License to compete: Regulators must step in to even the cloud playing field
After more than a decade of delay, regulators in three of Microsoft’s major cloud markets — the U.S., the United Kingdom and the European Union — may finally be taking steps to hold the tech giant accountable for its anticompetitive behavior.
It is imperative that each of them act decisively, and soon. Given Microsoft’s long history of anticompetitive behavior, regulatory intervention is the only way to prevent the company from continuing to abuse its market power to lock in customers across the globe.
Without intervention, Microsoft is certain to continue running the playbook it has used since its Azure cloud platform was launched 14 years ago. This involves leveraging unfair and unjustified licensing practices to force Microsoft application customers onto Azure and, when regulatory scrutiny heats up in a given market, making the narrowest possible one-off deals with small regional competitors to evade regulatory action. These deals are the very definition of "too little, too late." They don’t support true competition, and they instead enable Microsoft to forestall broader antitrust scrutiny while continuing to amass cloud market share.
In 2022, Microsoft dodged regulatory scrutiny in the EU by relaxing a set of licensing restrictions for an extremely narrow group of small- and medium-sized cloud providers. The move ostracized Amazon Web Services and Google Cloud customers, forcing them either to switch to Azure or pay a 400 percent premium to use ubiquitous Microsoft productivity software like Word in the cloud environment of their choice.
Fast-forward to this July, and Microsoft got the Cloud Infrastructure Service Providers in Europe to withdraw its antitrust complaint before the European Commission through a $22 million settlement that includes a two-year moratorium on Microsoft software audits for the organization's members. These terms might have fail to address the broader anticompetitive concerns and consumer harms the group raised in the first place.
It’s a disheartening reality that, even when smaller companies band together to stand up to Microsoft’s anticompetitive behavior, they are no match for the company’s resources. Now, instead of creating a more open and competitive marketplace, customers in Europe are faced with one of two options: go with Azure and/or one of the smaller Cloud Infrastructure Service Providers in Europe member companies that are now effectively Microsoft resellers, or choose AWS or Google Cloud and suffer “a price increase of up to 300 percent for customers choosing non-Azure cloud infrastructure.”
This is precisely the scenario that competition policy is supposed to prevent, but it’s the scenario we’re living in.
Look no further for why regulators must address Microsoft’s anticompetitive efforts in the cloud on a much broader basis; unchecked, why should its behavior stop there? Microsoft surely sees the space to leverage a software monopoly and expanding cloud business to aim for excessive market power in AI, degrading consumer choice further in the next generation of cloud service technologies.
Microsoft’s largest competitors and other industry advocates are stepping up to the plate to help make sure this doesn’t happen. Google Cloud, for example, has filed an antitrust complaint with the European Commission. Elsewhere, a class-action lawsuit in the U.K. on behalf of thousands of Microsoft customers is being readied against the company’s licensing practices that have allegedly inflated prices exorbitantly.
But private action is likely to have little consequence unless regulators act. Without market-wide remedies, Microsoft has shown that it will continue to pick off complainants or simply ignore the problem.
Microsoft is in an enviable position and no doubt wants to stay there. For instance, Microsoft effectively picks and chooses who it competes with and how by enforcing “Listed Provider” designation. This penalizes customers who bring certain on-premise software to competitors like AWS, Google Cloud or Alibaba Cloud, charging them significantly more to do so than they would on Azure.
The Listed Provider designation also allows Microsoft to impose arbitrary requirements on enterprise-level customers to force the adoption of Azure. Microsoft has not ever officially offered a transparent explanation for this “listed” designation, most likely because there is no explanation other than to impede competition. Eliminating the designation would be an immediate boon to global cloud competition, and benefit millions of customers.
Regulators should also consider taking action to curb Microsoft's runaway cloud bundling and tying practices, which disincentivize customers, especially those at the enterprise level, from even considering competitors' products. Indeed, recent research categorizes and puts numbers to the ways in which Microsoft’s bundling practices in the cloud harm customers, limiting choice and innovation, and prevent customers from seeking best-in-class cloud technologies.
Regulators also need to be more proactive and widen their aperture to consider the ways Microsoft’s bundling practices threaten nascent markets, like cybersecurity or generative AI, to prevent the same from happening to them.
Regulators need to press for a better and fuller solution to the cloud competition challenge right now, to support broad economic growth and innovation instead of the bottom line of a single company. The longer the delay, the more entrenched the monopolistic behaviors become and the harder the problem is to solve.
Steve Weber is a professor at the Graduate School, UC Berkeley School of Information. He has published numerous books, including “The Success of Open Source” and, most recently, “Bloc by Bloc: How to Build a Global Enterprise for the New Regional Order.” He has worked with and received research funding from a number of technology firms, including Google and Microsoft.