Ofcom said it had received evidence that Microsoft had made it less attractive for customers to run its Office productivity applications on cloud infrastructure other than Microsoft Azure.
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Microsoft The company was accused on Friday of abusing its dominant position in its Azure cloud computing unit to squeeze (and in some cases evaporate) profit margins on rival European cloud platforms.
The claim comes from a complaint filed by CISPE, the European trade body for infrastructure-as-a-service cloud companies. Meanwhile, the Redmond, Wash.-based tech giant is facing intense scrutiny of its cloud computing and software licensing practices in the European Union, the United Kingdom and the United States.
The accusations stem from changes Microsoft made to its licensing terms in 2019. Under the rules, Microsoft requires companies to purchase Software Assurance licenses and “mobility rights” if they want to deploy Microsoft software on hosted cloud services from competing providers.
Customers also can’t rely on perpetual licenses they’ve purchased to run Microsoft apps on so-called “listed providers” such as Alibaba, Amazon, Google and Microsoft itself. Instead, they must purchase a new license. At the same time, some software, including Office 365 Windows Apps, are prohibited from running on competitors’ clouds.
The terms have sparked intense outrage from competing European cloud companies, such as France’s OVHCloud and Italy’s Aruba, as well as big tech rival Amazon. It also forms the basis of a European Commission investigation into whether Microsoft’s cloud practices are anti-competitive.
“This information is outdated, adds nothing new, and appears more like an Amazon-sponsored promotional campaign to maintain its market position,” a Microsoft spokesperson told CNBC via email. “We will continue to focus on working with European cloud providers work together to address any concerns they have.”
In 2022, Microsoft President Brad Smith previously wrote an article Blog article said it was revamping its licensing agreement to make it easier for cloud providers to compete.
In Friday’s complaint, CISPE, which is heavily funded by Amazon, presented an example in its research in which a member cloud company, whose name was not disclosed, found that revenue from selling Microsoft products including Windows Server and SQL Server services Climb has grown 300% since 2018, contributing to Microsoft’s own growth.
But the unnamed cloud provider’s profit margin growth is on par with Microsoft’s, and in fact, rival cloud providers’ profit margins fell from around 20 percent in 2018 to double digits in 2023 Negative profit margins.
CISPE said the biggest decline in the cloud company’s profit margin occurred in 2019, the same year Microsoft changed its licensing terms to support software licensing on Azure. From 2019 to 2020, profit margins for relevant CISPE members fell from more than 20% to zero.
CISPE also said that members shared evidence that the price they charged Microsoft for SQL Server was much higher than the price Microsoft quoted to customers using Azure.
For example, according to Microsoft, a company that licenses Microsoft software to host and deliver applications would have to pay €612.27 ($670) per 2-core SQL Server Enterprise product, which is less than the average fee Microsoft charges customers using Azure ($520.26 euro) higher by 92.01 euros. Data from CISPE.
The complaint and findings were supplemented by previous research for CISPE by Frederic Jenny, a professor of economics at ESSEC Paris Business School who specializes in competition law. Jenny discovered that Microsoft actually charges a 28% “tax” from companies that run its software products on competing cloud services.
The European Commission told CNBC: “The Commission has received several complaints about Microsoft, including related to its product Azure, and we are evaluating them in accordance with our standard procedures. We have no further comment at this stage.”
Last year, the UK Competition and Markets Authority was commissioned by Ofcom, the media and telecommunications regulator, to investigate competition in the UK cloud computing market. The agency had no immediate comment when contacted by CNBC.
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