US regulators plan to investigate Microsoft’s cloud business

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The Federal Trade Commission is preparing to launch an investigation into anti-competitive practices at Microsoft’s cloud computing business, as the US regulator continues to pursue Big Tech in the final weeks of Joe Biden’s presidency.

The FTC is examining allegations that Microsoft is abusing its market power in productivity software by imposing punitive licensing terms to prevent customers from moving their data from its Azure cloud service to competitors’ platforms, according to people with direct knowledge of the matter.

Tactics being examined include substantially increasing subscription fees for those that leave, charging steep exit fees and allegedly making its Office 365 products incompatible with rival clouds, they added.

The FTC is yet to formally request documents or other information from Microsoft as part of the inquiry, the people said.

A move to challenge Microsoft’s cloud business practices would mark the latest broadside against Big Tech by the FTC’s chair Lina Khan, who has centred her tenure on aggressively curbing the monopolistic powers of the likes of Meta and Amazon.

Khan, who has become the public enemy for most of Wall Street’s dealmaking community, is set to be replaced after president-elect Donald Trump enters the White House next year.

While any successor to Khan may not adopt as tough a stance, potential contenders are expected to continue targeting Big Tech companies which have attracted bipartisan ire in Washington. The Republican party has accused online platforms of allegedly censoring conservative voices.

The decision to launch a formal probe would come after the FTC sought feedback from industry participants and the public on cloud computing providers’ business practices. The results in November last year revealed that most responses raised concerns around competition, the agency said at the time, including software licensing practices that curb the ability to use some software in other cloud providers’ ecosystems.

The FTC also highlighted fees charged on users transferring data out of certain cloud systems and minimum spend contracts, which offer discounts to companies in return for a set level of spending.  

Microsoft has also attracted scrutiny from international regulators over similar matters. The UK’s Competition and Markets Authority is investigating Microsoft and Amazon after its fellow watchdog Ofcom found that customers complained about being “locked in” to a single provider, which offers discounts for exclusivity and charge high “egress fees” to leave. 

In the EU, Microsoft has avoided a formal probe into its cloud business after agreeing a multimillion-dollar deal with a group of rival cloud providers in July.

The FTC in 2022 sued to block Microsoft’s $75bn acquisition of video game maker Activision Blizzard over concerns the deal would harm competitors to its Xbox consoles and cloud-gaming business. A federal court shot down an attempt by the FTC to block it, which is being appealed. A revised version of the deal in the meantime closed last year following its clearance by the UK’s CMA.

Since its inception 20 years ago, cloud infrastructure and services has grown to become one of the most lucrative business lines for Big Tech as companies outsource their data storage and computing online. More recently, this has been turbocharged by demand for processing power to train and run artificial intelligence models.

Spending on cloud services soared to $561bn in 2023 with market researcher Gartner forecasting it will grow to $675bn this year and $825bn in 2025. Microsoft has about a 20 per cent market share over the global cloud market, trailing leader Amazon Web Services that has 31 per cent, but almost double the size of Google Cloud at 12 per cent.

There is fierce rivalry between the trio and smaller providers. Last month, Microsoft accused Google of running “shadow campaigns” seeking to undermine its position with regulators by secretly bankrolling hostile lobbying groups.

Microsoft also alleged that Google tried to derail its settlement with EU cloud providers by offering them $500mn in cash and credit to reject its deal and continue pursuing litigation.

The FTC and Microsoft declined to comment.