Microsoft’s tactics to win cloud battle lead to new antitrust scrutiny

Microsoft has escaped the recent backlash against the power and wealth of America’s biggest tech companies.

Despite a stock market value that has soared to more than $2 billion thanks to its dominance in various segments of the enterprise software market, it has avoided a repeat of complaints that have made it the most prominent target of antitrust action. in the United States and Europe in the late 1990s.

That is, until now.

Changes to some of the company’s key terms of business have caused growing unrest among some of its biggest customers, as well as complaints from rival cloud companies. Among the results was a high profile, albeit still informal, antitrust review in Brussels.

Critics say Microsoft has used anti-competitive tactics to lure customers to its Azure cloud service and away from rivals, particularly Amazon Web Services, which dominates the cloud market. By using Windows and Office to fuel Azure’s growth, critics say it’s repeating the kind of illegal “binding” that was at the center of the latest round of regulatory actions against the company.

Microsoft said it does not “lock in” the market by preventing any competitor from running its software in their clouds, and that it is free to offer more favorable terms to its software customers if they also use its service Azure.

However, Brad Smith, the company’s president, acknowledged that Microsoft had been partly responsible, without giving details ⁠ – a marked contrast to the aggressive stance the company has taken when facing complaints about of competition more than two decades ago.

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

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

A large Microsoft customer, who declined to be named, said Microsoft’s stricter terms affected its use of a version of Office running on Amazon’s cloud, affecting tens of thousands of its employees . The result would be “millions of dollars” a year in additional licensing fees, although Microsoft delayed the start of the higher costs after the customer complained. “Microsoft really doesn’t look out for the best interests of its customers,” this person said.

There are signs of a regulatory response. In an informal questionnaire sent to rivals last month and seen by the Financial Times, EU asked about the conditions under which they could run Microsoft’s software and whether it put them at a disadvantage.

At the heart of the controversy is a change to Microsoft’s licensing terms made in October 2019. The change affected how the company charges for products like Office when they run in Microsoft data centers. Amazon Web Services, Google and Alibaba ⁠— therefore – so-called “hyperscale” cloud services that compete with Microsoft’s Azure.

Microsoft's Azure website on a mobile phone
Microsoft’s Azure website on a mobile phone © Piotr Swat/Alamy

Customers had to pay additional license fees, even if they had already paid Microsoft to run the software in their own data center under an existing agreement. Microsoft’s own cloud service, Azure, was on the list of hyperscale groups hit by the higher charges, though 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 prepared to pay extra to do so,” said Wes Miller, a former company executive and now an analyst at Directions on Microsoft, which advises Microsoft customers.

Among the affected services was AWS Workspaces, a service launched in 2014 that offered workers a “virtual desktop”, an experience that looked like a Windows PC but was actually powered by software running in the cloud from AWS. Amazon. Microsoft only launched its own similar service shortly before imposing the sweeping license increases, making it more attractive for customers to opt for Azure.

Microsoft said competing productivity apps like those from Google offered an alternative, and it made individual parts of Office ⁠ available—like the spreadsheet program Excel ⁠—for customers who only wanted to pay for a portion. software.

Critics say charging higher prices for using its software in competing clouds is just one of the ways Microsoft has tried to drive more customers to its own cloud platform. Other licensing terms and the end of technical support for certain services have added to the pressure on customers to switch to Azure, they said.

Another tactic that has been criticized ⁠—and also under review by the EU ⁠—is to bundle or bundle a number of services into one product, even though many customers only need one a single element.

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

Some of the charges echo Microsoft’s latest 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 ⁠ – a tactic it was also accused of in the 1990s to destroy the pioneer Netscape browsers. Responding to the latest complaint, Microsoft two weeks ago made it easier for users to change the default browser in Windows.

Most Microsoft customers have three- or five-year contracts, called Enterprise Agreements, which means many have yet to face license renewal since the 2019 changes. In addition, Microsoft has also made one-off concessions in license negotiations with certain customers to delay the impact of the new pricing formula.

Even if Microsoft’s tactics aren’t illegal under current law, they could fall under new laws designed to prevent powerful tech companies from favoring their own services, said Frederic Jenny, a French antitrust expert commissioned by a group of cloud companies. in Europe last year to report potentially anti-competitive behavior by major software companies like Microsoft

The EU Digital Markets Act, passed last month, aims to impose new restrictions on companies seen as digital ‘gatekeepers’. Many details of the law have yet to be ironed out, and it initially targeted consumer Internet platforms, not enterprise software companies like Microsoft.

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

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