The global harms of restrictive cloud licensing, one year later

A year ago today, Google Cloud filed a formal complaint with the European Commission about Microsoft’s anti-competitive cloud licensing practices — specifically those that impose financial penalties on businesses that use Windows Server software on Azure’s biggest competitors. 

Despite regulatory scrutiny, it’s clear that Microsoft intends to keep its restrictive licensing policies in place for most cloud customers. In fact, it’s getting worse. 

As part of a recent earnings call, Microsoft disclosed that its efforts to force software customers to use Azure are “not anywhere close to the finish line,” and represented one of three pillars “driving [its] growth.” As we approach the end of September, Microsoft is imposing another wave of licensing changes to force more customers to Azure by preventing managed service providers from hosting certain workloads on Azure’s competitors.

Regulators have taken notice. As part of a comprehensive investigation, the U.K.’s Competition and Markets Authority (CMA) recently found that restrictive licensing harms cloud customers, competition, economic growth, and innovation. At the same time, a growing number of regulators around the world are also scrutinizing Microsoft’s anti-competitive conduct — proving that fair competition is an issue that transcends politics and borders.

While some progress has been made, restrictive licensing continues to be a global problem, locking in cloud customers, harming economic growth, and stifling innovation.

Economic, security, and innovation harms

Restrictive cloud licensing has caused an enormous amount of harm to the global economy over the last year. This includes direct penalties that Microsoft forces businesses to pay, and downstream harms to economic growth, cybersecurity, and innovation. Ending restrictive licensing could help supercharge economies around the world.

Microsoft still imposes a 400% price markup on customers who choose to move legacy workloads to competitors’ clouds. This penalty forces customers onto Azure by making it more expensive to use a competitor. A mere 5% increase in cloud pricing due to lack of competition costs U.K. cloud customers £500 million annually, according to the CMA. A separate study in the EU found restrictive licensing amounted to a billion-Euro tax on businesses. 

In the United States, the lack of competition due to Microsoft’s licensing tactics amounts to $750 million in overspending by government agencies every year. 

Cybersecurity and reliability also suffer, as Microsoft drives customers into an insecure monoculture that becomes a single point of failure. Attacks on Microsoft’s insecure software have spread across governments and critical industries.

With AI technologies disrupting the business market in dramatic ways, ending Microsoft’s anti-competitive licensing is more important than ever as customers move to the cloud to access AI at scale. Customers, not Microsoft, should decide what cloud — and therefore what AI tools — work best for their business.

The ongoing risk of inaction

Perhaps most telling of all, the CMA found that since some of the most restrictive licensing terms went into place over the last few years, Microsoft Azure has gained customers at two or even three times the rate as competitors. Less choice and weaker competition is exactly the type of “existential challenge” to Europe’s competitiveness that the Draghi report warned of. 

Ending restrictive licensing could help governments “unlock up to €1.2 trillion in additional EU GDP by 2030” and “generate up to €450 billion per year in fiscal savings and productivity gains,” according to a recent study by the European Centre for International Political Economy. Now is the time for regulators and policymakers globally to act to drive forward digital transformation and innovation. 

In the year since our complaint to the European Commission, our message is as clear as ever: Restrictive cloud licensing practices harm businesses and undermine European competitiveness. To drive the next century of technology innovation and growth, regulators must act now to end these anti-competitive licensing practices that harm businesses.