FTC broadens Microsoft probe to cloud, AI, and software bundling

Microsoft continues to face scrutiny over its alleged antitrust practices, with new details coming to light about what, exactly, the federal government is investigating about the tech giant.

According to new information revealed by The Verge, the US Federal Trade Commission (FTC) is gathering information about Microsoft’s business agreements, licensing arrangements, and the interoperability of its various products. It has also been looking into Microsoft’s bundling practices, particularly around AI, security, and software, including Windows and Office.

This development is the latest in a year-and-a-half-long probe into whether Redmond is illegally monopolizing several markets and purposely making it more difficult, expensive, or near-impossible to use its products on competitors’ cloud infrastructure. This could put the tech giant in violation of the FTC Act  which was passed in 1914 to promote industry competition.

Detailed questions around competitive pressure, AI bundling

The FTC launched its probe into Microsoft in November 2024 and amped it up earlier this year, issuing civil investigative demands (CIDs) to more than a half dozen of the tech giant’s competitors in the business software and cloud computing markets. US government agencies use these powerful, subpoena-like mandates to investigate potential violations of civil law, and they typically (but not always) precede formal complaints or lawsuits.

New reports reveal that the CIDs ask a range of questions (generally more than 15, some with multiple parts) centered around Microsoft’s licensing and other business practices. In what seems an attempt to learn more about the cloud industry, the FTC is also asking for information on the competitors’ organizational charts, product roadmaps, business and marketing strategies, and detailed plans around bundling, pricing, discounting, and profitability.

Additional questions seem to focus on the difficulties competitors face in breaking into a Microsoft-dominated market, requesting information about factors such as costs and barriers to entry or expansion. The CIDs ask about Redmond’s impact on competition, and solicit any documentation that explicitly reveals its policies, bundling, and interoperability practices. Further, the mandates seek information about industry AI offerings, particularly the combining of extra features and services with long-standing products like Microsoft 365.

But that’s not the extent of the investigation; the FTC has also been scrutinizing Microsoft’s data centers, capacity constraints, and AI research and spending. Notably, the company has made a multi-billion-dollar investment in OpenAI, rolling out ChatGPT-powered features and slowly scaling back its own AI research. That partnership could potentially reduce competition, and even indicate an undisclosed merger that should have gone through antitrust review.

The saga continues

The FTC initially issued a CID to Microsoft in late 2024, requiring it to turn over data about its operations over a near 10 year period (from 2016 to 2025). The federal agency seems to be particularly interested in the tech giant’s long-standing practice of bundling productivity (Office) and security software with cloud services, and whether it structures licensing in a way that impedes customers from switching to rival services.

If the company is proven to exploit its dominance in cloud computing and cybersecurity to put competitors at a disadvantage, this could constitute unfair practices and violate antitrust laws.

Microsoft has long faced allegations of product tying and restrictive practices. For example, its Listed Providers program does not allow some Microsoft on premises software to be deployed on certain hosted cloud services, such as those offered by rivals Amazon, Google, and Alibaba.

Excluded products and apps include Microsoft Office, M365, Windows desktop OS, Windows Server, and Visual Studio. Previously, they could be deployed in dedicated cloud environments, but Microsoft restricted this option in October 2019 to licenses purchased with the addition of Software Assurance (SA) and mobility rights.

In other instances, Microsoft seems to make the purchase of its Microsoft 365 E5 top-tier subscription plan the only “viable short-term economic choice” compared to cheaper options like Microsoft 365 E3, said Scott Bickley, advisory fellow at Info-Tech Research Group.

“Microsoft embodies the mantra of ‘beg forgiveness versus asking permission’ and leverages its scale to force bundled products upon its customer base,” he said.

The current investigation was initiated under former FTC chair Linda Khan and traces back to the Biden administration. But Microsoft has dealt with antitrust issues going back nearly 30 years, and was forced to unbundle Internet Explorer from the Windows OS in 1998 after accusations from the Department of Justice. Still, Bickley said, “their tactics have stayed remarkably the same.”

Concerns going forward will no doubt center around bundling or integrations of AI services like Copilot or OpenAI, for which the consumption metrics will be “ambiguous” and the services “difficult, if not impossible, to disable for IT administrators,” he said.

Ultimately, he noted, “to say MSFT is a serial offender with regard to stretching the limits of anti-trust law would be the understatement of the century.”