The UK’s Competition and Markets Authority wants a much closer look at how Microsoft runs its business software empire.
On October 16, 2026, the regulator proposed designating Microsoft with “strategic market status” (SMS) within its business software ecosystem. That label would let the CMA write specific rules for how the company operates, rather than relying on case-by-case enforcement after problems surface.
What the CMA is proposing
Think of SMS as a special category for companies the regulator considers too central to ignore. Once a firm is in it, the CMA can impose conduct requirements, which are tailored obligations on how the business behaves.
The watchdog is focused on three pressure points. These are barriers that make it hard for customers to switch, bundling practices, and the competitive limits rivals face.
The CMA flagged a few sectors where those issues matter most. They include cloud licensing, AI productivity tools and security software.
The proposal rests on provisional findings. According to the CMA, those findings indicate Microsoft holds a dominant position across five key digital activities, including operating systems and productivity software.
The regulator says that view is backed by customer research and market analysis. It is a proposal, not a verdict, and the evidence will be tested during consultation.
The scale of Microsoft’s UK footprint
The numbers explain why the CMA is paying attention. Microsoft’s software products, including Word, Excel, Outlook and Teams, serve over one million organisations in the UK.
That adds up to approximately 20 million monthly users.
The CMA’s core worry is twofold. Switching barriers and the integration advantages of Microsoft’s products may reduce customer choice and dampen competition.
AI makes this sharper. The CMA said its concerns are heightened as AI technologies reshape productivity tools, which raises the stakes on who controls the software where that AI gets embedded.
Timeline and what comes next
This did not come out of nowhere. The CMA launched the investigation in May 2026, building on earlier reviews carried out in 2025.
It is also the fourth SMS investigation under the UK’s digital markets framework. The probe follows prior commitments made by Microsoft and AWS.
The consultation on the proposed designation runs until November 13, 2026. After that, the CMA is expected to make a final decision by February 13, 2027.
One important caveat: an SMS designation would not imply wrongdoing by Microsoft. The CMA framed it as a tool that allows it to introduce conduct requirements aimed at boosting competition.
What this means for Microsoft and the market
If the designation goes through, the CMA’s research findings suggest Microsoft may need to adopt more transparent practices. That could push the company to revisit how it bundles products and structures licensing, particularly as AI tools become core to how its software is sold.
Cloud licensing is another area to watch. Rules that change how Microsoft software can be licensed on competing infrastructure would directly affect the competitive dynamics the CMA highlighted.
For rival software firms, the potential upside is clear. Lower switching barriers would give them a real shot at customers who currently find it easier to stay put.
That is especially relevant for companies building AI productivity tools and security software. Those are the segments the CMA named, and they are where new entrants are trying to carve out space.
The UK now has four SMS investigations under its digital markets framework, and the CMA is clearly willing to use these powers on the largest software providers.
Key dates to track are November 13, 2026, when consultation closes, and February 13, 2027, when the final decision is due.
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