European Cloud Providers Win Concessions from Microsoft to Boost Market Fairness

European cloud infrastructure providers, long frustrated by Microsoft’s complex and oft-criticized licensing rules, have scored a measured win in their drawn-out battle for more equitable cloud software terms. After more than two years of pressure from the Cloud Infrastructure Services Providers in Europe (CISPE) and an ongoing competition complaint before the European Commission, Microsoft has agreed to a set of concessions that promise to reshape aspects of the European cloud computing market. Yet, the deal—heralded by some as a step forward for customer flexibility and privacy—remains ridden with caveats and technical entanglements that leave the broader question of true market fairness unresolved.

CISPE vs. Microsoft: The Genesis of a Cloud Standoff​

The antagonism between Microsoft and CISPE, a trade body representing major European infrastructure players, is emblematic of the broader global tension around hyperscaler dominance, interoperability, and cloud sovereignty. Back in 2022, CISPE brought a formal complaint to Brussels, contending that Microsoft’s licensing policies unfairly locked European cloud customers into Microsoft’s own Azure platform, to the detriment of both regional providers and end users. This complaint closely echoed sentiments from Amazon, Google, and smaller European players, all of whom argued that Microsoft’s licensing structure constituted an abuse of its market power by discriminating against non-Azure providers and hiking prices for customers who wanted to host Microsoft workloads elsewhere.
Fueling CISPE’s grievance was not only Microsoft’s pricing practices but also its tight integration of identity management (Entra ID, formerly Azure Active Directory) and productivity tools (Microsoft 365 and others)—a move that critics saw as a technical and strategic lock-in aimed at shoring up Azure’s regional dominance.

The Concessions: Pricing Flexibility, Customer Privacy, and the Limits of Technical Freedom​

The recent agreement announced in mid-2025 signals incremental but meaningful progress. Among the most impactful changes:

Competitive Pay-As-You-Go Licensing​

CISPE member providers can now offer Microsoft software, including Windows Server and SQL Server, on a pay-as-you-go basis through the Cloud Solution Program for Hosters (CSP-H). This model, Microsoft claims, slashes a significant barrier for smaller cloud service providers (CSPs) and their customers, who have historically been disadvantaged by higher costs and inflexible long-term licensing contracts.
A key feature is the introduction of “competitive pricing”—rates that CISPE says are more closely aligned with Microsoft’s own Azure platform. While the precise price tables have yet to be universally published, initial feedback from European CSPs suggests a narrowing price gap that could enhance regional competitiveness. However, independent cost comparisons will be critical as products hit general availability; buyers and analysts should remain cautious until more transparent pricing data emerges.

Microsoft 365 Local: A Step Toward Sovereign Productivity Suites​

One of the most closely watched components of the settlement is the introduction of Microsoft 365 Local. This package enables CISPE-affiliated providers to deploy Microsoft’s productivity suite on their own infrastructure for customer organizations, helping them meet stringent European data residency, privacy, and compliance mandates. For entities wary of U.S. cloud jurisdiction and seeking alternatives to on-premises Exchange and legacy collaboration products, this could prove a compelling option—provided, of course, the offering makes good on its promise of full functionality and security.

Stronger Customer Privacy: No Mandatory Data Sharing with Microsoft​

Historically, running Microsoft workloads as a service meant providers and sometimes customers found themselves compelled to share substantial volumes of telemetry and operational data with Microsoft directly. The new agreement explicitly secures a privacy guarantee: CISPE members can host Microsoft workloads without mandatory customer data transfer to Microsoft. This provision, while not absolute (certain operational data may still be needed for audit or security), marks an important milestone for European sovereignty advocates and organizations bound by strict GDPR interpretations.

Flexible Virtualization Benefit and Bring-Your-Own-License (BYOL)​

The Flexible Virtualization Benefit (FVB), rolled out by Microsoft in mid-2022, looms large in the new deal’s framework. With FVB, customers holding Software Assurance or equivalent subscription licenses can now build and run systems on any cloud infrastructure—be it Azure or a competing European provider. Notably, FVB allows Windows Server to be licensed based on virtual cores, a nod to modern, containerized architectures that European SaaS vendors and managed service providers have long demanded.
Furthermore, the agreement paves the way for more robust Bring-Your-Own-License scenarios. Previously, European customers aiming to move existing Microsoft software to third-party cloud services faced significant contractual and technical hoops. With the new clarity around FVB and CSP-H offerings, it’s easier for enterprise customers to make the jump without double-paying for licenses.
The Flexible Virtualization Benefit, along with the removal of the pricey Virtual Desktop Application add-on for key Microsoft 365 bundles, also enables organizations to commit to one- and three-year subscription plans for products such as Windows Server, Remote Desktop Service, and SQL Server via the Cloud Solution Provider Program—a model in line with broader industry moves toward subscription-based procurement.

The Persisting Entra ID (Azure AD) Lock-In Problem​

Despite these advances, CISPE acknowledges one critical area where Microsoft held firm: identity management. Accessing Microsoft 365 and related cloud services still mandates the use of Entra ID (formerly Azure Active Directory). This entanglement, enforced by technical as much as commercial imperative, gives Microsoft a potent lever over user authentication, single sign-on, and directory management across the hybrid and multi-cloud landscape.
As Mikkel Naesager, CISPE’s executive advisor on business models, bluntly stated, “If you want to use Microsoft 365 services, for instance, you have to use Entra ID to activate them. There’s no ability to have a competing identity management and swap it out. We have been unable to make any headway there.”
For European policymakers and customers increasingly concerned by hyperscaler gatekeeping, this is a notable shortcoming. It means that while price discrimination is blunted and privacy controls are improved, the architectural dependency on Microsoft’s identity stack persists, potentially subjecting sensitive user metadata to non-European legal regimes and limiting adoption of federated authentication models favored by some public sector and critical infrastructure buyers.

Industry Reactions: Cautious Optimism and Sober Realism​

The announcement of the deal has generated a cautiously positive response from CISPE and affiliated European cloud providers. Many see it as a pragmatic win, one that chips away at deeply entrenched commercial barriers and relevels the playing field for smaller, regionally anchored CSPs.

• For independent software vendors (ISVs) and managed service providers: The relaxed licensing rules and improved access to Microsoft 365 are likely to spark innovation among European ISVs, particularly those serving regulated sectors such as healthcare and finance. Analysts suggest that this could drive greater diversity in European digital transformation projects, reducing reliance on a handful of U.S. platforms.
• For enterprises and public sector buyers: The deal’s privacy guarantees and data residency options address mounting regulatory pressure from EU institutions, national governments, and privacy watchdogs. The availability of modern productivity suites outside Azure (with features like Microsoft 365 Local) should make it easier for public sector entities to adhere to stringent local and sectoral data rules without resorting to cumbersome on-premises deployments.

However, some observers argue that the agreement amounts to only incremental progress. “It’s a step in the right direction, but the basic structural imbalance in the cloud market remains,” noted a senior consultant at a major European IT analyst firm. “Until technical lock-ins—especially around identity and application integration—are addressed, these compromises will only paper over deeper problems for European digital sovereignty.”

Potential Risks and Open Questions​

Despite tangible benefits, the deal leaves several unresolved issues that could ripple through the European cloud ecosystem:

Ongoing Technical Lock-Ins​

The inability of CISPE to secure a deal on identity management continues to restrict true multi-vendor flexibility. Organizations must still integrate with Entra ID for Microsoft 365 access—potentially increasing exposure to U.S. cloud jurisdiction and complicating efforts to standardize on open-standards-based or EU-sovereign identity management platforms.

Regulatory and Competitive Oversight​

The European Commission has so far expressed muted satisfaction with Microsoft’s voluntary concessions. However, the ongoing digital markets oversight agenda—along with similar probes by French, German, and Dutch regulators—means that Microsoft’s licensing and interoperability policies will remain under the microscope for years to come. Industry insiders say that unless more substantive structural reforms follow, new complaints and possible antitrust action could arise if users’ choice, portability, or market entry for smaller providers is not demonstrably enhanced.

Uncertainties Around Microsoft 365 Local and Price Comparisons​

While the Microsoft 365 Local product promises sovereignty, its actual feature parity, performance, and security compared to the canonical Azure-based Microsoft 365 have not yet been independently evaluated at scale. Thorough due diligence will be needed as organizations contemplate migration to or adoption of these new sovereign offerings, especially in sensitive domains.
Additionally, with CSP-H pricing only recently realigned, some cloud procurement leaders are urging CIOs and CISOs to monitor service contract terms and invoice line items closely during the early wave of deployments, ensuring that “competitive” does indeed mean cost-effective in real-world scenarios.

Broader Context: Microsoft’s Global Licensing Strategy and the Hyperscaler Backlash​

The EU-focused deal is part of a broader Microsoft strategy that tries to balance regulatory appeasement with continued ecosystem control. Flexible Virtualization marked the first time Microsoft softened its licensing rigidity on non-Azure clouds—though, importantly, this shift was reactive rather than proactive, spurred by mounting antitrust threats and user outcry.
Unlike competitors Google and Amazon, which anchor identity and productivity in more modularized (though still not open) stacks, Microsoft has so far resisted calls for identity unbundling. Meanwhile, vendors and advocates for open cloud standards continue to argue that true portability and user freedom depend on both technical and contractual interoperability—not just pricing tweaks.
In the U.S. and Asia, policymakers and market players are watching Brussels’ pushback closely. The precedent set by the CISPE agreement and ongoing Digital Markets Act (DMA) enforcement could trigger similar demands for transparency, interoperability, and anti-lock-in measures in other major economies.

What Comes Next: Strategies for European Cloud Users​

For IT leaders, cloud architects, and procurement officials navigating a fast-shifting marketplace, the new rules require careful consideration:

• Audit Licensing Models Regularly: With CSP-H licensing and FVB now in play, organizations should periodically reassess infrastructure licensing portfolios to maximize economic benefit, minimize double payments, and ensure compliance.
• Prioritize Privacy and Data Residency: Public sector and regulated industry buyers should review the new privacy guarantees and Microsoft 365 Local features, verifying actual data flows, auditability, and compliance mapping before large-scale adoption.
• Monitor Technical Integrations Rigorously: Recognize that, for now, Entra ID will remain a gatekeeper for critical Microsoft workloads. IT teams should weigh the risks and trade-offs associated with this architectural dependency, particularly in projects requiring interoperability with non-Microsoft directories or government-validated SSO systems.
• Advocate for Ongoing Reform: Industry groups, procurement consortiums, and policymakers are well advised to continue pressing for greater transparency and truly open technical standards in future rounds of negotiation, competition oversight, and market rulemaking.

Conclusion: A Step Forward but Not a Leap​

The agreement forged between Microsoft and CISPE marks a significant, if measured, advance for fairer cloud licensing and privacy in Europe’s digital infrastructure landscape. The realigned pricing, pay-as-you-go flexibility, and reinforced privacy boundaries address long-standing demands from European providers and customers, and may well bolster competitiveness in the regional cloud economy.
Yet, the persisting technical and strategic lock-ins—most notably around identity management—underscore the complexity of unbundling hyperscaler power. Until such dependencies are fully confronted, the promise of cloud choice, true digital sovereignty, and a level playing field will remain an aspiration rather than an achievement.
As cloud adoption matures and European regulatory rigor intensifies, the ongoing negotiations between providers, regulators, and computing giants like Microsoft are set to shape not just the future of software licensing, but the very fabric of Europe’s digital autonomy and competition. IT leaders would do well to remain engaged, proactive, and vigilant as new chapters in the cloud sovereignty debate inevitably unfold.

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Source: theregister.com EU cloud gang wins licensing concessions from Microsoft