Last Thursday, July 27, European officials formally announced their investigation to determine whether Microsoft’s practice of bundling Teams with Office 365 is uncompetitive.
It has been a long and protracted journey until this point — a plot full of compelling business rivalries and multiple twists and turns.
Here’s everything we know so far.
What was the Origin Story?
Microsoft first started bundling Teams to Office 365 in 2017 to replace Skype for Business, while Microsoft has been in discussions with EU regulators about their Teams and Office bundling since the early days of the pandemic in 2020.
As the world transitioned into remote and hybrid working to adjust to the pandemic’s new reality, the UC and collaboration industry exploded, with Teams and Slack as two of the most prominent platforms to service the urgent needs of billions of workers worldwide.
Slack and Microsoft had been fierce business rivals in the collaboration space for years before the pandemic hit, including an incident when Stewart Butterfield, Slack’s CEO, called Microsoft out with multiple digs at the 2019 Wall Street Journal Tech Live conference.
However, in July 2020, Slack filed an official complaint alleging that Microsoft had been illegally abusing its dominance in the market to undermine any competition via bundling its communications and collaboration service Teams with its Office suite. Slack argued that millions of customers get Teams “forcibly” installed through their Office subscriptions. Slack also said that Microsoft blocked the removal of Teams and hid the tool’s actual cost to enterprise clients.
Slack claimed that this practice was “anti-competitive” and subsequently positioned Microsoft in breach of European Union laws on fair competition.
David Schellhase, general counsel at Slack, said:
We’re asking the EU to be a neutral referee, examine the facts and enforce the law.”
What has happened in the Three-Year Interim?
As a result of Slack’s complaint, EU watchdogs started investigating Microsoft’s dominance of the collaboration space in October 2021. The pressure on Microsoft grew when, a month later, 30 European software firms united to take on Microsoft over a similar issue, describing the tech giant’s business practices as anti-competitive for integrated OneDrive and Teams with Windows.
Microsoft had been seeking compromise with the European Commission to avoid any formal proceedings. In December 2022, Reuters reported that Microsoft had been looking to settle with the European Commission over its antitrust concerns.
Microsoft also purported several concessions as a form of compromise. Earlier this year, Microsoft offered to reform its cloud computing practices in a further effort to resolve antitrust complaints and avoid an EU probe.
More significantly, in April, the Financial Times reported that Microsoft would no longer automatically bundle Teams with Office in a move to avoid the antitrust investigation. The concession meant that when prospective customers would buy Office in the future, they would have the choice of whether also to purchase Teams or not.
“We are mindful of our responsibilities in the EU as a major technology company,” Microsoft told the Financial Times. “We continue to engage cooperatively with the commission in its investigation and are open to pragmatic solutions that address its concerns and serve customers well.”
Microsoft also offered to reduce the price of its Office product without Teams.
However, earlier this month, Microsoft’s remedies to avoid the investigation were considered inadequate by the European Commission, and discussions around concessions reached a roadblock.
The European Commission had sought a price point which would provide a more fairly competitive product for consumers and Microsoft’s rivals. Reuters’ sources said that the European Commission and Microsoft were some distance apart in agreeing on a price reduction between Office without Teams and Office with the UC and collaboration platform, resulting in a breakdown in negotiations.
“We continue to engage cooperatively with the Commission in its investigation and are open to pragmatic solutions that address its concerns and serve customers well,” a Microsoft spokesperson told Reuters this month.
Yet no compromise agreeable to both parties could be found, and as of Thursday, July 27 2023, the European Commission’s formal investigation was initiated.
What Exactly Happens Now?
Under Article 102 of the Treaty on the Functioning of the European Union, the EU might deem the bundling a breach of its anti-competition rules.
In a press release posted Thursday, July 27, the European Commission underlined its concern that Microsoft “may be abusing and defending its market position”.
Microsoft may grant Teams a distribution advantage by not giving customers the choice on whether or not to include access to that product when they subscribe to their productivity suites and may have limited the interoperability between its productivity suites and competing offerings.”
If found in breach of EU antitrust rules, Microsoft could be fined up to 10 percent of its annual turnover. In 2022, Microsoft’s annual revenues were $198.270 billion.
“These practices may constitute anti-competitive tying or bundling and prevent suppliers of other communication and collaboration tools from competing, to the detriment of customers in the European Economic Area (‘EEA’),” the European Commission continued.
The Commission state that there is no legal deadline for bringing an antitrust investigation to an end, so any timeline for the investigation’s findings and judgements is ambiguous for now.
What is Microsoft’s History with Antitrust Issues?
Microsoft has had regulatory issues with the EU Commission in the past. In 2008, Microsoft was accused of using its dominant market position in web browsers to bundle Internet Explorer with Windows. It settled in 2009, promising to offer users a selection of rival browsers. However, in 2013 Microsoft was fined €561 million for failing to abide by that principle.
Microsoft had also been seeking regulatory approval for its $69 billion acquisition of videogame publisher Activision Blizzard, a move which rival Sony complained about as being uncompetitive. The acquisition was approved by the European Commission but initially blocked by the United Kingdom Competition and Markets Authority (CMA) and was under scrutiny by the United States Federal Trade Commission (FTC).
However, at the time of publication, the FTC withdrew their case earlier this month, and Microsoft has submitted a new report to the CMA to argue its case for withdrawing the blocked takeover.
Potentially its most famous legal battle occurred around the turn of the millennium in the U.S.A. when the business was initially broken up into two separate companies for breaking US antitrust practices, one to oversee the Windows operating system and the other to handle all other Microsoft software.
However, the ruling was overturned. Microsoft and the U.S. Department of Justice settled in 2001, agreeing that Microsoft would share APIs with third parties and allow PC manufacturers to install non-Microsoft software on their hardware.
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