The Voice of Smaller Players Must be Heard as Discriminatory Prices Cause Ongoing Harm
Last week the UK’s Competition and Markets Authority (CMA) published the first responses to its cloud market enquiry. These included ours (which you can read here) as well as sixteen others. We welcome the transparency and speed of the UK’s process. Still in its early days, it is already clear that the Regulator has struck a nerve for many especially with the inclusion of software licensing as one of its theories of harm. As it noted in its initial issues statement, the CMA has concerns about the power of legacy software providers to use licenses for essential productivity suites (like Office365) to distort competition in the cloud. It expressed it as:
Theory of harm 4: Software licensing practices by cloud service providers restrict customer choice and prevent effective competition.
Ofcom received submissions regarding the software licensing practices of some cloud service providers, in particular Microsoft, that allege that these practices may make it less attractive for customers to use licensed software products on the cloud infrastructure of rival providers.
These concerns are clearly borne out in the submissions not only of CISPE but many others, and have driven significant media attention as commentators focus on Microsoft’s ‘Stranglehold on the cloud’ as it leverages its software dominance to restrict choice, enforce discriminatory prices and limit functionality if customers choose to run Microsoft applications in a third party cloud.
Further evidence of the increasingly widespread recognition of the damaging effects of unfair software licensing can be found in the USA. There the Federal Trade Commission (FTC) puts software licensing top of its list of ‘What we heard and learnt’ from its initial cloud market study. Here again a range of other parties has provided evidence that Microsoft wields its enormous dominance in ‘must have’ software like Outlook, Word, Teams, and PowerPoint to lock-in customers to its Azure cloud infrastructure. Comments from independent third parties such as NetChoice and Lawyers Balto and Wolfram support CISPE’s position that Microsoft’s software licensing is harming the whole sector.
Google has also become a significant voice in this argument too, not only commenting to the CMA and the FTC, but in media on the dangers of Microsoft’s unfair licensing. But neither this, nor AWS’s membership of CISPE, should distract from the reality that it is smaller European cloud service providers who, alongside customers, suffer most from Microsoft’s discriminatory pricing. It is interesting to note that Microsoft itself is sufficiently concerned by the issue to not only reiterate its acknowledgement, first made in Brussels in May 2022, that it had ‘unintentionally’ harmed European cloud providers, but to go on to attack CISPE directly in its CMA response.
In trying to dismiss CISPE’s comments, research and submissions and merely supporting the other ‘Hyperscalers’, Microsoft reveals the weakness of its own defence. Our submissions, and indeed CISPE’s complaint currently proceeding with DG COMP in Brussels, are driven by and contain detailed evidence of harm endured by our SME members. Almost a dozen European cloud infrastructure service providers have provided data that reveals the ongoing harm caused by Microsoft’s discriminatory pricing. Some of this can be viewed in the CMA dossier, much more remains confidential with the EU Commission. For example, CISPE members have provided evidence that:
- Microsoft software purchased by one CISPE member to run for clients on its own cloud infrastructure was about 20% more expensive than the same software licensed to run on Microsoft’s own Azure infrastructure.
- This pricing (for the CISPE member) does not include the additional costs imposed to access security updates and “patches” (“ESUs”) which amount to 100% of the price of the software purchase license, payable each year. The same ESUs on Azure are provided free of charge.
- Another member demonstrated in its RFI response to the EU Commission that it was providing Microsoft software at a loss to their customers to be competitive when offering this software on its own infrastructure services.
- One CISPE member provided a list of customers lost due to Microsoft’s pricing-related abuses, estimating this loss to be almost €20,000,000 in total in the past 3 years.
- Members also showed how it is almost impossible to offer desktop as a service (DaaS) to compete with Microsoft because Windows 10 and 11 are not available to license under the Service Provider License Agreements offered to them.
Microsoft’s remonstrations that its unfair practices are no more than commercial disputes whipped up by its hyperscale rivals are wearing increasingly thin. It is inescapable that Microsoft has a dominant position in the essential software that organisations of all types, from SMEs to multinationals and in both private and public sector. Now irrefutable evidence is piling up that it does indeed leverage that dominance to unfairly, and anti-competitively direct customers into its own Azure cloud infrastructure.
The CMA has taken a lead in examining this essential aspect of competition in the cloud, others must follow suit. We are at a tipping point for cloud adoption; as the majority of businesses look to move their productivity workloads to the cloud, they must have a fair and effective choice of infrastructure. And, if we are to build a resilient cloud ecosystem, alternative cloud infrastructure service providers across Europe must be defended if we are to avoid a barren digital monoculture presided over by a single legacy software giant.