Amazon-supported Organization Accuses Microsoft of Decimating Profit Margins for Rival Cloud Companies

Microsoft faced allegations on Friday of exploiting the dominance of its Azure cloud computing arm to compress — and in some instances, obliterate — the profit margins of competing cloud platforms across Europe.

The accusation was lodged in a complaint by CISPE, representing “infrastructure as a service” cloud companies in Europe. This transpired amid heightened scrutiny in the European Union, as well as the U.K. and U.S., over Microsoft’s cloud computing and software licensing practices.

The claims originated from adjustments Microsoft made to its licensing terms in 2019. These revisions mandated firms to acquire a Software Assurance license and “mobility rights” to deploy Microsoft software on rival hosted cloud services.

Microsoft is accused of crushing profit margins for competitors in Europe's cloud market
Allegations stem from licensing changes favoring Azure, triggering European Commission scrutiny.

Furthermore, perpetual licenses could not be used to operate Microsoft applications on select providers such as Alibaba, Amazon, Google, and Microsoft itself. Instead, new licenses had to be purchased. Additionally, certain software, like Office 365 Windows Apps, was prohibited from functioning on rival clouds.

These terms elicited strong opposition from competing cloud firms in Europe, such as OVHCloud in France and Aruba in Italy, as well as tech giant Amazon. They also triggered an inquiry by the European Commission to ascertain whether Microsoft’s cloud practices are anti-competitive.

When approached by CNBC, Microsoft declined to comment. In 2022, Microsoft President Brad Smith announced revisions to its licensing agreements, aiming to facilitate fair competition among cloud providers.

In its complaint, CISPE — which receives substantial funding from Amazon — presented a case where one member cloud company, unnamed, witnessed a 300% surge in revenues from selling Microsoft products, including Windows Server and SQL Server services, since 2018, contributing to Microsoft’s expansion.

Microsoft is accused of crushing profit margins for competitors in Europe's cloud market.
The complaint suggests Microsoft’s pricing strategy gives Azure an unfair advantage over rivals.

However, despite the growth in revenues, the unnamed cloud vendor’s profit margins did not align with Microsoft’s. The competing cloud vendor experienced a decline in margins from a positive mid-twenties percentage in 2018 to double-digit negative margins in 2023.

The most significant drop in profit margins for this cloud firm occurred in 2019, coinciding with Microsoft’s alteration of its licensing terms to favor Azure. From 2019 to 2020, the concerned CISPE member saw its margin plummet from over 20% to zero.

CISPE also highlighted evidence from its members indicating that the prices charged by Microsoft for its SQL Server were considerably higher than those quoted for Azure customers.

For instance, a company licensing Microsoft’s software for hosting and delivering 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 Azure customers on average (520.26 euros), as per CISPE’s findings.

This complaint and its findings supplement earlier research conducted by Frederic Jenny, an economics professor at ESSEC Business School in Paris specializing in competition law, for CISPE. Jenny found that Microsoft effectively levies a 28% “tax” on businesses to utilize its software products on competing cloud services.

The European Commission informed CNBC: “The Commission has received several complaints regarding Microsoft, including its product Azure, which we are assessing based on our standard procedures. We have no further comment to make at this stage.”

The U.K.’s Competition and Markets Authority, responsible for investigating competition in the U.K. cloud computing market, was unavailable for immediate comment when reached out to by CNBC.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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