Microsoft's "power" may cause "harm" to cloud market competition, watchdog warns

The UK’s Competition and Markets Authority (CMA) has warned that Microsoft has “significant power” in the cloud market compared to other providers and is investigating whether its domination harms competition.

Last October, the CMA began a probe into Redmond’s public cloud services after Ofcom (Britain’s communications regulator) received complaints about the software licensing practices of some cloud providers - including Microsoft.

The CMA has now released a working paper containing an initial analysis and summary of its views so far, focusing on Microsoft. It also considered complaints about Oracle, but will not investigate further because its "share of cloud is relatively small".

CMA investigators will continue to search for evidence of an adverse impact on competition before setting out remedies to mitigate any "detrimental effect on consumers" if required.

“Evidence from customers we spoke to who use Microsoft software products suggests that the licensing of those products can be a consideration in their choice of cloud provider, although other factors also play a role,” the CMA wrote. “As a result, Microsoft’s licensing practices may affect customers’ choice of cloud provider, at least for running Microsoft workloads, and possibly more widely."

The CMA reported that Microsoft's power hinges on the ubiquity of products such as Windows Server, Windows 10/11, SQL Server, Visual Studio and its productivity suites.

Providers and customers raised concerns that Microsoft “had made it so that their software was more expensive, had fewer features and/or worked less effectively when run on a rival’s cloud infrastructure, and this had disadvantaged rival cloud providers”.

The CMA received submissions about “price factors,” such as the difference in cost between Azure and rival cloud services due to bring-your-own-license (BYOL) restrictions.

Other alleged issues include the prices charged to other cloud providers under the Services Provider Licensing Agreement (SPLA) for licensing Microsoft software, as well as claims that Microsoft “refuses to supply certain of its products via the SPLA to other cloud providers” and “limits security updates.”

One unnamed firm claimed that Microsoft’s practices “harm customers that are left with no economically reasonable alternative but to choose Azure, even if they prefer the prices, quality, security, innovations and features of rivals”.

“This provider also submitted that traditional enterprise customers, ie those with existing on-premises footprints, and in particular those with existing on-premises Microsoft software licences, are commercially disincentivised from choosing non-Azure cloud infrastructure when migrating to the cloud or considering switching,” the CMA added.

Another cloud company alleged that it has lost an undisclosed sum because customers had abandoned or chose not to buy its Virtual Desktop Infrastructure (VDI) solutions due to licence restrictions in 2022 and part of 2023.

In the report, Microsoft defends itself by insisting that restrictions on BYOL ensure it is "compensated fairly" for its intellectual property.

Microsoft insisted that AWS and Google “have not had difficulty attracting customers who use Microsoft products”. It expressed concern that enabling customers to transfer previously purchased Microsoft software products to rivals such as AWS and Google’s cloud infrastructure may "significantly increase end customers’ unlicensed use of Microsoft software products - which is difficult to address on a small scale".

In a statement, a Microsoft spokesperson said: “Our licensing terms enable our customers and other cloud providers to run and offer Microsoft software on every cloud. While the licensing terms for hyperscaler providers Amazon Web Services and Google Cloud are different, Microsoft’s software is available in their clouds as well, and as recent earnings reports demonstrate, both continue to compete effectively and grow cloud revenue rapidly.”

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