AWS: Customers would flee Azure if licensing costs were fair (2025)

AWS estimates half of the workloads Microsoft enterprise customers run on Azure would migrate away from the Windows giant's cloud if only the licensing costs of doing so were not prohibitively high and a competitive deterrent.

This claim is made in the latest submission by AWS to the UK's Competition and Markets Authority's (CMA) Cloud Services Market Investigation.

Changes introduced by Microsoft in 2019 made it up to four times more expensive to run Windows Server outside the Azure public cloud – for example, on AWS, Google, or Alibaba's infrastructure. AWS has complained of this before, and Google filed a complaint with the European Union's antitrust team in September to press for an inquiry.

The CMA opened an investigation into the health of the UK cloud market in 2023 and the probe is ongoing, although it has already made a provisional ruling. According to the case presented by AWS [PDF] the CMA recounts in its update report:

AWS said that Microsoft's licensing practices are harming competitors and competition for cloud workloads in the UK. It said that Microsoft does not have a credible justification for why it has made changes. AWS said that Microsoft is harming consumers, competitors, and competition by artificially raising prices, preventing price reductions and diverting customers to its own services.

Between 70 and 80 percent of enterprise customers still run Windows Server on-premises, according to the CMA's estimates, and both Google and AWS fear the higher prices Microsoft charges to run its software in their clouds means customers are commercially tied to Microsoft.

"AWS said that Microsoft dominates the market for productivity software and that customers seeking to use cloud services are dependent on it. AWS said that this influences customer decisions on which cloud they choose and is restricting customer choice," the CMA states in its report.

"AWS said that Microsoft's non-price restrictions have a direct impact on customer costs and that these restrictions are effectively foreclosing AWS in an anti-competitive way. AWS said that Microsoft's BYOL restrictions force customers to repurchase software they already owned to use on its rivals' clouds, which drives up customer costs."

The CMA previously ruled that Microsoft's strategy gives it the ability and incentive to "partially foreclose AWS and Google" by using relevant software products, and this is "harming competition in cloud services."

Last month, The Reg reported that Microsoft defended its position, saying that if the CMA were to intervene and force a change, it would be "riding roughshod over Microsoft's intellectual property rights. No other software provider in the industry would be subject to similar limitations."

The latest CMA update adds that AWS said Microsoft is "inflating prices," AWS and Google are unable to compete, it is "unfair" to expect customers to pay Microsoft for licenses they already own to use them in the cloud, and AWS tries to "offset costs but there is no profitable way to do so."

AWS does not publicly report profits specifically for the UK. However, globally it reported operating income of $39.84 billion in 2024, up from $24.6 billion. Microsoft's Intelligent Cloud unit recorded an operating income of $49.58 billion in its fiscal 2024, up from $37.8 billion.

The regulator's report adds:

AWS said that the current counterfactual would be a lot more users choosing to bring Microsoft software to AWS because they can and want to. It said that perhaps 50 percent of those workloads currently running on Azure would move elsewhere if it was economically feasible. AWS said Microsoft's licensing practices have impacted its ability in certain cases to make a positive margin.

According to the CMA, AWS said it has to offset the additional costs imposed by Microsoft's "licensing restrictions" such as the "cost of licences that need to be repurchased and the additional monetary impact of non-pricing features."

"Only once it has dealt with these costs can it start competing with Microsoft for specific customer workloads, e.g. through discounts. AWS also stated that as a result of the licensing restrictions Microsoft does not need to give customers as good an offer – therefore Microsoft's customers often pay more on Azure because there is less effective competition."

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That said, AWS admitted to the watchdog that it is hard to assess which customers or workloads do not leave Azure due to the pricing issue.

Unsurprisingly, Google agrees with AWS. The CMA's report says Google relayed [PDF] an example of a customer with a large Windows Server estate that was "happy" with Google's cloud services, "but nevertheless chose to move all of their Windows Server estate to Azure for licensing and commercial reasons."

Google proposes three interim interventions: to "prevent Microsoft degrading Google's licensing terms; second in relation to other actions Microsoft might take in order to lock in new customers; and third prevent Microsoft from introducing restrictions on the ability of third parties (independent software vendors and managed-service providers) to sell Microsoft software for running on Google cloud."

Microsoft, naturally, does not agree with the CMA's early diagnosis, nor its rivals' claims. "CMA's provisional finding is too vague as to which workloads are foreclosed and why Google and Amazon's margins are too low for them to compete for those workloads," the report on Microsoft's evidence states [PDF].

"Microsoft said that the CMA should not assume that it does not want to make its intellectual property for Windows Server and SQL Server available to Amazon and Google, noting that doing so contributes to its profits and is important to its business," it adds.

"Microsoft said that it is very careful about the pricing of its SPLA – while it does not want to charge too little for the use of its software, if its software was too expensive it would create incentives for large providers to move their customers off Microsoft software and onto an alternative software platform."

Buying a Windows Server VM is only part of the cost a customer faces, and when other services offered by its two rivals are factored in – such as storage or networking – both AWS and Google make enough margins to compete "and win customers migrating Microsoft software to the cloud."

"Microsoft said that in the foreclosure analysis it is important to consider how material the Windows IP is in the workloads. It noted that customers need storage, bandwidth and backup as well as software, but typically purchase many more services. Microsoft accepted that there could be foreclosure with a positive margin but said that the margins Amazon and Google could make are too high for there to be foreclosure."

The CMA plans to file the final decision report on its cloud services market investigation in July. It is not clear if Google, AWS, and enterprise customers will be free of Microsoft's licensing restrictions, as described in the CMA report, but no doubt lawyers on all sides are awaiting the result with some anticipation. ®