Google filed an antitrust complaint with the European Commission on Wednesday charging Microsoft of using unfair licensing agreements to stifle competition in the multi-billion dollar cloud computing industry.
At the heart of Google’s complaint is the allegation that Microsoft uses unfair licensing terms to lock in customers and exert control over the cloud market.
Google claims that Microsoft, through its dominant Windows Server and Microsoft Office products, can make it difficult for its huge customer list to use anything other than its Azure cloud infrastructure offering.
The Internet giant said in its complaint that restrictions contained in Microsoft’s cloud licensing terms make it more difficult for customers to move their workloads from Microsoft’s Azure cloud technology to competitors’ clouds, even though there are no technical barriers to to do it.
European businesses and public sector organizations have been forced to pay the company up to 1 billion euros ($1.1 billion) a year in licensing penalties because of restrictions on customers’ ability to switch from one cloud provider to another, Google said. citing 2023 study by CISPE, a trade body for the cloud computing sector.
Google’s antitrust complaint comes after CISPE and its members agreed in July to a settlement with Microsoft that would see the company make changes to address competition concerns.
Referring to the CISPE settlement, Microsoft said in a statement on Wednesday that it expects the European Commission, the European Union’s executive body, to reject Google’s complaint.
“Microsoft amicably settled similar concerns raised by European cloud providers, even as Google hoped they would continue to litigate,” a Microsoft spokesperson told CNBC via email. “Having failed to convince European companies, we expect Google to similarly fail to convince the European Commission.”
Microsoft’s controversial cloud ‘tax’
In a summary of the complaint, Google — which ranks third globally in the cloud computing market behind market leaders Amazon Web Services and Microsoft Azure, respectively — said Microsoft is “damaging cybersecurity and undermining innovation.”
According to Google, if a company runs the Office suite of productivity tools and other Microsoft applications on Google Cloud Platform or other competing clouds, it is essentially required to pay a “tax” in the form of hefty licensing fees to Microsoft.
Google said Microsoft had undermined competition in the cloud and cited findings from a UK Competition and Markets Authority study that found Microsoft won 60% to 70% of all new UK cloud customers in 2021 and 2022 .
Google also suggested that Microsoft’s cloud practices have potentially made businesses more susceptible to security issues.
In an interview with CNBC’s Arjun Kharpal on Wednesday, Amit Zavery, head of Google Cloud Platform, said Google believes Microsoft is “100%” in violation of EU antitrust rules.
“We would like the cloud market to remain and become very vibrant and open for all providers, including European providers, providers like us, AWS and others,” Zavery said.
“Today the restrictions don’t allow choice for customers,” he said, adding that Microsoft included restrictions once it realized the huge commercial potential of the technology.
“Therefore, we would like to remove these restrictions and allow customers to have and choose whichever cloud provider they think is best for them commercially and technically,” he added.
Zavery told CNBC that if Microsoft makes changes to its cloud licensing terms as a result of its complaint, Google and cloud customers in general would be “very happy.”
Following the July settlement agreement with Microsoft, CISPE said the tech giant will work with its members to release an enhanced version of Azure Stack HCI, a cloud infrastructure product, to offer the same capabilities they benefit from hereof Microsoft customers using the Azure product.
Google, which is not a CISPE member, said it disagreed with the settlement and opted out of the deal. Amazon Web Services, which is a CISPE member, and AlibabaAliCloud’s cloud unit also chose not to become part of the settlement.
For its part, Microsoft has denied that its cloud practices harm competition. In response to a cloud market study commissioned by the UK Competition and Markets Authority, the company said it “strongly believes that the market for cloud services is working well”.
Correction: A study by the UK Competition and Markets Authority found that Microsoft acquired 60% to 70% of all new UK cloud customers in 2021 and 2022. An earlier version misstated the findings.
