The current tide of antitrust scrutiny and regulations focused on big technology companies has conspicuously omitted one company: Microsoft, the software and cloud-computing behemoth that was the notorious target of a landmark U.S. government lawsuit in the 1990s.
Microsoft, the thinking goes, was already humbled by years of intense government oversight, and since it largely caters to other companies, instead of consumers, it doesn’t belong in the same category as Facebook, Amazon, Google and Apple.
But now some Microsoft customers, and some of its fiercest rivals, are making a bold claim: The software giant is again using its sway over one market to thwart competition in another.
Three years ago, Microsoft overhauled the way it licenses some of its most ubiquitous software programs, including Windows and Office, in ways that increase the cost of running those programs on rival cloud-computing systems like Amazon Web Services and Google Cloud Platform. In some cases, the revamped agreements outright forbid using some products on competing cloud services. AWS and Google say they have complained to Microsoft on behalf of multiple customers. French cloud provider OVH, along with other unidentified companies, filed a complaint last year with European regulators about the practice, saying it’s also being hurt by Microsoft’s policies.
Major business software customers, some of which are only now starting to see the impact as they renew deals or replace aging programs, are also incensed. Over a six-month period, Bloomberg spoke with five Microsoft customers and three software resellers working with clients affected by the changes.
After being contacted by Bloomberg News, Microsoft President and Vice Chair Brad Smith said the company will talk with customers and rivals and is committed to addressing the issues. “There definitely are some valid concerns,” he said in an interview. “It’s very important for us to learn more and then make some changes.”
The impact has been felt at companies and organizations both large and small. A person familiar with the software systems at a Fortune 100 company said Microsoft’s rules don’t allow it to run its existing Office software on Amazon’s cloud, and require it to pay more to run the Windows operating system on its rival’s servers. One consultant tried to help a Fortune 10 customer move to Google Cloud, but the client abandoned the idea after finding it would increase the costs of Windows licenses by $50 million over five years. Customers, consultants and resellers spoke on the condition of anonymity because they weren’t authorized to discuss confidential license details publicly, and some said they feared retaliation from Microsoft.
“The excrement is about to hit the fan,” said Wes Miller, an analyst at Directions on Microsoft, a research firm that advises customers on Microsoft licensing. He said that using the company’s software on a competing cloud service is “significantly more expensive than it used to be, and more expensive than it costs you to do the same thing on Azure.” Microsoft’s practices cut across two of the most lucrative areas of technology aimed at businesses: cloud computing, where it’s playing catch-up, and productivity software, which it dominates.
Amazon’s $62 billion cloud unit leads the market for cloud infrastructure services, which let companies tap computing power to run applications and store data. Microsoft’s Azure is a growing No. 2, while Alphabet’s Google Cloud is chasing Azure. More businesses are shifting their corporate programs — office software, databases, payroll programs and customer websites — into data centers owned by Amazon, Microsoft, Google and other cloud providers, sparing them the expense of owning and maintaining their own equipment.
But most companies still use Microsoft’s Windows and Office to run corporate computers and for tasks like sending email and creating spreadsheets and presentations. The Windows operating system held a 96% share of the personal computer market last year, according to Gartner, while the Office suite captured 86% of its market in 2020. Many customers also use Windows Server software and the SQL Server database, which are also impacted by the rule changes.
Linking a product with the market power of Windows to another offering, like Azure, to gain leverage with customers, or making the product work less well with a rival’s service, can be an antitrust violation called tying, said Herbert Hovenkamp, an antitrust law professor at the University of Pennsylvania, who consulted on the U.S. states’ antitrust case against Microsoft in the late 1990s and early 2000s.
“Microsoft is playing with fire here to a certain extent,” Hovenkamp said.
The 2019 changes technically applied only to the largest cloud providers, but smaller, regional sellers like OVH say they are also facing higher prices when hosting Microsoft programs on their servers. In order to sell customers OVH’s cloud services to work with Microsoft’s programs, OVH said it must sign on to a Microsoft license agreement under which Microsoft “charges higher prices for must-have products,” according to a confidential summary of the OVH complaint viewed by Bloomberg. OVH said it’s also forced to agree to “onerous and abusive clauses,” like submitting to audits and providing Microsoft confidential information about users. In March, European regulators sent a questionnaire to Microsoft cloud rivals and partners that asked about some of the issues OVH raised, according to copies of the document seen by Bloomberg.
In response to an inquiry about the licensing practices, Microsoft said it does offer discounts to existing customers who opt to run some of its programs in Azure, compared with the cost of using the same products with Amazon or Google — but it argues Google and Amazon could offer their own discounts to those customers to win their business. The company also said it does currently restrict using some versions of Office in Google, Amazon and Alibaba’s clouds.
The goal of these policies was not to put rivals at a disadvantage, Smith said, but there clearly have been some “unintended consequences.” In particular, Microsoft wants to speak with European cloud providers and address their concerns. “We should be especially sensitive to the unintended impact on European cloud providers. We’re very interested in connecting directly with them and really listening to and understanding better what their concerns are,” he said. Smith didn’t elaborate on what changes the company is considering.
Software licensing rules are lengthy and complex, and Microsoft’s policies vary for each product. The issue creating tension now affects customers that bought rights to use software in their own data centers and offices, but now want to use those programs in the cloud — meaning the software would be delivered via Amazon, Google, Alibaba or Microsoft’s own Azure cloud.
Microsoft outlined the restrictions in new licensing agreements starting in 2019, saying certain programs “cannot be deployed with dedicated hosted cloud services offered by the following public cloud providers: Microsoft, Alibaba, Amazon (including VMware Cloud on AWS), and Google.”
Office, the software package that includes common business programs such as Word, Excel and PowerPoint, is “the worst and most complicated,” according to Directions on Microsoft’s Miller. One version of the Office suite — the one used in cloud-computing environments — is no longer allowed for use on rival cloud providers. And newer versions of the traditional Office product have similar limitations. Instead, customers must either rely on old versions of Office, which will lose support in 2025, or pay a higher price for a version of Office that is authorized. For many customers, that fee comes on top of the cost of copies of Office cloud apps they had already purchased, Miller said.
When the U.S. Justice Department sued Microsoft in the late 1990s, the company was accused of illegally tying the omnipresent Windows to the Internet Explorer browser, and using that bond to crush Netscape Navigator. Microsoft was ultimately found guilty of illegally defending its Windows monopoly.
AWS and Google said their complaints to Microsoft have gone nowhere. “It’s probably Microsoft’s biggest competitive lever to force their licensees to use Azure,” said Matt Garman, a senior vice president for AWS sales and marketing. Google declined to elaborate on its complaints.
Amazon is also lobbying regulators to look at Microsoft’s behavior.
In February, CISPE, a cloud-computing group that includes AWS, started pushing the European Union to include Microsoft in a sweeping law being planned on digital markets. It argued that business softwaremakers were abusing licenses to box customers into their own cloud infrastructure. In other words: Microsoft was up to its same old tricks.