Microsoft Adjusts Office and Teams Pricing to Avoid EU Probe

Three sources claim that in an effort to avoid potential EU antitrust penalties, Microsoft has promised to increase the price difference between its Office product supplied with its chat and video app Teams and its software sold without the app. 

Microsoft’s attempt to avoid an EU antitrust penalty by increasing the price difference between its standalone Teams application and its Microsoft 365 suite, which includes Teams. The European Commission, the executive part of the EU that establishes regulations for its 27 member states, has been looking into the software giant since July 2023 for integrating Teams with its Office suite. Five years after Salesforce-owned Slack objected to the European Commission about Microsoft’s integration of Teams with Office, the US tech giant took this measure in response to a similar complaint filed by German competitor Alfaview before the EU authorities in 2023. 

Slack, which is owned by Salesforce, filed the first complaint about Teams bundling in July 2020. Alfaview, a German competitor of Microsoft, also brought a similar case against the cloud services provider later in July 2023.

The Commission had stated in 2023 that the combination of Teams may provide Microsoft a distribution edge and be considered anti-competitive. 

Before a formal investigation started, Microsoft had apparently sought to address the Commission’s concerns. However, efforts to resolve the matter reportedly encountered an obstacle, which prompted the Commission to initiate an antitrust investigation.

Teams, a free addition to Office 365 in 2017 that later supplanted Skype for Business, gained popularity during the epidemic in part because of its video conferencing capabilities.

By increasing the cost of Office with Teams, competitors may be able to offer their goods at lower costs and persuade customers to switch. As a result, in October 2023, Microsoft unbundled Teams from their Office package in Europe. Microsoft also had to separate Office from Teams, and Office without Teams was sold at EUR 2 cheaper than Office with the video app. According to the report, Team Solo will cost EUR 5 every month.

The cloud services company had previously stated that it will charge $2.17 (€2) less per user per month or $26 (€24) per user per year for its Office 365 suite (formerly known as Microsoft 365) in the Europe Economic Area and Switzerland. Additionally, Microsoft offered to sell the Teams program as a stand-alone alternative to new business clients in the area for $5.50 (€5) per user per month or $65 (€60) per year.

It appears, meanwhile, that the Commission is still not totally persuaded and content with Microsoft’s pricing difference.

According to the three individuals who have first-hand knowledge of the situation, the Commission has requested input from a few firms and has given them until this week to reply before determining whether to conduct a formal market test.

However, competitors may benefit from the price difference between Office and Teams as they may provide their video conferencing or collaboration software at a lower cost, reducing Microsoft’s market share.

To make it simpler for competitors to compete, they said Microsoft had also provided improved compatibility conditions.

The present state of affairs reminds Microsoft of a Commission inquiry in the mid-2000s, (almost two decades ago), that forced the company to unbundle its Media Player product from its Windows suite and pay $2.3 billion in EU antitrust fines. Microsoft and the EU competition watchdog declined to comment.

According to one of the individuals, Microsoft might face another hefty antitrust sanction of up to 10% of its total worldwide revenue if it can’t resolve the present issue if the Commission would have more staff and funding available for its investigations into Apple and Google if it accepted Microsoft’s offer without imposing a punishment or finding wrongdoing.

In addition to the EU inquiry, France’s antitrust agency is also looking into Microsoft for allegedly altering or degrading search results when smaller businesses use its Bing search engine.

According to sources cited by Bloomberg, the watchdog has previously discussed its agreements with other operators and is looking into whether Microsoft has misused its authority or market dominance in search engine syndication.

According to the Bloomberg article, Microsoft may face a significant punishment if watchdog regulators discover that the business has been forcing poor search results on smaller competitors.