Australian competition watchdog warns partners could face cloud, AI competition squeeze

Digital competition in the spotlight as partners navigate a market increasingly shaped by a handful of cloud and AI providers.

Australian partners face competition challenges due to the dominance of tech giants in the cloud and generative AI markets, according to the Australian Competition and Consumer Commission (ACCC).

Large, vertically-integrated cloud providers risk anti-competitive bundling, self-preferencing and technical lock-in that could hamper innovation, leading to lower quality products and services and higher prices, the ACCC said in the final report of its five-year Digital Platform Services Inquiry.

The incumbent digital platforms — Amazon, Microsoft and Google — dominate the market in Australia and shape the competitive landscape for partners and resellers.

Rob Dawson, head of business development at Myrtec said, “Many businesses we work with [are] already moving towards rationalised cloud infrastructure supplied by a limited number of manufacturers.”

With the dominance of large players, partners risk becoming locked into one ecosystem, with limited alternatives, which can lead to prices increases, compatibility constraints and vendor lock-in, Dawson noted.

“This is something we are already seeing. It will also hamper innovation by locking out more agile players at the smaller end of the market,” he said.

While vendor alignment can streamline delivery, it can also force partners to absorb the costs of managing the complexity of a more flexible setup that traverses’ platforms, according to Chris Hurn, general manager of Envisage Technology.

“It also narrows your addressable market and exposes you to pricing and margin risks if the provider leverages customer lock-in or changes their partner incentives,” Hurn told CRN Australia.

There’s also uncertainty around generative AI pricing models, noted Hurn. The typical pricing model is per user, which enables fixed costs to clients, but providers such as OpenAI are committing to restructure around a for-profit model.

“With AI, we can’t simplify costs for our clients with the high risk of the AI vendors switching from a focus on gaining market share to seeking profit,” he said.

“The consequence of this is we, as the partner, must explain complex cost structures to clients as well as manage their expectations about how that may change in the future,” he added.

Despite these challenges, there are significant business benefits of vertical integration of cloud products through simplicity, efficiency, security and ease of management, Dawson told CRN Australia.

“For generative AI specifically, it gives access to data to provide context, all while maintaining data governance requirements,” Dawson said.

As the market matures and converges on future parity there’s likely to be additional benefits to an integrated platform, according Hurn.

“This includes simplifying the management of security, narrowing the range of tools you have to maintain capability in, and consolidating spend to access improved partner benefits from the vendor,” he said.

How partners can balance benefits of digital dominance

Dawson said that partners need to understand the risk to clients of being fully signed up with large digital players and look for alternatives to minimise the potential lack of competition.

“Remember, we‘re at risk of being excluded from the supply chain as this takes place too,” he said.

Digital competition isn’t just important, it’s a crucial foundational for a fair and innovative market.

“Without it, we risk building an AI future that’s efficient but not equitable,” Dawson said.

The competition watchdog is calling for a digital competition regime to monitor services, including new digital technologies such as generative AI as they emerge over time.

“Strong competition ensures that pricing remains fair, the ability to migrate between platforms is maintained, and there is scope for new entrants to bring new innovations to market,” Hurn ended.