The UK’s competition regulator has launched a broad antitrust investigation into Microsoft’s business software ecosystem, opening a new front in growing regulatory scrutiny of how cloud platforms, productivity software, and embedded AI capabilities may affect competition in enterprise technology markets.

UK’s Competition and Markets Authority (CMA) said in a statement that it had opened a Strategic Market Status (SMS) investigation into Microsoft’s business software operations under the country’s new digital markets regime.

The regulator said it will assess whether Microsoft has “substantial and entrenched market power” and a “position of strategic significance” in business software markets.

“The investigation will assess whether Microsoft is using its position in business software to limit competition in cloud services, cybersecurity, communications, and AI,” the regulator said in a statement.

The case is the fourth strategic market status (SMS) investigation the regulator has opened since the UK’s digital markets competition regime came into force in January 2025, following earlier SMS cases into Google search, Apple’s mobile platform, and Google’s mobile platform.

A designation decision is due by February 2027, the statement added.

“Our aim is to understand how these markets are developing, Microsoft’s position within them and to consider what, if any, targeted action may be needed to ensure UK organisations can benefit from choice, innovation and competitive prices,” CMA chief executive Sarah Cardell said in the statement.

The scope covers productivity software, PC and server operating systems, database management, and security software, the CMA said, naming Windows, Word, Excel, Teams, and Copilot. Microsoft has more than 15 million commercial users across its UK ecosystem.

AI integration central to the case

The CMA will examine how AI competitors integrate with Microsoft’s business software and whether customers can mix AI tools from rival suppliers within Microsoft environments, the regulator said, citing the rapid embedding of AI functionality and a shift towards agentic AI in workplace tools.

Microsoft has pushed Copilot across Microsoft 365 tiers and expanded agentic features inside Office and Teams over the past year.

That AI overlay has not yet reset the lock-in question, but soon will, said Dario Maisto, senior analyst at Forrester. “Copilots have the potential to make employees and organizations more dependent on existing vendors, as any other feature embedded in the suites,” Maisto said. “At this stage, they do not change the enterprise lock-in conversation but will in the near future as adoption scales.”

For CIOs, switching away is no easier than swapping any other layer of the stack, Maisto added, describing diversification as as difficult as finding enterprise-grade alternatives to other Microsoft products.

What the CMA will examine

The investigation will assess whether Microsoft has SMS in business software and whether it uses that position to limit customer choice, the CMA statement added. It will look at product bundling, interoperability limits, and default settings that may stop customers from switching or weaken competitive pressure from rivals.

UK customers may not always be able to combine Microsoft software with products from other providers, the regulator said, limiting access to the best products at competitive prices.

An SMS finding would also let the CMA act on an unresolved concern from its earlier cloud market investigation, which found that Microsoft’s software licensing was reducing competition in cloud services. AWS previously told the regulator that Microsoft’s 2019 and 2022 licensing changes made it harder to run Microsoft products on Google Cloud, AWS, and Alibaba.

Wider scope than previous SMS cases

The case is wider in scope than any previous SMS investigation, covering productivity tools, operating systems, database management, and security software in a single ecosystem-level review. The previous three designations each targeted a narrower set of activities.

The SMS status does not assume wrongdoing, the CMA said. If Microsoft is designated, the regulator can impose conduct requirements or pro-competition interventions, subject to the relevant legal tests.

The probe runs alongside the CMA’s ongoing engagement with AWS and Microsoft on cloud egress fees and product interoperability, announced in March after the regulator decided not to pursue SMS designation on cloud services.

Sovereignty push runs in parallel

For enterprise customers, the investigation comes as many organizations pursue multi-cloud strategies while simultaneously consolidating technology stacks around a smaller number of strategic vendors.

Maisto said interoperability is likely to become an increasingly important — and difficult issue for regulators and enterprise buyers.

“Interoperability is a big topic these days, but it is easier said than done,” he said. “What works on paper in a policy may not work in reality.”

Maisto also pointed to growing European discussions around “tech sovereignty”.

“The European Commission is considering rules to restrict use of US cloud platforms to process sensitive government data,” he said. “The Commission is expected to present its ‘Tech Sovereignty Package’ on May 27 to define sectors that have to be hosted on European cloud capacity.”

At the same time, Maisto said he does not expect regulatory intervention alone to significantly alter market concentration trends.

“We do not foresee a massive decrease in market concentration,” he said.

Microsoft did not immediately respond to a request for comment.