Google Offered Cloud Firms $512M to Fight Microsoft

(Bloomberg) -- Google offered a group of European Union-based cloud firms a package worth about €470 million ($512 million) in a failed attempt to derail their antitrust settlement with Microsoft Corporation that freed the US software giant from a potentially costly EU case.

Cloud Infrastructure Services Providers in Europe, or CISPE, last week ditched a complaint at the EU’s antitrust arm over Microsoft’s software licensing processes after brokering a deal to get fairer access to the US firm’s technologies. CISPE had previously argued Microsoft made it too difficult for customers to change cloud providers by tying its business software to its Azure cloud services. 

But just days before the agreement was announced, Alphabet unit Google made a counteroffer designed to convince CISPE to maintain their EU complaint, according to confidential documents seen by Bloomberg and people familiar with the matter, who spoke on condition of anonymity.

The package totaled approximately €455 million worth of software licenses for Google’s cloud technology over five years as well as €14 million in cash, as part of a long-term partnership proposal with the Mountain View, California-headquartered firm, according to the documents.

Antitrust Complaint 

Google’s offer was conditional on CISPE maintaining its EU antitrust complaint into Microsoft’s allegedly abusive activities, and was also boosted by about €6 million in financial contributions from Amazon Web Services, as part of its ongoing partnership with the association, the people said.

Related:Microsoft Dodges EU Antitrust Probe in Deal with Cloud Lobby

But the offer didn’t sway CISPE’s membership, which includes a swathe of European firms. Instead, they opted to take up an offer allowing them to use enhanced Microsoft Azure features – with service providers permitted to offer Microsoft applications and services on their local cloud infrastructures. People familiar with the agreement said that Microsoft’s offer also comes with a financial contribution of €10 million.

“AWS is a founding member of CISPE and has regularly made voluntary contributions to CISPE,” AWS said. “Enterprises across every major industry have long supported trade associations in similar ways.”

While Google has long trailed Amazon.com and Microsoft in the cloud market, it’s begun to see impressive results. After breaking even for the first time last year, Google’s cloud operation posted first-quarter profit of $900 million – well ahead of analysts’ projections of $672.4 million. Google’s cloud unit is viewed as one of the firm’s best bets for growth as its core search advertising business matures. 

Related:MWC 2024: Microsoft Vows Fair AI Practices Amid Antitrust Scrutiny

Its performance could be further boosted by increasing regulatory scrutiny into Microsoft’s activities. EU probes can lead to fines as high as 10% of global sales if regulators find proof of competition abuses – increasing the incentive on firms to settle with complainants.

A Google spokesperson said that it has long supported the principles of fair software licensing and that the firm was having discussions about joining CISPE, to fight anticompetitive licensing practices.

‘Alternative Options’

A CISPE spokesperson said the association’s members were presented with alternative options to accepting the Microsoft deal, but they refused to confirm any of the terms of the deal. 

Microsoft pointed toward an earlier statement from its President Brad Smith, in which he said the company was pleased to have resolved EU antitrust concerns. 

Microsoft has a history of sidestepping antitrust scrutiny by brokering deals with complainants. In 2004, it handed over $9.75 million to a Google-backed group – the Computer and Communications Industry Association, in order for it to drop a complaint into Microsoft’s practices before EU regulators. 

In April 2021, CISPE published a paper calling on Microsoft to allow its customers to use software like Office on a wider range of cloud providers. 

Related:EU AI Act: Welcome To The Dawn Of A New AI Era

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It ramped up the pressure the following year, filing an antitrust complaint against Microsoft with Europe’s top competition regulator, alleging it had made it difficult for customers to change their cloud providers by tying its business software to its cloud.

While the cloud settlement removes one legal headache for Redmond, Washington-based Microsoft, it’s still in the EU’s cross-hairs. 

Microsoft $13 billion investment into OpenAI is coming under added scrutiny from Brussels antitrust watchdogs, who are quizzing rivals about the AI firm’s exclusive use of Microsoft’s cloud technology.

It also risks a hefty EU fine after regulators accused the company of abusing its market power by bundling the Teams video-conferencing app to its other business software.

Big Tech is also being hit by the Digital Markets Act – a raft of extra EU rules aimed at preventing competition violations before they take hold.