On Friday, the U.K.’s Competition and Markets Authority proposed designating Microsoft Corp. (NASDAQ: MSFT) as having Strategic Market Status in its Business Software Ecosystem. The designation could pave the way for measures that affect how the U.S. tech giant bundles products such as Excel, Teams and its Copilot AI assistant.

The British competition watchdog’s SMS designation does not find or assume wrongdoing but is a gateway into the country’s digital markets competition regime, according to the CMA.

UK Watchdog Is Targeting Microsoft’s Business Software?

The regulator noted that Microsoft has maintained a dominant position in the U.K.’s business software market for decades, initially gaining prominence through its operating systems and productivity tools.

It has since diversified its offerings to include cybersecurity and database management. The company’s AI products and cloud services are now creating further opportunities for businesses and customers across the country.

The CMA added that while U.K. businesses and public sector organizations can benefit from buying several digital products and services from Microsoft, they may also face barriers when switching to other providers.

Microsoft’s products are closely integrated, offering a more seamless experience than combining services from different companies. Additionally, Microsoft’s control over key APIs, technical interfaces and data flows can make it harder for competing providers to deliver the same level of functionality.

A Microsoft spokesperson told Reuters that the company’s products — including Copilot — are “open and interoperable, giving customers the ​ability to use them alongside competing services.”

Microsoft did not immediately respond to Benzinga’s request for comment.

The CMA said it would examine whether customers have the freedom to choose their preferred AI tools and whether competing providers can effectively compete with Copilot.

It would also assess whether Microsoft’s bundling of security products restricted customer choice and how its licensing practices affected their cloud options.

“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,” said Sarah Cardell, chief executive of the CMA.

The regulator has invited comments on the proposed decision by Nov. 13 and will take a final decision by Feb. 13, 2027.

CMA Expands Scrutiny of Big Tech in the UK

In May, CMA launched an investigation into whether Microsoft should be designated as having SMS in respect of its business software ecosystem, as part of a broader push to increase competition in cloud services and workplace software.

Last year, the regulator designated Alphabet Inc.’s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google with SMS in general search and advertising services after confirming that the company ticked off the legal criteria.

The CMA announced in March that it was consulting a range of stakeholders to assess whether Amazon.com, Inc.’s (NASDAQ:AMZN) Amazon Web Services (AWS) and Microsoft were following through on commitments to improve customer choice in cloud services and determine whether further action was necessary.

Price Action: Shares of Microsoft closed 1.93% lower at $529.05 on Friday, with the stock being down 0.42% after hours. Year-to-date, the stock has surged 9.39%, according to Benzinga Pro.

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