The UK’s top competition watchdog moved this week to put Microsoft’s business software empire under formal scrutiny, proposing to designate the company with strategic market status (SMS) across the suite of tools that run most of Britain’s offices. The Competition and Markets Authority (CMA) announced the proposed decision on October 16, 2026, five months after opening its investigation, and the move could reshape how companies license, bundle and sell everything from Word and Excel to Copilot, the AI assistant Microsoft has wired into nearly every corner of its product line.
This is not a one-off probe into a single product. The CMA’s proposed designation covers Microsoft 365 applications, Windows and Windows Server, database tools, security products, and the Copilot AI layer that now sits on top of all of them. According to the regulator, Microsoft’s business software is used by hundreds of thousands of UK businesses and public sector organisations, with roughly 20 million monthly users touching at least one of the flagged products. “Business software and cloud services underpin workplaces across the UK, from small firms to vital public services,” CMA chief executive Sarah Cardell said in comments reported by Sharecast.
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What the CMA Actually Proposed on October 16
The CMA opened its strategic market status investigation into Microsoft’s business software ecosystem on May 14, 2026, under powers granted by the UK’s Digital Markets, Competition and Consumers Act. Five months later, on October 16, the regulator published a proposed decision recommending that Microsoft be designated with SMS in that ecosystem. That proposal is not final. The CMA is now running a consultation before it issues a final ruling, a process that regulatory specialists following the case expect to wrap up around February 2027.
Strategic market status is a new tool in the UK’s competition kit, built specifically for digital markets where a handful of companies control the infrastructure everyone else depends on. An SMS designation does not, by itself, fine Microsoft or force an immediate product change. It opens the door for the CMA to write bespoke conduct requirements for that firm, the kind of tailored rulebook that a conventional market-wide investigation cannot produce. For a company that reports Office, Windows, Azure components, and Copilot across a single balance sheet, bespoke rules could touch pricing, bundling, data portability and default settings all at once.
Which Microsoft Products Fall Inside the Net
The scope the CMA laid out is wide by design. Rather than isolating one app, the regulator is treating Microsoft’s lineup as a connected ecosystem where strength in one layer reinforces strength in another.
Productivity and Collaboration Software
Word, Excel, PowerPoint, Outlook, Teams, SharePoint, OneDrive and OneNote all sit inside the review, alongside the Copilot features layered into each of them. This is the part of the business most UK office workers touch daily, and it is also where the CMA’s bundling concerns are sharpest: Teams, Excel and Copilot are frequently sold and licensed together rather than as standalone choices.
Operating Systems, Databases and Security
Beyond the productivity suite, the CMA is also examining Windows, Windows Server, SQL Server, and the security stack built around Entra ID, Active Directory, Intune and Defender. That is a meaningfully broader remit than past cases, which tended to isolate a single disputed product.
| Product Category | Named Products Under Review | CMA’s Core Concern |
|---|---|---|
| Productivity suite | Word, Excel, PowerPoint, Outlook, OneNote | Bundled licensing limits standalone comparison shopping |
| Collaboration | Teams, SharePoint, OneDrive | Default installation reduces switching to rivals |
| AI assistant | Copilot | Whether rival AI tools get a fair shot at the same data and surfaces |
| Operating systems | Windows, Windows Server | Platform control reinforcing application-layer dominance |
| Database | SQL Server | Licensing terms tied to cloud deployment choices |
| Identity and security | Entra ID, Active Directory, Intune, Defender | Bundling that may crowd out independent security vendors |
Why Copilot Sits at the Center of the Case
Of everything in scope, Copilot is the piece drawing the most attention from software and AI companies watching the case. The CMA is explicitly assessing whether customers can freely choose AI tools and whether rival AI providers have a level playing field when competing with Copilot inside Word, Excel, Teams and Outlook. That question lands squarely in the coding and productivity-tools market, where Microsoft already competes hard against independent AI assistants. Our own pricing comparison of Claude vs Copilot found a roughly $7 monthly gap between the two, and the CMA’s interoperability questions are really asking whether that price comparison is even a fair fight when Copilot ships pre-installed and pre-licensed across a company’s existing Microsoft 365 contract.
The same dynamic plays out in developer tooling. GitHub, which Microsoft owns, bundles Copilot deeply into its workflow, and independent coding assistants have to win developers away from a tool that is often already paid for as part of an existing enterprise agreement. A recent benchmark on GitHub Copilot vs Cursor vs Claude Code showed a sizable capability gap between tools in that category, which makes the bundling question more than academic: if default placement, not quality, is driving adoption, that is precisely the kind of switching friction the CMA says it wants to unwind. Sarah Cardell framed the goal plainly, saying organizations “should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers,” in a statement published through GOV.UK.
Enterprise Copilot adoption is already large enough that any remedy would ripple widely. Accenture’s deployment, covered in our report on a 743,000-seat Copilot rollout, is the kind of scale the CMA is worried about: once a vendor’s AI assistant is standard-issue across hundreds of thousands of seats, rival AI companies are not just competing on features, they are competing against the inertia of an installed base that size.
The Developer-Facing Side of the Bundling Question
Because Copilot licensing is typically checked and provisioned programmatically through Microsoft’s own identity and graph APIs, independent tool makers argue they cannot easily build an equivalent frictionless experience without first negotiating access to Microsoft’s platform layer. A simplified version of the kind of licensing check IT teams already run looks like this:
GET https://graph.microsoft.com/v1.0/users/{user-id}/licenseDetails
Authorization: Bearer {access_token}
// Response includes servicePlans array
// Look for a service plan matching "Copilot" to confirm
// whether a given user's tenant already has Copilot
// bundled into their existing Microsoft 365 license.That kind of built-in visibility is unavailable to competing AI vendors, who have no equivalent hook into a company’s licensing state and must instead ask IT administrators to manually compare costs and permissions. It is exactly the sort of structural advantage the CMA says it wants to examine, not because bundling itself is illegal, but because the DMCC Act gives the regulator power to question whether a dominant firm’s defaults and packaging choices are quietly steering customer decisions.
Microsoft’s Response: “Open and Interoperable”
Microsoft pushed back on the characterization within hours of the CMA’s announcement. A Microsoft spokesperson said the company’s products, “including Copilot — are open and interoperable, giving customers the ability to use them alongside competing services and choose solutions that work best for them at attractive prices,” according to a statement carried by The Register. The spokesperson added that Microsoft “will continue engaging constructively to ensure UK customers and businesses carry on benefiting from robust competition.”
That framing puts Microsoft in a familiar position: insisting that technical interoperability already exists while regulators argue that technical openness and commercial fairness are not the same thing. A company can, in principle, allow a rival AI tool to plug into Outlook while still pricing, bundling and defaulting its own assistant in ways that make the rival option meaningfully harder to adopt in practice. That gap between “can switch” and “will switch” is the crux of what the CMA’s proposed conduct requirements would try to close.
How This Compares to the EU’s 2023 Teams Case
The UK is not the first regulator to take a hard look at Microsoft’s bundling practices. The European Commission opened a formal antitrust investigation into Microsoft’s bundling of Teams with Microsoft 365 and Office 365 on July 27, 2023. That case was narrower in scope, focused specifically on whether Teams’ automatic inclusion in Office subscriptions crowded out rivals such as Slack and Zoom.
The CMA’s 2026 process is structurally different and considerably broader. Instead of targeting one disputed app, it treats the entire productivity, operating system, database and security stack as a single ecosystem whose combined weight is the actual source of Microsoft’s market power. “We want to ensure businesses have the freedom to choose how they use Microsoft’s products alongside alternatives,” Cardell said of the UK approach, a statement that frames the case less as a Teams-style product dispute and more as an architecture-level review of how Microsoft’s whole business stack reinforces itself.
Who Stands to Gain if Remedies Land
If the CMA’s final decision in early 2027 results in binding conduct requirements, the most direct beneficiaries would be the companies already competing, product by product, against the Microsoft stack named in the investigation. The table below maps each flagged Microsoft product to the competitors most likely to benefit from loosened bundling or improved interoperability rules.
| Microsoft Product Named by CMA | Category | Competing Alternatives That Could Benefit |
|---|---|---|
| Word, Excel, PowerPoint | Productivity apps | Google Workspace |
| Teams | Collaboration and video | Slack, Zoom |
| Copilot | AI assistant | Claude, ChatGPT Enterprise, Gemini, independent coding assistants |
| Windows, Windows Server | Operating systems | Linux-based enterprise distributions |
| SQL Server | Database | PostgreSQL, Oracle Database |
| Entra ID, Defender, Intune | Identity and endpoint security | Okta, CrowdStrike, independent MDM vendors |
The identity and security row is worth pausing on. Entra ID already competes directly with identity platforms like Okta for IT buyers, and our mindshare comparison of Entra ID vs Okta found Microsoft holding close to double the market attention of its closest rival. If the CMA concludes that Entra ID’s bundling with Windows and the rest of the Microsoft 365 stack is part of what drives that gap, rather than pure product quality, it would strengthen the case for intervention in that specific product line.
Market Impact for IT Buyers and Software Vendors
For the hundreds of thousands of UK organisations using Microsoft’s business software today, the immediate practical impact of this week’s announcement is close to zero. Nothing changes in licensing, pricing or product behavior while the consultation runs. The CMA has not fined Microsoft, has not ordered any product change, and has not found that Microsoft broke any law. What it has done is set up the legal machinery that could eventually force changes, and that alone shifts how IT procurement teams plan multi-year contracts.
What Developers Watching Copilot Should Expect
Developers evaluating AI coding assistants have an added reason to watch this case closely, given that Microsoft’s security track record with Copilot has already drawn scrutiny this year. Our coverage of SearchLeak, a one-click bug that exposed M365 Copilot data, underscored how deeply Copilot is now wired into day-to-day enterprise workflows, and how much is riding on getting both the security and the competitive terms of that integration right. A CMA-mandated interoperability requirement could, in theory, make it easier for third-party security tools to audit or sandbox Copilot’s data access, something independent vendors have struggled to do while Microsoft controls the underlying platform.
For vendors competing against Microsoft, the calculus is different. A formal SMS designation, even before any specific remedy is written, gives rivals a regulatory hook to cite in sales conversations and in their own submissions to the CMA’s consultation. Reports indicate Google has already submitted comments to the CMA supporting the idea that AI assistants and emerging agentic technologies, Copilot included, belong squarely inside the productivity-software investigation rather than being treated as a separate, unregulated category.
Historical Context: the UK’s New Digital Markets Powers
Strategic market status did not exist as a legal tool in the UK until the Digital Markets, Competition and Consumers Act took effect, and Microsoft’s business software ecosystem is among the first cases to test how the CMA intends to use it against an entrenched, multi-product technology company. Earlier CMA scrutiny of Microsoft focused on discrete transactions, most notably the company’s acquisition of Activision Blizzard, which played out as a merger review rather than an ongoing conduct investigation. The SMS regime is structurally different: it is designed to let the CMA write bespoke, ongoing rules for a single firm’s conduct across an entire market, rather than clearing or blocking a single deal and moving on.
That distinction matters for how long this case could run. A merger review has a defined end point. An SMS designation, once finalized, can generate conduct requirements that stay in force for years, with the CMA able to revisit and tighten them as Microsoft’s product lineup evolves. If finalized, as reported by CNBC, Microsoft’s UK obligations around business software could look fundamentally different from its obligations in markets without an equivalent regulatory framework.
What Industry Reactions Signal About the Stakes
The pattern of reactions so far tells its own story. Microsoft has responded quickly and publicly, a sign the company takes the SMS consultation seriously rather than dismissing it as procedural noise. Google’s submission supporting broader AI-assistant scrutiny suggests competitors see an opening to shape the rules before they are finalized, rather than waiting to react afterward. And the CMA’s own framing, repeated across multiple public statements from Cardell, consistently emphasizes “choice” and “switching” rather than punishing size itself, a signal that any eventual remedy is more likely to target specific bundling and default-setting practices than to force a breakup or divestiture.
Analysts following the case, as reported by Computerworld, have flagged the AI lock-in angle specifically as the newest and least-tested part of the case, since no UK regulator has previously had to define what fair competition for an AI assistant layered across a dominant productivity suite actually looks like in practice.
Predictions: What Happens Next
Based on the pattern of the CMA’s process so far and comparable digital-markets cases, here is how this is likely to unfold over the next several months. These are analytical projections, not confirmed outcomes.
- The consultation period will likely draw formal submissions from Google, and possibly Salesforce, Zoom and independent AI vendors, each pushing for broader interoperability language around Copilot specifically.
- Microsoft will continue its public “open and interoperable” messaging while privately negotiating the scope of any eventual conduct requirements, a pattern consistent with its approach to the EU’s 2023 Teams case.
- A final SMS designation, if granted around February 2027, will more likely result in targeted conduct requirements around licensing transparency and default settings than in a demand to fully unbundle Copilot from Microsoft 365.
- Rival AI and productivity vendors will use the UK case as a reference point in their own lobbying in the EU and other jurisdictions, even though the CMA’s findings would not automatically bind regulators elsewhere.
- Enterprise IT buyers will largely hold off on renegotiating Microsoft contracts until the final decision lands, treating the current proposed designation as a signal rather than a trigger for action.
Why This Matters Beyond the UK
Even though the CMA’s authority stops at UK borders, a final SMS designation covering Copilot’s bundling practices would be closely read by regulators in Brussels, Washington and beyond. The UK is effectively running a live experiment in how to regulate an AI assistant that is distributed through, rather than sold as, a dominant productivity suite. Whatever conduct requirements the CMA ultimately writes will serve as a template, for better or worse, for any regulator grappling with the same question: how do you keep a single company’s AI layer from becoming the default simply because it shipped pre-installed inside software millions of people already use every day.
Frequently Asked Questions
What is strategic market status in the UK?
Strategic market status, or SMS, is a designation under the UK’s Digital Markets, Competition and Consumers Act that lets the Competition and Markets Authority write bespoke, ongoing conduct rules for a company found to hold substantial and entrenched market power in a specific digital market. It is broader and more flexible than a standard antitrust fine or merger block.
Has Microsoft actually been designated with strategic market status?
Not yet. The CMA announced a proposed decision on October 16, 2026, which opens a consultation period. A final designation has not been made, and the CMA has said the proposal is not a final ruling.
Which Microsoft products are covered by the investigation?
The scope includes Word, Excel, PowerPoint, Outlook, Teams, SharePoint, OneDrive and OneNote, plus Copilot, Windows, Windows Server, SQL Server, and security products including Entra ID, Active Directory, Intune and Defender.
Why is Copilot specifically under scrutiny?
The CMA is examining whether customers can freely choose AI tools and whether competing AI providers can fairly compete with Copilot given how deeply it is bundled into Microsoft’s existing productivity and collaboration software.
How many businesses in the UK use Microsoft’s business software?
The CMA says Microsoft’s business software is used by more than 1 million UK businesses and public sector organisations, with approximately 20 million monthly users across those products.
How is this different from the EU’s case against Microsoft Teams?
The European Commission’s 2023 investigation focused narrowly on Teams being bundled with Microsoft 365 and Office 365. The CMA’s 2026 process is broader, covering the full business software ecosystem including operating systems, databases, security tools and Copilot, rather than a single disputed app.
When will the CMA make a final decision?
The CMA is running a consultation before issuing a final decision. Based on the timeline the regulator has outlined, a final ruling is expected around February 2027.
What has Microsoft said in response?
A Microsoft spokesperson said its products, including Copilot, are open and interoperable, and that customers can use them alongside competing services. The company said it will continue engaging constructively with the CMA’s process.
