Key Points
- The Competition and Markets Authority (CMA) has proposed designating Microsoft with strategic market status (SMS) in its business software ecosystem, potentially opening the door to targeted regulatory interventions.
- The regulator says Microsoft holds a strong position across five areas of digital activity, including operating systems, productivity software, security software, server operating systems and relational database management systems.
- Microsoft’s software, including Word, Excel, Outlook, PowerPoint, Teams and Copilot, is used by around 20 million people each month across more than a million UK businesses and public sector organisations.
- The CMA is examining whether software bundling, product integration and licensing practices restrict customer choice or make it harder for competing providers to win business.
- The regulator will investigate whether rival artificial intelligence (AI) providers have a fair opportunity to compete with Microsoft Copilot and whether customers can choose AI tools independently.
- Microsoft and Amazon Web Services (AWS) have made changes intended to improve cloud-service choice, including removing cloud data-transfer fees for customers switching providers and improving interoperability.
- The CMA says further improvements are needed to make switching between cloud providers and operating across multiple clouds easier.
- The consultation on the proposed Microsoft designation closes on 13 November 2026, with a final decision due by 13 February 2027.
What Has the CMA Proposed for Microsoft’s Business Software?
The UK Competition and Markets Authority has proposed designating Microsoft with strategic market status in its business software ecosystem, beginning a consultation on whether the technology company should face additional regulatory oversight aimed at improving competition and customer choice. Announced on 16 October 2026, the proposal follows an investigation into Microsoft’s position in business software and its implications for UK businesses and public sector organisations. The regulator has also published an indicative roadmap identifying areas where it could consider targeted interventions if the designation proceeds.
According to the CMA’s official announcement, the investigation has found that Microsoft holds a strong position across five areas of digital activity: personal computer operating systems, productivity software suites, security software, server operating systems and relational database management systems.
The regulator believes that barriers customers encounter when switching providers, alongside commercial practices and integration advantages, may limit the ability of rival software developers to compete effectively.
As reported by Reuters in its 16 October 2026 coverage of the announcement, the proposal could lead to closer scrutiny of Microsoft’s practices, including the integration of products such as Excel, Teams and Copilot. Reuters also reported that Microsoft disagreed with the CMA’s assessment, maintaining that its products are open and interoperable.
The proposed designation is not a final decision. The CMA is inviting responses from interested parties before deciding whether Microsoft meets the statutory conditions for strategic market status.
Why Is Microsoft’s Position in the UK Software Market Under Scrutiny?
Microsoft supplies software used for a wide range of workplace activities, from document creation and communications to cybersecurity, database management and cloud-related operations.
The CMA says its business software products are used by more than a million businesses and public sector organisations in the UK, with approximately 20 million monthly users. The products include Word, Excel, Outlook, PowerPoint, Teams and Copilot, alongside security, server and operating system products.
The regulator considers this presence important because the software supports essential workplace functions. Its position is that customers should have meaningful opportunities to select the tools best suited to their needs and combine products from different suppliers.
The CMA’s findings indicate that Microsoft’s market position is reinforced by the difficulties customers may face when moving away from existing software arrangements. Where organisations rely on several connected products, changing providers can involve technical work, financial costs and operational disruption.
The regulator is also examining how product integration and commercial practices may influence purchasing decisions. If customers are encouraged to adopt a particular product because it is included in an existing package, rival providers may find it more difficult to demonstrate the value of their alternatives.
These are the regulator’s provisional findings and areas of concern, rather than a final determination that Microsoft has breached competition law.
Could Microsoft’s Software Bundling Practices Face Greater Scrutiny?
Software bundling is one of the main areas identified in the CMA’s proposed roadmap for further investigation.
Bundling can allow customers to obtain several products through a single package or subscription. This may simplify purchasing and provide practical benefits for organisations that want integrated tools. However, the CMA is examining whether these arrangements could also restrict customer choice when competing products are available separately.
The regulator intends to assess whether Microsoft’s bundling and integration practices affect competition, particularly where customers might prefer an alternative product but already receive similar functionality through an existing software package.
Security software is another area under examination. The CMA wants to determine whether the way Microsoft bundles or integrates security products limits the ability of customers to choose competing solutions.
The investigation will also consider the effect of Microsoft’s licensing practices on the choice of cloud services available to customers deploying software licences.
Any future action would depend on the evidence gathered and the legal requirements governing the UK’s digital markets regime. The proposed designation would not automatically mean that particular products must be separated or that Microsoft would be prohibited from offering integrated packages.
Instead, it could give the regulator the opportunity to consider targeted and proportionate measures addressing specific competition concerns, provided the relevant legal tests are met.
How Could the Investigation Affect Competition in Artificial Intelligence?
Artificial intelligence has become a central element of the CMA’s assessment because established workplace software is increasingly incorporating AI-powered functions.
Microsoft Copilot is among the products under consideration as the regulator examines whether customers can freely select the AI tools that best meet their requirements.
The CMA intends to assess whether competing AI providers have a level playing field when offering products to customers who already use Microsoft’s software ecosystem. It is also considering whether integration and distribution arrangements could influence which AI tools customers adopt.
The issue extends beyond the availability of individual AI products. Businesses may want to combine applications from different suppliers, select specialist AI tools for particular tasks or change providers as their requirements evolve.
The CMA argues that access to a broad range of competing software and AI services could help customers benefit from innovation and competitive pricing. Its proposed approach is intended to support competition while allowing technology markets to develop.
As reported by Reuters on 16 October 2026, the regulator’s investigation includes concerns about whether Microsoft’s position could affect the ability of rival AI providers to compete with Copilot.
Microsoft has disputed the CMA’s view of its market position. A Microsoft spokesperson told Reuters that its products, including Copilot, are open and interoperable, allowing customers to use them alongside competing services.
The consultation will give interested parties an opportunity to provide further evidence on these questions before the CMA reaches its final decision.
What Changes Have Microsoft and AWS Made to Cloud Services?
Alongside the proposed Microsoft designation, the CMA has provided an update on its engagement with Microsoft and Amazon Web Services concerning competition and customer choice in cloud services.
The regulator said the two companies had made material changes intended to reduce barriers that can make it difficult for customers to switch providers or use multiple cloud platforms.
According to the CMA’s 16 October announcement, the developments include connecting their data centres with rival providers, beginning with Google, and removing data-transfer fees for customers moving between cloud providers. The companies have also reduced such fees for customers using more than one cloud provider.
Other developments include a mechanism through which customers and competitors can request greater interoperability, alongside the introduction of AI tools designed to automate technical steps involved in switching cloud services.
These measures are intended to address some of the practical and financial difficulties organisations may encounter when changing providers or operating across different cloud environments.
However, the CMA has said that further work remains necessary. It will continue working with both companies to address barriers that could prevent customers from switching providers or combining services effectively.
The regulator has agreed with Microsoft and AWS to focus on improving identity and access management across cloud environments. It will also examine how cloud architectures designed to support portability can be deployed and migrated between providers without unnecessary obstacles.
The CMA will continue monitoring developments and has not ruled out launching a full strategic market status investigation into the cloud sector.
What Does the CMA’s Proposed Designation Mean for Businesses?
The proposed designation could have implications for organisations that depend on Microsoft’s software for daily operations, although the immediate announcement does not introduce new requirements for customers.
For businesses, the central issue is whether they can choose the products and services that best suit their operational needs without facing avoidable barriers to switching or combining suppliers.
The CMA’s work may be particularly relevant to organisations reviewing software subscriptions, AI adoption, cybersecurity arrangements and cloud infrastructure. These decisions can affect operating costs, technical flexibility and the ability to respond to changing business requirements.
Improved interoperability could make it easier for organisations to use different providers for different functions. Greater competition could also encourage suppliers to develop new features, improve services and offer more attractive commercial terms.
The potential benefits are not guaranteed. Their extent would depend on the measures eventually considered, the responses received during consultation and how any resulting requirements were implemented.
For technology teams and business leaders, the announcement highlights the importance of understanding software dependencies, licensing conditions and the practical implications of moving data or applications between providers.
Organisations assessing these issues may also find relevant professional development opportunities in IT and Computer Science, particularly when building knowledge of business software, digital infrastructure, interoperability and technology management.
What Is Microsoft’s Response to the CMA Proposal?
Microsoft has disagreed with the regulator’s provisional assessment.
As reported by Reuters on 16 October 2026, a Microsoft spokesperson said the company did not share the CMA’s view. The spokesperson also maintained that Microsoft’s products, including Copilot, are open and interoperable and can be used alongside competing services.
Microsoft’s position contrasts with the regulator’s concerns about market concentration, switching barriers and the potential impact of integration and bundling on rival providers.
The consultation provides an opportunity for Microsoft and other interested parties to submit evidence and representations before the CMA makes its final decision.
The proposed designation should therefore be distinguished from a final regulatory finding. The CMA has not announced that the proposal itself establishes wrongdoing, and any future intervention would need to satisfy the applicable legal requirements.
How Does the Proposal Fit into the UK’s Digital Markets Regime?
The CMA is using the UK’s Digital Markets Competition Regime, which allows the regulator to designate qualifying companies with strategic market status in particular digital activities and, where appropriate, impose targeted requirements.
Strategic market status does not, by itself, establish that a company has acted unlawfully. Instead, designation can provide the basis for further regulatory measures intended to address specific competition concerns.
The CMA’s approach is to identify where additional choice and competition could improve outcomes for businesses and public sector organisations while supporting innovation and growth.
The regulator has previously designated Google in online search and designated Google and Apple in mobile platforms under the regime. Microsoft’s proposed designation would extend the framework to its business software ecosystem if the CMA reaches a final decision in favour of the proposal.
The CMA has emphasised that interventions would need to be proportionate and focused on the issues identified through its evidence-gathering process.
When Will the CMA Make Its Final Decision on Microsoft?
The consultation on the proposed designation and accompanying roadmap opened on 16 October 2026 and is scheduled to close on 13 November 2026.
According to the CMA’s consultation documentation, the regulator must make its final designation decision by 13 February 2027.
Before then, the CMA will consider responses from Microsoft, business customers, competing technology providers and other interested parties. The evidence will help inform whether the statutory conditions for strategic market status have been met and whether any further regulatory action is appropriate.
The regulator will continue its separate engagement with Microsoft and AWS on cloud services, with a further update expected in spring 2027.
For now, the proposal marks a significant step in the UK’s scrutiny of business software competition, but the final outcome remains subject to consultation and the CMA’s subsequent decision.