FTC eyes Microsofts cloud practices amid anti-trust scrutiny
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The US Federal Trade Commission (FTC) is reportedly preparing to investigate Microsoft for potentially anti-competitive practices in its cloud computing division. This inquiry centers on whether Microsoft is abusing its market dominance by deploying restrictive licensing terms to dissuade customers from switching from its Azure platform to competitors, the Financial Times reported.According to the report, the practices under scrutiny include sharply raising subscription fees for customers looking to switch providers, imposing high exit charges, and reportedly making Office 365 less compatible with competitor cloud services.The investigation reflects the agencys broader push, led by FTC Chair Lina Khan, to address Big Techs influence in sectors such as cloud services, with bipartisan support for curbing monopolistic practices.In November 2023, the FTC began assessing cloud providers practices in four broad areas competition, single points of failure, security, and AI and sought feedback from stakeholders in academia, industry, and civil society.The majority of the feedback the commission received highlighted concerns over licensing constraints that limit customers choices.Microsofts cloud strategy under fireThe inquiry reported by the Financial Times is still in its early stages, but an FTC challenge could significantly impact Microsofts cloud operations, which have grown rapidly in recent years.Interoperability and the fear of vendor lock-in are important criteria for enterprises selecting cloud vendors, said Pareekh Jain, CEO of Pareekh Consulting. This could create a negative perception of Microsoft. Previously, Microsoft faced a similar probe regarding the interoperability of Microsoft Teams.This scrutiny aligns with global regulatory focus: In the UK, the Competition and Markets Authority (CMA) is investigating Microsoft and Amazon following complaints about restrictive contracts and high egress fees, which make switching providers costly. Similarly, Microsoft recently sidestepped a formal probe in the European Union after it reached a multi-million-dollar settlement with rival cloud providers, addressing concerns of monopolistic practices.Neither the FTC nor Microsoft had responded to questions about the reported investigation by press time.Microsofts position in the cloud marketCloud computing has rapidly expanded, with industry spending expected to reach $675 billion in 2024, according to Gartner. Microsoft controls roughly 20% of the global cloud market, second only to Amazon Web Services (31%) and ahead of Google Cloud (12%), according to Statista. Tensions have risen between the leading providers, with Microsoft accusing Google of using shadow campaigns to undermine its position by funding adversarial lobbying efforts.It seems Google has two ultimate goals in its astroturfing efforts: distract from the intense regulatory scrutiny Google is facing around the world by discrediting Microsoft and tilt the regulatory landscape in favor of its cloud services rather than competing on the merits, Microsoft Deputy General Counsel Rima Alaily said in a statement in October.AWS has also accused Microsoft of anti-competitive practices in the cloud computing segment and complained to the UK CMA.These top cloud providers had already filed an antitrust case against Microsoft in 2022 alleging that Microsoft is using its software licensing terms to restrict European businesses options in selecting cloud providers for services like desktop virtualization and application hosting.Previous FTC interventions and growing cloud sector scrutinyThis move follows the FTCs legal challenge against Microsofts $75 billion acquisition of Activision Blizzard, which faced antitrust concerns around Microsofts cloud gaming business. While a federal court allowed the acquisition to proceed, the FTCs appeal highlights its commitment to maintaining oversight of Big Techs market reach.Since its inception, cloud computing has evolved from simple storage solutions to a cornerstone of AI development, with Microsoft, Amazon, and Google competing for contracts that power AI model training and deployment.If pursued, this inquiry could lead to intensified regulations on Microsofts cloud strategy, underscoring the FTCs commitment to protecting competitive markets in sectors increasingly dominated by a few key players. Neither the FTC nor Microsoft has publicly commented on the matter.Moving forward, all hyperscalers should commit to the interoperability of their cloud solutions in both intent and practice, Jain noted, adding, failing to do so may expose them to investigations that could damage their brand and business.Shared blameIf enterprises are finding themselves locked in to high costs, though, some of the blame may fall on them, suggested Yugal Joshi, a partner at Everest Group. Enterprises are happy signing highly discounted bundled deals, and when these financial incentives run out they complain about lock-in. Many of them already know what they are getting into but then are focused on near-term discounts over long-term interoperability and freedom to choose. Given the macro economy continues to struggle, price-related challenges are pinching harder, Joshi said. Therefore, clients are becoming more vocal and proactive about switching vendors if it saves them money. Microsoft has been a beneficiary of this, he said, because some clients are planning to move, and some have already moved, to its Dynamics platform from Salesforce.
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