The Competition and Markets Authority (CMA) has proposed designating Microsoft as a strategic market status (SMS) firm in its business software ecosystem, and will open a consultation under the Digital Markets, Competition and Consumers Act 2024 before making a final decision in February 2027.
The CMA views Microsoft’s business software as spanning five digital activities: operating systems, productivity software, security software, server operating systems and relational database management systems such as SQL Server. The regulator said the products reach more than a million businesses and public sector organisations, with around 20 million monthly users in the UK.
Its provisional findings point to a strong position across each of those five areas, with switching barriers and commercial bundling and integration advantages that other software developers struggle to overcome. SMS designation does not assume wrongdoing, but it would give the CMA power to consider targeted conduct requirements or pro-competition interventions.
The regulator set out an indicative roadmap across four areas: cloud licensing, AI features in productivity software, communications and collaboration software such as Teams, and security software. It proposed to gather further evidence on whether customers can freely choose AI tools beyond Copilot, how Microsoft’s bundling of security products limits choice, and whether customers can choose which cloud runs their software licences.
The CMA has framed the timing around an AI inflection point, arguing that as generative and agentic AI spread across workplace tools, the market remains open but risks closing if Microsoft’s ecosystem does not interoperate smoothly with rival AI providers.
At a background briefing, the CMA explained that the designation test has three criteria, relating to a turnover threshold, substantially entrenched market power and a position of strategic significance in the specified digital activity. Designation itself changes nothing in the market, the regulator stressed, because it describes a position of market power rather than wrongdoing, with any intervention following separately.
The headline finding from its work, the CMA added, was that customers face challenges switching away from Microsoft or using alternative providers alongside Microsoft products, and that this limits the constraint rivals can exert across the ecosystem.
Sarah Cardell, chief executive of the CMA, said: “Organisations should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers.”
Separately, the CMA updated on its engagement with Amazon Web Services (AWS) and Microsoft in cloud outside the formal designation process. It said it had seen progress in which both companies had connected their datacentres with rivals, beginning with Google, removed data transfer fees for customers switching cloud providers, and introduced a mechanism for customers and competitors to request greater interoperability, alongside AI tools to automate switching.
The regulator said more remains to be done, and it had agreed with both companies to focus next on how identity and access management works across clouds and on ensuring portable cloud architectures can be deployed and migrated without unnecessary barriers. It will publish a further update in spring 2027, while keeping open the possibility of a full SMS investigation in cloud.
Microsoft has consistently contested the premises of the investigation, arguing that it operates in a “vigorously competitive” market and pointing to the availability within its ecosystem of Google Workspace, macOS, Linux, PostgreSQL and Okta as evidence of contestability. It also contends that AI is “dramatically lowering the barriers to building high-performing enterprise software”, and notes that its 34,000 UK partners contribute £38bn in revenue to the UK economy.
The informal cloud route has drawn scepticism too. In March, Mark Boost, chief executive of UK sovereign cloud provider Civo, warned that “voluntary arrangements made with parties outside of the SMS framework will not provide real impact”, while the CMA itself emphasised that designation assumes no wrongdoing and remains provisional pending consultation.
The proposal follows months of submissions that mostly urged intervention. More than 30 organisations called on the CMA to designate Microsoft’s business software ecosystem as SMS, and the Open Cloud Coalition has estimated that Microsoft’s licensing practices cost the UK public sector around £60m a year, and more than £300m over the course of a Parliament.
The CMA noted that the public sector accounts for around 10% of UK cloud demand and has advised on procurement as part of a broader push to diversify supply.
A final decision is due by the February 2027 deadline, with a provisional decision expected partway through. For enterprise IT leaders, the consultation marks the point at which the regulator’s powers move from market analysis towards potentially binding remedies.
