Microsoft faces CMA market status proposal over business software

Microsoft faces potential targeted competition rules in the UK after the Competition and Markets Authority proposed designating its business software ecosystem with strategic market status. The products serve more than a million UK businesses and public sector organisations, and the regulator must reach a final designation decision by February 2027.

The proposal, announced by GOV.UK Business, opens a consultation rather than imposing immediate requirements. Alongside it, the CMA has published a provisional programme of work covering software bundling, competing AI tools and the freedom to use Microsoft licences on different cloud services.

What happened

The CMA’s investigation covers five areas: personal computer operating systems, productivity software suites, security software, server operating systems and relational database management systems. Its provisional assessment finds Microsoft has a strong position in each.

The regulator identifies difficulties in switching supplier as a central source of that strength. Those barriers restrict customers’ options and reduce the competitive pressure that other software developers can exert on Microsoft.

It also finds that commercial arrangements and advantages arising from product integration can encourage customers to buy more Microsoft services. According to the provisional findings, this creates obstacles that rival developers cannot readily overcome.

Strategic market status would give the CMA scope to consider tailored measures, provided the relevant legal tests were met. Possible tools include conduct requirements and pro-competition interventions; the designation itself would not establish wrongdoing.

That distinction separates this proposal from enforcement resulting in penalties, such as the CMA’s £6m fines involving Wayfair, Appliances Direct and a gym operator. No financial penalty is announced in the Microsoft update.

The accompanying roadmap is also conditional. It identifies subjects for further evidence-gathering if Microsoft is designated, rather than setting out a completed package of changes to the company’s products or contracts.

One priority is whether businesses can select the AI capabilities that best meet their needs. The CMA wants to examine whether providers competing with Microsoft’s Copilot have a fair opportunity to supply those customers.

Security products form another strand. The regulator plans to investigate whether Microsoft’s approach to packaging and integrating those services restricts customers’ ability to choose alternatives.

A third strand concerns cloud licensing: whether organisations have an effective choice of cloud platform on which to deploy their software licences, and how Microsoft’s licensing arrangements influence that decision. The wider work also considers making it easier for developers to connect their products with Microsoft’s ecosystem.

The background

Microsoft’s UK business software has about 20 million monthly users. Its workplace products include Word, Excel, Outlook, PowerPoint and Teams, alongside Copilot and its security, server and operating system software.

The investigation comes as AI functionality expands within familiar office applications. The CMA identifies the move towards agentic AI as a significant change in the sector, making access for competing AI suppliers an important part of its assessment.

AI agents are also attracting scrutiny beyond competition policy, with the Information Commissioner’s Office questioning OpenAI, Meta and Anthropic about the technology. The CMA’s focus here is whether customers can combine software and AI services from different providers.

For government and organisations delivering critical services, the regulator links that flexibility to resilience and strategic autonomy. Its concern is whether they can choose, replace and combine digital services without becoming excessively reliant on one technology supplier.

The UK’s digital markets regime allows interventions to be designed around particular activities and business practices. Its engagement process includes major companies, smaller challengers and consumer groups, rather than relying solely on discussions with the business under investigation.

The CMA uses other competition processes to address different types of market concern, including Macquarie’s proposed Energy Assets sale. In Microsoft’s case, any eventual intervention would be considered through the digital markets framework and would require its own legal assessment.

What people are saying

CMA chief executive Sarah Cardell said organisations should be able to select suitable products, change supplier and use services from several providers together. She described Microsoft’s presence in UK business software as substantial and established over a long period.

Cardell said that, if designation proceeds, the regulator would concentrate on strengthening competition and increasing customers’ ability to use Microsoft products alongside alternatives. The roadmap identifies the possibility of lower prices, alongside benefits for innovation and growth, as reasons to investigate further.

She also pointed to progress in separate discussions with Microsoft and Amazon Web Services over cloud services. Those talks sit outside a formal strategic market status designation process and seek improvements through engagement with the companies.

The CMA announced in March that it was speaking to a broad range of stakeholders about the cloud providers’ commitments. Its subsequent monitoring has included internal company data and product developments, both to assess delivery and identify where further action may be required.

The regulator reports that Microsoft and AWS are connecting their data centres with competing providers, starting with Google. It also reports the removal of data transfer charges for customers moving provider and reductions in those charges for customers using multiple clouds.

Other developments include a mechanism through which customers and competitors can request better interoperability. The providers are also introducing AI tools intended to automate technical tasks involved in switching cloud services.

What happens next

The CMA is seeking responses on both the proposed Microsoft designation and its indicative roadmap. Its findings remain provisional until consultation is complete and it reaches a final decision within the February 2027 statutory deadline.

For cloud services, the regulator says barriers to switching and using several providers remain. It has agreed with Microsoft and AWS to prioritise improvements to identity and access management across clouds, addressing how access works when organisations use more than one platform.

The companies will also work on ensuring that cloud architectures designed to be portable can be deployed and moved between providers without unnecessary obstacles. This work extends the engagement beyond transfer charges to the technical conditions affecting migration.

The CMA will continue monitoring the cloud providers while retaining the option of opening a full strategic market status investigation. A further public update on that work is due in spring 2027.