GCP – Google Cloud files complaint with European Commission regarding Microsoft’s anti-competitive licensing practices

Cloud-based computing is one of the most important developments in the European economy over the last decade. Moving to the cloud has reduced costs, delivered services with incredible reach, and laid the foundation for entirely new European companies. But legacy licensing practices that force customers onto a single vendor threaten Europe’s ability to take full advantage of this opportunity.

For years, in the productivity software space, Microsoft has locked customers into Teams, even when they preferred other providers. Now, the company is running the same playbook to push companies to Azure, its cloud platform. Microsoft’s licensing terms restrict European customers from moving their current Microsoft workloads to competitors’ clouds – despite there being no technical barriers to doing so – or impose what Microsoft admits is a striking 400% price markup. 

Microsoft is the only cloud provider to use these tactics, which have significantly harmed European companies and governments. Not only have they cost European businesses at least €1 billion a year, but also they have led to adverse downstream effects, including waste of tax funds, stifled competition, restrictions on distributors and channel partners, and heightened risk for organizations exposed to Microsoft’s “inadequate” security culture. 

Like many others, we have attempted to engage directly with Microsoft. We have kicked off an industry dialogue on fair and open cloud licensing. And we have advocated on behalf of European customers and partners who fear retaliation in the form of audits or worse if they speak up. Unfortunately, instead of changing its practices, Microsoft has struck one-off deals with a small group of companies.

To give voice to the complaints we hear from customers – and from across the industry – and to seek a resolution that will benefit everyone, we are now taking the next step of filing a formal complaint with the European Commission.

How Microsoft’s anticompetitive licensing practices work  

While Microsoft’s licensing practices apply to many enterprise products, Windows Server is central to the company’s strategy of locking customers into Azure. Windows Server is a must-have workhorse in many IT environments, serving as the backbone for applications, files, and services. And it has already added billions of dollars to Microsoft’s revenues. When businesses and governments originally paid for Windows Server licenses, they had the right to run them on any hardware they wished – and did so for many years on machines from HP, Dell, Lenovo, and others.

However, as cloud computing took off and promised to bring new benefits to European businesses, customers wanted to move their previously purchased licenses to other cloud providers, and in some cases to multiple clouds, to provide additional resiliency and security. Initially, Microsoft allowed them to do this. But as Azure faced more competition, Microsoft introduced new rules that severely limited customer choice.

One of the most significant restrictions occurred in 2019, when Microsoft adopted new licensing terms that imposed extreme financial penalties on businesses wanting to use Windows Server software on Azure’s closest competitors, such as Google Cloud and AWS. Microsoft’s own statements indicate that customers who want to move their workloads to these competitors would need to pay up to five times more. And for those who choose to keep running Windows Server on competitors’ cloud platforms (despite the cost difference), Microsoft introduced additional obstacles over the last few years, such as limiting security patches and creating other interoperability barriers. 

Harm to European customers, vendors, and cloud markets 

According to research from Professor Frédéric Jenny, a French economist and chairman of the OECD Competition Committee, EU customers face significant hidden costs due to Microsoft’s restrictive licensing that go well beyond inflated pricing. These include taxpayer waste, money diverted from investments in growth, and slower digital transformations. We have heard many of these same complaints from customers.

Restrictive licensing also stifles innovation and competition, preventing European companies from using multiple clouds, including European cloud providers. According to one recent study, after the 2019 licensing changes, Microsoft’s cloud market share suddenly skyrocketed, largely at the expense of European providers.

Security and reliability suffer too. As highlighted by the massive security outage two months ago, Microsoft’s lock-in tactics can result in a single point of failure that harms businesses, industries, and governments. Without diversity in vendors, cyber attacks become more frequent. Research from Prescient finds that anticompetitive licensing leads to higher cyber-insurance premiums, incident response costs, and cloud service costs.

Importance of fair and open licensing

Google Cloud’s approach is different. We promote fair and transparent licensing for our customers. We pioneered a multi-cloud infrastructure service and a multi-cloud data warehouse, enabling workloads to run across multiple clouds. And we were the first company to provide digital sovereignty solutions for European governments and to waive exit fees for customers wishing to switch cloud providers. 

Our point is a simple one: Restrictive cloud licensing practices hurt companies and impede European competitiveness. We look forward to continuing this discussion on how to keep the cloud market fair and open for European businesses and governments.