Microsoft’s tactics to win the battle in the cloud spark new antitrust investigation

Microsoft has escaped recent backlash against the power and wealth of America’s largest tech companies.

Despite a market cap that has risen to more than $2 trillion due to its dominance of various parts of the enterprise software market, it has avoided a repeat of the complaints that made it the most prominent target of antitrust actions in the US and Europe in the end. the 90’s.

That is, until now.

Changes to some of the company’s core terms have sparked growing unrest among some of its largest customers and complaints from rival cloud companies. One of the results was a broad, but still informal, antitrust assessment in Brussels.

According to its critics, Microsoft has used anti-competitive tactics to lure customers into its Azure cloud computing service and away from rivals, most notably Amazon Web Services, which dominate the cloud market. By using Windows and Office to fuel Azure’s growth, critics argue it’s repeating the kind of illegal “tying” that has been central to the latest round of regulatory action against the company.

Microsoft overtakes Amazon in cloud services market;  share of worldwide turnover* (%)

Microsoft said it was not “closing off” the market by blocking rivals from using its software in their clouds, and that it had the freedom to offer more favorable terms to its software customers if they also used the Azure service.

Brad Smith, the company’s president, admitted, however, that Microsoft was partially guilty, without pointing out details⁠—a stark contrast to the company’s aggressive stance when it faced competition complaints more than two decades ago.

“While not all of these claims are valid, some are, and we will definitely be making changes to address them soon,” Smith said in a statement. Microsoft, he added, was “committed to listening to our customers and meeting the needs of European cloud providers”.

The allegations of tough business tactics follow a period when Microsoft became known for its conciliatory stance after the latest round of antitrust battles in Washington and Brussels.

A major Microsoft customer, who declined to be named, said Microsoft’s stricter terms had hit the use of a version of Office running on Amazon’s cloud, affecting tens of thousands of its employees. The result would be “millions of dollars” a year in additional licensing costs, although Microsoft delayed the onset of the higher costs after the customer complained. “Microsoft really isn’t looking out for the best interests of their customers,” said this person.

There are signs of a regulatory response. In an informal questionnaire sent to rivals last month and seen by the Financial Times, the EU asked about the terms and conditions under which they could use Microsoft’s software, and whether it disadvantaged them.

At the heart of the controversy is a change to Microsoft’s license terms in October 2019. The change impacted how the company charges for products like Office when they run in Amazon Web Services, Google, and Alibaba’s data centers. —so so-called “hyperscale” cloud services that compete with Microsoft’s Azure.

Microsoft's Azure website on a mobile phone
Microsoft’s Azure website on a mobile phone © Piotr Swat/Alamy

Customers had to pay an additional license fee, even if they had already paid Microsoft to run the software in their own data center under an existing arrangement. Microsoft’s own cloud service, Azure, was on the list of hyperscale groups hit by the increased costs, although customers received a special discount that offset much of the increase.

“You can still run all of these products in someone else’s cloud, but you have to be willing to pay a premium for it,” said Wes Miller, former business leader and now analyst at Directions on Microsoft, which advises Microsoft customers.

One of the affected services was AWS’s Workspaces, a service launched in 2014 that made it possible to give employees a “virtual desktop”, an experience that looked like a Windows PC but was actually powered by software that runs in Amazon’s cloud. Microsoft only launched a similar service shortly before imposing the sweeping license increases, making it more attractive for customers to choose Azure.

Microsoft said that competing productivity applications like Google’s offered an alternative, making separate parts of Office⁠—such as the Excel spreadsheet program⁠—available to customers who wanted to pay for only part of the software.

Charging higher prices for using its software in rival clouds is just one way Microsoft has tried to drive more customers to its own cloud platform, critics say. Changed license terms and the end of technical support for certain services put additional pressure on customers to move to Azure, they said.

Another tactic that has come under fire — and one that is also under review by the EU — is to bundle or package a number of services into a single product, even if many customers only need one element.

For example, the highest level of security is only available to customers of the Windows 365 software package if they pay for a premium version known as E5. According to Directions on Microsoft, this is another “bundle” for which they have to buy many other features as well.

Some allegations reflect Microsoft’s latest round of antitrust battles. They include a complaint that the company made it difficult for users of the latest version of Windows to use a browser other than Microsoft’s — a tactic the company was also accused of destroying browser pioneer Netscape in the 1990s. In response to the latest mishap, Microsoft made it easier for users to change the default browser in Windows two weeks ago.

Most Microsoft customers have a three- or five-year contract, known as Enterprise Agreements, which means that many have yet to undergo a license renewal since the 2019 changes. Microsoft has also made one-time concessions in license negotiations with some customers to delay the impact of the new pricing formula.

Even if Microsoft’s tactics aren’t illegal under current law, they could violate new laws designed to prevent powerful tech companies from favoring their own services, said Frédéric Jenny, a French antitrust expert commissioned by a group. cloud companies in Europe last year to report on potentially anticompetitive behavior of major software companies such as Microsoft

The European Digital Markets Act, passed last month, aims to impose new restrictions on companies that are considered digital “gatekeepers”. Many details of the law have yet to be ironed out and initially targeted consumer internet platforms, not business software companies like Microsoft.

However, the focus is increasingly on the company. Customers are “very frustrated with what they see as Microsoft not being allowed to use the cloud of their choice,” said Michael Silver, an analyst at Gartner, who has advised the software company’s customers for more than 25 years. He added that for many, the licensing frenzy “looks like a return to the old Microsoft.”


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