Google Escalates Cloud War, Filing Antitrust Complaint Against Microsoft in EU

Google has filed an antitrust complaint with the European Commission, accusing Microsoft of using unfair licensing terms to dominate the cloud computing industry. The tech giant’s complaint, submitted on Wednesday, alleges that Microsoft is stifling competition by using restrictive contracts to lock clients into its Azure cloud infrastructure.

According to CNBC, Google argues that Microsoft has leveraged its popular Windows Server and Office products to make it difficult for customers to switch to competing cloud providers. The complaint highlights that the licensing terms imposed by Microsoft create barriers for customers who want to move their workloads to other cloud platforms, despite no technical reasons preventing such moves.

Google’s filing points to a 2023 study by CISPE, a trade group for the cloud computing sector, which estimates that European businesses and public organizations are collectively paying up to €1 billion ($1.1 billion) annually in penalties due to Microsoft’s restrictive licensing terms. These penalties are linked to the challenges customers face when attempting to switch from Microsoft’s Azure cloud to alternative providers.

The antitrust complaint comes in the wake of a July settlement between Microsoft and CISPE members, aimed at addressing concerns over competition. Microsoft agreed to make changes to its cloud offerings as part of the settlement, but Google chose not to participate. In a statement sent to CNBC, a Microsoft spokesperson expressed confidence that the European Commission would dismiss Google’s complaint, citing the company’s previous settlement with European cloud providers.

“Microsoft settled amicably similar concerns raised by European cloud providers, even after Google hoped they would keep litigating,” the spokesperson said. “Having failed to persuade European companies, we expect Google similarly will fail to persuade the European Commission.”

Allegations of Unfair ‘Cloud Tax’

Central to Google’s complaint is the claim that Microsoft’s licensing practices undermine competition by imposing a “cloud tax.” As CNBC reported, Google alleges that companies running Microsoft’s Office suite or other applications on Google Cloud or rival platforms face hefty licensing fees from Microsoft, further entrenching Microsoft’s dominance in the market.

Related: UK Competition Regulator Pushes Back Cloud Market Report Date for Further Review

Google also referenced findings from the U.K.’s Competition and Markets Authority (CMA), which revealed that Microsoft captured over 60% to 70% of new British businesses in 2021 and 2022. The company contends that these practices harm cybersecurity and stifle innovation in the cloud sector.

Calls for a More Open Cloud Market

In an interview with CNBC, Amit Zavery, Google Cloud’s head of platform, said the company believes Microsoft is in “100% violation” of EU antitrust rules. He emphasized the need for a more open and competitive cloud market, free from the restrictions imposed by Microsoft’s licensing terms.

“We would like the cloud market to remain and become very vibrant and open for all the providers, including European vendors, vendors like us, AWS, and others,” Zavery told CNBC. He expressed hope that changes to Microsoft’s practices would provide customers with greater flexibility to choose the cloud providers that best suit their technical and commercial needs.

If Microsoft agrees to modify its cloud licensing terms in response to the complaint, Zavery said Google and other cloud customers would be “very happy.”

A Divisive Settlement

While CISPE members, including Amazon Web Services (AWS), reached a settlement with Microsoft in July, Google, along with AWS and Alibaba’s AliCloud, opted not to join the agreement. Microsoft committed to working with CISPE to develop an enhanced version of its Azure Stack HCI cloud product, which is expected to offer features similar to those available through its flagship Azure platform.

Despite Microsoft’s commitment to these changes, Google remains critical of the settlement, maintaining that it fails to address the fundamental competition issues at play.

In response to mounting scrutiny, Microsoft has repeatedly denied that its cloud practices harm competition. As CNBC noted, the company argued that the cloud services market is functioning well, following a separate investigation launched by the U.K.’s CMA.

Source: CNBC