The Competition and Markets Authority (CMA) has formally launched its investigation into Microsoft’s business software to look at whether the provider of office productivity and database software should be categorised with strategic market status (SMS).
The CMA will be looking at whether Microsoft is making it difficult to integrate its products with that of other providers, which limits the ability of UK customers to gain access to the best products at the most competitive prices. The investigation will also consider Microsoft product bundling, a practice which can lead to Microsoft’s own products working more seamlessly together than if certain products are replaced by best-in-class third-party alternatives to solve specific business challenges.
The Windows software ecosystem is what has made Microsoft the dominate company that it is today and, as it builds out more and more artificial intelligence (AI) capabilities, there is a very real risk that new entrants and alternative AI engines may be unable to compete.
This is another aspect of the CMA investigation, where the regulator will assess how AI competitors are able to integrate with Microsoft’s business software, giving customers access to AI software across suppliers to best suit their needs. Another area of investigation is default settings in software, which can prevent customers from switching to alternative business software providers.
The CMA’s investigation will examine whether Microsoft has SMS in business software and consider whether it can use that position to limit customer choice. An SMS designation would enable it to consider whether to intervene on a key concern from its cloud market investigation – particularly Microsoft’s use of software licensing, which was found to be reducing competition in cloud services.
The CMA has been investigating concerns that Microsoft uses its dominant position in software (such as Windows Server and SQL Server) to limit competition in the cloud market by making it more expensive or difficult to host these products on rival platforms such as AWS or Google Cloud.
In March, the CMA announced that following engagement with Amazon Web Services (AWS) and Microsoft, the two companies agreed to make changes to cloud egress fees and product interoperability. Microsoft and AWS had been the subject of the CMA’s “cloud services market investigation”, which concluded last July and could have seen both companies designated with SMS.
With the Microsoft business software investigation, the CMA said it wants UK customers to be able to access the best tools in the market, and mix and match software and AI services from a broad range of competing suppliers. It said the investigation will examine Microsoft’s provision of a range of business software products used by UK organisations, including productivity software, personal computer and server operating systems, database management systems and security software.
Last month, Microsoft 365 Commercial cloud reported a quarterly revenue increase of 19%, and its Productivity and Business Processes business posted revenue of $35bn, an increase of 17% over the same period last year. Although there are commercial and open source alternatives to the Microsoft office productivity suite, it remains the de facto standard thanks, in part, to the dominance of the Windows operating system on business PCs.
Sarah Cardell, chief executive at the CMA, said: “Business software is a cornerstone of how the UK economy functions, from small businesses to major public services and infrastructure. Our aim is to understand how these markets are developing, Microsoft’s position within them and to consider what, if any, targeted action may be needed to ensure UK organisations can benefit from choice, innovation and competitive prices.”
The CMA’s nine-month investigation will include responses from customers, rivals and challenger technology, along with evidence submitted by Microsoft. It aims to reach a decision by February 2027.
Cardell has previously stated that an SMS designation would enable the CMA to address issues concerning Microsoft’s licensing practices in the cloud and ensure a level playing field as AI becomes embedded into business software. The CMA hopes the investigation will encourage a competitive and resilient business software market for UK businesses and the public sector.