Will Regulators Target Microsoft in the Future?


The Wall Street Journal recently published an article about Big Tech companies consolidating their gains ahead of what is expected to be an intense 2023 regulatory agenda.

The article highlights the four dominant tech players: Meta (aka Facebook), Apple, Alphabet (aka Google) and Amazon. Though Microsoft is not specifically mentioned, many are wondering if it is “on the radar.” With legal action from the FTC already underway with respect to its acquisition efforts of Activision, one can only speculate if Microsoft is being readied for the “second wave” of regulatory scrutiny.

Let’s consider the possibility of future regulatory inquiry. The commercial business for Microsoft and its enterprise customer segment is built atop three major cloud properties: 1) Microsoft 365, the user productivity cloud, 2) Dynamics 365, the business solutions cloud that offers ERP and CRM tools, and 3) Microsoft Azure, the hyperscaler service that supports end-user datacenter transformation.

What To Know about Microsoft Cloud Solutions

  • Microsoft 365 is the dominant cloud offering in the market and has little to no commercial competition. It is pervasive throughout the marketplace and touches virtually all professional knowledge workers in business enterprises around the globe. Microsoft typically charges more than $500/user/year in its subscription model.
  • Dynamics 365 is a cloud property that competes in a vibrant marketplace with well-known tech companies such as Salesforce, SAP, Oracle, Workday and many other boutique players. Microsoft holds no special place in this market.
  • Microsoft Azure, like Dynamics 365, competes in the hyperscaler market that has some competition, including four general-purpose providers, including AWS, Google Cloud and Alibaba. Several point-product providers also compete here such as SAP, Oracle and IBM, whose services are purposely tied to their application software.

Back in 1998, Microsoft ran into regulatory headwinds when it leveraged its Windows desktop operating system to compete in the nascent web browser marketplace. The practice of leveraging a dominant market position with one product to compete in another market with a less competitive product is sometimes defined as “tying” by the FTC. Microsoft ultimately had to change its business practices as a result of this anticompetitive practice.

Now, let’s fast forward to today. There is widespread concern about the lack of competition for Microsoft 365 and the significant risk enterprises face in terms of cost increases. Microsoft has demonstrated a pattern of linking product scope in renewal transactions to available agreement concessions. The ability to retain reasonable Microsoft 365 concessions, in part or in whole, is largely dependent on how much new business a client is willing to provide in either Dynamics 365 or Azure.

How To Do Business with Microsoft

What we are seeing today is different than the alleged “tying” that took place in the late 1990s, but both involve a demonstrably dominant product – Windows Desktop Operating System then and Microsoft 365 now. These products were and are being used to compel customers to acquire services from Microsoft that they would otherwise shop around for in an open marketplace. Whether packaging products or withholding concessions to “upsell” customers, Microsoft is using a noncompetitive market to its advantage.

The cost of doing business with the Microsoft 365 cloud, at a typical cost of $500/user/year, translates into millions of dollars each year. A 5,000-employee enterprise is likely to incur annual fees of $2.5 million, with costs rising as employee numbers rise. When renewal concessions for Microsoft 365 are withheld pending the customer’s decision to participate in either of Microsoft’s other clouds, the punitive costs to customers are non-trivial.

For these reasons – and because so many customers are beginning to raise these concerns more openly – it is logical to anticipate that the next wave of regulatory intervention into Big Tech will include Microsoft.

Enterprises cannot stand by and wait for regulatory intervention. They need to plan for these difficult scenarios and determine how to manage the risk of doing business with Microsoft. Working with a qualified advisor can help you understand how to avoid unexpected surprises and costs from Microsoft. ISG Provider Lens publishes studies to help enterprises navigate the Microsoft ecosystem.

Contact us to find out how we can help.


About the author

Louis Pellegrino

Louis Pellegrino

Louis joined the ISG team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.

During his time with Microsoft, Louis worked in both the Consulting Service Group as a Practice Manager and in the Worldwide Licensing and Pricing Group as a Director responsible for designing and negotiating Global Volume Licensing relationships. As a highly effective and influential communicator/negotiator, Louis has delivered consistent business results across both revenue and quality of service performance targets.