On 29 June 2023, the French Competition Authority issued its opinion on the competitive operation of the cloud sector. Three key concepts - cloud credits, egress fees and vendor lock-in - were highlighted for their potential anti-competitive effects, but also for their impact on the technological and financial strategies of companies using cloud services. A useful opinion that has been followed up, since the SREN law aimed at securing and regulating the digital space, promulgated on 21 May 2024, devotes particular attention to these 3 practices in its Title III dedicated to the regulation of the cloud sector. Why should businesses pay particular attention to this?
What are cloud credits?
Cloud credits or 'assets' are financial allocations granted by cloud service providers to promote and facilitate the use of their solutions. These credits allow businesses to access a range of cloud services at no upfront cost or at reduced cost to test and integrate these services into their operations before committing to long-term contracts.
Cloud credits: a poisoned chalice?
Although they are often seen as a real boon by start-ups and small businesses, cloud credits present a potentially problematic aspect: the risk of vendor lock-in. These loans sometimes offer valuable initial financial support, enabling companies to explore and take advantage of the scalability and flexibility of cloud infrastructures. However, once the solutions have been developed and integrated on a specific platform thanks to these credits, companies can find themselves dependent on this particular supplier.
Changing supplier can then become a complex and costly task, if it involves high data transfer costs - the famous egress fees - and major investment in adapting to new infrastructures in vendor lock-in situations.
What are egress fees?
Egress fees are costs imposed by some cloud service providers for transferring data off their platforms. In other words, every time a company or organisation wants to migrate its data to another provider or locally, it can incur significant costs.
Impact of data transfer or output costs
- A holding back digital transformation For some companies, the mere prospect of high or difficult-to-predict costs on data output can be a barrier to the adoption or expansion of their cloud services.
- The financial cost For organisations handling large amounts of data, these charges can represent a substantial cost, making data migration expensive and complicated.
- The barriers to migration egress fees increase the barriers to exit and can dissuade companies from changing supplier... a real brake on innovation and competitiveness!
- La limiting multi-cloud approaches egress fees can make the adoption of a multi-cloud strategy costly or limit the combination of services from different suppliers.
Often difficult to anticipate, the costs of egress fees can contribute directly to the creation of a vendor lock-in situation.
What is a vendor lock-in?
Vendor lock-in refers to a customer's dependence on a single supplier, which often makes it difficult and costly to change providers. This situation can arise from the use of proprietary formats, exclusive services or non-standardised technologies. By creating conditions of supplier dependency, vendor lock-in restricts the interoperability and portability of services, i.e. the digital mobility of organisations.
The consequences of a lockout
- La technological dependence Vendor lock-in: companies can find themselves trapped by vendor-specific technologies, making their infrastructure difficult to transfer. For example, vendor-specific databases or APIs may require significant modifications to work with another provider.
- La loss of flexibility Vendor lock-in limits a company's ability to adapt its infrastructure and services rapidly to changing needs and market opportunities. Another consequence is often the loss of the ability to negotiate solutions that are better adapted to the company's needs or more economical.
- L'increase in costs Migration: migrating from one cloud provider to another can involve significant costs, particularly in terms of time, human resources and systems re-engineering. Once a company is locked into a supplier, the latter can also increase the price of services, knowing that the customer will have few options for changing supplier...
- The security and compliance risks Data migration: dependence on a single supplier can expose the company to risks if the supplier encounters security problems or service interruptions. Migration of data and applications may also require adjustments to ensure compliance with local or international regulations.
Insights from the French Competition Authority
In its opinion, the French Competition Authority issued a number of recommendations and warnings concerning these three practices.
Position on cloud credits
The Authority notes that the support offers proposed in the form of cloud credits, often offered by hyperscalers with amounts of up to several hundred thousand euros, differ from the traditional "free trials" offered in other sectors. Because these offers are aimed at a wide range of businesses, they also raise questions about the potential profitability for all cloud service providers.
Position on egress fees
The Autorité considers that transfer fees may have anti-competitive effects by increasing migration costs or the difficulty of using several cloud providers, thereby creating a customer lock-in. The Authority also points out that it is difficult for business customers to anticipate their future needs in terms of data traffic and bandwidth usage when the price structure of egrees fees is proportional to the volume of data transferred. The Authority also notes that many players complain that these fees are disconnected from the actual costs incurred by cloud providers in transferring data.
Position on vendor lock-in
Vendor lock-in is seen as a serious risk affecting competition in the cloud sector. The Authority is encouraging measures to reduce these risks, in particular by promoting interoperability and facilitating data portability. Focus on 2 concrete scenarios considered by the Authority, in which organisations may find themselves:
- The migration of on-premise information systems to the cloud: Often complex and costly, it could, according to the Autorité, encourage companies to stay with their incumbent IT service providers who also offer cloud services. Among the obstacles identified are restrictive contractual clauses, tied sales, preferential pricing advantages and technical restrictions.
- Migrating from one cloud service provider to another Technological barriers, such as the specific architecture and solutions used, can lead to high migration costs and limit the portability of data and applications. In addition, some suppliers may impose additional technical and commercial barriers, such as the use of specific data formats, with the knock-on effect of increasing migration costs and strengthening the supplier's dominant position.
- Cloud credits must be limited in timeThey may not be conditional on the beneficiary company having exclusive rights over the supplier. In the event of non-compliance, the law provides for an administrative fine of up to €1 million for a legal entity and €2 million in the event of a repeat offence within less than two years.
- Certain commercial practices are prohibited. This is the case for tied selling when it is likely to constitute an anti-competitive practice. Similarly, the Autorité de la concurrence is designated to deal with self-preference practices.
- Data transfer fees charged in the event of a change of supplier or for the simultaneous use of several suppliers (multicloud approach) must not exceed the amount of the invoice. not exceed the costs actually incurred by the supplierand directly linked to these actions.
- Similarly, the costs of changing supplier, other than those relating to the transfer of data, must not be refunded. not exceed the costs actually incurred by the supplier and directly linked to these actions.
- Thesuppliers will have to guarantee the interoperability and portability of dataof their customers securely, and provide the APIs needed for digital mobility free of charge.
The opinions and recommendations of the French Competition Authority (Autorité de la concurrence) and the SREN Act aim to mitigate the risks of these 3 practices for enterprise cloud customers, while promoting a fairer and more dynamic market. Taking these three concepts into account is essential for businesses wishing to optimise their use of the cloud while ensuring their long-term flexibility and competitiveness. For Cloud Temple and many other European suppliers, we need to give users back control over their use of the cloud and protect our businesses from unfair competition.