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

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

Oric Lawson | Getty Images

Microsoft has survived the recent backlash against the power and wealth of America’s largest technology companies.

Despite a stock market value that rose to more than $2 trillion due to its dominance of various parts of the business software market, it avoided repeating the complaints that made it the most prominent target of antitrust measures in the United States and Europe at the end of the 1990s.

This is it, so far.

Changes to some of the company’s core business terms have caused growing unrest among some of its largest customers, as well as receiving complaints from competing cloud companies. Among the results was an extensive, albeit still informal, antitrust review in Brussels.

According to its critics, Microsoft has used anti-competitive tactics to lure customers into the Azure cloud computing service and away from competitors, particularly Amazon Web Services, which dominate the cloud market. Using Windows and Office to fuel Azure’s growth, critics claim it’s repeating the kind of illegal “binding” that has been at the center of the latest round of regulatory action against the company.

Microsoft said it was not “blocking” the market by preventing any competitors from running its software in their own cloud and that it is free to offer its software customers more favorable terms if they also use the Azure service.

However, Brad Smith, the company’s president, admitted Microsoft was partly wrong, without indicating specifics – a marked 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 true, some of them are, and we will definitely be making changes soon to address them,” Smith said in a statement. He added that Microsoft “is committed to listening to our customers and meeting the needs of European cloud providers.”

The accusations of tough business tactics follow a period in which Microsoft was notorious for the conciliatory stance it took after the latest round of antitrust battles in Washington and Brussels.

A major Microsoft customer, who declined to be named, said Microsoft’s tougher terms have affected its use of a copy of Office running on Amazon’s cloud, affecting tens of thousands of its employees. The result would be “millions of dollars” per year in additional licensing fees, although Microsoft delayed the start of rising costs after a customer complained. Microsoft [is] Really not looking for the best interests [its] customers,” this person said.

There are signs of a regulatory response. In an informal survey sent to competitors last month, and seen by the Financial Times, the European Union asked what conditions Microsoft’s software could run under and whether that puts it at a disadvantage.

At the center of the controversy is a change in Microsoft’s licensing terms that was made in October 2019. The change affected the way the company charges for products like Office when they run in Amazon Web Services, Google, and Alibaba – so – called ‘massive’ cloud services that competes with Microsoft Azure.

Customers were required to pay an additional license fee, even if they had already paid Microsoft to run the software in their data center under an existing arrangement. Microsoft’s own cloud service, Azure, was included in the list of super-sized groups affected by high fees, although customers were given 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 it,” said Wes Miller, a former CEO of the company and now an analyst at Directions on Microsoft, which advises Microsoft customers.

Among the services affected is AWS Workspaces, a service launched in 2014 that made it possible to provide a “virtual desktop” for workers, an experience that looked like a Windows PC but was actually fed by software running in the Amazon cloud. Microsoft only launched its own similar service shortly before imposing a significant licensing increase, making the choice to use Azure more attractive to customers.

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

Charging higher prices for using its software in competing clouds is one way Microsoft has tried to direct more customers to its own cloud platform, according to critics. They said other licensing terms, and the termination of technical support for certain services, increased pressure on customers to switch to Azure.

Another tactic that has come under fire – and one also under review by the European Union – involves bundling or bundling a number of services together into one product, even if many customers only order one item.

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

Some of the accusations echo Microsoft’s latest round of antitrust battles. It includes 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 flagship Netscape browser software. In response to the latest unhappiness, Microsoft two weeks ago made it easier for users to change the default browser in Windows.

Most Microsoft customers are on three- or five-year contracts, known as enterprise agreements, which means that many of them haven’t yet faced license renewal since the 2019 changes. Also, Microsoft has made one-time concessions in licensing negotiations with some customers to delay the impact of the new pricing formula.

Even if Microsoft’s tactics are not illegal under current law, said Frédéric Geny, a French antitrust expert commissioned by a group of cloud companies, they could conflict with new laws designed to prevent powerful tech companies from favoring their own services. In Europe last year for reporting anti-competitive behavior by large software companies such as Microsoft

Europe’s Digital Markets Law, adopted last month, aims to place new restrictions on companies considered digital “gatekeepers”. Many of the details of the law have yet to be settled, and it was initially targeted at consumer internet platforms, not business software companies like Microsoft.

However, the focus is growing on the company. Michael Silver, an analyst at Gartner, who has advised customers of the software company for more than 25 years, said customers are “very frustrated with what they see as Microsoft doesn’t allow them to use the cloud of their choice.” For many, he added, the licensing hype “seems like a return to the old Microsoft”.

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