Microsoft could face antitrust "tying" charges amid customer complaints about cloud contracts

Microsoft has seemingly dodged the mainstream antitrust scrutiny that's hounded similarly rooted tech companies such as Google, Amazon, and Facebook; but that could be coming to an end soon as the volume of customer complaints over a 2019 contract change increase.

According to a report from Bloomberg, current Microsoft customers are raising concerns in the way the company is handling licensing of its products to interoperate with competing platforms.

Back in 2019 Microsoft made a head scratching decision to overhaul the licensing of its famed Windows and Office platforms that raised the price across the board for customers, however it has now become apparent that the move was arguably a smoke screen to inject "discounts" for existing customers who continue to use Azure platform rather than rival ones.

Rather than simply raising the price for customers who choose to use Microsoft platforms alongside competitor services, which would likely be seen as a direct anticompetitive move, the company raised the price of all its products while offering those who unilaterally use its services steeper discounts as financial incentives to boost its cloud market share.

Unfortunately for Microsoft, some customers are beginning to connect the dots and are requesting European regulators investigate the matter.

“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.”

Other stories conveyed to Bloomberg include:

A person familiar with the company said it started using AWS when it began rolling out mobile devices to employees. The company used its Amazon and Windows combination successfully for several years, until the changes in late 2019. The conflict came to a head more recently, when the company began renewing its contracts with Microsoft—to keep using Windows on virtual desktops via Amazon’s cloud, the customer is required to buy a license that was formerly included, adding millions of dollars to the total cost.

The company considers this a penalty, the person familiar said, because Azure customers get that additional license for free. The customer isn’t allowed to run Office software through a competing cloud at all without violating the terms of its license with Microsoft, the person said. The company spent months negotiating with Microsoft on the issue, eventually getting a reprieve of several years. After that expires, this customer will again be out of compliance.

Anecdotal cases alone may not be enough to warrant the ire of the dreaded antitrust microscope but given Microsoft's past along with the totality of the market, the company could be on the hook for a "tying" antitrust violation.

As defined by the Federal Trade Commission:

For competitive purposes, a monopolist may use forced buying, or "tie-in" sales, to gain sales in other markets where it is not dominant and to make it more difficult for rivals in those markets to obtain sales. This may limit consumer choice for buyers wanting to purchase one ("tying") product by forcing them to also buy a second ("tied") product as well. Typically, the "tied" product may be a less desirable one that the buyer might not purchase unless required to do so, or may prefer to get from a different seller. If the seller offering the tied products has sufficient market power in the "tying" product, these arrangements can violate the antitrust laws.

According to customers and rivals such as Amazon and Google, Microsoft is not unaware of the request to address the issue as all parties have issued complaints directly.

Microsoft President and vice chair Brad Smith has acknowledged some of the concern and issued the following statement, "there definitely are some valid concerns, it’s very important for us to learn more and then make some changes.”

Microsoft could face antitrust "tying" charges amid customer complaints about cloud contracts - OnMSFT.com - April 12, 2022

While Microsoft hasn't officially made any changes to its 2019 licensing overhaul, the company has also acknowledged that rival platforms can in fact offer their own discounts to win over seemingly disgruntled and unsatisfied customers, an argument sure to be used if the company is hauled into court over the matter.

As customers and rival platforms await movement on their complaints from either Microsoft or regulators, competitors such as Amazon face their own scrutiny as the House Judiciary Committe follows up on their 2020 report targeting AWS titled Investigation of Competition in Digital Markets.

In the end, Microsoft, AWS, Google, IBM and the like will all come under further scrutiny as each jockey for customer acquisition and retention in a shrinking pool. At this point, antitrust violations may be less a matter of "if" and more a matter of "when" depending on how aggressive each platform provider becomes.

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