Cloud Competition and Microsoft’s Licensing: The Fault Lines Beneath Azure and AWS
Within the ever-accelerating arms race for cloud dominance, the licensing practices of tech titans shape not just bottom lines but the very freedom of choice for enterprise customers. Beneath the surface of technological innovation, regulatory scrutiny, and strategic alliances lies a contentious dispute—one that pits Microsoft’s powerful licensing model against the ambitions of its biggest competitors, notably Amazon Web Services (AWS) and Google Cloud. As the UK’s Competition and Markets Authority (CMA) deepens its inquiry into cloud services, a fresh round of arguments has emerged. AWS’s latest submission to the CMA accuses Microsoft of leveraging its licensing policies to tip the cloud battlefield in its own favor—a charge that, if substantiated, promises to recalibrate the future of the public cloud.Microsoft’s 2019 Licensing Changes: The Flashpoint
The conflict arises from pivotal changes Microsoft made in 2019 regarding how its software is licensed for use outside Azure. Specifically, these changes drastically increased the cost of running Windows Server and other key Microsoft workloads on competing clouds—sometimes by as much as fourfold when placed on infrastructure like AWS, Google, or Alibaba, compared to Azure itself.Microsoft’s move did not go unopposed. AWS and Google, each vying for larger shares of cloud-based Windows workloads, quickly argued that the new terms handed Azure an unfair commercial advantage. The higher costs not only deter customers from migrating, they also force enterprises who already own Microsoft licenses to repurchase them if they want to run the same workloads beyond Azure.
The CMA’s Cloud Investigation: Unpacking Market Power
Launched in 2023, the UK’s CMA cloud services market investigation seeks to determine whether these licensing practices hurt competition and, ultimately, customers. The inquiry’s scope reaches deep into the intricacies of cloud infrastructure and software licensing, with preliminary findings suggesting Microsoft's domination in enterprise productivity software may be reinforcing its grip on the cloud.Currently, an estimated 70–80% of enterprise clients still run Windows Server on-premises. With public cloud migration a accelerating trend, the battleground for control is wide open—except, AWS and Google argue, where licensing barriers artificially tilt the playing field.
According to the CMA’s findings, AWS claims Microsoft’s tactics "artificially raise prices, prevent price reductions and divert customers to its own services." In short, these measures hold customers hostage to Azure, reduce competition, and slow innovation. For AWS, the issue is not simply commercial rivalry; it’s about competitive foreclosure in the UK cloud ecosystem.
The Real-World Impact on Enterprise Customers
Many enterprise CIOs reach the cloud crossroads with a backlog of legacy Microsoft software and a strategic need to optimize both costs and vendor flexibility. Yet, with Microsoft’s Bring-Your-Own-License (BYOL) restrictions, those same customers are routinely required to pay again for licenses they already own—if they wish to run them on AWS or Google.According to AWS, these non-price restrictions force customers to make artificially expensive choices. Even when cloud competitors like AWS attempt to “offset costs,” as their submission states, “there is no profitable way to do so.” The cumulative effect is to raise barriers to exit from Azure and weaken the incentive for Microsoft to make its own cloud offers more attractive on price or feature set.
Google echoes these sentiments, providing the CMA with real-world cases where customers, content with Google Cloud’s services, are ultimately compelled to relocate entire Windows Server estates to Azure solely for licensing and commercial reasons.
Quantifying the “Lost” Migration
Perhaps the most explosive assertion in AWS’s submission is the scale of displacement that might occur if the licensing regime was relaxed. AWS estimates that as many as half of all Microsoft enterprise workloads currently running on Azure would migrate elsewhere—specifically to AWS or Google—if licensing costs were not so steep as to be a commercial deal-breaker.If true, such a migration would radically alter the competitive landscape. It would decrease Azure’s market share, severely dent the network effects Microsoft enjoys, and likely lower prices for end customers.
However, AWS admits that, in practice, it is “hard to assess which customers or workloads do not leave Azure due to the pricing issue.” This lack of granular data points to a fundamental challenge in antitrust law: proving competitive harm in a market where customer behavior is shaped by invisible barriers rather than open coercion.
Microsoft’s Response: Defending Commercial Sovereignty
Microsoft’s defense pivots on several assertions. First, it contends that any intervention by the CMA that compels a change would “ride roughshod” over its intellectual property (IP) rights, arguing that no other software provider is expected to relinquish such degrees of commercial control.From Microsoft’s perspective, the licensing costs are the natural price of accessing its valuable IP, and its Software Provider License Agreement (SPLA) pricing is carefully calibrated—not so low as to erode value, not so high as to force customers toward alternative platforms.
Crucially, Microsoft points out that cloud costs are not solely about software licenses. Other factors, such as storage, bandwidth, networking, and platform features, all factor into an enterprise’s ultimate cost equation. Microsoft claims AWS and Google make ample margins on these ancillary services, arguing that the cumulative profitability allows them to compete “and win customers migrating Microsoft software to the cloud.”
Microsoft does concede that some degree of foreclosure is possible. But, it claims, the margins available on rival clouds are too significant for such concerns to tip the balance—unless, perhaps, those clouds want to offer the same software at a loss.
The Economics of Cloud Lock-In
The dispute shines a harsh spotlight on the mechanics of “cloud lock-in.” In theory, public cloud promises flexibility, portability, and the ability to mix and match providers. But in reality, proprietary licensing can become a fortress against competition.By requiring enterprise customers to double-pay for software licenses or opt for the higher-priced Azure alternative, Microsoft constructs a high wall around its existing customer base. This not only increases revenues but also creates what economists refer to as “switching costs”—barriers that slow or prevent customers from migrating to a rival cloud.
AWS and Google frame these mechanisms as anti-competitive—designed not by technical necessity but by commercial calculation. With the UK’s ongoing cloud market scrutiny, the outcome could set global precedents for how hyperscale providers are allowed to wield their software portfolios.
Regulatory Dilemmas: Intellectual Property vs. Competition
The CMA faces a delicate task: balancing the legitimate rights of a software vendor to profit from its intellectual property with the imperative of ensuring genuine competition in a market of increasing economic importance. Too stringent a remedy, and the decision could upend software licensing worldwide. Too lenient, and it risks endorsing a model where platform control trumps customer choice.Google’s proposed remedies highlight this tension. According to the CMA’s documentation, Google asks regulators to:
- Prevent Microsoft from degrading Google’s licensing terms,
- Block actions that would “lock in” new customers,
- And prohibit restrictions on independent software vendors or managed service providers seeking to offer Microsoft software on competitor platforms.
The Broader Industry Context
While the UK is at the forefront of this regulatory battle, the echoes are global. Google filed a similar complaint with the European Union’s antitrust regulators, signaling the likelihood of broader movements to challenge Microsoft’s approach. The U.S. regulatory environment, following antitrust developments involving other tech giants, is watching closely as well.The financial stakes are enormous. AWS, despite not reporting UK-specific profits, posted global operating income of nearly $40 billion in 2024—up sharply year-on-year. Microsoft’s Intelligent Cloud unit, which encompasses Azure as well as related software services, notched even higher earnings. The spoils from cloud market share translate directly into both wartime capital for innovation and peacetime dividends for shareholders.
Strategic Narratives and Competitive Storytelling
Both sides are engaged in a battle not just of legal arguments but of narrative control. AWS and Google frame their case as defending open competition and customer rights, emphasizing how Microsoft’s policies distort free choice and disadvantage both consumers and the industry’s broader health.Microsoft counters by anchoring its legitimacy in IP rights, industry norms, and the complex cost makeup of cloud computing. It suggests that any policy intervention risks unintended consequences, such as undermining incentives for the next great leap in productivity software innovation.
Amid these narratives is the silent third stakeholder: the enterprise customer. For CIOs and CTOs translating boardroom strategy into digital infrastructure, the ability to move workloads freely between clouds while leveraging past investments in software licenses is more than an accounting detail. It is a cornerstone of digital resilience and strategic optionality.
The Future: Awaiting the CMA’s Verdict
The CMA’s report is expected in July, and industry watchers anticipate not just a verdict, but a potential blueprint for how governments and regulators worldwide might approach hyperscale licensing and competition.The possible outcomes range from a requirement for Microsoft to unbundle its licensing from Azure, to new constraints on how software subscriptions can be ported between clouds, to a more diffuse set of recommendations still favoring self-regulation.
For now, the matter demonstrates the multi-layered complexity of digital markets, where software licensing, cloud infrastructure, and regulatory oversight intersect with enormous financial and technical implications.
Analysis: What’s at Stake for the Cloud Ecosystem?
At its core, this dispute is emblematic of the broader set of challenges facing the cloud industry as it matures. Unlike the open source software movement, which prizes interoperability and open access, the commercial cloud is still defined by proprietary leverage—be it in technology, licensing, or platform integration.If the CMA’s eventual ruling sides with AWS and Google and restricts Microsoft’s ability to use its software leverage, it may set a precedent empowering customers. It could lead to falling prices, increased innovation, and a more fluid market in which best-of-breed solutions can flow where they’re needed most.
On the other hand, if Microsoft’s position is upheld, it will reinforce the power of platform lock-in in defining market boundaries, potentially emboldening other providers to pursue similar strategies. It may secure short-term profits at the possible expense of longer-term innovation and customer satisfaction.
Crucially, regardless of the outcome, customers will need to sharpen their understanding of the licensing terms that underpin cloud choices. Multicloud strategies and hybrid cloud deployments depend not just on technical compatibility—but on contract law, antitrust regimes, and the continued vigilance of regulators.
Final Thoughts: The Cloud’s Regulatory Reckoning
Microsoft’s cloud licensing model continues to be a flashpoint for controversy, and AWS’s latest submission to the CMA crystallizes the stakes. As hyperscale providers vie for dominance, the ability for customers to move workloads and capital between providers stands as both a technical and legal challenge. How the CMA chooses to resolve this dispute will send ripples across markets, not just in the UK, but well beyond.Without clear, fair rules on software licensing, the risks of lock-in, reduced innovation, and higher costs for customers will remain. The CMA’s imminent decision will offer a critical signal about the future contours of cloud competition—a verdict that may, for years to come, determine where the next generation of digital infrastructure is built and who controls it.
Source: AWS: Customers would flee Azure if licensing costs were fair
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