EU Monopoly Regulators Looking Closely at Microsoft Azure Complaints

Microsoft’s cloud service business, Azure is facing numerous complaints from rivals who accuse the Redmond-based company of leveraging its power in the market to push out competitors.

The European Union’s antitrust arm is now looking into the claims using targeted questions to competitors on how Microsoft is tapping sensitive data belonging to cloud companies it deals with at a commercial level, as reported by Bloomberg which cited documents they had seen.

Another probe into Microsoft Azure cloud business is ongoing under the Federal Trade Commission, reported by The Register.

Microsoft Facing Complaints On Multiple Fronts

As the cloud computing industry continues to grow, criticism has arisen over the restrictive licensing practices of software vendors. These practices have come under fire in the United States for being overly aggressive and limiting the flexibility that customers require.

Several business organizations have filed formal complaints on various aspects of Redmond’s cloud business, including Slack which singled out Office 365 released with services like Teams.

Nextcloud in a formal complaint accused Microsoft of bundling OneDrive with Windows while OVHcloud, DCC, and Aruba S.p.a in a joint complaint filed with the EU regulator expressed concerns about the multinational’s restrictive software licensing in the cloud.

Two people whose identity has been hidden said that the EU monopoly watchdog wants to know if Microsoft is abusing its position in the market as a major cloud service provider to stay ahead of the competition.

As such the EU antitrust arm is reaching out to other cloud service providers and customers to ascertain whether Redmond is stumping out other players. Such a probe would show if the company is abusing business-sensitive information and could lead to penalties.

The investigation into Microsoft’s dealings with its Azure cloud customers is closely related to a probe into Amazon, which allows third-party businesses to list and sell products on its global marketplace.

Like Amazon, Microsoft has access to confidential information, which if tapped illegally can boost its services against its rivals in the market.

Redmond increased its budget allocation to Microsoft Azure in the first quarter of 2023 by 26% of the total customer spending in a bid to improve infrastructure cloud computing services in the European region, which many have interpreted as reinforcing its dominant position.

Regulators in Germany are also investigating Microsoft to find out whether it is unfairly leveraging its position in the country all at a cost to its business customers and consumers.

“The Commission has received several complaints regarding Microsoft, including in relation to its product Azure, which we are assessing based on our standard procedures,” a spokesperson for the EU said in a statement.

Restrictive Software Licensing is an Issue Even in the US

Last week the FTC conducted a panel session seeking views on the state of the cloud computing space in the US and what they found was mainly dissatisfaction.

Ryan Triplette, the executive director of the Coalition for Fair Software Licensing said that it was no surprise “the topic of restrictive software licensing took center-stage at the onset of last week’s FTC panel discussion.”

“Any conversation regarding business practices impacting the future of the cloud must include the continued threats posed to customers by restrictive licensing terms – including tying, unclear use terms, vendor lock-in, and higher costs,” Triplette added.

Although Triplette did not single out Microsoft by name – other participants did. The joint complaint filed with the EU by OVHcloud, Danish Cloud Community, and Aruba S.p.a regarding restrictive licensing policies has already been settled.

Although the contents of the complaint remained hidden, OVHcloud confirmed at the time, in late March that they were pushing the agencies for a “level playing field among cloud providers,” and further stated that Microsoft “undermines fair competition.”

The complaint was centered around the increasing cost of purchasing and operating Microsoft software in other cloud services apart from Azure. Price was not the only stumbling block as the software needs significant adjustments made for it to run in certain programs provided by rival cloud service providers.

“In October 2022, we made changes to our licensing practices based on the feedback from European cloud providers,” a Microsoft spokesperson said after the settlement. “We value the helpful discussions that got us to this point and are thankful for the input we’ve received since then. We are dedicated to the European Cloud Community and their success.”

Despite Microsoft’s claims on the changes made to its licensing practices, the Cloud Infrastructure Service Providers in Europe (CISPE), backed by AWS said that Microsoft was offering several “unilateral, voluntary deals” to contain the situation and avoid a full-blown probe by the EU antitrust arm.

In November, CISPE filed its own complaint regarding Microsoft’s behavior.

Microsoft in Overdrive to Prevent Full-Blown Investigations

Meanwhile, Microsoft is considering various changes to address the rising number of complaints such as separating Teams and Office or offering Office 365 with Teams at a different price compared to that of the standard Office 365.

Circling back at the FTC panel discussion on cloud computing in the US, Frédéric Jenny, an Economics Professor at ESSEC Business School in Paris, mentioned that some integrated providers have been turning to exclusionary tactics, according to feedback received from their customers.

“One of the best examples of this is that in 2019, Microsoft imposed on users of its productivity software, Office 365, that they would have to repurchase their licenses if they store their data on a third-party cloud.” Jenny added: “There was no technical reason which was given for this practice, but it certainly had the effect of deterring the users of Office 365.”

Speaking to the FTC panel, Steve Weber, a professor at UC Berkeley’s School of Information said that he was of the impression licensing terms “tell us a lot about the ways in which people are trying to parse the difference between technical constraints and business model constraints.”

“A very close comparison and an examination of licensing terms in different services across different cloud providers is almost a necessity of this investigation,” Weber told the FTC panel.

EU Conditionally Approves Redmond-Activision Merger

The probe into cloud services competition comes at the time Microsoft is working around the clock to persuade global regulators to approve its $69 billion purchase of Activision Blizzard Inc., the company behind the hit game Call of Duty.

The European Commission, the EU’s regulatory agency, granted conditional approval for the acquisition on Monday, only a few weeks after the UK’s competition authority rejected it.

Respondents to the commission’s inquiries had until May 16 to submit their answers in addition to providing non-confidential versions of their evidence by the end of the month.

Such a request is often an indicator that an official antitrust investigation may be underway.

If a formal investigation is initiated, it could potentially result in penalties. However, regulators have the option to settle cases before reaching that point or dismiss them altogether if their initial concerns are not substantiated.

“The commission has received several complaints regarding Microsoft, including in relation to its product Azure, which we are assessing based on our standard procedures,” the regulator said in an emailed statement.

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