Is Microsoft on the verge of an EU antitrust charge?

Microsoft is increasingly feeling the heat. Having been criticised repeatedly for security incidents, poor communication, a lack of data protection and selling some services only in bundles, the software behemoth is now facing a new threat: an EU anti-trust charge. On 25 June, the European Commission announced in an official press release that according to its preliminary findings, Microsoft has a dominant position worldwide in the professional SaaS productivity applications market. The issue at stake: the software company’s tying of M365 with Teams.

The latest investigation by the European Commission into Microsoft followed a 2020 complaint by Slack. Salesforce’s subsidiary accused Microsoft of having integrated Teams and the Microsoft product suite so closely that this is detrimental to competition in the communication and collaboration software market. An additional supplier joined the complaint in 2023. Microsoft reacted by decoupling Teams from its Office and Microsoft 365 suites, first in the EU and in Switzerland only, then worldwide from March 2023. However, it remains highly doubtful that this will suffice to assuage the EU’s concerns over unfair competition. In the event of an antitrust fine, Microsoft could be paying up to 10% of its global annual turnover, which would amount to a hefty sum after the company made approximately USD 230 bn in 2023.

The legal background: the Digital Markets Act
Since the Digital Markets Act (DMA) entered into force in November 2022, Microsoft’s overly dominant position on the market has come into focus. The DMA is aimed at what the EU calls ‘gatekeepers’, i.e. businesses that have a restrictive effect on competition due to their dominant market power. The legislation prohibits a number of practices deemed to curtail competition. However, the DMA does not yet cover all Microsoft products, as key services such as Office applications, OneDrive, Azure and Microsoft Teams as part of the Office suite subscription have clearly fallen outside its scope. The latter is now coming into focus.

Microsoft apparently backtracking
Faced with the prospect of a possible EU antitrust charge, Microsoft President Brad Smith has demonstrated a willingness to compromise. After a meeting in Brussels with Margrethe Vestager, the European Commissioner for Competition, he explained a solution was being sought, conceding that separating Microsoft Teams and Office may not be enough to comply with EU antitrust rules. Microsoft essentially seemed to be awaiting a charge from the EU antitrust authority or a statement of objections. However, Smith did not see this as an irreversible step, according to Reuters, and took everything in his stride.

European Commission taking the gloves off
The real blow came on 25 June 2024, when the European Commission announced in an official communication that it has come to the conclusion that Microsoft’s position on the SaaS productivity applications market could be distorting competition. What it particularly takes issue with is a practice that has been ongoing since April 2019: Microsoft closely couples Teams with key SaaS applications, hindering competition in the communication and collaboration software market. This distribution model does not allow customers to decide by themselves whether they want to use Teams or not as part of their subscription. Another criticism relates to the fact that the limited interoperability between Microsoft programmes and software solutions competing with Teams can also have an additional distortive effect on the market.

If the Commission’s preliminary assessment is substantiated, Microsoft would be acting in violation of Article 102 of the Treaty on the Functioning of the European Union (‘TFEU’), which prohibits the abuse of a dominant market position. Despite already having separated Teams from the other Microsoft services, the software giant is seen by the Commission to have to take more steps to restore competition on the market.

Global criticism of Microsoft mounting
Its anti-competitive practices are not the only reason Microsoft is under fire: its security and data protection issues are another strong source of disapproval. For instance, the European Data Protection Supervisor (EDPS) has found that by using Microsoft 365, the European Commission has been breaching the GDPR. In the USA too, the software behemoth is increasingly coming under attack after the Cyber Safety Review Board (CSRB) recently found serious operative and strategic security flaws on the part of Microsoft, as stated in one of its reports. The CSRB had been investigating the cybersecurity incident that happened last year when Chinese hacker group Storm-0558 stole an Azure Master Signing Key – an entirely avoidable cyberattack, according to the watchdog. Microsoft’s president was even summoned by the US Congress because of it.

What effect will the threat of charges by the European Commission have?
The global pressure on Microsoft has never been higher and yet it should have made more waves, as no company or authority can now use Microsoft subscription services without substantial risks. The reaction has been muted, and this can only be put down to the fact that many institutions have let themselves become highly dependent on the software company over the years. The increasing use of AI in PCs and Microsoft Copilot will only compound this. IT decision makers should therefore avoid making the same mistake by rushing into a shift to the cloud, thereby locking themselves even deeper into a downward spiral. In the face of this conundrum, hybrid solutions offer a way out: a savvy mix of cloud software and used on-premise licenses can help companies reap the benefits, the liberal forces of the second-hand market being an opportunity for them to remain in control, to spread their risks, save costs and reduce any data protection and security concerns.