FTC Starts to Look at Cloud Computing Business Practices

The Federal Trade Commission released a notice on March 22 that it was seeking comments on cloud computing business practices.

This is the type of first warning that an agency is at least investigating practices that come under its purview and that formal rule making eventually may be on the way.

“In a Request for Information, FTC staff are seeking information about the competitive dynamics of cloud computing, the extent to which certain segments of the economy are reliant on cloud service providers, and the security risks associated with the industry’s business practices,” the agency wrote. “In addition to the potential impact on competition and data security, FTC staff are also interested in the impact of cloud computing on specific industries including healthcare, finance, transportation, e-commerce, and defense.”

Given the current state of software development and delivery, you could likely expand the list to any industry, including commercial real estate. If you use commercial software to run your business, chances are good that it’s hosted on a vendor’s cloud, or maybe even a cloud service that vendor gets from a much bigger one, like Amazon, Google, or Microsoft.

The technology has largely superseded the older practice of installing vendor software on a client company’s in-house servers. There were some significant limitations of that practice. Businesses could fall behind on installing new versions, making technical support if needed more difficult. There were also issues in which the specific configuration of a company’s infrastructure might create problems that were difficult for the software vendor to identify and correct.

There was also the income equation. Early in the 2000s, software companies started to develop approaches to get users to essentially rent software rather than buying a license to a package and then using it for years. The shift meant larger and more predictable annual revenues. Cloud computing was made for such an approach.

However, the more recent development has put users into difficult positions. They must constantly pay for use of applications and their data typically sits on someone else’s machines. Getting access to that information and using it elsewhere can be complicated and expensive. Businesses must implicitly trust that cloud operators have adequate safeguards if the vendors don’t have third-party certifications that involve thorough audits.

The FTC is concerned about a number of factors, including the reliance of economic sectors on “a small handful of cloud service providers,” how cloud business practices might increase dependence on one vendor and reduce competition, and whether AI products or services are proprietary and lock users in even more.

These are early stages, but will bear watching, especially given the animus much of the political world has towards big tech at the moment.