The £1,100 lock-in: CMA Microsoft probe exposes software ecosystem at a crossroads

The numbers behind the argument

The Open Cloud Coalition (OCC), a 27-member industry body that spans challenger cloud providers and enterprise technology firms, puts a price on the status quo. Citing research by the Social Market Foundation, the OCC estimates that Microsoft’s licensing practices cost the UK public sector around £60m per year.

That is, it says, “over £300m over the course of a Parliament, based only on a subset of the relevant software products”. The coalition’s own Censuswide survey finds more than 70% of cloud providers view regulatory intervention as urgent, while nearly 65% of customers say swift action to improve cloud competition is “very important”.

An anonymous provider of AI services – one of several respondents who declined to be named, citing commercial sensitivity – frames the scale differently and quotes Gartner estimates that Microsoft 365 holds a 77% share of software-as-a-service (SaaS) enterprise productivity, while £1.9bn was spent by the UK public sector on Microsoft software licences in the 2024-25 financial year alone. “It would be unrealistic to expect that this dominant position could be displaced in the near term, despite the advent of functional alternatives thanks to AI,” the provider notes.

The Coalition for Fair Software Licensing (CFSL) draws directly on the CMA’s own Cloud Market Investigation, which found that Microsoft charges its closest cloud rivals – Amazon Web Services (AWS) and Google, designated as “Listed Providers” – a higher input price for Windows Server and SQL Server than Microsoft’s own customer-facing price. CFSL argues that “Microsoft improperly forces customers of its business software products into Azure, even when rival cloud services may better meet customers’ needs”.

The browser wars, replayed

A cluster of browser-provider submissions extends the lock-in argument to the user interface layer.

Vivaldi Technologies, an independent browser supplier, argues that the distinction between “consumer” and “business” Windows is artificial, as Microsoft markets the same operating system for both, and that “Edge is positioned as productivity infrastructure rather than merely a browser”.

Wavebox, another SME browser developer, contends that Microsoft leverages its Windows OS market power to steer users toward Edge and effectively locks out independent browsers from the start of the user journey.

The Browser Choice Alliance – a coalition of browser providers – calls for a browser choice screen on Windows, an end to OS updates pushing Edge as default, and “one-click” default switching.

Open Web Advocacy adds a historical dimension. It argues that Microsoft engages in a “persistent pattern” of user interface (UI) manipulation, “scare screens” and proprietary link protocols to coerce users into Edge.

Mozilla says it “strongly supports the SMS designation of Microsoft in respect of its business software ecosystem” and adds that “taking this action and implementing appropriate CRs and PCIs would be an important step towards strengthening competition and innovation in digital markets”.

Omnissa, a technology firm, identifies Microsoft’s proprietary “inner loops” inside Microsoft’s ecosystem, and – as AI impacts business software – “indiscriminate software bundling [that] will result in sub-optimal customer outcomes”.

Cloudflare, a connectivity cloud provider, stresses the compounding nature of Microsoft’s practices, and argues that unfair commercial terms, technical design barriers and bundling “can create a compounding dynamic that no single practice would achieve alone”.

The Computer and Communications Industry Association (CCIA) points to market surveys showing that over “85% of main decision-makers would be more willing to switch providers or adopt multicloud strategies if their organisation could transfer existing software licences across clouds without additional costs”.

The AI gateway

What elevates this investigation beyond a replay of the cloud licensing disputes of the past three years is the role of artificial intelligence.

The Startup Coalition, which represents more than 4,000 UK tech startups and scaleups, frames AI as the layer where the consequences of inaction are most acute. “AI is not a separate market sitting alongside the ecosystem; it is being embedded into every layer of it,” the coalition argues. “It is precisely here that competition on merit is essential and the CMA has a role to play.”

AI is not a separate market sitting alongside the ecosystem; it is being embedded into every layer of it. It is precisely here that competition on merit is essential and the CMA has a role to play

Another anonymous respondent – this time of AI services – develops the point with technical specificity. Enterprise AI tools, they explain, are only as useful as the work context they can access – and in the UK enterprise environment, that context sits within Microsoft 365, Teams, Outlook, SharePoint, OneDrive and Entra ID. “Control over the Microsoft Business Software Ecosystem amounts to control over a strategically important gateway for enterprise AI technologies,” says their response.

Copilot Chat is bundled at no additional cost with the vast majority of enterprise Microsoft 365 and Office 365 licences – a distribution funnel, the provider argues, that “may seed usage of Microsoft’s AI tools before enterprise customers consider competing enterprise AI solutions”. Third-party AI providers, by contrast, face what the submission describes as “inferior API, connector or add-on access”.

Mosaic Island, a UK-based technology consultancy with £14.1m in turnover, makes the cost tangible. Its 26-employee business now pays for ChatGPT and Microsoft Copilot – an additional £3,000 per year – because “Microsoft-native capabilities such as Teams meeting integration are only available effectively through Copilot”. The consultancy describes Microsoft’s ecosystem as exerting “the gravity draw of the Microsoft black hole towards increasing dependence and cost”.

Microsoft’s defence

Microsoft’s seven-page submission contests the CMA investigation’s premises at every level. The company argues the CMA is investigating five distinct digital activities, all of which face intense competition. It points to Google Workspace, macOS, Linux, PostgreSQL and Okta as evidence that each layer of the stack is contestable. It notes that Linux now runs more than two-thirds of customer cores on Azure and over 90% of public cloud workloads.

On AI, Microsoft’s counter-argument is direct. “AI is dramatically lowering the barriers to building high-performing enterprise software,” the company argues. “Startups with small teams can today build and deploy sophisticated AI-powered tools that compete directly with established products at scale.”

It cites Gemini’s 900 million monthly active users and ChatGPT’s 900 million weekly users as proof that competition is thriving. “The emergence of powerful, widely adopted AI assistants from well-resourced competitors is fundamentally inconsistent with the proposition that Microsoft could have ‘entrenched’ market power in the relevant activities,” it states.

Microsoft also points to its 34,000 UK partners and the £38bn in revenue its ecosystem contributes to the UK economy, describing its platform as “open”, with “partners and competitors alike” able to “build on, extend and integrate with Microsoft’s products using openly available tools and resources”.

The enterprise and public sector ground truth

Virgin Media O2, an enterprise user, reports concern that “bundling and pre-enabled settings are prominent features of how Microsoft designs and offers its products”, adding that “it may be prudent for the CMA to analyse the impact of Microsoft’s bundling practices on other providers and the competitive procurement process in the longer term, including where this concerns the integration of AI tools in business software”.

An anonymous large enterprise respondent describes Microsoft as “fundamental to the IT infrastructure of most UK (and global) companies and public sector organisations, and its practices have impeded and continue to impede healthy competition for various products and services within its ecosystem”.

Another anonymous large organisation reports that “Microsoft’s suite delivers significant benefits in usability, collaboration, security integration and day-to-day productivity”, but that “the characteristics which make Microsoft’s ecosystem attractive can also create barriers to switching and frictions in mixing and matching rival products”.

This respondent added: “We also note that high adoption rates of embedded Microsoft tools can make switching unrealistic in the short term.”

An independent researcher, drawing on Freedom of Information data from 24 English local authorities covering three years of procurement, concludes that local authorities are “locked in” via frameworks in which “a rival cloud, analytics or AI provider never reaches a moment at which the customer is actively choosing, because the Microsoft equivalent has already been acquired as an extension of what the customer is deemed to hold. Competition is foreclosed not by explicit exclusion but by the absence of any occasion on which it could occur.”

The cautionary camp

Not all respondents are convinced this investigation should be a priority. 

The Movement for an Open Web (MOW), a non-profit advocacy organisation, argues that “business software does not appear to be the CMA’s highest priority digital market issue” and that the CMA “has not explained why this has become a priority”.

MOW points to unresolved digital advertising cases where costs to UK households exceed £1,000 per year, and calls for comparative assessments of AWS and Google Cloud if cloud competition concerns are to be addressed. “Investigating Microsoft’s practices in isolation risks overlooking models by alternative providers,” the organisation warns.

The Information Technology and Innovation Foundation, a Washington-based think tank, argues the “business software” scope is overly broad and that existing antitrust laws are sufficient – though its submission appears truncated in the published record.

The governance lens

Between the pro-intervention and cautionary camps sits a cluster of consultancies and advisory bodies whose framing centres on governance rather than competition law.

The central issue is not whether Microsoft has built useful products. It has. The issue is whether UK organisations still have meaningful choice once productivity, identity, security, collaboration, cloud workflows and AI adoption all sit inside one ecosystem

Jisc, the UK’s digital agency for tertiary education, provides some of the most granular evidence in the investigation. Its December 2025 survey of UK education institutions found that 74% reported that moving away from Microsoft, either wholly or partially, was “not a viable option”. Some 53% of respondents operate entirely on Microsoft 365 A5 licences, while 62% reported increased Microsoft spending over the previous year.

“The key question,” Jisc explains, “is whether institutions can exercise meaningful choice between competing providers on a commercially and operationally neutral basis, or whether existing ecosystem dependencies increasingly shape future procurement decisions.” The agency introduces a distinction that runs through multiple governance-camp submissions: the gap between “theoretical availability of alternatives” and “practical substitutability”.

Third Stage Consulting Group, a supplier-neutral digital transformation advisory, says: “We routinely observe commercial dynamics that, while not necessarily explicit, create meaningful pressure toward Microsoft standardisation.”

It also cited: “Reports of double-digit annual increases on certain Microsoft subscriptions, the recent wind-down of long-standing volume-discount programmes for online services, and standardised pricing approaches that reduce negotiation room have all increased the effective cost of remaining a Microsoft customer while leaving switching just as difficult.”

The Change Hive, a business consultancy, argues: “The central issue is not whether Microsoft has built useful products. It has. The issue is whether UK organisations still have meaningful choice once productivity, identity, security, collaboration, cloud workflows and AI adoption all sit inside one ecosystem.”

The international shadow

The UK investigation does not exist in a vacuum.

The German Bundeskartellamt designated Microsoft as having “paramount significance for competition across markets” in September 2024, which Scida, an academic consortium responding to the CMA, describes as providing “the ability to target conduct at each layer of the ecosystem while capturing cross-market effects”.

The European Commission accepted binding commitments from Microsoft in 2025 to unbundle Teams from Office 365 and Microsoft 365, yet Element – a UK-based encrypted messaging startup that competes with Teams – reports “no material change in market conditions” since those commitments took effect. “The bundled-versus-unbundled price differential has not translated into observable switching behaviour,” Element notes.

Meanwhile, the Japan Fair Trade Commission opened its own investigation into Microsoft’s licensing practices in March 2026, with a scope that closely mirrors the CMA’s. In the US, the Federal Trade Commission and Department of Justice are examining the Microsoft-OpenAI partnership.

The OCC draws a sharp lesson from this international experience. “Microsoft has a long history of altering the form, nomenclature, packaging, or pricing architecture of its conduct in response to scrutiny while preserving much of its underlying commercial effect,” the coalition argues, citing the “Listed Providers” terminology, the Flexible Virtualization Benefit, the Azure Hybrid Benefit, and the E3-to-E5-to-E7 suite escalation ladder as evidence of a pattern.

The ultimatum

Lloyd’s Market Association (LMA), representing 55 managing agents at Lloyd’s, captures the structural dilemma facing regulated industries.

“Microsoft’s scale and market position mean that firms have limited or no ability to negotiate bespoke contractual terms or operational arrangements,” the LMA states. “Engagement with Microsoft operates on a ‘take it or leave it’ basis.”

The Startup Coalition distils the urgency. “The single most valuable thing the CMA can do for the startup ecosystem is to move quickly. Every month of deliberation is a month in which the market conditions change. A remedy that arrives late arrives weakened.”

Amnesty International, in a submission that broadens the frame beyond competition economics, argues that “the same dominant actors – including Microsoft – are now exerting control over this growing market” of generative AI, and that “fines on dominant technology firms are frequently absorbed as a cost of doing business and have done little to curb the underlying conduct”.

The human rights organisation calls for binding conduct requirements, structural and behavioural remedies – “including the break-up of dominant companies” – and human rights impact assessments of all proposed interventions.

2027 decision

The CMA’s statutory nine-month investigation window places a final decision in early 2027. The question for the regulator is not simply whether Microsoft holds market power, but whether the architecture of the DMCCA – designed to intervene at pace in fast-moving digital markets – can deliver remedies that keep step with the speed at which AI is being embedded into the enterprise software layer. 

For Killinghall Parish Council, the stakes are £1,100 and the freedom to use Teams without buying the rest of the stack. For the UK’s digital economy, the stakes are the rules of engagement for a market where software, cloud and AI are collapsing into a single commercial quicksand.