A European cloud infrastructure group has filed a formal competition complaint against Microsoft with the European Commission, in what it claims is an effort to protect vendors and customers from Microsoft’s alleged unfair software licensing practises.
The Cloud Infrastructure Service Providers in Europe (CISPE) group, which represents a number of cloud providers in the region, claims Microsoft’s ongoing position and behaviours are irreparably damaging the European cloud system and depriving customers of choice in their cloud deployments.
In the face of anti-competition complaints filed by CISPE members OVHCloud, Aruba, and the Danish Cloud Community, Microsoft president Brad Smith admitted on 18 May 2022 that the company's licensing terms were harming European providers, said CISPE. This was followed by the tech giant announcing new contractual terms in August 2022, which were then introduced unilaterally on 1 October, 2022.
These changes were meant to support its customers' ability to move their licences to a partner's cloud, make the most of shared hardware, and bring more flexible software licenses, according to Microsoft. This included ensuring customers can user their own software, or install software and run them on any cloud provider's infrastructure. It also made it easier to virtualise Windows 10 or 11 by getting rid of an add-on license requirement for customers who don't have Microsoft hardware.
The tech giant also added the option to license Windows Server on a virtual core basis so customers only need to use the virtual cores they need, instead of being tied to a physical number of cores on the server, which Microsoft said makes it easier to licence when virtualising or outsourcing.
However, CISPE, which includes AWS among its members, has set out a significant number of arguments that claim the tech giant has failed to provide the detail, clarity, or assurance that it truly intends to bring an end to its anti-competitive licensing practises.
What is CISPE arguing is wrong with Microsoft contracts?
The group claims that Microsoft has provided an assortment of commercial and marketing documents that provide very little clarity on what is actually changing and the impact the change would have on customers. The group has been working to establish whether the changes make any difference to its members. It found that while technically more flexibility has been allowed, commercially-speaking most of it is non-feasible.
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Firstly, CISPE claims the issues of technical tying, where products are dependent on other products like OneDrive for backup, bundling, where products are offered as free or discounted like Teams, and interoperability, such as with Azure Active Directory, have not been addressed.
It's also claimed that discriminatory pricing and self-preferencing still exist, as it’s still cheaper to run the same software on Azure compared to competing clouds. CISPE said its members are restricted to purchasing Microsoft licences on annual licences, but customers who use Azure infrastructure only have to commit to a renewable monthly duration, imposing an overcharge based on annual licences.
CISPE has also highlighted that Microsoft requires a minimum licence package of 16 Virtual Core licences, which it believes is generally more than what the average cloud customer needs. It's claimed this rule reduces the flexibility of offerings made by competing cloud providers and increases flexibility for Azure customers who aren’t subject to the same minimum licence purchase.
Perhaps the most aggressive claim was centred around Microsoft's requirement for cloud providers to report the fulfilment usage for both customers that purchase new licences or those that bring their on-premise licences. The group said this is without technical or legal justification and merely exists for the purpose of gaining unfair access to the identity of its competitors’ customers.
Lastly, by requiring that customers sign contractual agreements directly with the tech giant, it gives the company access to customer names and data that could allow it to circumvent cloud partners to sell services on Azure directly.
“We have filed this sector complaint to rectify the harms suffered by vendors and customers alike as a result of unfair software licencing practises,” said Francisco Mingorance, secretary general of CISPE. “Leveraging its dominance in productivity software, Microsoft restricts choice and inflates costs as European customers look to move to the cloud, thus distorting Europe’s digital economy. DG Comp must act swiftly to open a formal investigation with a statement of objections against Microsoft’s software licence abuses to defend the robust cloud ecosystem Europe needs and deserves.”
To solve the issue, CISPE suggested setting out an auditable control framework to test compliance with the Ten Principles of Fair Software Licensing. These principles were devised by CISPE and Cigref, the French association of leading digital customers, in 2021 and have been endorsed by multiple vendor and customer associations in Europe and globally, said the group. It claimed that the principles represent a fair and equitable set of best practises that ensure that software licences of any dominant software vendor prevent it from being used to discriminate, self-preference, or lock-in customers to their own cloud ecosystems.
CISPE has called upon the European Commission to open a formal investigation and consider using its principles as a tool to ensure fair software licensing terms for cloud customers. It also suggested creating an independent European Observatory to carry out audits of software licencing terms of any dominant software company.
This comes after rival cloud firms filed antitrust complaints against Microsoft with the European Union in March 2022. The complaints claimed that Microsoft's licences for cloud-based products favour Azure, its own cloud service. It alleged that the services perform better on Microsoft’s cloud service and are licenced in a way that makes it more expensive on other platforms.
After receiving complaints from its EU-rivals, Microsoft implemented changes to its software licensing terms in August 2022, aiming to make it easier to run its software on EU cloud platforms. It allows customers to use their licences on any European cloud provider that delivers the services to their own data centres. However, it excludes data centres run by AWS, Google Cloud, Alibaba, and Microsoft Azure, since it aimed to help smaller cloud service providers.
"The licensing changes we introduced this October give customers and cloud providers around the world even more options for running and offering our software in the cloud," a Microsoft spokesperson told IT Pro. "We remain committed to addressing valid licensing concerns and support a competitive environment where all providers can thrive.”
