Microsoft accused by rivals of compressing cloud companies’ revenue margins

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Microsoft accused by rivals of squeezing cloud firms' profit margins

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Ofcom stated it acquired proof exhibiting Microsoft makes it much less enticing for purchasers to run its Office productiveness apps on cloud infrastructure aside from Microsoft Azure.

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Microsoft was accused Friday of abusing the dominance of its Azure cloud computing unit to squeeze a — and, in some circumstances, evaporate — the revenue margins of rival cloud platforms in Europe.

The declare got here in a grievance from CISPE, a commerce physique for “infrastructure as a service” cloud companies in Europe. It additionally comes because the Redmond, Washington-based expertise big is going through intense scrutiny over its cloud computing and software program licensing practices within the European Union, in addition to the U.Ok. and U.S.

The allegations stem from tweaks Microsoft made to its licensing phrases in 2019. Under these guidelines, Microsoft required companies to buy a Software Assurance license and “mobility rights” in the event that they needed to deploy their Microsoft software program on hosted cloud companies provided by rival suppliers.

Customers additionally could not depend on perpetual licenses that they had already bought to run Microsoft purposes on so-called “listed providers” like Alibaba, Amazon, Google, and Microsoft itself. They’d have to purchase new licenses, as an alternative. Meanwhile, some software program, together with Office 365 Windows Apps, was forbidden from operating on rival clouds.

The phrases are the supply of intense anger from competing cloud companies in Europe, like France’s OVHCloud and Italy’s Aruba, in addition to Big Tech competitor Amazon. It additionally shaped the premise of an investigation from the European Commission searching for to find out whether or not Microsoft’s cloud practices are anti-competitive.

Microsoft declined to remark when contacted by CNBC. In 2022, Microsoft President Brad Smith wrote a blogpost saying it was revising its licensing offers and making it simpler for cloud suppliers to compete.

In its grievance Friday, CISPE — which is closely funded by Amazon — confirmed an instance in its analysis the place one member cloud agency, the title of which was not disclosed, noticed revenues from promoting Microsoft merchandise together with Windows Server, and SQL Server companies climb over 300% since 2018, contributing to Microsoft’s personal progress.

But the expansion of the unnamed cloud vendor’s revenue margins did not match Microsoft’s, and actually the competing cloud vendor noticed their margins fall from a optimistic mid-twenties proportion in 2018 to double-digit unfavourable revenue margins in 2023.

The greatest decline in revenue margins for this cloud agency occurred in 2019, the identical yr Microsoft modified its licensing phrases to favor licensing software program on Azure, the CISPE stated. From 2019 to 2020, the CISPE member involved noticed their margin collapse from over 20% to zero.

CISPE additionally stated that members shared proof that the value they have been charged for Microsoft’s SQL Server was a lot increased than the value quoted by Microsoft for purchasers utilizing Azure.

For instance, an organization licensing Microsoft’s software program for internet hosting and delivering their purposes must pay 612.27 euros ($670) per 2-core SQL Server Enterprise product, 92.01 euros greater than what Microsoft fees prospects utilizing Azure on common (520.26 euros), in response to the CISPE’s information.

The grievance and the findings add to earlier analysis from Frederic Jenny, a professor of economics at ESSEC Business School in Paris who focuses on competitors regulation, for CISPE. Jenny discovered that Microsoft successfully fees companies a 28% “tax” to run its software program merchandise on competing cloud companies.

The European Commission instructed CNBC: “The Commission has received several complaints regarding Microsoft, including in relation to its product Azure, which we are assessing based on our standard procedures. We have no further comment to make at this stage.”

The U.Ok.’s Competition and Markets Authority, which took cost from media and telecommunications regulator Ofcom for a probe into competitors within the U.Ok. cloud computing market final yr, was not instantly obtainable for remark when contacted by CNBC.