If rumours in the Financial Times are to be believed, the European Commission is on the brink of opening a formal investigation into Microsoft’s anti-competitive practices that restrict choice and lock-in European customers into Microsoft’s own services. CISPE welcomes this scrutiny of Microsoft’s unfair practices, but cautions that alone it is not sufficient to end practices which harm European customers.
The complaint raised by Slack over three years ago calls out Microsoft’s unfair bundling of its Teams video conferencing product with its ubiquitous Office 365 productivity software. This damages innovative challengers like Slack by denying them a level playing field on which to compete for customers.
But Slack is just one piece of software, and bundling is just one of the pernicious practices used by Microsoft to cement and extend its domination of productivity software into other services. Our own complaint, still under active consideration by DG Competition, illustrates the many ways in which Microsoft uses unfair software licensing practices and discriminatory pricing and features to force customers into its cloud infrastructure, Azure.
The economic model imposed by Microsoft, including with Teams, is to bundle its products with the must-have Office suite and to self-preference Azure over competing cloud infrastructures. OneDrive and Defender are also bundled with Microsoft Office to shut out competitors. ChatGPT is next in line. Overcharging and disincentivising customers to use its software products outside of Azure is also part of the same commercial strategy.
Recent research from competition economics expert Professor Jenny, revealed the significant costs of this strategy. He calculated that, based on conservative estimates, European customers were paying an additional €1 billion each year to use just one product (SQL Server) on their choice of cloud rather than Azure. For the ‘must have’ Office 365 suite of productivity tools, this surcharge or tax to run it outside of Azure is calculated to be 28% increase in the licence cost.
These are costs that impact hundreds of thousands of businesses, big and small, across the whole of Europe. They also impact public sector organisations which spend billions of Euros of taxpayers’ money on Microsoft licenses. It is time for the Commission to act and fully investigate the whole panoply of Microsoft’s unfair and anti-competitive software licensing practices in defence of customers.
For too long Microsoft has been able to avoid scrutiny of the way it leverages its dominance in productivity software to direct customers to its own cloud and bundled services. Bi lateral and secret agreements are not sufficient, nor appropriate, to solve sector-wide issues. In addition to the Slack investigation, the Commission should immediately open a formal investigation on the broader range of bundling, tying and discriminatory issues that penalize customers and Microsoft’s competitors alike.