Microsoft's CISPE Settlement for Suspension of audits for members: A Two-Year Moratorium on Audits

Introduction

Microsoft has reached a settlement with the Cloud Infrastructure Services Providers in Europe (CISPE), part of which includes a notable two-year suspension of software audits for CISPE members. This agreement follows a complaint filed by CISPE with the European Commission in November 2022, addressing issues related to Microsoft's pricing and licensing practices. This article delves into the details of the settlement, the implications for the cloud industry, and the reactions from various stakeholders.

The Settlement Details

According to sources familiar with the matter, Microsoft has agreed to a 24-month pause on software audits for CISPE members. This suspension is a significant component of the settlement aimed at resolving the antitrust complaint lodged by CISPE. In addition to the audit moratorium, Microsoft has made a payment estimated between €10 million and €30 million to the trade group and offered some technical concessions.

One primary goal for CISPE in this settlement was to address the price differentials between running Microsoft's software on Azure versus on a European Cloud Provider's infrastructure. The complaint highlighted how these differentials placed European providers at a competitive disadvantage.

Technical Concessions and Financial Terms

As part of the settlement, Microsoft promised to introduce a version of Azure Stack HCI tailored for hosters, which could help level the playing field for European cloud providers. However, the most striking element of the settlement is the two-year halt on software audits, which would typically be conducted to ensure compliance with Microsoft's licensing terms.

This moratorium on audits is seen as a significant concession from Microsoft, offering substantial relief to CISPE members who might otherwise face the disruption and costs associated with compliance checks. For many cloud providers, this aspect of the settlement makes it particularly attractive.

Market Power and Strategic Implications

The decision to include a pause on audits underscores Microsoft's considerable market power. Some industry insiders view this move as an indication of Microsoft's ability to exert influence and negotiate terms that favor its strategic interests. The suspension of audits is seen as a compelling reason for CISPE members to accept the settlement, despite any reservations.

Interestingly, this audit moratorium is not extended to Microsoft's major competitors, AWS and Google. Both companies have previously criticized Microsoft's licensing terms, arguing that they unfairly increase the cost of running Microsoft software on non-Azure platforms. The exclusion of AWS and Google from this moratorium further accentuates the competitive dynamics within the cloud market.

Reactions from the Industry

The response to the settlement has been mixed. On one hand, CISPE members appreciate the temporary relief from software audits and the financial and technical concessions. This deal provides a breather for European cloud providers to focus on growth and innovation without the looming threat of compliance checks.

On the other hand, the settlement has drawn criticism for potentially reinforcing Microsoft's market dominance. Critics argue that by selectively offering concessions and audit suspensions, Microsoft may be leveraging its position to maintain its competitive edge, particularly against AWS and Google. The differential treatment of major cloud providers raises questions about the fairness and long-term implications of such settlements.

The Bigger Picture

The settlement between Microsoft and CISPE highlights the ongoing tensions and competitive challenges in the cloud industry. As cloud services continue to grow in importance and scale, issues related to pricing, licensing, and market power are becoming increasingly prominent. The European Commission's involvement and the subsequent settlement underscore the need for regulatory oversight to ensure fair competition and protect the interests of smaller cloud providers.

For Microsoft, this settlement represents a strategic move to resolve antitrust concerns while maintaining its competitive positioning. The two-year audit suspension can be seen as a calculated risk, offering immediate benefits to CISPE members while potentially strengthening Microsoft's relationships with these providers.

Conclusion

The settlement between Microsoft and CISPE, featuring a two-year moratorium on software audits, marks a significant development in the cloud industry. This agreement addresses key concerns raised by European cloud providers and offers temporary relief from compliance burdens. However, it also highlights the ongoing competitive dynamics and market power wielded by major players like Microsoft. As the cloud industry evolves, regulatory scrutiny and strategic negotiations will continue to shape the landscape, influencing how cloud services are priced, delivered, and regulated.