Cloud computing market concentration is something Ofcom says it will study. The obvious issue is market power. In the U.S., U.K., Europe markets, for example, a few hyperscale cloud services providers dominate. Just three firms generate about 81 percent of cloud computing “as a service” revenues in the United Kingdom, for example.
Beyond that, Ofcom also will examine other digital markets, including online personal communication apps and devices for accessing audiovisual content. Among the issues Ofcom says it will explore are the ways services such as WhatsApp, FaceTime and Zoom are affecting the role of traditional calling and messaging, and how competition and innovation in these markets may evolve over the coming years.
Beyond the obvious fact that communications and computing are scale-dependent businesses, there also are industrial policy considerations. Many in Europe are worried that the continent has “fallen behind” the United States and China in global innovation related to applications and computing.
So efforts to address market competition will tend to take measures that increase the likelihood that local suppliers can win market share. The long-term outcomes are anything but assured.
Winners in scale businesses, by definition, have scale. In the case of the cloud computing business, that advantage tends to be global in nature. Government policy aimed at restricting the growth of market leaders can provide some breathing room for local competitors.
Still, in the end, if global scale really does matter, it will always be hard for local contestants to create such global scale. It is not impossible; merely hard.
And to a greater extent than competition authorities might like to acknowledge, eventual emergence of scale competitors often requires other scale competitors to enter a market.
Pro-competition policies designed to support new entrants can stimulate market entry, up to a point. Long term significant market share gains often happen only when local firms partner with, or are acquired by, other firms with existing scale.
Fostering competition often is a compelling policy goal. But it is frighteningly difficult to achieve, in terms of market share outcomes. On the other hand, such policies almost always allow smaller firms to gain scale that such firms ultimately monetize by exiting the market, as part of a sale to other larger contestants.
So even when policies to promote competition essentially fail at disrupting market structure, such policies often provide many opportunities for new entrants and smaller firms to monetize those opportunities.
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