An IT failure that caused millions of Microsoft Windows devices to crash, upending business across the globe, adds to the scrutiny that cloud providers are under as regulators start to more sharply examine consolidation in the industry.
The Federal Trade Commission is in the beginning stages of an inquiry of major cloud computing companies, including looking at their investments in the burgeoning artificial intelligence field. Authorities in Europe and South Africa are also looking into cloud services and the dominance of such companies as
“A high-profile event, like a shutdown of a major cloud provider, could be used as further ammunition” for targeting that space, said Bradley Weber, co-chair of Locke Lord’s antitrust practice.
Microsoft said a faulty software update on July 19 from the security vendor CrowdStrike disabled roughly 8.5 million computers, paralyzing operations for airlines, banks and other businesses and governments.
The incident shows how concentration in an industry can “make it so a single disruption can have cascading effects and really lead to all sorts of breakdowns,” FTC chair Lina Khan said Thursday on Bloomberg TV.
“The impact here was significant and is really underscoring the importance of having resilient markets and resilient systems so a single crash doesn’t lead to outsized disruption,” said Khan, whose agency was among those affected by the outage.
Lawmakers such as Rep. Mark Green (R-Tenn.), the chairman of the House Homeland Security Committee, have also called for hearings to address the outage and chokepoints in the IT infrastructure.
Green, whose committee in June questioned Microsoft President Brad Smith on its cybersecurity policies, is seeking testimony from leaders at CrowdStrike.
Microsoft declined to comment.
Cloud Failures Risk
Cloud computing has emerged as big business for Microsoft and
Companies, in turn, are increasingly dependent on a cloud provider for critical software and data storage, meaning “the risk of cloud failures exponentially grows,” said Sid Nag, a technology analyst at Gartner.
That issue became “magnified” not only because of the July 19 outage, but also the recent efforts of some tech giants to “tie AI models to particular clouds,” said Steven Weber, a University of California, Berkeley professor emeritus who has advised the FTC on cloud computing.
Microsoft’s Azure platform is the exclusive cloud provider for OpenAI, the generative AI startup behind ChatGPT.
The FTC, alongside other international regulators, started asking for information last year on the business practices of cloud providers. The agency received more than 100 public comments, which it said laid bare concerns over competition and the risks of widespread reliance on a small number of cloud providers.
Commenters raised issues such as strict software licensing practices and fees that companies require for transferring data to another provider, according to the commission.
The FTC didn’t respond to a question about the status of the inquiry. But it said in a November 2023 statement that it’s interested in whether cloud providers are sufficiently incentivized to create secure systems.
Such inquiries typically lead to public reports, and they can sometimes give rise to more targeted investigations, said Alicia Batts, a former FTC attorney-adviser.
“When you do a study, you look at an industry objectively,” she said. The FTC will act “to the extent they find anti-competitive conduct.”
The commission is also targeting Microsoft’s partnership with OpenAI in a separate investigation, Bloomberg News reported in June, highlighting its interest in the development of the cloud and AI fields.
“In Lina Khan’s philosophy, there’s an argument for doing things in advance of the harm to the consumer that enhance the long-term horizon for innovation,” Weber said, noting that philosophy is a sharp break from previous leadership.
‘No Easy Answer’
The Microsoft outage demonstrated the reach of a single IT failure, but there’s “no easy answer” to such a problem, Nag said.
“It could be these banks and airlines have an alternative cloud, but the price of doing that is very high,” Nag said. And “reducing concentration could introduce other risks,” such as connectivity issues with various clouds a company may use.
Even so, advocates argue the consolidation in the space is creating risks. Max von Thun of the anti-monopoly group Open Markets Institute in a statement called for “redirecting public procurement budgets towards competitors, and investing in secure public cloud infrastructure.”
Pressure from regulators across the globe has also coincided with changes to certain business practices. Amazon and Google within months of each other canceled the fees they once charged customers to switch to rival providers.
Microsoft on July 10 struck a deal with an Amazon-backed trade association in Europe that allows its members to offer Microsoft applications on their local cloud infrastructure, in a move that helped it head off a complaint in the EU.
The Microsoft IT outage that came a week later is not an antitrust issue, however, such events can create political capital for investigators, lawyers said. Scrutiny on Live Nation Entertainment Inc. and Ticketmaster ramped up after Ticketmaster’s site crashed in 2022 amid high demand for Taylor Swift concert tickets.
The Department of Justice ultimately sued Live Nation Entertainment Inc. in May seeking to break up its merger with Ticketmaster, alleging an unlawful monopoly.
To contact the reporter on this story:
To contact the editors responsible for this story:
Learn more about Bloomberg Law or Log In to keep reading:
See Breaking News in Context
Bloomberg Law provides trusted coverage of current events enhanced with legal analysis.
Already a subscriber?
Log in to keep reading or access research tools and resources.