The UK’s Competition and Markets Authority (CMA) has proposed designating Microsoft with Strategic Market Status (SMS) in its business software ecosystem, marking the first step towards potential regulatory intervention.
The watchdog said it had reached a provisional view that Microsoft’s position across several key software markets gives it significant market power, and has launched a consultation before reaching a final decision by February 2027.
The investigation covers Microsoft’s business software ecosystem, including Microsoft 365 applications such as Word, Excel, Outlook, PowerPoint and Teams, alongside Copilot, security software, server operating systems, relational database management systems and Windows.
According to the CMA, the company’s products are used by more than one million UK businesses and public sector organisations, with around 20 million monthly users.
The regulator said Microsoft’s market position is reinforced by high switching costs, product integration and commercial practices that make it more difficult for customers to adopt rival software.
If Microsoft is formally designated with SMS, the CMA said it would consider targeted interventions designed to improve competition. These include examining whether customers can choose artificial intelligence tools from competing providers rather than defaulting to Microsoft’s Copilot, assessing whether Microsoft’s software bundling practices restrict customer choice, reviewing the integration of its security products, and investigating the impact of software licensing on customers’ ability to deploy workloads across different cloud providers.
Alongside the proposed designation, the CMA published an update on its engagement with Microsoft and Amazon Web Services (AWS) over competition in cloud services.
The regulator said both companies had taken “material steps” to improve customer choice, including connecting data centres with rival cloud providers, removing or reducing data transfer fees for customers switching platforms, introducing new interoperability request mechanisms and deploying AI tools to automate parts of the cloud migration process.
However, the CMA said further work is needed to reduce barriers to switching between cloud providers, particularly around identity and access management and cloud portability, and confirmed it will continue discussions with Microsoft and AWS while keeping the option of a formal cloud market investigation under review.
Under the UK’s Digital Markets Competition Regime, an SMS designation does not imply wrongdoing but does allow the CMA to introduce targeted conduct requirements or pro-competition interventions where necessary to promote competition.
Sarah Cardell, chief executive of the CMA, said: “Business software and cloud services underpin workplaces across the UK, from small firms to vital public services. The evidence shows Microsoft has a long-standing and significant presence in the UK’s business software market.
“Organisations should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers.”
