The Federal Trade Commission (FTC) appears ready to open a formal investigation into Microsoft, centering on alleged anticompetitive practices tied to its Azure and Office 365 services, reports the Financial Times. The inquiry aims to uncover whether Microsoft has been using its cloud dominance to impose restrictive terms that prevent customers from moving to other platforms.
According to insider reports, Microsoft may have implemented barriers like steep exit fees and subscription hikes to make it more difficult for users to migrate away from its services. Additionally, allegations claim Microsoft altered compatibility features in Office 365, ensuring that rival cloud services would have trouble integrating with its software, thereby locking users into its ecosystem.
The potential investigation by the FTC is part of a broader effort to examine the practices of leading cloud providers. The move follows the FTC’s request in 2023 for public comment on cloud service provider conduct, during which many users cited restrictive software licensing and excessive data transfer fees as significant hurdles when seeking alternatives. These complaints prompted the FTC to begin scrutinizing Microsoft’s activities more closely.
Exit Fees and Lock-In Allegations Against Microsoft
At the center of the FTC’s scrutiny are claims that Microsoft imposes exit fees on customers attempting to switch from Azure to other platforms. Critics argue that these fees make migration costly, which ultimately discourages competition. Furthermore, Microsoft’s alleged decision to make Office 365 incompatible with other cloud services may prevent users from accessing their data on non-Microsoft platforms.
As of now, the FTC has not officially requested documents from Microsoft, indicating that the investigation remains in early stages. However, the repercussions of a formal inquiry could be far-reaching for Microsoft’s cloud services, especially given increasing scrutiny on the company’s business practices.
Political Changes Could Influence Regulatory Action
The investigation into Microsoft might also be impacted by changing political dynamics in the United States. With Donald Trump slated to assume the presidency, questions loom about whether the new administration will favor a more relaxed approach toward Big Tech regulation. Historically, Republican administrations have emphasized deregulation, and there is speculation that this stance could alter the trajectory of the FTC’s efforts.
Lina Khan, current FTC Chair known for her aggressive antitrust stance, may find it more challenging to push forward cases against major tech companies under the new administration. Whether the FTC will continue its pursuit of Microsoft largely depends on the regulatory direction Trump’s leadership decides to take.
Google’s Allegations Preceding FTC’s Investigation
Microsoft’s latest scrutiny isn’t happening in a vacuum. In June 2023, Google lodged a formal complaint with the FTC, pointing fingers at Microsoft’s conduct in the cloud sector. Google accused Microsoft of using its dominance with Windows Server and Office to incentivize customers into choosing Azure, using restrictive software agreements to stifle competition.
Further accusations claim that Microsoft applies higher costs to run its software on other cloud platforms like Amazon Web Services (AWS) and Google Cloud while exempting Azure customers from such fees. These tactics effectively make it more appealing for customers to stick with Azure, ultimately reducing options for businesses seeking alternatives.
These types of practices are part of a long-running strategy where software companies try to keep customers within their own ecosystems, making it harder for them to leave by either imposing direct costs or limiting technical compatibility.
Microsoft’s Expansion in AI Amid Growing Regulatory Concerns
The FTC’s examination of Microsoft comes at a time when the company is heavily investing in artificial intelligence. On October 31, during its quarterly earnings report, Microsoft discussed the expansion of its AI infrastructure, which includes projects in countries like Brazil, Mexico, Italy, and Sweden. These initiatives aim to meet increasing demand for AI technology across various sectors.
In the first quarter of its fiscal year, Microsoft’s cloud revenue rose by 22%, hitting $38.9 billion. Azure’s significant role in supporting AI expansion has boosted the company’s profits but also raised questions about its practices regarding fair competition in the cloud space.
Meta Under Regulatory Spotlight as Well
The FTC is not just targeting Microsoft. Meta Platforms, Inc., the parent company of Facebook, Instagram, and WhatsApp, is also dealing with major antitrust issues. A federal judge ruled recently, that Meta must face trial for allegedly acquiring Instagram and WhatsApp to neutralize potential competitors rather than fostering innovation.
These acquisitions have not only caught the attention of U.S. regulators but also European authorities. On November 14, 2024, Meta was fined €797.72 million by the European Commission for bundling Facebook Marketplace with its primary platform, a move viewed as an unfair practice aimed at stifling competition from smaller classified ad providers.
FTC’s Broader Focus on AI Partnerships and Collaborations
The FTC’s purview extends beyond cloud computing and social media. In January, it launched a separate investigation into AI partnerships involving leading tech companies, including Microsoft, Google, Amazon, and Anthropic. The inquiry seeks to determine whether these collaborations pose risks to competition or hinder innovation within the AI sector.
FTC Chair Lina Khan has expressed concerns that partnerships among leading AI companies might centralize power, leaving smaller players at a disadvantage. Microsoft’s substantial investments in OpenAI and the integration of technologies like ChatGPT into its Azure services are also under scrutiny. UK regulators, particularly the Competition and Markets Authority (CMA), have joined this effort, seeking more information on these collaborations.
Microsoft’s Settlement with European Cloud Providers
In July 2024, Microsoft reached a $21.7 million settlement with the European Association of Cloud Infrastructure Service Providers (CISPE) after antitrust complaints over its practices in the European cloud market. The settlement aimed to adjust licensing terms for Azure Stack HCI, allowing European cloud vendors greater flexibility.
Despite the settlement, Amazon Web Services and other critics have argued that the concessions do not go far enough to resolve Microsoft’s anti-competitive behavior. Although the deal helped Microsoft avoid a formal EU investigation, it has not eliminated concerns about fairness in cloud licensing practices across Europe.
The regulatory pressure on Microsoft continues to grow, as global authorities examine the company’s influence across various sectors. The potential FTC investigation adds another layer of scrutiny, particularly on Microsoft’s strategy for maintaining dominance in the cloud industry
