Will EU scrutiny of Microsoft Teams impact Big Tech?

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It’s hard not to notice recent regulatory hard times for Microsoft. Its current distribution of the chat and video app Teams has been accused of being potentially anti-competitive, with the company currently being investigated by the European Commission.

One of the key players in the $16.9bn UK cloud market, the tech giant has been working with regulators to resolve these issues. But is a resolution in sight for Microsoft – and do other enterprise tech giants have cause to also be worried?

Microsoft to unbundle Teams from 365 

As we all know, the pandemic spurred an overnight shift to remote working which saw businesses transition to the cloud and adopt cloud-based software for communication. This opened new market opportunities for business-savvy ERP brands to capitalize on.

Microsoft added Teams to Office 365 in 2017 for free, which eventually replaced Skype for Business and gained in popularity during the pandemic spurred by high video conferencing demand.

Slack Technologies, the work chat leader owned by Salesforce, filed a complaint in 2020 alleging that Microsoft illegally tied Teams to its dominant productivity suites Office 365 and Microsoft 365, putting Redmond in a regulatory spiderweb.

As part of the latest development, the European Commission officially announced on 27 July 2023 that it was opening an antitrust investigation into possible anticompetitive practices by Microsoft regarding Teams, citing concerns that it “may be abusing and defending its market position in productivity software by restricting competition in the European Economic Area (‘EEA’) for communication and collaboration products.”

Margrethe Vestager, the European Commission’s executive vice-president in charge of competition policy, explained that as remote communication and collaboration tools like Teams have become indispensable for many businesses in Europe, “we must therefore ensure that the markets for these products remain competitive, and companies are free to choose the products that best meet their needs. This is why we are investigating whether Microsoft’s tying of its productivity suites with Teams may be in breach of EU competition rules”.

However, while Microsoft was initially considering more minor remedy strategies, it recently announced that it will stop offering Teams as part of its 365 bundles to enterprise customers in Europe, with the move aimed to appease regulators.  

On 31 August 2023, Microsoft announced the step in a series of proactive changes that it “hopes will start to address these concerns in a meaningful way, even while the European Commission’s investigation costs customers in the European Economic Area and Switzerland”, as mentioned in the announcement.

According to Microsoft’s latest plan, from the start of October 2023, it will unbundle Teams from Microsoft 365 and Office 365 suites in the EEA and Switzerland and will instead sell these offerings without Teams at a lower price (€2 less per month or €24 per year).

In addition, it has pledged to enhance its existing resources on interoperability with Microsoft 365 and Office 365 by creating new support resources to better organize and point application developers to the existing and publicly available application programming interfaces (APIs). Along with this, it will create new mechanisms to enable third-party solutions to host Office web applications.

Nanna-Louise Linde, Microsoft’s vice president for European government affairs, explained in a blogpost that the changes in response to the EU concerns should allow customers to choose a business suite without Teams at a price less than those with Teams included; and that we should do more to make interoperability easier between rival communication and collaboration solutions and Microsoft 365 and Office 365 suites”.

She further explained that while this may not necessarily resolve all concerns, whether from the Commission or competitors, they believe “this is a constructive step that can start to lead to immediate and meaningful changes in the market”.

In a similar fashion, both Microsoft and Amazon Web Services (AWS) came under fire from Ofcom, the UK government regulatory authority, when it said it had found evidence of “concerning practices” related to the tech companies’ cloud activity in the UK in April 2023.

Ofcom launched a study last year into the UK cloud sector, scrutinizing if the major cloud players are stifling competition in the market and “making it difficult for other cloud providers to enter the market or smaller companies to expand.”

Laura Petrone, principal analyst in thematic research at GlobalData, tells ERP Today that similarly to the Teams competition dispute, the UK’s earlier decision to block Microsoft’s acquisition of games giant Activision Blizzard because of the consequences it would have on the cloud gaming market “shows that the UK antitrust regulator perfectly aligns with EU and US regulators when deciding which M&As could affect competition in digital markets”. 

“Microsoft failed to reassure the CMA on several potential issues, and the same concerns related to competition in the cloud gaming market are at the center of investigations by the European Commission and the Federal Trade Commission,” she said, adding that “European regulators share the same concerns as the CMA and FTC and that the three organizations (Microsoft, AWS and Google Cloud) are increasingly coordinating their actions to tackle digital monopolies”.

Should Big Tech subsidiaries expect similar issues?

While no company is immune to regulatory issues, this marks Microsoft’s most major regulatory problem in a decade after it agreed to a settlement with the European Commission in 2009, over customer choice regarding web browsers. 

As some industry experts believe that it will take more than Microsoft’s recent step to avert a possible EU antitrust fine, the case has also raised some questions about the future of Big Tech’s global subsidiaries in the EU and UK and their ability to continue expanding as before.

However, looking ahead to the future, Petrone says: “I don’t really see any issues specific to Big Tech subsidiaries in the EU or UK. If anything, more regulation is coming after Big Tech across different markets impacting these giants as a whole, and there are reasons to believe that M&A activity will receive more and more scrutiny whenever there is a risk of killer acquisitions or to harm competition, and not only in Brussels and London, but also in Washington.”