FTC opens antitrust investigation into Microsoft’s cloud, AI, and cybersecurity practices

The US Federal Trade Commission (FTC) has launched an antitrust investigation into Microsoft, scrutinizing its cloud computing, software licensing, cybersecurity, and AI businesses.

The inquiry follows over a year of informal interviews with competitors and business partners, Bloomberg reported. FTC antitrust lawyers have sent Microsoft a detailed information demand, spanning hundreds of pages, after receiving approval from FTC Chair Lina Khan, the report said quoting sources familiar with the matter.

In the second week of November, Computer World reported that the FTC was preparing to investigate the business practices of Microsoft. The allegations were on whether Microsoft is abusing its market dominance by deploying restrictive licensing terms, which is not a fair practice.

Focus on market dominance and security practices

The investigation centers on Microsoft’s bundling of office productivity and security software with its cloud services, a practice critics argue disadvantages competitors in the authentication and cybersecurity markets. The FTC is particularly examining Microsoft Entra ID, its user authentication service, amid complaints that licensing terms and integration with its cloud offerings impede rival companies.

Microsoft’s role as a major government contractor and recent cybersecurity incidents involving its products have added urgency to the probe. The company provides billions of dollars in services to US agencies, including the Department of Defense, making its practices critical to national security.

In November 2023, FTC flagged concerns about the concentrated nature of the cloud market, warning that outages or performance issues could ripple through the economy. The authority had then collected feedback from civil society, industry stakeholders, and academia to prepare its report. As per the feedback, the majority of the concerns were related to competition and licensing practices.

In the UK too, Microsoft is facing a similar antitrust investigation by the Competition and Markets Authority. The investigation follows AWS’s complaint to the CMA against Microsoft for unfair trade practices.

Leadership transition and regulatory uncertainty

The investigation is among the final actions of Lina Khan, who has led one of the FTC’s most aggressive campaigns against corporate consolidation in decades. Khan is expected to step down as President-elect Donald Trump prepares to take office though there is no official confirmation yet.

Trump’s regulatory stance remains unclear, but his administration could mark a shift from President Joe Biden’s focus on reining in Big Tech. Under Biden, the FTC pursued cases against Amazon and Meta, while the Department of Justice sued Google and Apple.

This renewed scrutiny comes more than 25 years after the government’s landmark antitrust case against Microsoft over bundling its Windows operating system and browser, which ended without a breakup.

The FTC’s investigation could have far-reaching implications for the tech giant’s market practices and the broader cloud and cybersecurity sectors.

Queries to FTC and Microsoft remain unanswered.