Britain’s Competition and Markets Authority has proposed designating Microsoft with strategic market status, sparking a regulatory review that could lead to government intervention in product bundling, cloud licensing, and software interoperability by February 2027.
The Regulatory Pivot Targeting Microsoft’s Software Bundles
Last week, the Competition and Markets Authority initiated a consultation process that could grant the regulator enormous powers to impose specific conduct requirements on Microsoft’s product design. The regulatory body’s fundamental grievance centers on how Microsoft packages applications like Teams, Word, Excel, and Copilot together, making its software ecosystem deeply interconnected and commercially attractive to businesses.
According to research conducted by the regulator, enterprise customers view Microsoft’s offerings as useful, secure, and cost-effective compared to purchasing and managing separate licenses from alternative software vendors. However, because this commercial bundling reduces the likelihood that businesses will adopt competing products, the Competition and Markets Authority argues that market intervention is necessary.
If the designation proceeds following the consultation period, the regulator could intervene directly in several key areas. These include restricting how Microsoft packages its productivity suite, mandating changes to cloud licensing arrangements that allegedly disadvantage rival cloud providers, and altering customer switching barriers within the United Kingdom.
Precedent Set by Previous Actions Against Google
Microsoft is not the first tech giant to feel the Competition and Markets Authority’s wrath for creating products people like. In 2025, the regulator decided that Google held strategic market status in general search and search advertising, granting the agency the power to impose legally binding requirements on how the company operates.
Since that designation, the agency has ordered Google to comply with government-mandated standards for ranking organic search results, provide competitors with tools to access user search data, and give publishers greater control over how their content is utilized in AI-powered search tools. These requirements were imposed without a formal finding that Google violated competition law.
Institute of Economic Affairs public policy fellow Matthew Lesh, speaking to Reason in an interview, pointed out that items functioning smoothly together at an appealing cost used to be seen as a competitive advantage rather than a trigger for action by an overly aggressive watchdog, according to London-based free market think tank commentary. Lesh co-authored Digital Overload, a 2023 report warning against granting the regulator extensive, discretionary powers to dictate how popular technology platforms operate.
Controversy Surrounding Workplace Artificial Intelligence
A central point of contention in the current Microsoft proposal involves the inclusion of Copilot, the company’s AI chatbot. Critics argue this inclusion is particularly outrageous.
Last year, when Google received its strategic market status designation, the regulator excluded Gemini, citing that the AI assistant sector remained relatively small, nascent, and highly dynamic. Matthew Lesh pointed out to Reason that while the agency previously acknowledged uncertainty about the market’s development regarding Google, it now proposes sweeping Microsoft’s workplace AI into a designation requiring assessments looking at least five years ahead.
Five years ago, ChatGPT did not exist. Anyone confident about who will lead workplace AI in 2031 should be running a hedge fund, not a regulator, Lesh told Reason.
International Policy Spillovers and Legislative Proposals
While the United States has generally championed innovation and competition, European nations have adopted a much more hands-on, regulatory stance toward the technology sector. Nevertheless, American lawmakers are increasingly flirting with importing similar restrictions on Big Tech.
In June, Sens. Chuck Grassley (R–Iowa) and Amy Klobuchar (D–Minn.) reintroduced the American Innovation and Choice Online Act. The legislation would empower federal and state antitrust enforcers to challenge specific practices by dominant online platforms, including favoring their own products while disadvantaging competitors. The following month, Sen. Mark Warner (D–Va.) introduced the AI AGENT Act, designed to impose new requirements on major online platforms to accommodate competing AI agents.
A final decision on whether Microsoft will officially be designated with strategic market status by the British regulator is expected in February 2027.
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