News Analysis
It's been a long time coming, but this week, EU regulators ruled that Microsoft violated EU rules by bundling Teams into its productivity platforms, Office 365 and Microsoft 365.
EU Preliminary Findings: 'Microsoft Breached Antitrust Rules'
The ruling was expected. Last year, Microsoft announced it was unbundling Teams from both offerings in the EU and Switzerland. In April this year, it confirmed the unbundling would apply globally.
A statement from the 27-member bloc said in its preliminary findings that Microsoft may have given Teams a distribution advantage by tying it into the suites that organizations provided their workers to get their jobs done.
This was aggravated by the fact that it is difficult, if not impossible, to integrate competing apps into Microsoft environments.
Teams has become an increasingly important part of many workplaces. Originally offered as an alternative to Slack, Teams now offers video-meetings, messaging, file-sharing and other collaboration functionality to 320 million monthly active users as of October 2023, according to Microsoft.
In its statement of findings, the EU regulators noted that business application software vendors, such as Microsoft, are increasingly distributing their products as Software as a Service (SaaS), which in theory allows for greater market competition and enables customers to use a variety of software from different providers.
However, Microsoft follows a suite-centric business model that bundles multiple types of software into a single offering. When Teams launched, Microsoft included it in its popular cloud-based productivity suites, Office 365 and Microsoft 365, for business customers.
The statement outlining the regulators' findings reads: "The Commission preliminarily finds that Microsoft is dominant worldwide in the market for SaaS productivity applications for professional use. The Commission is concerned that, since at least April 2019, Microsoft has been tying Teams with its core SaaS productivity applications .… This advantage may have been further exacerbated by interoperability limitations between Teams' competitors and Microsoft's offerings.”
The European Commissioner for Competition, Margrethe Vestager, added:
"We are concerned that Microsoft may be giving its own communication product Teams an undue advantage over competitors …. And preserving competition for remote communication and collaboration tools is essential as it also fosters innovation in these markets. If confirmed, Microsoft’s conduct would be illegal under our competition rules. Microsoft now has the opportunity to reply to our concerns.”
The Commission acknowledged the changes Microsoft made to its Teams distribution last year, yet called the changes insufficient to address the concerns outlined in the case and that “more changes are necessary to restore competition.”
Related Article: Google Workspace Is Coming for Slack and Microsoft Teams
Microsoft 'Will Take Additional Steps'
If the ruling goes through, Microsoft could be facing a fine in the region of up to 10% of its annual worldwide turnover as well as potentially having to change the products themselves.
Microsoft vice chair and president Brad Smith met with Margrethe Vestager in early June. Following the meeting, he told reporters Microsoft is prepared to do more.
"I expect we will take additional steps," he said. "On Teams, we have done a lot of work, our work isn't yet done. Microsoft is committed to find a resolution to regulators' concerns."
Slack CEO Denise Dresser told Fortune magazine she welcomed the move in what she described as an “intensification of its war with Big Tech.” The antitrust investigation originated in 2020 with a complaint filed by Slack about Microsoft's anticompetitive practices.
Related Article: Why Salesforce Really Bought Slack
When Does a Product Become a Feature?
The ruling doesn’t go far in untangling what has become a very difficult conundrum, Deep Analysis founder Alan Pelz-Sharpe told Reworked. "It's a tricky one, as Zoom and Slack (Salesforce) strongly argue that Microsoft bundling Teams disadvantages them.”
However, he noted many buyers want features bundled so they have one license for everything — Microsoft 365, in this case, Google Workspace for others. The question is when does a product become a feature? Here he cited the example of search tools. When they started, they were a separate product to be licensed, but have now become a standard feature.
"It is possible that Microsoft could unbundle Teams (and pay the fines), but I am not sure that would resolve the situation, as Microsoft 365 is a whole bunch of different products that have been bundled, integrated and sold as one," he said.
“So, by this logic, everything should be unbundled, but that will not happen, and Microsoft's countless customers in the EU and elsewhere would be up in arms if it did. I am not a lawyer, but I can imagine them arguing that if this applies to Teams then it applies to every similar situation with their competitors.”
Related Article: Regulators May Finally Get to Tame Big Tech
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Big Tech targeted
Ultimately, the EU is on a mission to address the big tech monopoly, digital policy consultant Kristina Podnar told Reworked.
“I think what we saw with Microsoft is just the start and the Commission could push Microsoft towards providing competitors API access which could help level the playing field for other software players,” she said. “This would require enhanced monitoring and reporting by submitting to reports and audits — either external or internal watchdogs — to ensure adherence to the rules and to effectively remedy issues that are monopolistic in nature."
It could also mandate that Microsoft make Teams operate on open standards, facilitating interoperability with other communications/collaboration tools. This option would be extreme, she added, but could reduce barriers for users switching services as well as promoting a more competitive environment.
A long-term perspective for digital workplace managers is that additional moves by EU could allow for increased choices and flexibility as businesses might gain more freedom and mobility around communications/collaboration tools without feeling obligated to opt for Teams.
The cost would likely be driven down, making Teams more affordable as competition increases. "While costs might go down, we could see a ramp up in service offerings as vendors vie for additional market share, so features and functionality could see a boost," she said.
Ultimately, Podnar sees the regulation potentially driving a boom in innovation, as well as boosting compliance and security (with laws such as GDPR) because competition could push Microsoft and other vendors to prioritize security, features (including privacy), and other benefits to corporations and end users.
Apple, Google, Meta Also Under Investigation
The EU has more than Microsoft in its sights. On the same day it issued its preliminary findings on Microsoft Teams, it also issued a preliminary view on Apple which states that its App Store rules are in breach of the Digital Markets Act (DMA), as they prevent app developers from freely steering consumers to alternate channels for offers and content.
The Commission has also initiated a separate non-compliance procedure against Apple over concerns regarding its contractual requirements for third-party app developers and app stores. The focus of the inquiry includes Apple's recently introduced "Core Technology Fee." The Commission suspects that these requirements may not align with Apple's obligations under the Digital Markets Act (DMA).
The motions follow ongoing scrutiny of Apple's business practices to ensure they foster fair competition and do not stifle innovation within the digital market. The "Core Technology Fee" in particular has raised red flags, as it may impose additional costs on developers, potentially disadvantaging them and limiting consumer choice.
The Digital Markets Act aims to create a more level playing field in the digital market, promoting fairness and openness. Non-compliance with the DMA can lead to significant fines and require changes in business practices to align with the regulatory framework.
Other ongoing investigations include Google, which is facing scrutiny for not complying with DMA provisions that prevent tech giants from giving preference to their own services over rivals. Meta is also under investigation for offering users the option to pay a monthly fee for ad-free versions of Facebook or Instagram. The subscription would allow users to avoid having their personal data used for targeted online ads.
And that's not all. What is clear is that the days of free-wheeling Big Tech in Europe are over. What remains to be seen is to what extent US regulators will follow.