Microsoft was accused of exploiting its Azure cloud computing unit to reduce or eliminate profit margins for competitor cloud platforms in Europe.
The assertion was made in a complaint filed by CISPE, a trade association for European “infrastructure as a service” cloud providers. It also comes as the Redmond, Washington-based technology behemoth is under heavy investigation for its cloud computing and software licensing practices in the European Union, the United Kingdom, and the United States.
The charges come from changes made to Microsoft’s licensing conditions in 2019. Under those guidelines, Microsoft required businesses to obtain a Software Assurance license as well as “mobility rights” in order to put Microsoft software on hosted cloud services provided by competitors.
Customers were also unable to use perpetual licenses acquired previously to operate Microsoft apps on so-called “listed providers” such as Alibaba, Amazon, Google, and Microsoft itself. They would have to purchase new licenses instead. Meanwhile, certain software, including Office 365 Windows Apps, was prohibited from functioning on competing clouds.
The terms have enraged other cloud providers in Europe, including France’s OVHCloud and Italy’s Aruba, as well as Big Tech rival Amazon. It also served as the foundation for a European Commission investigation into whether Microsoft’s cloud activities are anti-competitive.
CNBC called Microsoft, but the company declined to comment. In 2022, Microsoft President Brad Smith said in a blog post that the company was modifying its license agreements to make it easier for cloud providers to compete.
In its complaint filed on Friday, CISPE, which is heavily funded by Amazon, provided an example from its research in which one member cloud firm, whose name was not disclosed, saw revenues from selling Microsoft products such as Windows Server and SQL Server services increase by more than 300% since 2018, contributing to Microsoft’s own growth.
However, the unnamed cloud vendor’s profit margins did not expand at the same rate as Microsoft’s; in fact, the competitor cloud vendor’s margins fell from a positive mid-twenties percentage in 2018 to double-digit negative profit margins by 2023.
The most significant fall in profit margins for this cloud firm occurred in 2019, when Microsoft altered its license conditions to favor licensing software on Azure, according to the CISPE. From 2019 to 2020, the CISPE member’s margin dropped from more than 20% to zero.
CISPE also stated that members provided evidence that the price they were paying for Microsoft’s SQL Server was significantly higher than the price Microsoft offered for customers using Azure.
According to CISPE data, a company licensing Microsoft’s software for hosting and delivering their applications would have to pay 612.27 euros ($670) per 2-core SQL Server Enterprise product, which is 92.01 euros more than what Microsoft charges customers using Azure on average (520.26 euros).
The lawsuit and conclusions complement previous study for CISPE by Frederic Jenny, an economics professor at ESSEC Business School in Paris who specializes in competition law. Jenny discovered that Microsoft effectively charges firms a 28% “tax” for using its software products on competitive cloud platforms.
The European Commission told CNBC: “The Commission has received various complaints against Microsoft, notably over its product Azure, which we are investigating using our usual procedures. We have no more comments to offer at this time.”
When approached by CNBC, the UK’s Competition and Markets Authority, which took over from media and telecommunications regulator Ofcom for a study into competition in the UK cloud computing sector last year, was unable to provide an immediate reaction.
