Microsoft has settled its European cloud complaint — but rivals are calling it a "pay off"

A two-year-long dispute between Microsoft and a cloud industry group is finally over – and all it took was $22 million, an oversight body, and licensing changes.

The Cloud Infrastructure Service Providers in Europe (CISPE) accused Microsoft of anti-competitive tactics and two years ago filed a complaint with the European Commission, demanding a formal investigation.

A report from CISPE last year suggested customers on non-Azure platforms were paying a 20% surcharge on Microsoft software , costing more than €1 billion to European businesses.

The pair have now agreed to a settlement that will see Microsoft agree to licensing changes that opens up its Azure Stack for European hosters, as well as to co-establish an oversight body. Microsoft has nine months to make the changes, or the complaint will be revived, CISPE said.

Reports suggest CISPE will also be given a financial settlement worth €20 million.

“This is a significant victory for European cloud providers," said Francisco Mingorance, Secretary General of CISPE, in a statement.

In a statement given to Reuters , Microsoft President Brad Smith said the company welcomes the settlement, adding that it will continue working closely with relevant stakeholders following the decision.

"After working with CISPE and its European members for more than a year, I am pleased that we've not only resolved their concerns of the past, but also worked together to define a path forward that brings even more competition to the cloud computing market in Europe and beyond,” he said.

What happened in Microsoft’s cloud licensing dispute?

The first rumblings of a dispute over cloud licensing practices began in 2021, when research suggested anti-competitive tactics by market leaders in the cloud market were excluding other players .

These concerns continued into early 2022, when cloud providers complained to journalists that Microsoft's software licensing terms were hurting rival cloud companies.

In a 2022 blog post , Smith said that while not all of the claims were valid, “some of them are” and that the tech giant intended to implement changes to address concerns.

Those changes included a set of five European Cloud Principals as well as what Smith described as "better support" for European cloud providers. In particular, this aimed to make it easier for smaller rivals to offer Microsoft products such as the 365 suite of apps as part of their own hosted desktop solutions.

Smith also promised to rejig licensing terms, specifically making it easier to move software licenses to the cloud.

In August 2022, Microsoft introduced those new terms, which were rolled out in October. The changes included letting customers use their own software on a cloud provider of their choice's infrastructure; making it easier to virtualize Windows by ditching a specific licensing requirement; and adding the option to license Windows Server on a virtual core, rather than being tied to a physical number of cores.

Rather than solve the problem, the new licensing terms exacerbated the dispute.

CISPE said the documents laying out the changes offered little clarity as to how they would actually help customers. The industry body also laid out specific problems, noting that products were still tied to Microsoft's own, that discriminatory pricing was still happening, there were too many restrictions on licensing, and Microsoft was requiring access to customer information.

In response, a month later CISPE filed a complaint to the European Commission , accusing Microsoft of anti-competitive tactics by using its licensing terms to lock-in customers to its own platforms. The CISPE complaint followed an early filing against Microsoft by CISPE members OVHcloud and Aruba, although those have since been settled with Microsoft.

At the time, CISPE said Microsoft’s “ongoing position and behaviors are irreparably damaging the European cloud ecosystem and depriving European customers of choice in their cloud deployments”.

Hoping to avoid another EU antitrust battle, Microsoft agreed to talks with CISPE in February. At this point, the EC had examined the complaint but had not yet taken any further action.

Last month, reports suggested those talks had been fruitful, with Microsoft and CISPE agreeing to a multi-million dollar settlement. However, at the time, the cloud organisation rebuffed the idea .

“As the foundation for discussions, CISPE has reiterated that any remedies and resolution must apply across the sector and to be accessible to all cloud customers in Europe,” CISPE told ITPro at the time .

Now, CISPE has confirmed the settlement and laid out the details of the agreement — including the fact that Amazon and Google are not included.

What was agreed?

According to CISPE, the cloud organisation and Microsoft have signed a memorandum of understanding that will see Microsoft release a new version of Azure Stack HCI for European cloud providers that includes pay-as-you-go licensing for SQL Server, free extended security updates, and multi-session virtual desktop infrastructure based on Windows 11 .

In return, CISPE will drop its complaint, but Microsoft has nine months to deliver the new product, or it will refile.

"This collaboration will enable European Cloud providers to offer Microsoft applications and services on their local cloud infrastructures, meeting the demand for sovereign cloud solutions and addressing the disruption experienced by European cloud providers and their customers following Broadcom’s acquisition of VMware ," CISPE said in a statement .

Beyond the licensing changes, the agreement will also establish an independent European Cloud Observatory (ECO) to monitor the Azure product and ensure it delivers the required changes in the future.

And what about the $22 million payment, as reported by Reuters ? CISPE said it was being reimbursed for its litigation and three years of licensing campaign costs, while Reuters said that the deal would compensate CISPE members for any revenue lost due to licensing over the last two years.

"CISPE has given Microsoft the benefit of the doubt and believes that this agreement will provide a level playing field for European cloud infrastructure service providers and their customers," CISPE's Mingorance said.

"Microsoft has nine months to make good on its commitment by offering solutions that allow fair licensing terms for its productivity software European cloud infrastructures."

Industry rivals aren’t happy

Amazon Web Services (AWS) , Google Cloud, and AliCloud are not included in the settlement, despite AWS being a CISPE member.

A spokesperson for AWS told ITPro that the settlement “does nothing for the vast majority of Microsoft customers who are still unable to use the cloud of their choice in Europe and around the world”.

"Despite denying its licensing practices harm customers and competition, Microsoft is now making limited concessions for some CISPE members that demonstrate there are no technical barriers preventing it from doing what’s right for every cloud customer,” the spokesperson added.

Amit Zavery, head of platform for Google Cloud and an outspoken critic of Microsoft’s practices in recent months , took to X to further criticize the settlement

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Zavery suggested that the deal amounts to a “payoff” and doesn’t fully address lingering stakeholder concerns.

"[Microsoft's] playbook of paying off complainants rather than address their complaints shouldn’t fool anyone,” he wrote. “The deal doesn’t apply to all CISPE members. CISPE admits to a pay off. EU cloud competitors become Azure customers. CISPE members under gag order, can’t file complaints anymore."

Mingorance added that CISPE's general assembly had asked its governing board to make changes to how the organization is run to ensure that European businesses, in particular smaller businesses, "remain in the driving seat" should Microsoft or other large cloud companies ask to become members.