UK Competition Regulator Proposes Strategic Market Status for Microsoft's Business Software

UK Competition Regulator Challenges Microsoft's Business Software Grip

Britain's Competition and Markets Authority proposed on Friday to designate Microsoft with strategic market status in business software, a move that could reshape how the tech giant bundles products such as Excel, Teams and its Copilot AI assistant1

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. The proposal follows an investigation launched in May into whether Microsoft's bundling of its business software products, which have around 20 million monthly users across the UK, was uncompetitive2

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. The CMA's strategic market status designation does not assume wrongdoing but serves as a gateway into the country's digital market powers regime, potentially allowing regulatory interventions in Microsoft's business software grip3

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High Switching Barriers Drive Regulatory Scrutiny

The Competition and Markets Authority found that Microsoft has maintained a dominant position in the UK's business software market for decades, initially gaining prominence through its operating systems and productivity tools before diversifying into cybersecurity and database management3

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. The regulator identified that Microsoft's strength in business software comes from the high switching barriers customers face when moving to other providers1

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. Microsoft's products are closely integrated, offering a more seamless experience than combining services from different companies, while the company's control over key APIs, technical interfaces and data flows can make it harder for competing providers to deliver the same level of functionality3

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. While UK businesses and public sector organizations can benefit from buying several digital products and services from Microsoft, these software bundling practices may also create obstacles when switching to other providers3

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AI Competition and Copilot AI Assistant Under Review

The CMA is further assessing whether customers can freely choose AI tools and whether rivals can compete with Copilot, Microsoft's AI assistant that has become central to the company's business software ecosystem1

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. The regulator noted that the business software landscape is changing rapidly with the evolution of artificial intelligence, and Microsoft's AI products and cloud services are creating further opportunities for businesses and customers across the country4

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. The CMA will examine whether Microsoft's bundling of security products restricted customer choice and how its licensing practices affected their cloud deployment options3

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. Sarah Cardell, chief executive of the CMA, stated that "organizations should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers"3

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Microsoft Disputes Regulatory Findings on Interoperability

A Microsoft spokesperson said the company did not share the CMA's views in its proposed decision, emphasizing that "all our products -- including Copilot -- are open and interoperable, giving customers the ability to use them alongside competing services"1

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. The company maintains that its approach to interoperability allows customers flexibility in their software choices2

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. The regulator has invited comments on the proposed decision by November 13 and will make a final decision by February 13, 20273

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Third Tech Giant Facing UK Digital Market Powers

If the proposal goes through, Microsoft would become the third company subject to Britain's new digital market powers1

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. Google received strategic market status in online search and in mobile platforms, and Apple received strategic market status in mobile platforms, all in October 20255

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. In June this year, the CMA imposed new conduct requirements on Google's search services, including allowing publishers to stop their content being used to power the US tech major's AI features, and ordered Google to provide greater transparency on how its search rankings work2

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. Last year, the regulator designated Google with strategic market status in general search and advertising services after confirming that the company met the legal criteria3

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. The CMA announced in March that it was consulting stakeholders to assess whether Amazon Web Services and Microsoft were following through on commitments to improve customer choice in cloud services and determine whether further action was necessary3

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