Embracing rather than fighting digital regulation: Microsoft’s vision for the future

Yesterday, I attended a presentation by Brad Smith, Microsoft’s President and Vice-Chair, at an event organised by Brussels think tank Bruegel. I have listened to Brad Smith a few times in the past, but yesterday he was really at his best. He is a truly impressive public speaker and I liked the message he was there to deliver.

Most of the speech focused on cloud computing, but it also covered broader issues which I found particularly interesting.

Cloud computing is an area where Microsoft has been criticized in the recent past by associations representing European cloud computing providers (although I understand these were pushed in the back by Amazon, the number one provider of cloud computing services), some of which also filed an antitrust complaint to the European Commission. Brad Smith was there to make amend, but also explain what Microsoft was planning to do in order to alleviate the concerns expressed by European cloud providers. The details of Microsoft’s action plan can be found in a long blog post that was published on the corporate website of the company. I am therefore not going to describe this plan in great details as everyone can read that blog post.

Essentially, Brad Smith discussed two important Microsoft initiatives.

The first initiative is a set of five European Cloud Principles that Microsoft is adopting. According to these principles, Microsoft will:

• ensure its public cloud meets Europe’s needs and supports Europe’s values.
• ensure its cloud provides a platform for the success of European software developers.
• partner with and support European Cloud Providers.
• provide cloud offerings that meet European governments sovereign needs in partnership with local trusted technology providers.
• recognize that European governments are regulating technology; Microsoft will adapt to and support these efforts.

While the first four principles are very much focused on cloud computing, the fifth one is broader in nature and I will return to it below.

The second initiative, which implements the third principle highlighted above, seeks to support European Cloud Providers so that they can more easily host a wide variety of Microsoft products on their cloud infrastructure. Specifically, Microsoft will enable and help European Cloud Providers to host and run Microsoft products on their infrastructure for customers, including products that have traditionally been licensed to run only on a customer’s own desktop or server computers (“on-premises” licenses). In addition, Microsoft intends to introduce greater licensing flexibility for customers. They will make changes inspired by the fair software licensing principles created by European cloud associations CIGREF and CISPE, which have been particularly vocal about Microsoft’s cloud computing practices. Microsoft will also create a team that will work directly with and forge close partnerships with European Cloud Providers.

I assume that these efforts are designed to alleviate the concerns expressed in the complaint that Microsoft has been the target of (so far the reaction of European cloud providers has been rather mixed, with for example the European Cloud Association welcoming Microsoft’s announcement while CISPE considers they fall short of addressing its concerns). My experience as a competition lawyer is that the sooner a company addresses the concerns included in a complaint, the better, as otherwise the company will be drawn in a lengthy battle.

Brad Smith made it very clear that the company has learnt the lessons of its past antitrust cases and doesn’t want to go there anymore. After failing in their attempt to have the Commission decision that had found Microsoft guilty of abusing its dominant position annulled by the General Court (then Court of First Instance) in 2007 (which Brad Smith described as a total loss), the company decided that they had enough. When it was investigated again one year later for tying Internet Explorer to Windows, Microsoft was quick to offer commitments to the Commission, which the latter accepted. Since then, Microsoft has been spared from Commission investigations, with the Commission turning its attention to its rivals Apple and Google.

In that context, the part of the speech that I found the most inspiring relates to the final principle outlined by Brad Smith in this presentation, which is the recognition that European governments are regulating technology and Microsoft will adapt to and support these efforts. For someone like me who has been supporting the need for regulating digital gatekeepers, I find this position inspiring and I hope that Microsoft will stick to it. Unlike other big tech companies, Microsoft has never criticized the DMA, although it is clear that the implementation of some of its provisions will create challenges for the company. By taking this constructive attitude, I am confident that Microsoft will do better in regulatory processes.

As noted in prior blog posts (see e.g., here), the implementation and enforcement of the DMA will present significant challenges for the European Commission. Things won’t be easy considering the criticisms made by other big tech companies as well as their lobbies (e.g., the CCIA). I am even more worried when I see Apple’s decision to not comply with the ACM order mandating it to allow dating app developers to use the in app payment solution of their choice, preferring instead to pay a weekly penalty of €5 million, as well as Google deciding to follow in Apple’s footsteps although Apple’s conduct has been condemned by the ACM as a breach of EU competition law and will, in any event, will be prohibited under the DMA.

In this context, Microsoft can be a role model for other large tech companies still fighting regulators even when the battle seems lost. Back in February Microsoft announced a set of Open App Store Principles in a proactive move to adapt ahead of regulation and further distance itself from Apple and Google (see here for our analysis of these principles).

The advantage of Brad Smith is that he has seen it all. He knows that fighting rearguard regulatory battles does not make sense in the long run. It is a costly distraction that harms the reputation of the company. It does not mean that large companies should not be allowed to defend their rights as regulators are not always right (and this is how the case law eventually develops), but it means that there is a point where it makes sense to move on. Microsoft has shown that you can be successful even after major regulatory setbacks.