricting these companies from public sector technology contracts it would remain government’s problem as the rest of the UK economy will adopt them over the next 5 years.

They create opportunity for SMEs
The 3 cloud companies are a story of “Towers versus Town Squares”. The Towers represent top-down hierarchical business models. The Squares are a more open, flatter model of commerce where the cut to the middle person is more proportionate to the value they add than in the Tower arrangement. In our world of technology services to government and pre G-Cloud, the owners of the Towers sucked the value out of the actors that actually added value to government services and their users. On the rare occasion we worked with the original oligopoly companies this is what happened. They hoover up IP, shave margins and generally control everything that happens even when they have little expertise or knowledge on the matter at hand. This is not the same experience we have of working, in our case, with AWS. They invest millions in supporting their partners and many successful UK businesses are being created from providing value added services and products on top of their platform. These new businesses are increasingly exporting know-how, services and products overseas.

Take a non-cloud but related example. Amazon retail may have disrupted the British High Street and it is distressing to see people losing jobs. But our traditional UK retailers didn’t create channels to market for new entrants or innovative products. Many of the high street businesses that have gone under were “zombie businesses”, kept alive through financial modelling rather than through offering any genuine value or innovation to customers. Often sloppy, non user -focused and technologically illiterate, they added decreasing economic value. As for retail, so for technology. We can’t close our borders to the best scaled technology platforms that have ever been created. But we can demand that the providers of those platforms contribute, and we can punish them when they overstep the mark. The UK is a big enough market for them to worry about that.

But they are really, really smart. So UK government needs to be equally smart in how it works with them. That means what? Don’t deal in soundbites, headline-grabbing rules and poorly financed policy development, but invest proper money and brain power to create an environment where government bodies can use the genius of their platforms whilst being protected from the negative unintended consequences of their success.

I am not a cloud arriviste; I have seen the cloud platforms develop for good and bad over the last decade or so. They are what they are. I hope, as a nation, we can be more intelligent in how we use them in the next ten years than we have been in the last ten. By 2029, wouldn’t it be nice to be talking about the quality of social care received or the experience of a benefits applicant rather than whose servers it was delivered on?