Microsoft blows deadline for special Azure for EU hosters

Lawyers prepare to get suited and booted if 'Plan B' to address unfair competition claims is a no show

Microsoft has failed to deliver a special version of Azure for EU cloud providers on time, raising the specter of legal action if it is unable to devise a "commercially equivalent solution" in less than two months' time.

The dispute extends back several years. A trade group known as the Cloud Infrastructure Service Providers of Europe (CISPE) first filed a complaint with EU antitrust authorities in November 2022 about the higher cost Microsoft charges to run Windows Server, Exchange, and SharePoint on clouds outside of Azure.

To resolve the complaint, Microsoft in July 2024 committed to co-develop and promote a new version of Azure Local, formally known as Azure Stack HCI, for European hosters that includes features previously available only to customers using Microsoft's own Azure service.

The product was intended to include multitenancy support for multiple customer workloads; unlimited virtualization and multi-session VDI for Windows 10, 11, and future versions; pay-as-you-go licensing for SQL Server; and free extended security updates.

Microsoft committed to build the platform, referred to as the Hoster Product, by the middle of last month. But as The Reg warned early in April, sources told us it was inevitable Microsoft would miss the agreed deadline as it had low-balled the engineering work involved.

And so it has come to pass.

The latest report by European Cloud Collaboration Observatory (ECCO) - an independent body set up by CISPE to write technical progress updates for its 37 members - is blunt regarding Microsoft's shortcomings.

"Both Microsoft and CISPE have now agreed that Azure Local will not deliver the full set of features outlined in the Agreement," it states.

It's been a bad week for Microsoft regarding grumblings over its cloud licensing practices. A report co-authored by Dr Aleksandra Boutin and Dr Xavier Boutin, with financial support from Google, states that Microsoft's licensing "continues to inflict broad harm to European CSPs and Cloud Customers."

Mark Boost, CEO of Civo, told us, "Microsoft's licensing practices have long been a barrier to fair competition in the cloud … customers are effectively incentivised to run legacy Microsoft workloads on Azure, with punitive costs or technical hurdles if they want to use alternative providers."

Frank Karlitschek, CEO of Nextcloud, told us, "The report emphasizes the approach by big tech firms to bundle and gate keep, locking customers into their solutions and making migration hard or impossible." However, Karlitschek noted Google's financial support: "They eventually employ these same tactics against competition."

He added, "We call on the European Commission to strongly enforce anti-trust and related regulations like the DMA against all big tech firms to ensure a level playing field."

And Microsoft? A spokesperson told The Register, "When we hear legitimate concerns from cloud providers, we listen and have made changes, and we continue engaging constructively. However, this particular research seems aimed at boosting the bottom line of some of the largest cloud market participants by changing their licensing terms and tilting the regulatory environment in their favour."

Microsoft and CISPE have agreed to give up on the Hoster Product and move to a "Plan B", "to focus on alternative commercially equivalent approaches to meeting the fair licensing commitments outlined in the Agreement," the ECCO report adds.

Francisco Mingorance, secretary general of CISPE, said in a statement: "It is disappointing that the proposed product did not deliver, but this is not the end of the Agreement. Phase 2 opens the door to discuss alternative, commercially equivalent solutions that enable CISPE members and Europe’s cloud infrastructure providers to compete fairly, while still offering Microsoft's productivity tools to their customers."

During an interview with The Register, Mingorance expressed frustration with the entire process.

"Probably many of the companies in CISPE see Plan B as a better outcome than having to run more software, and more Microsoft software, to run on top," he said.

"Azure Local," he explained, "requires dedicated hardware, so you have to spend a lot of money to actually upgrade or change your infrastructure."

However, if a third-party cloud provider could run the same workload as on Azure without somebody having to pay Microsoft extra for the privilege, then the problem goes away.

"There was already a demand from customers, from European cloud provider customers, to run as much Microsoft software locally as possible, as opposed to on Redmond servers."

This was evident even "before Trump," he added, "before the US administration [began] going crazy with their European partners."

Microsoft is probably not keen on that idea, Mingorance speculated. "They want to drive as much traffic to Azure as they can. And how best to do that? Have everyone run Microsoft software on the Azure platform rather than a competing platform."

Microsoft has less than two months to come up with proposals for Phase 2, or Plan B. The submission must come in by July 10, the first anniversary of the memorandum of understanding. Failure to do so could spur another formal complaint to the EU.

A spokesperson at Microsoft sent a statement to The Register:

"We are committed to ensuring a successful relationship with the European cloud community and a strong, durable and collaborative partnership with CISPE. We are reviewing the second ECCO report and are excited about the new path forward with CISPE and its members."

In addition to agreeing to create this now-abandoned Hoster Product and suspending audits of CISPE members for two years, Microsoft also made an unspecified payment to the trade association as part of the settlement. Even if Microsoft can't fulfill the commitment under the MoU, CISPE is keeping that money.

Google had actually offered larger payment to CISPE not to settle the complaint, sources previously told The Reg, but CISPE selected Microsoft's proposal since it would, in theory, address the central pain point of its members: Microsoft's habit of driving customers to its own cloud with aggressive licensing practices for products such as SQL Server.

Nicky Stewart, senior advisor to the Google supported trade group, the Open Cloud Coalition, said in a statement:

"Microsoft has a track record of delaying, deflecting, and offering superficial commitments to avoid real change. Meanwhile, it further consolidates its dominant position. This case is no different. The ECCO process is no substitute for formal antitrust enforcement. It lacks the authority to hold anyone to account. This is why the cloud market is in urgent need of robust antitrust action."

European cloud biz OVHcloud said it is widening the scope of the argument to put all of the US cloud titans in the frame, saying there "still is a crucial need for further action to effectively put an end to all anticompetitive practices implemented by hyperscalers/dominant players in the EU cloud market.

"With the risk of escalating of such practices through the emergence of AI (Artificial Intelligence), the pressure from European authorities and cloud ecosystem over their behavior is more important than ever."

Microsoft licensing has also fallen under the spotlight of the UK's Competition Markets Authority, although Microsoft has sought to justify its pricing strategy with that regulator. ®