Category: Microsoft 365

The European Commission (EC) announced on July 27th, 2023 that they have opened a formal investigation into Microsoft. The focus is whether they have breached EU anti-competition rules through the bundling of Teams with Office/Microsoft 365.

Slack filed a complaint back in July 2020 that alleged Microsoft had:

“created a weak, copycat product and tied it to their dominant Office product, force installing it and blocking its removal, a carbon copy of their illegal behavior during the ‘browser wars.”

and now the European Commission have taken it up. I take it that at least part of the 3 year gap has been used by the EC to look into the situation and decide that there is merit to it being investigated formally.

The Microsoft Teams investigation

The EC press release says they are:

“concerned that Microsoft may grant Teams a distribution advantage by not giving customers the choice on whether or not to include access to that product when they subscribe to their productivity suites and may have limited the interoperability between its productivity suites and competing offerings.

These practices may constitute anti-competitive tying or bundling and prevent suppliers of other communication and collaboration tools from competing, to the detriment of customers in the European Economic Area (‘EEA’)”

This isn’t the first time Microsoft have been here with the EU so I thought a little look back would be in order 😊

Media Player and the N SKU

As well as the “browser wars”, this is also reminiscent of the ruling in 2004 that Microsoft were guilty of breaching these rules by including Media Player with Windows, which led to the creation of the Windows “N” SKU…and a €497 million fine which was, at the time, the largest ever dished out by the EU.

In the 2004 ruling, the initial fine was €165 million which was then doubled to €331 million due to “Microsoft’s significant economic capacity” and finally an additional 50% was added due to the length of time the issue had been happening (5.5 years).

In FY 2003, Microsoft had revenue of $32.1 billion with operating income of $13.2 billion. In FY 2023, Microsoft had revenue of $211.9 billion and operating income of $88.5 billion…that’s a roughly 6.5x increase over the last 20 years. Should the EC decide to fine Microsoft in this latest case, simply multiplying the previous amount x 6.5 would come to a little over $3 billion!

It must be noted that the 2004 ruling was not just about Media Player, it also covered interoperability between Operating Systems.

The European Commission’s decision found that:

“Microsoft infringes Article 82 of the Treaty by tying WMP with the Windows PC operating system (Windows). The Commission bases its finding of a tying abuse on four elements:

• (i) Microsoft holds a dominant position in the PC operating system market
• (ii) the Windows PC operating system and WMP are two separate products
• (iii) Microsoft does not give customers a choice to obtain Windows without WMP
• (iv) this tying forecloses competition.”

What is Article 82?

“Article 82 of the Treaty” refers to the “Treaty establishing the European Community (TEC)” which is now Article 102 “Treaty of the Functioning of the European Union” (TFEU). This states:

“Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.”

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12016E102

and is primarily focused on abuses by companies with a dominant position.

My thoughts

It’s true that you don’t get a choice as to whether Teams is included in your Office package when you purchase it. It is possible to prevent Teams from installing with M365 Apps, it isn’t the default option but the guidance is available here from Microsoft.

I can see it being quite likely that an organisation would stop paying for Slack once they purchased Office 365 and got Teams included with that, effectively for free. Now, with all the features and functionality it contains, I imagine that Teams would be successful as a standalone, paid for product but I suppose something the EC will consider is whether it would have reached that point without being bundled for the last few years? Also, what is the impact on consumers if Microsoft make O/M365 more expensive to include a paid-version of Teams?

Finally, I want to state that I Am Not A Lawyer and these are my own thoughts and musings on the subject based on the publicly available information.