Turning the Screws: EU v. Microsoft Teams (Premium)

What a week: On Monday, the European Commission charged Apple with violating the Digital Markets Act (DMA) rules, and today, it has turned its attention to Microsoft, for bundling Teams in Office. At a high level, these cases are obviously similar–two Big Tech firms running afoul of European Union (EU) antitrust laws–but there are likewise some important differences.

Because the Apple complaint triggered a predictable backlash from the “Apple can do no wrong” crowd, I ended up writing an editorial in which I had hoped to find a common middle ground based on common sense. Regardless of the relative success of that effort, I thought it might be interesting to approach this new Microsoft complaint from the same viewpoint.

In a nutshell, the EC says that Microsoft is violating EU antitrust laws by bundling Teams with what I’ll call Office for simplicity’s sake. (It’s really Microsoft 365 for commercial customers, but you get the idea.) And we all know the history here: Over 20 years, Microsoft similarly bundled a new product (Internet Explorer) with a dominant product (Windows) to accelerate its competitive stance in a new market dominated by a small, third-party company (Netscape). And it faced antitrust charges in the U.S., EU, South Korea, and probably elsewhere. But the U.S. and EU cases were both notable and, in their own ways, historic.

I’ve already written a lot about Microsoft bundling Teams in Office, but it’s been a while. That Microsoft bundled Teams in Office to accelerate its competitive stance in a–well, not exactly new but slightly different–market is, of course, undeniable. In fact, this bundling tracks with Windows/IE nicely, and in more ways than are immediately obvious. For example, just as Netscape’s acquisition by AOL threw a wrench into arguments that Microsoft had made it’s primary product less valuable, Slack’s acquisition by Salesforce does the same here.

I should also mention that just bundling a new product for free with a dominant product doesn’t necessarily lead to success for that new product. To beat Netscape, Microsoft also improved Internet Explorer dramatically over its first several versions. And if you track the respective feature sets of Netscape Navigator and IE, you will see that IE pulled ahead at some point. And Netscape made strategic mistakes: It overcomplicated its browser by making it part of a monolithic suite of apps, among other things. So there is some nuance.

With Office and Teams, I see similar parallels: Teams improved markedly over the first two to three years, and while it was absolutely inspired by Slack’s focus on chat-based collaboration, it very quickly exceeded that narrow feature set and turned into an incredible software platform with apps and an app marketplace of its own.

There’s this other unfortunate truth we must address as well. Yes, Microsoft saw the competitive threat from Slack, and it considered various ways in which it would respond, including acquiring Slack, by the way. But Microsoft had apps and services in this space for many years before Slack even existed: Teams is nothing more than the evolution of Skype for Business (which debuted in 2014), Lync (2010), and Office Communicator (2007). Slack opened up shop in 2013.

Here’s an offbeat but relevant comparison. When so-called Battle Royal-type games–PUBG at first, but Fortnite most successfully–started taking off, I argued that this type of gameplay wasn’t a standalone game per se, but was just a type of multiplayer that Activision could add to Call of Duty. And then it did just that, creating Warzone and bundling it (for free, one might say) with Call of Duty. Activision, a dominant firm in this space (first-person multiplayer shooters), saw a new type of competition and leveraged its existing assets to counter the threat. (That it did so with a standalone game rather than integrating it into the Call of Duty playlists is interesting.)

Some might argue that Microsoft, like Activision, has a basic right to compete. And fair enough, but having a monopoly, or just being dominant in a clearly established market, changes the rules for that company. That’s why Microsoft ran into trouble because of Windows/IE. And it’s why it’s running into trouble now because of Office/Teams.

In comparing the EU cases against Apple and Microsoft, a few obvious differences emerge. One is semi-irrelevant: Where Apple is violating the legal requirements of the DMA, Microsoft is violating the Article 102 of the Treaty on the Functioning of the European Union (TFEU), which prohibits the abuse of a dominant market position. Microsoft’s case is thus a more traditional antitrust case, akin to U.S. v. Microsoft in the late 1990s.

But no matter: The net result is the same. The EU has laws. Big Tech is violating those laws. Charges are made. Big Tech responds.

The bigger difference, to me, is how these companies responded to their respective charges.

Microsoft, an old hand at antitrust charges and with those negative experiences to guide it, has taken a more open stance in working with regulators, privately and publicly. This is the strategy it adopted when it hired Brad Smith to solve its early 2000s antitrust problems, and it’s the strategy that led to a successful acquisition of Activision Blizzard last year.

Apple, meanwhile, is adopting the same belligerent stance that Microsoft originally used in the late 1990s against the U.S. Department of Justice (DOJ): It refuses to acknowledge that anything it’s done has ever harmed consumers, developers, or partners, and its solutions are as brain-dead as the non-working version of Windows Microsoft tried to ship, stripped of IE, to make a point. As I’ve written many times, even Apple’s biggest fans admit that its compliance with the DMA to date has been so malicious that it’s literally not complying at all. (Those fans may disagree with the DMA requirements. That’s fine. But it’s also beside the point.)

And it’s that difference I find so puzzling. Microsoft and Apple are both speaking privately with regulators, and because those talks are private, it’s not clear what’s happening there. But publicly, it’s very clear what’s happening. Apple is belligerent while Microsoft has tried, in what I view as good faith (though it’s open to debate), to address the EC’s concerns about Teams being bundled with Office. It has removed Teams from Office. And it has lowered the price of Office when acquired without Teams.

And that is not good enough. So I look to the EC’s complaint to find out why. How is it that this company has seemingly bent over backward to accommodate the EU and has yet fallen short?

Here’s what the complaint says.

“After the Commission opened proceedings in July 2023, Microsoft introduced changes in the way it distributes Teams. In particular, Microsoft started offering some suites without Teams. The Commission preliminarily finds that these changes are insufficient to address its concerns and that more changes to Microsoft’s conduct are necessary to restore competition.”

OK. But … why? What changes? What could Microsoft have done differently?

It doesn’t say. The complaint literally doesn’t explain what Microsoft should do.

To be clear, in the Apple case, the proposed outcome is clear: Apple just adheres to the law, in this case by allowing developers to communicate to their own customers in their apps and steer them to offers and other payment systems outside the Apple ecosystem–and fee structure–for free. But with Microsoft, it’s vaguer. To adhere to the law, Microsoft must … what? Turn back time?

Apple and Microsoft can now both respond to their respective complaints. They can argue their stances, they can make further concessions to appease regulators, or whatever. It’s up to them. But where Apple’s case is clear, Microsoft’s is not.

It’s possible–actually, likely–that the EC has privately communicated to Microsoft what it expects. There were leaks suggesting that the price differential between Office with Teams and Office without is not enough, that Microsoft needs to come closer to the price that Slack charges for its product. In other words, Office with Teams should cost roughly the same as Office with Slack. And, perhaps, Microsoft needs to do some work to ensure that Office with Slack or any other third-party chat-collaboration solution offers roughly the same functionality as does Office with Teams.

Those requirements seem onerous to me. Worse, they seem nebulous. I mean, where does it end? And why is the price of Slack fair? Again, compared to the clarity of obvious nature of the Apple case, this one is just weird.

The EC notes that Microsoft’s bundling of Teams dates back to 2019, and that this act has “restricted competition on the market for communication and collaboration products” while defending Microsoft’s market position in productivity software and its suites-centric model from competing suppliers of individual software. But as noted, Microsoft has been bundling something like Teams with Office since at least 2007. Six years before Slack even existed. I mean, Slack chose to compete with Microsoft.

I don’t have any answers on this one.

I do have many questions. I believe that Microsoft has a much stronger case than Apple, though it’s also clear that both companies abuse their market dominance because it’s natural and obvious to do so. You don’t obtain a competitive advantage and then not use it. But, again, the outcome here is not obvious because it’s not even clear what the EU wants.

I’m reminded of the classic meme in which a spouse is mad at their partner but won’t tell them why. “You know what you did,” they say to the oblivious other party.

And maybe they do. But in this case, Microsoft needs clear guidance on how to resolve the problems. And if that information was provided to it, then it was never communicated publicly, as far as I can see.