Microsoft Strikes Deal with European Commission to Unbundle Teams

New Microsoft 365 EEA Licenses Available on October 1

Microsoft’s 31 August announcement of a new licensing structure for Office 365 and Microsoft 365 enterprise licenses in the European Economic Area (EEA) and Switzerland makes common sense. It recognizes that it makes no sense for Microsoft to clash with the European Union over an anti-competition complaint made by Slack in July 2020 because Microsoft includes Teams in many of its Office 365 and Microsoft 365 SKUs.

The new Microsoft 365 EEA License arrangement comes into force from October 1, 2023. In a nutshell, customers who have current SKUs that include Teams don’t have to do anything and can continue to use and renew these licenses (including Teams) as before.

After October 1, new customers in the EEA can only buy Office 365 and Microsoft 365 licenses which exclude Teams. The new licenses are only available to “net new” customers in the EEA, and the new licenses are priced slightly cheaper than current offerings. For example, Office 365 E3 with Teams currently costs EUR25.10. The new Office 365 E3 EEA license is priced at EUR23.10. If a customer who buys the EEA license decides that they want Teams, they must buy a separate Microsoft Teams EEA license for EUR5/user/month.

Those who excel at math can quickly see that the new Microsoft 365 EEA license combination costs EUR3 more for customers that want Teams. Such is the cost of facilitating competition and choice. See this list for full details of the new license pricing.

A Good Deal

Despite the additional cost imposed on EEA customers, this is a good deal. No one (except lawyers) would win if Microsoft had a long drawn-out dispute with the European Commission. Driving to a deal now removes the need for interminable discussions about the integration of Teams in Microsoft 365.

Slack certainly wouldn’t gain any benefit. Their original protest happened in a completely different context when Slack might have felt that they were an alternative to Teams. The simple fact is that Slack wasn’t in July 2020 and is even less so today. Teams is so embedded into the Microsoft 365 and Azure ecosystems that Slack was never really an alternative to any customer who valued the interaction between Teams and the other Microsoft 365 workloads like Exchange Online, SharePoint Online, OneDrive for Business, Planner, and so on.

Microsoft says that “We believe that business customers in Europe and around the world expect a modern work solution to include modern communication and collaboration capabilities.” This might not have been true when we first saw Teams in 2016, but it’s absolutely true today. The fact that Teams has more than 300 million daily active users is evidence of how customers use the kind of communication capabilities available in Teams. It’s also an example of how the old adage that “possession is nine-tenths of the law” holds true. Microsoft has a huge installed base for Teams that’s been acquired through the Microsoft 365 ecosystem. Cutting Teams away at this point probably won’t impact Microsoft greatly.

Better Access to Teams APIs

Slack has attempted to integrate with Teams over the years and might feel that Microsoft doesn’t expose enough APIs to allow their code to integrate deeply with Teams. The Graph APIs have improved over the years but it’s true that they can be opaque at times. On the upside, the Teams app store included 2,154 apps on September 2, 2023, so Microsoft is doing something right in terms of attracting app developers to the platform.

To address issues around API access, Microsoft says that they “will create new support resources to better organize and point application developers to the existing and publicly available application programming interfaces (APIs) and extensibility in Microsoft 365 and Office 365 apps and services that connect with Teams.” Now, this might end up as no more than better documentation and API examples (always welcome), but I doubt that will be sufficient to assuage the anti-competition doubts of the European Commission. It will be interesting to see what Microsoft does here to make Teams a more open platform for third parties.

Microsoft also made a commitment to make the Office web apps more accessible to third party apps, saying “we will develop a new method for hosting the Office web applications within competing apps and services much like Microsoft accomplishes in Teams.” In other words, a third party app should be able to call Office viewers or the Office web apps to process documents accessible to Teams (in SharePoint Online or OneDrive for Business) without leaving the app.

The European Commission has not signalled yet whether they consider Microsoft’s initiative to be sufficient to dismiss the complaint. The nature of these things is that a certain amount of behind-the-scenes negotiation happened to prepare the way, so it’s likely that this move is enough, even if it still needs final sanction.

Microsoft 365 EEA Licenses Clear the Deck for Copilot

In some respects, Copilot for Microsoft 365 is a much bigger threat to the likes of Slack than including Teams in Office 365 and Microsoft 365. Copilot explicitly requires user data to be in Microsoft 365 (natively or through Graph connectors) before it can be used to respond to user prompts. Whether the European Commission considers using artificial intelligence to process user data to be an anti-competitive tactic remains to be seen. But for now, Microsoft has done enough to clear the deck to prepare for the introduction of Copilot for Microsoft 365 without worrying too much about complaints filed three years ago.

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