A trade group representing European cloud vendors has reached what it hails as a “landmark agreement” with Microsoft that will reform licensing terms of Microsoft software deployed by European cloud vendors. Some industry experts, however, criticize the deal as far too favorable for Microsoft.

The trade group, Cloud Infrastructure Services Providers in Europe (CISPE), promotes the agreement as a breakthrough that will usher in a new, better chapter for European cloud providers. “For enterprise customers, the new programs directly address previous concerns of CISPE members and empowers European enterprises to choose among a wide range of cloud solutions that meet their sovereignty, compliance, and economic needs,” said Francisco Mingorance, Secretary General of CISPE.

CISPE, which represents some two dozen European cloud vendors, points to key benefits of the agreement. CISPE members will get Pay-As-You-Go licensing models for major enterprise apps like Windows Server and SQL Server, at pricing levels similar to that of Azure itself. In theory this will enable these providers to compete more equitably with Azure.

Additionally, CISPE members get the Flexible Virtualization Benefit already offered to CSP-Hoster partners, a program which also allows EU vendors to compete more effectively with Microsoft’s directly hosted solutions.

Issues around sovereign cloud and customer privacy have become increasingly compelling concerns in the EU and this deal addresses that. The agreement allows Microsoft 365 Local to be installed on local EU cloud infrastructure, enabling greater digital privacy for EU customers. And CISPE cloud vendors will be able to host Microsoft workloads as pay-as-you-go for their European cloud customers without passing customer data on to Microsoft.

Also enhancing EU competitiveness, Microsoft will not extend the terms of this deal to what it calls “Listed Providers,” which are global hyperscalers like Amazon Web Services, Google, and Alibaba—offering the competitive pricing only to EU players.

But critics across the software industry—on both sides of the Atlantic—found major fault with the deal. “This deal fails to tackle the core issues undermining competition in the EU cloud market. It serves the interests of a limited group of providers while leaving customers with little real choice,” said Alexandre Roure, Head of Policy and Deputy Head of Office, CCIA Europe, a trade group that promotes fair business practices. “As the European Commission aims to strengthen Europe’s cloud ecosystem and digital competitiveness, it’s time for its competition authorities to take decisive action.”

Ryan Triplette, Executive Director of the Coalition for Fair Software Licensing, based in North America, referred to the agreement as stalling tactic, claiming that the deal “bought Microsoft more time to lock in customers with restrictive and anticompetitive licensing practices. This is more smoke and mirrors from Microsoft: offer weak concessions in an attempt to avoid regulatory scrutiny and disingenuously pretend these actions promote European competition. Meanwhile, Microsoft continues to line its pockets at the expense of customer choice around the world.”

To be sure, criticisms of the deal have validity. At this point, the agreement leaves the technical connection in place between Microsoft 365 and Microsoft’s Entra ID (previously called Azure Active Directory), a technology that allows the centralized management of users. Since these two solutions remain linked, cloud users have no choice of ID management tool when using cloud-based Microsoft software.

On the other hand, CISPE deserves credit for attempting to push back against Microsoft with a goal of promoting European cloud vendors. It was CISPE that launched a formal complaint in 2022 against Microsoft with the European Commission, protesting Microsoft’s software licensing terms in the cloud.

Still, industry representatives claim that Microsoft has retained too much power. “Who decides who gets access, Microsoft or regulators?” said Mark Boost, CEO at Civo, a UK-based cloud vendor.“Without these answers, it is easy to arrive at the assumption that this is a workaround that protects market power instead of challenging it.”