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Cloud infrastructure service providers and their customers are restricted by unfair software licensing terms. To investigate the harm caused, CISPE commissioned renowned economist and expert on competition policy, Professor Jenny, to examine the prevalence and impact of these practices.  

 

Jenny’s research, downloadable here, highlights a broad range of anti-competitive practices confirming the importance of the Principles of Fair Software Licensing launched with Cigref in April 2021. It also suggests a vital role for the proposed Digital Markets Act in identifying certain software vendors as Gatekeepers and ensuing that these behaviours are well covered in its ex ante provisions.

 

It is clear to all of us that certain legacy software providers are seeking to limit choice in cloud infrastructure through these unfair license terms. Now is the time to act to protect the future growth, innovation and sustainability of European cloud services. 

​Alban Schmutz,
President of CISPE

 

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Cloud Infrastructure of Paramount Importance

"As the digitalisation of the economy increases [...] anti-competitive practices could sow the seeds of a future oligopoly, which would harm innovation and competition in this critical marketspace."


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Urgent Action Required

"Lock-in effects, high switching costs, barriers to entry, economies of scale and potential network effects in a fast-growing cloud services market make action particularly urgent."

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Strong Links between Software and Cloud Infrastructure

"Given the strong links between software and cloud infrastructures, anti-competitive practices by legacy software providers can distort competition in the cloud infrastructure services sector and hamper the future of the cloud."

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Distort Competition

Consolidate Power

"These practices could unfairly consolidate the power of a handful of firms vis-à-vis the whole economy and prevent the creation of the “European Cloud”

 

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“Over the course of several months I have spoken to business software users of all sizes and across sectors. Some users were fearful of possible reprisals if they spoke out against alleged unfair practices. Even some large users of cloud services recognised that they could not do without the core productivity suites that these software companies control.”

 

 Professor Frédéric Jenny

 

 

Cloud infrastructure services are a fundamental pillar of digital transformation for firms, institutions and citizens. More than simply another critical sector, cloud infrastructure underpins growth, development innovation and wealth creation across all sectors.

With the recent pandemic further propelling the transition from on- premise services to cloud services, anti-competitive practices in software licensing could sow the seeds of a future oligopoly, which would harm innovation and competition in this critical marketspace.

 

These unfair practices are detrimental to cloud services’ users, who will face reduced choice and less flexibility in their cloud activities. This report provides informative research relevant to current debate around the scope of the Digital Markets Act (DMA) and for competition authorities to further investigate those practices by certain software providers and assess the existence of exclusionary strategies and anti-competitive effects in the cloud infrastructure services market segment.

Background

About the study

Professor Frédéric Jenny, Chairman of the OECD Competition Committee and Professor at ESSEC Paris Business School provides a number of insights in this study and identifies the established players deploying unfair licensing practices to limit choice and harm competition.

 

Unfair software licences are damaging cloud competition

 

Businesses face inflated costs, unfair lock-in and forced restriction of choice as they look to move to cloud infrastructure. Certain software vendors are seeking to limit options and direct customers to their own cloud infrastructure by enforcing unfair software licence terms. Through increased costs, they not only force out competing players but drive-up prices for consumers.

These actions threaten significant harm to innovation, growth and vibrancy of many European cloud service providers and the wider digital economy they support.

Dominant legacy software firms can be gatekeepers

 

The study provides insights into how the cloud market structure has changed over the last few years and highlights the powerful connection between dominant suppliers of legacy software and emerging market power in cloud infrastructure services markets. A handful of software companies, which dominate existing ‘on-prem’ productivity, enterprise and database software markets, are in a position to capture the emerging market for cloud infrastructure services in Europe. They are gatekeepers. Without intervention the risk is that the nascent value of cloud infrastructure services will be siphoned off to just a few dominant software goliaths.

 

New Market, Same Old Anti-Competitive Practices

 

Wrapped up in the dense legal language of software license agreements, over which most have no opportunity to negotiate, are typical anti-competitive practices seen many times before. They include:

  De facto higher price for productivity software purchased for use on third-party clouds.

▶  Disappearance of Bring Your Own License deals.

  Billing for potential usage rather than actual

  Opaque and ‘after the fact’ changes to licence terms

  Bundling and tying of products to raise costs for competitors