The U.S. Federal Trade Commission plans an investigation into Microsoft cloud computing practices, apparently licensing practices that tend to restrict customer ability to move data to other platforms and suppliers.
The move probably illustrates for many the difficulties of regulating “competition” in the computing industry, when it is characterized by complex and rapidly changing technologies.
The fast pace of innovation can quickly make today’s possible problems vanish, only to be replaced by new issues.
Some might argue that the Telecommunications Act of 1996, the first major revision of telecom policy since 1934, focused on voice services competition, nearly completely missed the looming impact of the internet on the whole business. The Act assumed the key issue was competition for voice services, which rapidly ceased to be a relevant issue.
Also, it often is difficult to define a market, as contestants often compete in multiple industry segments arguably related to each other.
Perhaps more difficult is the growing importance of network effects. Many product markets now have a strong winner-take-all (or “winner take most”) character, based largely on natural economies of scale created by network effects (a product or service becomes more valuable as more people use it).
For older voice networks, the value grew as the ability to call anybody (not just people in your town) grew. If all your friends and business associates are on one social network, it has the most value for you.
If nearly all the things you buy are available on one e-commerce platform, it has the greatest value for you. If one payment method is accepted by virtually all the merchants you buy from, it has a strong network effect.
The point is that in such markets, legitimate competition will tend to produce concentrated markets, without any anticompetitive behavior.
The separate matter of how much such leadership helps propel leaders in one area to dominance in new or different markets often is the bigger issue for regulators.
Also, assessing the existence of consumer harm is much harder when products are given away for free. The whole notion of “consumer harm” is hard to assess when there is no “price” paid by any user, and when size itself might be key to providing products “for free.”
Traditional antitrust analysis often focuses on price effects. The absence of monetary prices makes it difficult to measure direct consumer harm. As a result, all sorts of “non-price” effects have to be looked at, and that is rather more subjective.
Those effects might include product quality, innovation, privacy, and user experience or switching costs, all of which are necessarily subjective to a large extent.
Of course, the move comes as a change of administration approaches, and many believe at least some regulatory action against hyperscalers could abate, though most assume oversight will remain elevated.
In November 2023, the FTC began assessing cloud providers' practices in four key areas: competition, single points of failure, security, and artificial intelligence.
The Microsoft inquiry is the latest of such moves.
In January 2024, the FTC launched a formal inquiry into generative AI investments and partnerships, focusing on Alphabet, Amazon, Anthropic, Microsoft and OpenAI licensing terms and practices that might harm competition.
Among other matters, the FTC is looking at the competitive impact of huge investments by hyperscalers into AI model firms, such as Microsoft's investment in OpenAI, and Google's and Amazon's ownership interests in Anthropic.
At least part of the issue is hyperscaler ability to leverage their cloud computing leadership into new AI markets, the same sort of issue officials have targeted in the past. For the FTC, the issue often is preventing leading firms from leveraging existing market power to gain leadership of new markets as well.
The Federal Trade Commission (FTC) and Department of Justice have histories of taking actions to protect competition in the computing industry, particularly focusing on preventing market leaders from leveraging their dominance in one area to gain unfair advantages in new or adjacent markets.
The Microsoft Antitrust Case (1990s-2000s)by the Department of Justice focused on Microsoft's bundling of Internet Explorer with Windows, leveraging its operating system dominance to gain market share in web browsers. This resulted in a settlement in 2001, imposing restrictions on Microsoft's business practices.
The FTC’s Intel Antitrust Case (2009-2010) centered on the accusation that Intel used its dominant market position in central processing units s to stifle competition in the graphics processing unit market. The case was settled in 2010, with Intel agreeing to modify its business practices.
The agency also opened an investigation into Google Search (2011-2013), asking whether Google was leveraging its search engine dominance to promote its own services unfairly.The FTC closed the investigation without major action.
The FTC also filed an antitrust lawsuit against Facebook (Meta) in 2020 alleging that Facebook's acquisitions of Instagram and WhatsApp were part of a strategy to maintain its social networking monopoly.
The Commission also investigated Amazon's MGM acquisition (2021-2022), focused on how Amazon might leverage the acquisition; its e-commerce and streaming dominance in the entertainment industry to reduce competition. The agency ultimately did not block the deal.
Cloud computing practices also are under examination by the European Union and U.K. Competition and Markets Authority.
