Microsoft’s business software practices under scrutiny by UK markets regulator

The UK Competition and Markets Authority (CMA) has proposed designating Microsoft a Strategic Market Status (SMS) firm, meaning it would come under stricter market scrutiny.

The regulator is looking into the company's position in business software and how this impacts businesses and public sector organizations. It’s now calling for views on where it should gather further evidence.

The CMA already plans to investigate – and potentially take action over – issues such as how Microsoft bundles its software and wants to make it easier for developers to integrate their products with Microsoft’s business software ecosystem.

"We’re now consulting on whether to designate Microsoft with strategic market status," said Sarah Cardell, chief executive of the CMA. "If we do, our focus would be on promoting competition and giving businesses greater freedom to choose and combine products in business software."

The proposal relates to Microsoft's position across personal computer operating systems, productivity software suites, security software, server operating systems, and relational database management systems.

The CMA also said Microsoft’s strength in business software comes from the barriers customers face when switching. This includes commercial practices and integration advantages that incentivize customers to adopt the company’s products, making things harder for other software developers.

Before taking action, though, the CMA is planning further investigation into whether customers can freely choose the best AI tools and functionalities for their needs. It’s also investigating whether alternative AI providers have a level playing field when competing with Microsoft’s Copilot.

The regulator also wants to examine:

• Whether the way Microsoft bundles and integrates its security products limits customer choice
• Whether customers have an effective choice over which cloud to deploy their software licenses
• The impact of Microsoft’s licensing practices on these choices

"Business software and cloud services underpin workplaces across the UK, from small firms to vital public services. The evidence shows Microsoft has a long-standing and significant presence in the UK’s business software market," said Cardell.

"Organizations should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers. We want to ensure businesses have the freedom to choose how they use Microsoft’s products alongside alternatives."

Unusually, the CMA hasn't set a timeline for its actions – something that concerns the Computer & Communications Industry Association (CCIA) UK.

"It is welcome news that the CMA still has software licensing restrictions in its sights. However, the lack of a firm timeline for action is hard to square with claims that the lack of guardrails in its new digital markets powers was necessary so the CMA could respond promptly to well-evidenced barriers to competition," said CCIA senior director and head of CCIA’s London office Matthew Sinclair.

"We have now had an Ofcom investigation, a CMA Cloud Market Investigation which found the restrictions had an adverse effect on competition, and could have taken action directly, and still no timeline from the CMA for action."

The CMA has been looking at cloud services in the UK for some time. It's already secured commitments from AWS and Microsoft to connect their data centres with rivals, scrap data transfer fees for customers changing cloud providers, and reduce these fees where customers use more than one cloud provider.

The firms are also introducing a new mechanism for competitors and customers to request greater interoperability, and rolling out AI tools to automate the technical steps needed to make the switch.