The Competition and Markets Authority has proposed to designate Microsoft with strategic market status in the UK business software market, a move that will expose the US technology group to tougher regulatory scrutiny. A final decision will be made in February.
The designation could pave the way for an intervention targeting Microsoft’s practice of bundling software into a single package.
Strategic market status, or SMS, is a designation under the UK’s digital market competition regime. That doesn’t mean it’s wrong, but it does mean that tech companies have “substantial and entrenched market power” in the UK. This gives regulators the opportunity to implement targeted interventions to increase choice and competition in the market.
The CMA has been investigating Microsoft since May. In an update, the regulator said the company had a “strong position” in every area of digital activity under investigation, including productivity software suites and personal computer operating systems.
Microsoft software includes Word, Excel, Teams and Copilot. The CMA said the company’s strength in the market comes from “customers’ barriers to switching”.
Sarah Cardell, chief executive of the CMA, said: “We want to ensure businesses have the freedom to choose how to use Microsoft products alongside alternatives.”
The regulator will gather more evidence on the state of the market in the coming months. According to the indicative schedule on the CMA’s case page for investigation, the consultation on the proposed decision will close in November, and the official deadline for publishing the SMS decision notice is February 13, 2027.
The CMA said it would investigate whether Microsoft’s way of bundling its software products into a single package could limit consumer choice. Regulators are concerned that bundling could lead customers to buy alternatives when certain features are already included in Microsoft’s package.
It will also assess whether customers can freely choose the best artificial intelligence tools, and whether alternative AI providers have a “level playing field” to compete against Copilot.
The CMA said: “UK customers will benefit most when they have access to the best tools on the market and a mix of software and AI services from a range of competing suppliers.”
The regulator said the investigation would further Britain’s push to develop greater digital sovereignty. “The ability to choose, switch and integrate digital services (especially AI), without being overly dependent on a single technology provider, is also increasingly important for resilience and strategic autonomy,” he said.
Microsoft said it disagreed with the proposal. “All our products, including Copilot, are open and interoperable, giving customers the ability to use competing services together and choose the best solution for them at attractive prices,” said the spokesman.
If the CMA goes ahead, Microsoft will become the third technology company to be designated with strategic market status. Google was given a designation for its position in the search market, and in October 2025 the regulator confirmed the designation of SMS for Apple and Google on the mobile platform.
Microsoft’s software licenses have come under scrutiny in the UK before. In 2023, Amazon and Google complained to the CMA about Microsoft’s cloud licensing, saying the practice limited customer choice, a charge Microsoft denied at the time.
In October 2025, a £2bn class action against Microsoft was brought at the Competition Appeal Tribunal on behalf of a business running Windows Server on a rival cloud platform, claiming it had been overcharged. Microsoft has defended its licensing model as pro-competitive.
Microsoft has also faced investigations in other jurisdictions over its business software. In September 2025, they agreed to exempt Team from other software in the European market after an investigation by the European Commission.