The Six Five team discusses Google Complains to EU About Microsoft
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Transcript:
Patrick Moorhead: So Google complained to the EU about Microsoft’s behavior in a couple different areas. We don’t see Microsoft in the news related to antitrust a lot, do we? Compared to Google and Amazon and some of the other Mag Seven.
Daniel Newman: Yeah, that’s an interesting one, Pat. Is that a pot-kettle thing, or what do we get going on there? It’s kind of one of those things that really, it’s a tightrope, right? Just because you’re being accused of certain monopolistic behavior, does that prevent you from accusing others of other types of monopolistic behavior? Should it?
Patrick Moorhead: It’s like the spider with the Spider-Man meme, one of my favorite where they’re all pointing to each other.
Daniel Newman: Yes.
Patrick Moorhead: No, you’re a monopolist. No, you’re a monopolist.
Daniel Newman: We’re all monopolists, but so in Europe it’s an interesting venue to decide to kind of go down the path of pursuing antitrust because, what do we know about Europe? They love regulatory-
Patrick Moorhead: Love it, man.
Daniel Newman: … antitrust, competitive. They love to take down competitive people that abuse competitive powers. Google basically made a complaint this week on Wednesday saying Microsoft uses unfair licensing contracts in its Azure cloud computing business to stifle competition. Now, does this take you back in history? Is this the first time that a company named Microsoft has been accused of bundling software or using its packaging of different softwares into licensing to gain advantages? We’ve seen it for almost what, two and a half decades now, this has been a thing? But at the same time, Pat, Microsoft has done a remarkably good job over the last three or four years of avoiding the regulatory spotlight as its peers in the Magnificent Seven have all been under duress.
Basically, the long story short here, Pat, is Google is saying that Microsoft is making it really hard for customers to move workloads to competitors’ clouds. They talk about licensing fees as much as five times higher for companies that want to run their Microsoft workload in a Google environment. And this is something that has been settled. There’s been settlements behind the scenes for somewhat similar behaviors. Of course, it’s all redacted, we don’t have the details of this settlement, but Microsoft is supposed to be making changes based on that July settlement to reduce these sort of behaviors. Pat, I got to be candid here. It’s really hard to break down. I shared a longer sort of Tweet here. The nuance of antitrust is so substantial and it gets to be really difficult to talk about. But one of the things I sort of broke down, and this comes up every time you and I have to go over this, and I use Apple as an example. But we have these two sort of conflicted efforts with antitrust that weren’t historically the case when you go back to like a Ma Bell. When you go back to the Ma Bell era, it was both monopolistic in the way that they stifled competition, and it was punitive to consumers because consumers had no choice and they had to pay more because of the monopoly that these companies had. Microsoft isn’t.
Microsoft wants to keep people on Azure’s cloud, and so they use their diversification of product services and licensing in their bundle to make it more appealing. They also believe that kind of stacking, so you stack hardware, software, platforms, services together to give people a better experience. And so when you optimize say, workloads for your particular hardware, they run better. At least that’s the idea of it. And so you have this kind of push and pull, Pat, and it goes on because Microsoft could kind of look at like, we optimize everything to be the best and of course it’s cheaper because it’s all running in a stack that’s being scaled, optimized for great customer experience. But at the same time, that’s a very fine line from where you start to bundle.
But all of a sudden the question is, well, if the consumer is getting a good experience but at the same time you’re making it hard for people to compete, are you going to make the experience worse in the name of making competition better? And that’s the question mark that I have. And I’m not saying that running on Google is worse, I’m just saying that that’s kind of this fine argument that I’ve had for a long time. And the easy thing for everyone out there, Pat, is like in the app store. It’s like, nobody wants to side load an app. It’s not convenient to have to go to an outside site and go get Spotify and figure out how to get it on your device and utilize it as an application. You want to run it through the app store. So this is the simple thing. Having said that, because Apple knows that, they charge a fortune to every app developer to be able to have that convenience. And then it comes back to marketplaces, convenience, innovation. Who pays for companies that have great ideas and build great modes?
So this is kind of like I said, a little bit of a push and pull, and it’s between two companies that both know all too well how to use their power dynamics and their strong market positions to stifle and keep other companies out of their markets. Great capitalism, monopolistic behavior. It’s a very, very blurry line, Pat, between those two things. But it’s an interesting case in a venue that is most likely to have some sort of profound decision, because Europe doesn’t like these kinds of behaviors.
Patrick Moorhead: Yeah, I mean, Europe is a huge innovator in regulation.
Daniel Newman: What? I was like, where are you going with this?
Patrick Moorhead: I was waiting to bring that one out. No, it’s funny. History matters here, particularly in legal because it’s based on precedents, but you do have kind of the trends, administrations like Lina Khan and what happens over there in the EU. Historically, by the way, Microsoft, there was a verdict that came in in 2000 that they were to be broken up as a company. And guess what it was for? It was essentially giving away Internet Explorer for free with Windows, and they were ordered to split the company up. So there is a lot of precedents here. And you might also recall Teams, I’ve forgotten if Slack is still suing Microsoft for basically giving away Teams with a E-5, E-3 license, or if that’s antitrust, but very similar. Now, you just can’t give stuff away, you cannot give stuff away at a loss. Okay? That’s one of the keys here. That’s super hard to prove, right? Which is, and by the way, Microsoft isn’t giving these license away for free when it’s on Azure, but they’re likely putting in pricing to incent their customers. I have heard challenges from all of the hyperscalers about Microsoft, particularly on Windows licenses and how much it costs. But yeah, this is a tricky one. This one is definitely gray to me.
On one side it’s VPA, volume purchase agreements. The more you buy, the more you save. I’m channeling my Jensen Huang here, versus giving stuff away for free, predatory. Meaning drive people out of the market and make it so difficult for them to compete. So, we’re going to keep our eyes on this. This was what Microsoft was broken up for in 2000. Of course they appealed, they won on appeal in 2001, but my gosh, that setback Microsoft, I don’t know, 15 years, in terms of how they operated.
