No Smoke without Fire

Apr 6, 2023 | Press release

Yesterday, UK regulator Ofcom published its interim report into the Cloud Services Market based on primary evidence from customers, vendors and interested parties, including CISPE. Unusually for a broad market study, the interim report devoted an entire chapter to the unfair practices of one vendor. Clearly, Ofcom felt it was important to call out the way in which Microsoft can leverage its dominance in enterprise software to distort competition in the cloud infrastructure sector.

The report states:

Some suppliers of cloud services have raised concerns with Ofcom regarding the software licensing practices of some cloud providers, particularly Microsoft. The concerns centre on the way Microsoft sells and licences some of its software products used by businesses.

We have received submissions that say Microsoft engages in several practices that make it less attractive for customers to use Microsoft’s licensed software products on the cloud infrastructure of rival providers compared to Microsoft Azure. The submissions allege that this impacts on their ability to compete for customers.

Ofcom is not the first regulator to comment on the potential for unfair software licensing to harm competition in the cloud. Last year the Dutch competition authority raised similar concerns and we have had conversations with several other national regulators looking into this issue.

Preliminary findings from a new research project by Professor Jenny suggest that these unfair practices could essentially levy an additional 20% cost on customers who choose to run Microsoft software on non-Microsoft cloud infrastructures.

Ofcom concluded that:

It is possible that the alleged conduct could risk dampening competition in cloud infrastructure services. [But] Reaching a view on that would require detailed examination of the concerns raised, which stem from Microsoft’s position in an adjacent market – the supply of enterprise software.

This, as Ofcom says, is probably out of scope for the current study, but more and more regulators are waking up to the ways in which Microsoft continues to distort competition in the cloud sector by imposing complex and unfair software licensing terms. As Microsoft seeks to avoid scrutiny with rumoured private deals with individual companies it is vital that regulators do not allow it to define the terms of the market.

Coincidentally, this week also saw the first of Microsoft’s unilateral bi-annual prices rises across Europe. These, alongside increasingly frequent changes to licences, erode margins and make it almost impossible for vendors to compete on a level playing field with the software giant. These actions, price rises, private deals and frequent licence changes are all symptomatic of abusive practices of a dominant player.

We are encouraged that “Ofcom and the CMA will consider the most appropriate way forward on these issues.” This is a critical first step as Microsoft seeks to avoid scrutiny from regulators around the world in order to continue its anti-competitive practices, decimating its rivals and depriving customers of any choice other than its own monoculture. But it must not be the last. This timely report sets the scene for further action as regulators and competition authorities around the world listen to the concerns of customers and focus real scrutiny on these continuing unfair practices.

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