European enterprises and public sector organisations are spending billions of pounds extra each year for the privilege of running software they own in the Microsoft Azure public cloud, suggests research published by non-profit Cloud Infrastructure Services Providers in Europe (CISPE).
The research, carried out by Frédéric Jenny, emeritus professor of economics at the ESSEC Business School in France, set out to establish how the public cloud market’s current setup may allow unfair and anti-competitive practices to thrive.
It also, as stated in the accompanying 53-page report, sought to provide a qualitative evaluation of the “economic harm” incurred by customers as a result of these “potential abuses”.
Its findings were based on the feedback shared by large software users from across Europe, combined with an analysis of the pricing they were subjected to, prompting Jenny to conclude “unfair, additional costs” are being levied on customers who opt to license software to run in the public cloud.
“As a model … the cost to license Microsoft’s SQL Server in an independent cloud with the cost of the same software running on [the] Microsoft Azure cloud [was compared],” said CISPE, in a research note. “[It was] found the additional charges levied on those choosing a non-Microsoft cloud sucked an additional €1,010,394,489 out of the European economy in 2022.”
The report further found that applying the same cost comparison model to Microsoft’s cloud-based productivity suite, Office 365, resulted in surcharges being applied to users that ran the software in non-Microsoft clouds environments totalling €560m per year.
“This equates to a 28% premium of tax on the software licence, just for the pleasure of using it on a third-party cloud,” it added. “With dozens, if not hundreds, of software products seen as essential to the business operations, and [the] accelerating shifts to the cloud across the public and private sector, Microsoft could be adding hundreds of billions to the cost of digital transformation in Europe.”
The issue can be traced back to a Microsoft licensing-related policy change in 2019 that stopped customers from deploying on-premise Office 365 licenses on third-party infrastructure. According to the report, this move may have generated an estimated €560m in first-year license repurchase costs for European enterprises.
“An additional surcharge of €1bn, relating to licensing surcharges imposed on non-Azure deployments of SQL Server, may further be attributed to the policy change,” said the report.
“If this Microsoft tax equals €1bn per year for just one product among potentially hundreds, the overall cost to the European economy as it looks to move enterprise and productivity computing to the cloud must be estimated to be significantly higher.”
Digital transformation
It goes on to make the point that this additional spend is money that could be used to accelerate the pace of digital transformation for European enterprises and, in the case of the public sector, this is taxpayers’ money that is being “unfairly diverted to already-dominant players”.
And these extra costs may leave some end-user organisations with no choice but to use Microsoft’s own cloud, which is anti-competitive.
In light of the report’s findings, its author is now calling on the European Commission to take action and “end these unfair, unnecessary, unilaterally applied software license taxes”.
“Customers must be allowed fair choice to run the software they license in whichever cloud they want, free of technical, financial or legal penalties,” it added. “The 800-pound gorillas of the software world must not be allowed to leverage their dominance to capture the emerging world of cloud computing and squash the innovative European new entrants.”
Computer Weekly contacted Microsoft for a response to this article, but – at the time of writing – no response has been forthcoming.
The emergence of the research coincides with the publication of a letter sent by Google to the Federal Trade Commission accusing Microsoft’s licensing terms of forcing customers to use the software giant’s Azure public cloud platform.
“With overly complex agreements that seek to lock in clients to their ecosystems … [Microsoft] are not only forcing customers towards a monolithic cloud model, but also limiting choice, increasing costs for customers, and disrupting the growing and thriving digital ecosystems in the US and around the world,” wrote Google in an excerpt of the letter, published by US news site CNBC.