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May 19, 2022updated 30 Jun 2022 8:38am

Microsoft Azure changes will help meet EU sovereign cloud requirements

The tech giant is changing its licensing rules to try and dodge an EU antitrust investigation and help EU sovereign cloud efforts.

By Matthew Gooding

Microsoft has confirmed it is changing the policies governing its Azure cloud platform following complaints from European cloud providers. The move could be a bid to stave off a full-scale antitrust investigation from the European Commission, and an attempt to meet the growing demands within EU countries for sovereign cloud arrangements for data of citizens and businesses.

EU sovereign cloud microsoft
Brad Smith announced changes to the company’s licensing system yesterday. (Photo by David Ryder/Bloomberg via Getty Images)

The company’s president Brad Smith announced the changes to the Azure licensing system following meetings with executives at European cloud providers. Microsoft has been under fire from these companies, who say it has been deploying anti-competitive tactics to convince customers using Office 365 and other products to switch to Azure for their cloud services. Last month, Margrethe Vestager, the EU’s competition and digital policy vice president, said it was looking into the complaints.

“Some of the most compelling feedback for me personally came from a CEO who said that he felt that he ‘was a victim of friendly fire in Microsoft’s competition with Amazon’. It was hard to hear this – but he was right,” Smith said. “Over the past few years, our focus on competing with the largest technology providers has resulted in us not being as attentive to the impact on our cloud provider partners. We are making changes to remedy this, beginning today.”

Microsoft Azure and the European cloud market: is its behaviour anti-competitive?

The complaint from the European cloud providers stems from a licensing change made by Microsoft in 2019, which meant customers using Office 365 and the company’s other productivity tools had to purchase an additional license to run them on a third-party cloud provider. This was a move from Microsoft to try and lure customers away from its two biggest rivals in the public cloud market – Amazon’s AWS and Google Cloud – but the charge also applied to all other European cloud providers too.

This led a group of European cloud companies, headed by OVHCloud, to file a complaint to the European Commission in March. But under the changes announced on Wednesday, the additional charge will now only be levied at Microsoft’s US rivals, while native European cloud providers will be exempted.

European businesses largely rely on the US hyperscalers for their cloud services. So while the overall European cloud market has been growing in size, the share grabbed by home-grown companies has diminished, according to figures from Synergy Research Group.

"We recognise that it is important to support a competitive environment in the European cloud provider market, in which smaller competitors have the opportunity to thrive," Smith said.

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Microsoft supports EU sovereign cloud

As part of the announcement, Microsoft revealed five principles which it says will "guide all aspects of our cloud business, enhance transparency for the public, and help us to better support Europe’s technology needs".

These include a pledge that the company "will provide cloud offerings that meet European government sovereign needs in partnership with local trusted technology providers".

"We recognise as a company that many European governments want more customised cloud solutions for their sovereign technology scenarios, especially for public sector and certain critical infrastructure providers," Smith's blog says. "There’s a rapidly emerging trend across Europe that eschews a one-size-fits-all approach and instead offers national governments more choice and flexibility."

This approach will involve working more closely with local providers, MSFT says, so that data can be stored and used in ways which meet the requirements of individual governments.

EU sovereign cloud has become a hot topic in recent years as the European Union seeks to build its indigenous capabilities across key technology areas. In 2020, 25 member states signed a declaration pledging to build the next generation of cloud technology in Europe, and various initiatives are already underway, including GAIA-X, a framework which it is hoped will be used for building the next generation of cloud networks.

Speaking to Tech Monitor in October, Valentijn de Leeuw, vice president of tech research company ARC Advisory Group said the push for EU sovereign cloud was driven by two factors. “There’s a recognition that [the EU] is behind the US and Asia on cloud, so this is a good chance to stimulate the economy,” he said. “There’s also the discussion around who owns and controls data – it’s probably easier to protect data and data traffic if it’s based in Europe, though I think more work needs to be done around encryption, processes and behaviour to make it completely safe.”

Read more: Why Europe's tech companies are partnering with cloud hyperscalers

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