AWS accuses Microsoft of clipping customers' cloud freedoms
World's biggest off-prem service slinger submits comments to UK cloud inquiry, mostly has Redmond HQ's rival in its sights
AWS has publicly called out Microsoft's software licensing terms, claiming they "restrict choice" and make it "financially unviable" for customers to choose anyone other than Microsoft – something Google and other rivals have complained of.
This was one among the many points addressed by Amazon in its submission [PDF] to Competition Markets Authority, the regulator charged with inspecting the health of the UK cloud sector with special attention to be given to egress fees; committed special discounts; interoperability; and cloud software policies.
Amazon reckons that the first of these four "hypotheses" are "based on fundamental misconceptions about the IT sector, global networking technology, the actual interoperability of IT services, and discounts on offer."
The CMA will "find none of them holds, in particular in relation to AWS," it claims in the filing. Rivals may disagree, particularly in relation to egress fees.
However AWS was positive in its condemnation of Microsoft, highlighting licensing changes it made in 2019 that prohibit customers running certain Microsoft software on AWS, Google and Alibaba, and another that makes its software - which is permitted to run on those clouds – up to five times more expensive to run than on Azure.
In its submissions, AWS says: "Some IT providers, such as Microsoft, use licensing practices that restrict customer choice and make switching more difficult.
"For example, Microsoft changed its licensing terms in 2019 and again in 2022 to make it more difficult for customers to run some of its popular software offerings on Google Cloud, AWS, and Alibaba. To use many of Microsoft's software products with these other cloud services providers, a customer must purchase a separate license even if they already own the software. This often makes it financially unviable for a customer to choose a provider other than Microsoft."
AWS said evidence of its claims are supported by the "preliminary finding" of a CISPE-backed study by Professor Frédéric Jenny, emeritus professor of Economics at ESSEC Paris Business, published in June. That study claimed the need to rebuy additional licenses to run Microsoft software on major rivals' clouds in Europe equated to a cost increase of 80-100 percent for customers "compared to when there was no such requirement."
In its submission, AWS adds: "Microsoft has acknowledged the concerns of customers, but rather than fix its policy so all customers can run Microsoft's software on the cloud services provider of their choice, it has prevented IT customers from being able to run Microsoft's software on specific workloads or specific cloud services providers' infrastructure."
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CISPE – which stands for the Cloud Infrastructure Service Providers in Europe, and is itself supported by member AWS – lobbed a complaint over Microsoft licensing policies to the European Commission in November 2022. The EC antitrust team is also collating evidence from customers and rivals about their view of competition in the cloud industry.
Microsoft made a concession in the summer and allowed customers to bring their own licenses to one AWS service, Amazon Workspaces, yet this "does not resolve its customers' continued concerns over general access to Microsoft's numerous other, widely used services," Amazon's filing says.
"These concerns will persist until IT customers are not prevented from using Microsoft's services on the IT provider of their choice," AWS adds.
So what does Microsoft say in its own submission [PDF] about the CMA's investigation in general? "Competition in the cloud services market in the UK is functioning well. The market is fundamentally competitive and is delivering good outcomes for customers." And of the software licensing accusations in particular?
"Microsoft has adapted its licensing practices over time. Certain changes made in 2019 inadvertently disrupted the business model of smaller cloud providers, who complained to the European Commission.
"To address their concerns, Microsoft made further licensing changes in 2022 which allowed Microsoft software purchased for on-premises use under a subscription to be run in 'Non-Listed' providers' clouds (i.e. any cloud other than Azure AWS, GCP and AliCloud) without any additional charges. These licensing changes amounted to granting customers like-for-like economics on Microsoft software whether used on Azure or through another non-hyperscaler cloud. These licensing changes resolved the complaints led by OVHCloud (and others) and apply globally, including in the UK."
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"Despite this, CISPE, which is primarily funded by Amazon, is engaged in a global campaign seeking to require that Microsoft makes its software available to other hyperscalers on the terms that those hyperscalers prefer. Microsoft's view is that these hyperscalers already have the resources and capabilities to compete in the cloud services market and require no further regulatory intervention from the CMA (or other competition authorities). The issue that CISPE and others are pursuing is fundamentally one relating to the commercial arrangements between hyperscalers and therefore risks being a distraction from the broader industry-wide issues the CMA is considering in its MIR."
Sources previously pointed out to us that these hyperscale rivals, along with Microsoft, account for the vast majority of the cloud infrastructure segment, weakening the concessions Microsoft made to smaller cloud rivals.
For most workloads that enterprises "develop, deploy or migrate to the cloud," the customer does not require Windows Server VMs or any other wares from Microsoft, Microsoft tells the CMA in its submission. Why? Because the "vast majority of cloud-computing applications are based on open source standards like Linux, and not on Microsoft products like Windows Server or Microsoft Office."
Given the highly competitive cloud industry and the limited importance of on-premises software products – as opposed to true cloud services – to competition in the cloud overall, a study of how software from companies like Microsoft, Adobe, Oracle, IBM and others traditionally deployed on-premises is licensed for the cloud risks being a disproportionate distraction to CMA resources as it seeks to conduct its inquiry in a cloud sector characterized by very complex competitive dynamics.
The investigation by the CMA is at a very early stage, it only began last month, yet the regulator has already proposed potential remedies should it find evidence of customers being trapped in financial strangleholds due to egress fees, committed spending discounts, interoperability issues, or software licensing.
Microsoft thinks the CMA should be aware that the global cloud market is "unlike other markets considered" by the regulator in Market Investigation References (MIR) because it is "not a market in a settled or even stable state, where intervention can be targeted at particular problematic aspects of an established status quo."
"Rather, the cloud market is growing rapidly, highly dynamic, and characterized by high levels of investment and innovation. These factors mean that the design of remedies is likely to pose particular challenges, because the risks of unintended consequences – inherent in all MIRs – are more acute. This is particularly critical because the current global competitive dynamics are delivering unequivocally good outcomes for UK customers, who benefit from high levels of investment and innovation and declining prices."
The CMA is scheduled to conclude the investigation by April 2025.