Google files EU antitrust complaint accusing Microsoft of stifling cloud competition

• Google said in an antitrust complaint filed Wednesday that Microsoft uses unfair licensing contracts in its Azure cloud computing business to stifle competition.
• In its complaint, Google — which ranks third globally in the cloud computing market behind market leaders Amazon Web Services and Azure — said Microsoft makes it harder for customers to move their workloads to competitors' clouds.
• It comes after a slew of cloud companies in July agreed a settlement with Microsoft which would see the firm make changes to address competition concerns.

Google filed an antitrust complaint with the European Commission on Wednesday accusing Microsoft of using unfair licensing contracts to stifle competition in the multibillion-dollar cloud computing industry.

At the heart of Google's complaint is the allegation that Microsoft uses unfair licensing terms to "lock in" clients and exert control over the cloud market.

Google alleges that Microsoft, through its dominant Windows Server and Microsoft Office products, can make it difficult for its massive roster of clients to use anything but its Azure cloud infrastructure offering.

The internet giant said in its complaint that restrictions contained in Microsoft's cloud licensing terms make it harder for customers to move their workloads from Microsoft's Azure cloud technology to competitors' clouds, despite there being no technical barriers to doing so.

European businesses and public sector organizations have been forced to pay the firm up to 1 billion euros ($1.1 billion) a year in licensing penalties due to restrictions on customers' ability to switch from one cloud provider to another, Google said, citing a 2023 study by CISPE, a trade body for the cloud computing sector.

The antitrust complaint from Google arrives after CISPE and its members in July agreed to a settlement with Microsoft which would see the firm make changes to address competition concerns.

Referring to the CISPE settlement, Microsoft said in a statement Wednesday that it expects the European Commission, the executive body of the European Union, to dismiss Google's complaint.

"Microsoft settled amicably similar concerns raised by European cloud providers, even after Google hoped they would keep litigating," a Microsoft spokesperson told CNBC via email. "Having failed to persuade European companies, we expect Google similarly will fail to persuade the European Commission."

Microsoft's cloud 'tax' at issue

In a summary of the complaint, Google — which ranks third globally in the cloud computing market behind market leaders Amazon Web Services and Microsoft Azure, respectively — said that Microsoft "harms cybersecurity and undermines innovation."

According to Google, if a company runs Microsoft's Office suite of productivity tools and other applications on Google Cloud Platform or other competing clouds, they are effectively required to pay a "tax" in the form of punchy licensing fees to Microsoft.

Google said Microsoft undermined competition in cloud, and referred to findings of a U.K. Competition and Markets Authority study which determined Microsoft acquired 60% to 70% of all new British cloud customers in 2021 and 2022.

Google also suggested that Microsoft's cloud practices have potentially made businesses more prone to security issues.

In an interview with CNBC's Arjun Kharpal on Wednesday, Amit Zavery, Google Cloud's head of platform, said Google believes Microsoft is "100%" in violation of EU antitrust rules.

"We would like the cloud market to remain and become very vibrant and open for all the providers including European vendors, vendors like us, AWS and others," Zavery said.

"Today the restrictions does not allow choice for customers," he said, adding that Microsoft included restrictions once it realized the massive commercial potential of the technology.

"So, we would want those restrictions to be removed and allow customers to have and choose whatever cloud provider they think is best for them commercially and technically," he added.

Zavery told CNBC that if Microsoft makes changes to its cloud licensing terms as a result of its complaint, Google and cloud customers more broadly would be "very happy."

Following the July settlement agreement with Microsoft, CISPE said the tech giant would work with its members to release an enhanced version of Azure Stack HCI, a cloud infrastructure product, to offer the same features that Microsoft customers using its Azure product currently benefit from.

Google, which is not a CISPE member, said it disagreed with the settlement and chose not to participate in the agreement. Amazon Web Services, which is a CISPE member, and Alibaba's cloud unit AliCloud, also chose not to become part of the settlement.

For its part, Microsoft has denied that its cloud practices harm competition. In response to a cloud market study initiated by the U.K.'s Competition and Markets Authority, the firm said that it "firmly believes that the cloud services market is functioning well."

Correction: A U.K. Competition and Markets Authority study determined Microsoft acquired 60% to 70% of all new British cloud customers in 2021 and 2022. An earlier version mischaracterized the findings.