Microsoft’s tactics to win cloud combat lead to new antitrust control

Aurich Lawson | Getty Images

Microsoft has escaped the recent setback against the power and wealth of the largest US technology companies.

Despite a stock market value that has risen to more than $ 2 trillion due to its dominance of various parts of the business software market, it has avoided a recurrence of the complaints that made it the most prominent target for antitrust actions in United States and Europe in the late 1990s.

So until now.

Changes in some of the company’s core business terms have caused growing unrest among some of its biggest customers, as well as they have drawn complaints from rival cloud companies. Among the results has been a broad, but still informal, antitrust review in Brussels.

According to its critics, Microsoft has used anti-competitive tactics to draw customers to its Azure cloud computing service and away from competitors, particularly Amazon Web Services, which dominates the cloud market. By using Windows and Office to feed the growth of Azure, critics claim that it is repeating the kind of illegal “binding” that was at the center of the last round of regulatory action against the company.

Microsoft said it did not “shield” the market by blocking potential competitors from running its software in their clouds, and that it was free to offer more favorable terms to its software customers if they also used its Azure service.

However, Brad Smith, the company’s president, admitted that Microsoft was partly to blame, without pointing to details – a stark contrast to the aggressive stance the company took when it faced competition complaints more than two decades ago.

“While not all of these claims are valid, some are and we will definitely make changes soon to resolve them,” Smith said in a statement. Microsoft, he added, was “committed to listening to our customers and meeting the needs of European cloud providers.”

The accusations of harsh business tactics follow a period in which Microsoft became known for the conciliatory stance it took after its last round of antitrust battles in Washington and Brussels.

A major Microsoft customer, who declined to be named, said Microsoft’s stricter terms had affected its use of a version of Office running on Amazon’s cloud, which has affected tens of thousands of its employees. The result would be “millions of dollars” a year in additional licensing fees, even though Microsoft had delayed the start of the higher costs after the customer complained. “Microsoft [is] really not looking for the best [its] customers, “said this person.

There are signs of a regulatory reaction. In an informal questionnaire sent to competitors last month and viewed by the Financial Times, the EU asked about the conditions under which it could run Microsoft software and whether this put it at a disadvantage.

At the heart of the controversy is a change in Microsoft’s license terms made in October 2019. The change affected the way the company charges for products like Office when running in the data centers of Amazon Web Services, Google and Alibaba – so-called “hyperscale” cloud services, that competes with Microsoft’s Azure.

Customers would have to pay an additional license fee even though they had already paid Microsoft to run the software in their own data center during an existing event. Microsoft’s own cloud service, Azure, was included in the list of hyperscale groups affected by the higher fees, although customers received a special discount that offset much of the increase.

“You can still run all of these products in someone else’s cloud, but you have to be willing to pay a premium to do so,” said Wes Miller, a former corporate director and now analyst at Directions on Microsoft who advises Microsoft customers.

Among the services affected was AWS’s Workspaces, a service launched in 2014 that made it possible to provide workers with a “virtual desktop”, an experience similar to a Windows PC, but really powered by software running in the Amazon cloud . Microsoft did not launch its own similar service until shortly before imposing the extensive license increases, making it more attractive for customers to choose to use Azure.

Microsoft said that competing productivity applications like those from Google provided an alternative and that it made individual parts of Office available – such as the Excel spreadsheet program – to customers who only wanted to pay for part of the software.

Charging higher prices to use its software in rival clouds is just one way Microsoft has tried to direct more customers to its own cloud platform, according to critics. Other licensing terms and the termination of technical support for certain services increased the pressure on customers to move to Azure, they said.

Another tactic that has come under fire – and one that is also under revision of the EU – involves bundling or packing a number of services together into a single product, even though many customers only require one item.

For example, the highest level of security is only available to customers with the Microsoft 365 software package if they pay for a premium version known as E5. According to Directions at Microsoft, this is another “bundle” that also requires them to purchase many other features.

Some of the accusations repeat Microsoft’s final round of antitrust battles. They include a complaint that the company made it difficult for users of the latest version of Windows to use a browser other than Microsoft’s own – a tactic that was also accused in the 1990s of destroying browser pioneer Netscape. In response to the recent crash, Microsoft made it easier for users to change the default browser in Windows two weeks ago.

Most Microsoft customers are on three- or five-year contracts, known as Enterprise Agreements, which means many are not yet facing a license renewal since the 2019 changes. Microsoft has also made one-time concessions in licensing negotiations with some customers to delay the impact of the new pricing formula.

Although Microsoft’s tactics are not illegal under current law, they may violate new laws designed to prevent powerful technology companies from favoring their own services, said Frédéric Jenny, a French antitrust expert who was hired. of a group of cloud companies. in Europe last year to report potentially anti-competitive behavior by major software companies such as Microsoft

Europe’s Digital Markets Act, passed last month, aims to impose new restrictions on companies considered to be digital “gatekeepers”. Many details of the law have yet to be rectified, and it was originally aimed at consumer Internet platforms, not business software companies like Microsoft.

However, the focus is growing on the company. Customers are “very frustrated with what they perceive as Microsoft not letting them use the cloud of their choice,” said Michael Silver, an analyst at Gartner, who has been advising the software company’s customers for more than 25 years. He added that for many, the license resurrection “seems like a return to the old Microsoft.”

© 2022 The Financial Times Ltd. All rights reserved. Do not redistribute, copy or alter in any way.

Leave a Comment