Recently, Microsoft Corporation (MSFT) faced an antitrust investigation from the Federal Trade Commission (FTC) in the United States, becoming the fifth large technology company to be subject to such scrutiny after Amazon (AMZN), Apple (AAPL), Meta, and Google (GOOGL). This is also Microsoft's "attention" from the FTC again after more than 20 years.
This survey covers a wide range of business areas, including cloud computing, software licensing, network security products, and artificial intelligence (AI).
Antitrust investigation
The FTC had more than a year of informal dialogue with Microsoft's competitors and business partners, and FTC Chairman Lina Khan signed the hundreds of page request and sent it to the company, forcing Microsoft to provide relevant information.
The FTC's antitrust lawyers are scheduled to meet with Microsoft's competitors next week to gather more relevant information. One of the core focuses of the current survey is whether Microsoft abused its market position to bundle popular office productivity and security software with cloud products, thereby crowding out competitors. The FTC is highly concerned about this and is conducting a thorough investigation into whether this behavior violates antitrust regulations.
The focus of the investigation is on Microsoft Entra ID, a security software originally named Azure Active Directory, which helps users authenticate themselves when logging into cloud based software.
The cause of this investigation is reportedly due to several serious security incidents affecting Microsoft's products, and as a major software supplier for the US government agency, the FTC needs to further evaluate Microsoft's cloud business before conducting this investigation. Microsoft is a major government contractor that provides billions of dollars in software and cloud services to US agencies, including the Department of Defense.
The Government Cybersecurity Review Committee concluded earlier this year that 'Microsoft's security culture is inadequate and needs to be thoroughly reformed'. Microsoft CEO Nadella subsequently released an internal memo emphasizing the priority of security.
It is alleged that Microsoft is preventing customers from transferring their data from its Azure cloud service to other competing platforms through punitive licensing terms.
In a report in November 2023, the US Federal Trade Commission emphasized concerns about the centralized nature of the cloud market, which means that "disruptions or other issues that lower cloud provider service levels may have a ripple effect on the economy or specific industries.
On July 19th of this year, the crash of CrowdStrike affected millions of devices using Microsoft's Windows system, proving the widespread use of the latter product while also demonstrating Microsoft's direct impact on the global economy.
Smoke and gunpowder are rising everywhere
Previously, several competitors, including Google and Amazon, have explicitly complained about Microsoft, stating that its licensing terms and bundling software with cloud service Azure have made it more difficult for other cybersecurity companies to compete with it. Amazon and Google are Microsoft's main competitors in the field of cloud computing.
NetChoice, a lobbying group representing companies such as Amazon and Google, criticized Microsoft's licensing policies and the integration of artificial intelligence tools into Office and Outlook. The organization stated, "Given that Microsoft is the world's largest software company and dominates the fields of productivity software and operating systems, the scale and consequences of its licensing decisions are extraordinary
Companies such as Slack and Zoom Communications (ZM) under Salesforce (CRM) say that Microsoft's practice of bundling Teams video conferencing software with popular software such as Word and Excel for free is anti competitive, making it harder for them to compete.
Microsoft also faces similar antitrust challenges in the European market.
As early as July 2023, several European companies had filed complaints with the European Commission, requesting an investigation into Microsoft's communication and collaboration product Teams.
In June of this year, the European Commission issued a statement stating that it had preliminarily determined that Microsoft had violated EU antitrust rules. The European Commission has informed Microsoft that it has preliminarily determined that bundling its communication and collaboration product Teams with applications included in its enterprise suite Office 365 and Microsoft 365 violates EU antitrust rules.
In September of this year, Google filed a complaint with the European Commission against Microsoft, claiming that it required customers to pay a 400% premium in order to continue running Windows on its competitors' cloud computing servers and provide them with limited and delayed security updates.
These complaints further exacerbate Microsoft's antitrust dilemma in the European market.
Coincidentally, before Microsoft was exposed to a wide-ranging antitrust investigation, its two biggest complainants and competitors, Google and Amazon, were also embroiled in antitrust lawsuits initiated by the FTC.
In August 2024, Google lost the largest antitrust case in the US technology industry since the Microsoft split at the beginning of this century. Federal court judge Amit Mehta ruled that Google's search business violated US antitrust laws, and Chrome browser "strengthened Google's dominant position". After Google lost the lawsuit, on November 20th, the US Department of Justice sought Judge Mehta to force Google to sell its browser Chrome, as well as to seek data licensing requirements and remedies related to artificial intelligence (AI) and Android smartphone operating systems to break Google's monopoly.
On November 26th, the US Department of Justice sought a second antitrust victory against Google. The Department of Justice has informed a federal judge that Google has illegally taken a dominant position in the field of online advertising technology.
In early October, a US federal judge approved the FTC's request to file an antitrust lawsuit against Amazon. The lawsuit accuses Amazon of illegally maintaining a monopoly position by punishing sellers who sell products at a discount outside of Amazon and requiring them to use Amazon's own logistics services to obtain advantageous display positions on the website.
Yesterday reappeared
Do you feel familiar with bundled sales, abuse of market advantages, illegal maintenance of monopoly position, forced splitting and sale?
The ruling against Google and the anti-monopoly investigation launched against Microsoft are highly similar to the decade long Microsoft antitrust case in the 1990s. Just as Microsoft was convicted of violating the law for abusing the market advantage of the Windows operating system, Google also faces similar sanctions. Judge Mehta directly cited the Microsoft case from over twenty years ago as a reference. Sam Weinstein, a law professor at the Cardozo Law School who previously served as an antitrust lawyer for the Department of Justice, pointed out that "the (US) government has been explicitly and implicitly stating that they built the legal basis for this case based on the Microsoft case
The FTC began an antitrust investigation against Microsoft in 1991. The government accuses Microsoft of abusing its monopoly position by forcibly bundling the browser software Internet Explorer (IE) into its personal computer operating system Windows, which is based on Intel's microprocessor architecture. This bundling behavior is believed to be the fundamental reason why Microsoft won the browser war, as other competing browser software in the market, such as Netscape Navigator or Opera, require users to use a modem to connect to the internet or purchase from software stores. Therefore, the core issue of this case is whether Microsoft can bundle IE in Windows.
Microsoft insists that IE is not a "product", but a "feature" that can be added to the operating system, but the Federal Department of Justice clearly does not agree with this definition. It insists that it is more capable than software developers and users to define the nature and purpose of a software.
In 1999, a federal court in the United States ruled that Microsoft had illegally exploited the market advantage of its Windows operating system to exclude other web browsers.
In June 2000, the court made a formal ruling requiring Microsoft to cease bundled sales and planned to split Microsoft into two parts: one part operating the operating system business and the other part operating other software businesses. In 2001, Microsoft appealed after initially losing the lawsuit and eventually reached a settlement with the US Department of Justice, avoiding the fate of being split in half. However, it still paid high settlement fees, opened up some source code, and stopped putting competitors at a disadvantage in the personal computer business.
This verdict was highly controversial back then.
The most famous opponent among them is Milton Friedman, a staunch defender of the free market and Nobel laureate in economics. He believes that this antitrust lawsuit against Microsoft sets a dangerous precedent for government intervention in the free market, and future government regulation will lay the groundwork for hindering technological progress in the same industry.
Be CEO Jean Louis Gassy claimed that Microsoft did not truly profit from IE and integrated it into the operating system because consumers were expecting a browser software to be included when purchasing the operating system. For example, BeOS also integrates a browser software called NetPositive.
Another Nobel laureate in economics, Paul Krugman, wrote in his 2000 article "Microsoft: What Next?" that even those who strongly criticize Microsoft's approach have to worry about the negative effects of simply dividing it: previously free application software may start charging, and operating system companies will abandon their original price restrictions and raise prices significantly.
Unknown prospects
At the age of 32, Lena Khan became the youngest chairman in the history of the Federal Trade Commission. During her tenure, she was known for her tough approach and has been committed to curbing the monopolistic tendencies of large tech companies such as Meta and Amazon, causing headaches for these companies.
However, after US President elect Trump officially takes office on January 20, 2025, Lena Khan is likely to resign. It is widely predicted that Trump will nominate a conservative with a more moderate attitude towards the business environment as the chairman of the FTC. This highly probable personnel change will leave the prospects of the investigation into Microsoft uncertain.
It is currently unclear whether Trump will relax regulation of large tech companies. Although he has always emphasized the need to relax regulations, the latest report on November 27th stated that Trump is considering appointing Gail Slater as the head of the Department of Justice's antitrust division. Wall Street analysts say that this nomination means that Trump will continue the tough enforcement stance advocated by the Biden administration. Previously, Vice President elect Vance had expressed his desire to see Google split, demonstrating a firm stance on antitrust. As Vance's senior aide, Slater also maintains a radical stance against monopolistic behavior.
In addition to Slater, Melissa Holyoak, who holds a more conservative antitrust stance, is also a strong competitor to the head of the Department of Justice's antitrust division; Trump's ally Mike Lee also publicly supports the candidacy of Mark Meador, a former law enforcement officer from the Department of Justice and the Federal Trade Commission, for this position. Lee said in a statement, "The Federal Trade Commission urgently needs new leadership who will restore the agency's enforcement based on legal precedents and economics, and will continue to hold large tech companies accountable for their anti competitive behavior
Generally speaking, although both parties claim to encourage free competition, their policy orientations are often completely opposite. When the Democratic Party is in power, they tend to strengthen regulation and crack down on large companies, while when the Republican Party is in power, they tend to favor more friendly business environment policies.
At present, the policy direction of the Trump administration towards large technology companies is still unclear.
The definition of monopoly and monopolistic behavior has also been controversial. One view is that if a company gains a large share of the market through its own technological and marketing capabilities, this monopoly position is itself a result of free market competition and is therefore natural and healthy.
Moreover, this also involves complex controversies over whether and how the government should play the role of a "night watchman" well, as the issue of regulatory policies always lagging behind the development of technology.
Before the internet era, the functionality of a certain product was relatively simple. Computers are computers, and telephones are telephones. No one uses them to watch real-time video streams such as news, TV, and live broadcasts, let alone search on the internet. After the internet connects everything, the functionality of any product that can be connected to the internet often increases by one to several orders of magnitude, and the emergence of cloud services further strengthens this phenomenon.
Nowadays, Microsoft's Windows system, Apple's MacOS and iOS, Google's Android, and Linux, which is mainly used for servers, all come with default web browsers. Operating systems that do not come with browsers from the factory may not have a market at all. The view that bundling browsers with operating systems was unfair competition has long disappeared.
At present, Microsoft's practice of bundling productivity and security software with cloud products for sale, as well as the various monopolistic behaviors accused by Google, Amazon, Apple, and Meta, who can say that it will not be commonplace in 20 years?