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20 Nov 2023

FTC extends cloud competition scrutiny to generative AI

FTC extends cloud competition scrutiny to generative AI
Federal Trade Commission Chair Lina Khan speaks during a discussion on antitrust reforms at the Brookings Institution October 4, 2023 in Washington, DC. Drew Angerer / Staff via Getty Images

The Federal Trade Commission sharpened its scrutiny of cloud providers Thursday.

FTC Chair Lina Khan pointed to software licensing practices, egress fees and minimum-spend contracts as potential threats. She spoke during an open meeting the agency held to announce a challenge to explore the harms of AI voice cloning and hear public comment on cloud competition.

“Companies across the economy rely on cloud providers to power their services, as does the U.S. government,” Khan said. “Today, it’s primarily three cloud providers that are capturing a majority of the market because cloud computing increasingly serves as key infrastructure.”

The FTC launched an inquiry into cloud competition in March, when it issued a request for information on hyperscaler business practices. The emergence of generative AI tools has intensified the agency’s concerns.

“Cloud computing is a key input for artificial intelligence technologies,” Khan said. “Fully understanding the dynamics in this layer is only more important and relevant today than it was even earlier this year.”

Infrastructure-hungry large language models consume vast quantities of compute and organizations have turned to cloud-based marketplaces to access generative AI tools. Now, the technologies are closely tied to one another.

“AI firms are often heavily reliant on cloud providers to deploy their AI products or technologies,” Nick Jones, senior technology advisor in the FTC’s Office of Technology, said during the meeting.

Cloud tensions flare

The inquiry inflamed tensions among the three-largest cloud providers over the summer.

Google chided Microsoft for restrictions, prohibitions and surcharges levied on customers attempting to migrate workloads to Azure competitors in a July response to the FTC’s call for public comment.

AWS and Microsoft responded, too, painting a rosier picture of cloud market competition in separate submissions. 

However, Cloud Infrastructure Service Providers in Europe, an industry consortium that includes AWS, named Microsoft in a complaint filed with the European Commission’s Directorate-General for Competition a year ago.

Currently, the three tech giants control two-thirds of the public cloud market, Synergy Research Group found. AWS remains the dominant force, capturing roughly one-third cloud spending, with Microsoft and Google at 23% and 11%, respectively.

Cloud risk rises

As enterprise appetite for cloud grows and organizations migrate more workloads, dependence on the technology is spreading economywide. Risk managers are taking notice.

Cloud concentration was a top-five emerging business risk for the second-consecutive quarter, Gartner reported last month. Vendor lock-in, potential regulatory compliance issues and the growing “blast radius” of a major breach or outage are driving heightened concern, the analyst firm said.

“The risk associated with cloud concentration is fast losing its ‘emerging’ status as it is becoming a widely recognized risk for most enterprises,” Ran Xu, director, research in Gartner’s Legal Risk and Compliance Practice said in the report.

“Many organizations are now in a position where they would face severe disruption in the event of the failure of a single provider,” Xu said.

Consolidation raises “a whole set of competition and consumer protection questions,” Khan said, “including whether firms may be using their dominance in ways that undermine fair competition and whether dominance in this market may heighten fragility, creating a single point of failure or risk to data security.”

The FTC ramped up its scrutiny of Big Tech under Khan’s leadership. The agency launched an investigation into OpenAI, the Microsoft-funded AI startup that builds ChatGPT, and its data security practices in July.

“Scrutinizing cloud computing is not new for our agency. Our staff has been bringing a whole set of enforcement actions relating to lax data security practices in the cloud,” Khan said, pointing to actions against Uber subsidiary Drizly, education technology provider Chegg and prison communications provider Global Tel*Link Corp.


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