Google Cloud Rails Against Microsoft Licensing in FTC Letter

Google Cloud is alleging to U.S. regulators that the Microsoft licensing strategy is locking out its rivals in the public cloud market.

Reuters reports that Google parent company Alphabet registered concerns to the Federal Trade Commission (FTC), describing Microsoft’s cloud computing practices as anticompetitive. Specifically, it claimed that Microsoft’s Office 365 licensing terms are locking customers into separate Azure contracts, Reuters wrote. According to CNBC, the letter describes a “complex web” of Microsoft licensing restrictions that pushes customers toward buying Azure cloud infrastructure, rather than public cloud platforms like Google Cloud Platform and Amazon Web Services.

The FTC in March opened up a request for comment on the U.S. cloud computing market. The deadline to submit comments closed today.

A Google Cloud spokesperson told Channel Futures that Google Cloud did not file a complaint against Microsoft, but rather supplied a request for comment. They referred Channel Futures to a public comment by the Coalition for Fair Software Licensing, which asked the FTC to investigate “anticompetitive licensing practices” by Microsoft.

“Microsoft has a proven history of leveraging its dominance in one market to gain a foothold and extinguish competition in another. Today the software giant is using that same playbook to exploit customers’ dependence on its desktop operating system, server, and productivity software to force customers to use Azure and other products in the Microsoft ecosystem,” said Ryan Triplette, executive director of the coalition.

Ryan Triplette

Bundling Impact

Does Google have a strong case against Microsoft?

Dave Sobel

“I’m not sure it’s a ‘good’ case, although I think it probably has some merit,” said Dave Sobel, host of The Business of Tech podcast and MSP Radio. ” The trick to Microsoft is that they have so many SKU options — they can assemble solutions and contracts that come from various collections of software. The concept of bundling is nothing new, and it’s a high value solution. Can you buy them separately?  Yes. Can you bundle and save money?  Yes. That seems like savvy sales.”

The cloud consultancy SADA Systems has migrated a large number of Microsoft customers into Google Cloud Platform. But SADA chief technology officer Miles Ward said many businesses would prefer to have the best of both worlds.

SADA Systems’ Miles Ward

“I’ve got 3,000 customers under management, and some of them love Office 365 and hate Azure with a burning fire of a thousand suns,” Ward told Channel Futures. “And the problem is that, I think everybody in the world would recognize those are different products, and they are sold to different buyers. And they typically are consumed over different dimensions.”

But Ward said some of SADA customers are entering negotiations with Microsoft that make them feel that they need to use the entirety of the Microsoft suite or lose the value of the individual parts they want to use.

“We cover and serve and create value for customers that are right in the middle of this debate. They want part of what Microsoft would like to sell as a bundle and has historically not forced to be bundled. But the level of enforced interconnection between the different parts of Microsoft’s offering has gotten so extreme that it makes it very difficult for customers to feel like they can pick and choose and buy what they want,” Ward said. “And that was really the original promise of cloud at large – that you can pay only for what you use”

Would the FTC stepping in benefit MSPs that have hitched their wagon to Google Cloud Platform? Sobel said maybe.

“I want the FTC looking at anti-competitive behavior, and we certainly know there are practices going on to watch for. Even if this isn’t one, the FTC poking around keeps the market competitive,” he told Channel Futures.

Google Cloud recently reported its first ever profitable quarter and a 27.5% year-over-year revenue increase. However, it still trails Amazon Web Services (AWS) and Microsoft Azure. Canalys estimated Google Cloud at a 9% market share in the first quarter of 2023, behind Azure (23%) and AWS (32%).

Source: Canalys

Regulatory Conversations

The FTC framed its request for information around how cloud computing business practices are impacting competition and data security.

FTC’s Stephanie Nguyen

“Large parts of the economy now rely on cloud computing services for a range of services,” FTC chief technology officer Stephanie Nguyen said at the time. “The RFI is aimed at better…… understanding the impact of this reliance, the broader competitive dynamics in cloud computing, and potential security risks in the use of cloud.”

Alphabet/Google has expressed its displeasure with Microsoft on a global level. Alphabet in late March registered its concerns to European antitrust officials about Microsoft’s acquisitions and partnerships with European cloud vendors. Microsoft noted at the time to Reuters that it still sits second in the world in cloud revenue behind AWS.

Channel Futures asked Roy Illsley, Omdia‘s chief analyst for IT operations about the validity of Google’s concerns. (Omdia and Channel Futures share a parent company, Informa.) Illsley said that while Google has a case, it and other cloud providers also need to examine their own practices.

Omdia’s Roy Illsley

“The challenge for the cloud providers that are complaining about these practices from legacy software vendors is a bit like ‘people in glass houses should not throw stones’ adage. Google, for example, has data egress charges that they apply to cloud customers wanting to take its data out of the cloud. While in an ideal world customers could move between different environments (cloud and on-premises) and between providers (Microsoft to Google) with no financial impact, the truth is there is a vendor lock-in at some point. In fact OVHcloud and OCI are the only major cloud providers to not have expensive data egress charges,” Illsley told Channel Futures. “So my point of view is this licensing approach is the legacy vendors’ way of making it more difficult to give customers freedom, just like cloud data egress charges is the cloud providers approach to restricting freedom. However, just because data egress charges are used by the cloud providers does not make licensing restrictions legitimate for legacy software vendors.”