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| Microsoft's dangerous regulatory loophole |
As the US Department of Justice prepares to take Google to trial, and Amazon faces a potential showdown with the Federal Trade Commission, it appears that the long-anticipated battle with Big Tech is finally on the horizon. However, one major tech player, Microsoft, has been pursuing a different strategy. Microsoft has been engaging with regulators to address various competition concerns, often trying to resolve issues before they escalate into full-fledged investigations.
Recently, Microsoft attempted to preempt a European Union investigation into its Teams collaboration app by announcing plans to separate the service from its other Office applications in the EU. Additionally, as part of its efforts to gain approval for its $75 billion acquisition of Activision Blizzard in the UK, Microsoft offered to sell its streaming rights to games outside the EU to Ubisoft. This move aimed to alleviate concerns that Microsoft might use these rights to dominate the emerging cloud gaming market.
Microsoft has also been proactive in addressing regulatory concerns related to its cloud licensing practices, which have generated dissatisfaction among some customers since changes were made in 2019. The crux of the dispute revolves around how Microsoft has leveraged its existing software licenses to steer customers toward its own cloud services rather than opting for competitors like Amazon or Google.
Last year, Microsoft acknowledged that its critics had valid concerns and pledged to make changes, but this did not fully quell the complaints or halt the increasing regulatory scrutiny.
From one perspective, Microsoft's concessions appear to be a positive step. Addressing competition concerns early can save regulators from years of catching up with the problem. However, rivals argue that these voluntary actions may not be as significant as they appear. They accuse Microsoft of offering partial solutions, diverting attention from more serious issues, and only acting when damage has already been inflicted.
Some of Microsoft's concessions appear straightforward. By offering to sell its cloud streaming rights to games, Microsoft is allowing Ubisoft to decide how to commercialize these properties independently. This arrangement puts the rights at arm's length. It won't prevent Microsoft from entering the cloud gaming market itself; The company can pay Ubisoft for a commercial license like any other entity. Critics argue that Microsoft has not truly relinquished anything, but if regulators accept the arms-length nature of the deal, it should address concerns about potential future abuse.
However, the concession regarding Teams appears linked. Microsoft initially bundled Teams with Office almost seven years ago, a move viewed at the time as an aggressive tactic to outcompete Slack, similar to bundling its first internet browser into Windows to surpass Netscape. With over 300 million monthly Teams users already onboard, the damage seems to have been done, and unbundling might be too late to prevent Microsoft from gaining dominance in the market. Nevertheless, Microsoft acted before facing pressure from Brussels and opened itself up to scrutiny from other global regulators seeking similar concessions.
In contrast to its compromises on Activision and Teams, Microsoft faces a more formidable challenge in addressing concerns about cloud licensing. Research conducted for CISPE, a European cloud computing industry group, suggests that Microsoft has extracted billions of extra dollars from customers through its licensing terms. While Brussels has initiated an investigation into this matter, other regulators, including the FTC in the US and the Competition and Markets Authority in the UK, have also shown interest. This issues strikes at the core of Microsoft's most critical business, making it difficult for the company to evade regulatory scrutiny in this area.
In conclusion, while Microsoft has been successful in staying out of the regulatory spotlight for some time, the mounting concerns surrounding cloud licensing, a vital aspect of its business, present a challenge that cannot be easily sidestepped.
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