European cloud computing companies have raised the alarm over what they say is a “critical loophole” in the EU’s flagship plan to tackle anti-competitive behaviors by gatekeeping digital giants.
In an open letter sent to competition commissioner and EVP Margrethe Vestager this week, 41 European cloud enterprises called for an urgent clarification to be made to the draft Digital Markets Act (DMA) to ensure that productivity and enterprise software are brought clearly in scope.
The signatories to the letter range in size from startups to larger enterprises. Companies that have signed include Aruba, elogic, Leaseweb and netalia.
“We are facing an urgent situation. Monopoly software providers are once again using their dominant position to lock in customers, forcing them to use the cloud infrastructure they provide. This abuse of software licences means that other, smaller cloud infrastructure providers cannot compete. That includes innovative European cloud companies which are being shut out of their own market,” they write.
“Today it is essential that the DMA includes clear remedies to stop the unfair practices by software gatekeepers. Minor clarifications are all that is needed to close this critical loophole.”
The Commission unveiled its DMA proposal to apply ex ante rules to so-called digital “gatekeepers” — aka, large, intermediating platforms with significant market power — back in December 2020, saying the legislation would put specific, listed behavioural obligations on major platforms to supplement traditional (ex post) competition enforcement by proactively prohibiting abusive behaviors such as self preferencing or anti-interoperability.
The EU’s executive said the DMA would ensure fairness in the marketplace by creating a regime of proactive antitrust intervention against tech giant market power.
However, the Commission’s approach — of a prescriptive list of “dos and dont’s”, attached to some named examples (e.g. operating systems, browsers or voice assistants) — could risk creating coverage blindspots, i.e. if the list of behaviors or examples are not comprehensive enough to capture and keep up with problematic gatekeepers.
A lack of specificity could also be exploited by deep-pocketed tech giants to file legal challenges in a bid to evade or delay ex ante obligations.
That said, vis-à-vis enterprise software licensing, it’s worth noting the DMA does list “cloud computing services” as potentially falling in scope, as a “core platform service”, i.e. provided the company in question has been designated as a gatekeeper.
Nonetheless, the European cloud companies penning the letter to the Commission are worried that the language and examples are not explicit enough to ensure legal clarity for their sector, according to local member organization CISPE — aka Cloud Infrastructure Services Providers in Europe — which is another of the signatories.
A spokesman for CISPE told TechCrunch its members and the other signatories want the DMA tightened up to put it beyond doubt that the ex ante rules clearly apply to enterprise gatekeepers, such as those selling productivity, ERP or database services.
Some such legacy enterprise software giants do already stand formally accused of using unfair tactics to squeeze the market. (See, for example, the Nextcloud complaint against Microsoft.)
The letter flags a study CISPE commissioned into cloud infrastructure and software licensing, conducted by professor Frédéric Jenny, which highlighted a number of potentially anti-competitive behaviors — such as lock-ins, inflated costs and frequent audits, and billing for potential rather than actual use — suggesting such unfair tactics are being used by legacy providers to squeeze out smaller cloud service players.
CISPE also noted that while European cloud infrastructure services have been growing their revenue in recent years their market share has dropped — from 27% in 2017 down to <16% in 2021.
In one of the conclusions to his study, Jenny also writes that the DMA should “guarantee” that abusive practices by the “very large incumbent software providers” are stopped:
The presence of 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, as it will be difficult for other cloud services providers to compete on the merits and for the innovation in this sector to continue to grow for the benefits of the cloud users. Customers of cloud infrastructures services should be guaranteed to rely on the Digital Markets Act to stop abusive practices of the very large incumbent software providers.
The DMA has already had a first pass through the European Parliament last year, when MEPs agreed their negotiating position.
At that point a number of amendments, which CISPE said had been aimed at closing potential loopholes around enterprise and productivity software giants, did not manage to gain support.
The EU’s co-legislative process has now moved to trilogue negotiations between the parliament, Council and the Commission — so CISPE said its hope is that there is still an opportunity for the legislation to be tweaked to put it beyond doubt that the bloc’s incoming ex ante regime will apply to gatekeeping enterprise software giants.
The big three companies in this space that are likely to fall under the regime are Microsoft, Oracle and SAP.
While Microsoft and Oracle are U.S. companies, ERP giant SAP hails from Germany — which may be one reason for EU lawmakers to be reluctant to more explicitly target the sector in the choice of examples written into the DMA.
The Commission was contacted for its response to the cloud companies’ open letter but it declined to comment.
This report was updated with a correction: We originally stated that CISPE member, OVHCloud, signed the letter — however the company is not a signatory
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