Late in 2022, the Cloud Infrastructure Services Providers in Europe group (CISPE) filed a complaint with the European Commission, accusing Microsoft of imposing anti-competitive contractual terms to the detriment of Europe’s cloud ecosystem.

Last week, CISPE withdrew that complaint, averting an EU antitrust investigation and any risk of punitive regulatory action. Naturally, Microsoft President Brad Smith welcomed the news, framing it as a collaborative learning experience from which both parties come away wiser and promise to bring “even more competition to the cloud computing market in Europe.”

In reality, most cloud service providers can see it for what it is: a powerful global company paying for the silence of a trade body and avoiding having to make fundamental changes to their software licensing practices. The deal is anti-competitive, opaque, and bad news for the cloud market – but it shows Microsoft’s’ hand. By looking at this settlement and how it came about, regulators and competitive cloud companies can learn some lessons for how to shape the market for the better in the future.

Harms of Hyperscalers

The contents of the now-withdrawn complaint against Microsoft reflected what many of us have been saying about hyperscalers for a long time. It railed against software licensing practices imposed by Microsoft on October 1^st, 2022, which CISPE members alleged would artificially inflate the cost of rival cloud platforms, making it harder and more expensive for users to switch cloud suppliers. It also makes Microsoft an economically attractive option, even if the solutions are not the best fit for the user. 

This kind of business practice is emblematic of our industry’s fundamental problems. Hyperscalers dominate the market, often with a sub-par product. To keep their monopoly, they fall back on a familiar range of small-print clauses and catches, which help them keep the cost of switching providers high enough that customers don’t look at alternatives. If they did, they might see that while hyperscaler solutions may boast a broad range of features, smaller challenger cloud providers offer cutting-edge solutions at a fraction of the cost. 

In 2022, CISPE recognised that Microsoft’s ever-stronger commitment to this practice was cause for concern by an international regulator, but now it appears that this deal puts much-needed scrutiny on hold for the time being. It’s markedly less likely that this investigation will take place anytime soon, leaving many cloud customers locked into bad deals and unable to explore alternatives.

Behind Closed Doors

Part of the problem with the CISPE deal is how opaque it is. What we do know is that Microsoft has agreed to develop a product allowing CISPE members to run Microsoft software on their local cloud infrastructures within the next nine months. In addition, Microsoft will compensate CISPE members for two years’ worth of lost revenues related to licensing costs—but it has not disclosed exact figures. According to Reuters, insiders say the total comes to about €20 million. 

This leaves a host of important questions unanswered. Firstly, though the topline agreement gives Microsoft nine months to deliver the Azure Stack HCI for Hoster’s product to CISPE members, the agreement allows for the company to “resolve the software licensing issues in other ways,” judged in private by CISPE. 

The second cause for concern is over who arbitrates the compensation process. The closest this agreement comes to having oversight is in the European Cloud Observatory (ECO) – a new, yet-to-be-established independent group. This independent group, we’re told, will consist of “cloud infrastructure vendors operating in Europe, and representatives of European customer associations,” and will make periodic assessments and recommendations relating to the agreement. 

It would be a mistake to pass too harsh a judgement on this body before it’s established. The vendors included may represent the industry in all its diversity, not just CISPE members. Similarly, the inclusion of customer associations is genuinely promising. However, given the reluctance of any parties to disclose details of the deal, it seems unlikely that those of us outside of CISPE calling for a more radical re-evaluation of the European cloud market will be invited to the table. To further dampen any hopes of ECO having the bite to ensure a fair settlement for everyone, Microsoft will also be a member.

It seems that ECO’s oversight is likely to be little more than a paper tiger, a regulatory body hastily set up by CISPE and Microsoft to give the illusion of oversight when, in fact, the whole purpose of the deal is to avoid oversight. No real regulators have been invited to ensure, for example, that the primarily undisclosed benefits that CISPE members and their customers will receive will be extended to every cloud provider and user on the receiving end of Microsoft’s unfair software licensing practices. Indeed, there’s no guarantee that the compensation will extend to anyone other than CISPE members.

CISPE members will no doubt enjoy some short-term benefits from the deal, but this amounts to fewer than 40 companies among the hundreds in the European cloud community who’ve been negatively impacted by Microsoft’s practices.

In the long term, outcomes like these can only damage Europe’s cloud market. Hyperscalers can’t be trusted to self-regulate, and we shouldn’t allow oversight from anywhere other than trusted regulators to become the norm. Without robust regulatory action, hyperscalers will continue to impose restrictive licensing terms, opaque pricing, and unpredictable billing on customers.

Google to the Rescue?

Less than a week after the deal was finalised, it emerged that Google and Amazon Web Services (AWS) had offered CISPE their own payouts to keep the fight going, with Google offering a €470 million software package. Whilst this may seem like a pair of tech giants stepping in to fight the good fight, it’s important not to lose sight of the bigger picture.

Google and AWS are hyperscalers, just like Microsoft. Google’s offer to CISPE members was almost identical to Microsoft’s in character, except with their software rather than Azure. On top of that, the problem of transparency is common to all hyperscalers’ dealings, with all parties unwilling to discuss the details of what was on offer.

Make no mistake: it would have been nice to see the complaint upheld. However, it shouldn’t take opaque, unregulated multi-million euro deals to keep anti-competitive actors in check – especially when these deals come from business rivals who’d just as soon engage in the same practices given a clean slate to do so.

Silver Linings

There is, however, hope. As mentioned, it’s possible that the customer associations invited to join ECO will provide more critical oversight than CISPE or Microsoft bargain for, drawing more attention to the tangible damage hyperscalers do to cloud customers’ businesses. 

The real hope, however, still lies in regulatory intervention. Whilst the European Commission won’t investigate Microsoft for now, CISPE’s original complaint remains as accurate now as it was two years ago. Other bodies and industry leaders must continue to highlight these concerns and push for regulation.

The hyperscalers have bared their fangs, and for now, it looks like they have the upper hand. Taming them will take an equally tough regulator with a clear vision of a genuinely competitive cloud market – a test we’ll likely see the UK facing very soon. In the UK, the Competition and Markets Authority (CMA) is currently investigating the country’s supply of public cloud infrastructure. Britain’s regulators now have the opportunity to learn from the CISPE/Microsoft deal and forge a different path to that taken by the EU. If the UK can take decisive action, ending the skewed system of cloud credits and anti-competitive software licensing, we can demonstrate the advantages that a truly competitive cloud market brings to customers – and bring the hyperscale beasts to heel.