- Designation. Britain’s Competition and Markets Authority has proposed giving Microsoft “Strategic Market Status” across five enterprise software categories — a gateway to binding conduct rules and fines of up to 10% of global annual turnover.
- Fact. The CMA found that Windows Server licensing on rival clouds such as AWS and Google Cloud can cost up to four times more than on Azure, a premium that is proceeding to a £2.1 billion class-action trial.
- Stake. The proposal, the first to emerge under the Digital Markets, Competition and Consumers Act 2024, targets AI bundling — specifically Copilot — as a priority for conduct requirements, setting up a potential confrontation over how Microsoft integrates AI into its enterprise stack.
The United Kingdom’s Competition and Markets Authority proposed on October 16 that Microsoft be designated with Strategic Market Status in five enterprise software categories, following a five-month investigation under the country’s new Digital Markets, Competition and Consumers Act. The designation, if finalised, would let the CMA impose legally binding rules on how Microsoft bundles, prices, and integrates its products — and penalise non-compliance at up to 10% of global annual revenue.
Five Markets, One Entrenched Player
The CMA found Microsoft holds a strong and entrenched position in PC operating systems, productivity suites, security software, server operating systems, and relational database systems. Its investigation attributed that entrenchment less to product superiority than to high switching costs — the expense and complexity of migrating away from a tightly integrated Microsoft estate — rather than any specific anti-competitive conduct. Strategic Market Status is a gateway status, not a finding of wrongdoing, but it unlocks a range of interventions unavailable under standard competition law.
AI bundling is identified explicitly as a priority. Microsoft added Security Copilot to its 365 E5 licensing tier in January 2026, and the CMA’s published roadmap flags that bundling practice as a candidate for early conduct requirements. Critics of the arrangement argue that embedding Copilot inside existing enterprise contracts makes it effectively impossible for rival AI assistants to compete on their own merits. Microsoft President Brad Smith had previously argued that AI faces fewer regulatory constraints than everyday consumer goods, a position the CMA’s move now directly challenges.
The Cloud Licensing Premium
A separate strand of the investigation focused on cloud licensing. The CMA found that running Windows Server workloads on AWS or Google Cloud can cost as much as four times more than on Azure, because Microsoft’s licensing terms impose surcharges for “bring-your-own-license” deployments on competing clouds. That pricing structure is already the subject of a £2.1 billion class-action proceeding to trial in England, and the CMA indicated it would treat cloud licensing as one of the first areas for potential intervention if the SMS designation is confirmed.
Microsoft disputed the findings, telling the CMA that its products are “open and interoperable” and that customers are free to choose alternatives. The company can appeal any final designation to the Competition Appeal Tribunal.
Timeline and US Angle
The CMA’s public consultation on the proposed SMS status runs until November 13, 2026. A final decision is expected in February 2027, with binding conduct requirements unlikely to take effect before late 2027. In the United States, the Federal Trade Commission issued civil investigative demands to Microsoft in February 2026, also focused on enterprise software bundling practices, adding a transatlantic dimension to regulatory scrutiny of the same set of concerns.
The CMA’s move is the first major test of the new Digital Markets Act framework and could set a precedent for how regulators in the UK and potentially other jurisdictions approach AI bundling by dominant platform operators. A February 2027 designation would arrive as Microsoft prepares to roll out the next generation of Copilot features across its enterprise stack — a timing that the CMA is almost certainly aware of.