Microsoft faces UK competition probe over business software dominance and AI integration

CMA Launches Strategic Market Status Investigation Into Microsoft

The Competition and Markets Authority announced it will open a UK competition probe into Microsoft's business software ecosystem beginning in May 2026, examining whether the tech giant should receive strategic market status designation under the Digital Markets Competition Regime 1

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. The investigation will scrutinize software licensing practices for products including Windows, Word, Excel, Teams, and the Copilot AI assistant, potentially affecting hundreds of thousands of UK businesses and public sector organizations 4

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The CMA's decision follows wider concerns about Microsoft's position in business software, encompassing productivity tools, operating systems, and database management. Sarah Cardell, CMA chief executive, stated the agency is "not just responding to today's concerns but getting ahead of emerging issues too" 2

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. If granted strategic market status, the designation would allow the regulator to impose penalties and conduct requirements on Microsoft, subject to separate legal processes that could take up to nine months 3

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AI Integration in Workplace Tools Drives Regulatory Scrutiny

The rapid embedding of artificial intelligence into familiar Office Suite applications has become a pivotal concern for regulators. The CMA specifically highlighted the integration of advanced AI, including assistants and emerging 'agentic' technologies, as a critical moment for the sector with implications for UK productivity and competitiveness 1

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. The watchdog expressed concern that the dominance of Windows and Microsoft's productivity tools could make it harder for newer entrants to compete, particularly as AI tools such as Anthropic's Claude Code and Google's Gemini grow rapidly 2

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The CMA is focusing on cloud interoperability and ensuring customers can mix and match AI and productivity tools across multiple providers, addressing concerns about potential vendor lock-in 3

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. A key driver of the strategic market status decision was the CMA's finding that Microsoft had made no material progress on licensing concerns since its cloud market investigation concluded in July 2025 4

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Cloud Services Market Shows Concentration Despite Commitments

The CMA's prior investigation into the cloud services market revealed that Microsoft and Amazon Web Services each cornered as much as 40% of UK customer spend on cloud services, which also underpin artificial intelligence model development and deployment 1

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. UK customers spent £10.5 billion ($13.9 billion) on cloud services in 2024, with spending growing by nearly 30% each year since 2020 1

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Microsoft's competitors Amazon Web Services and Google Cloud have complained that the company charges more to run its software, such as Windows, for customers using their cloud platforms than on its own Microsoft Azure service 2

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. Despite an independent panel report last summer stating the UK cloud market was "not working well," the CMA stopped short of imposing new conduct requirements on Microsoft Azure or AWS 2

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Microsoft and AWS Commit to Improved Interoperability

Both Microsoft and Amazon Web Services have committed to material steps to improve competition in the cloud services market, which the CMA will keep under review 1

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. The companies pledged to remove egress fees from UK customer contracts for a switching period of at least 180 days and will introduce new products directly connecting their datacenters to each other and to Google Cloud Platform 4

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. Microsoft said it would implement contractual changes within two months 4

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Brad Smith, Microsoft's president, emphasized that the cloud market remains intensely competitive, with large investments by Amazon, Google, Oracle, and new neo-cloud entrants. "Ironically with Google, a complainant in this review, growing faster in the last quarter of 2025 than Amazon or Microsoft," Smith said 1

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. Google Cloud's revenue grew 48% last quarter, while AWS and Microsoft Cloud's revenue grew by 24-26% in the same period 3

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Global Regulatory Pressure Mounts on Microsoft

The UK probe places Britain alongside other jurisdictions scrutinizing Microsoft for anticompetitive practices. Brazil's CADE has opened a parallel investigation into Microsoft's corporate software and cloud conduct, while Japan's JFTC is examining whether Microsoft Azure restricts customers and rivals from combining services across providers 4

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. The CMA has already used the strategic market status regime to rein in Google's search engine and Apple and Google's mobile app stores 2

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Mark Boost, CEO of UK-based cloud provider Civo, praised the probe's intentions but criticized it for "not providing adequate solutions to solve the serious issues surrounding the dominance of these key foreign-based hyperscalers" 3

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. The former head of Amazon UK, Doug Gurr, who was confirmed as the CMA's permanent chair last month, recused himself from any involvement in the agency's decision in light of his previous role 2

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. The scope of the investigation and an invitation to comment will be published when proceedings commence in May 4

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