A legal feud between two giants of the tech world deepened this week as Microsoft (MSFT) accused Google (GOOG, GOOGL) of running "shadow campaigns" to discredit Microsoft's cloud-computing business.
The claim was made in a Monday blog post from Microsoft deputy general counsel Rima Alaily, who said Google quietly orchestrated and funded these "shadow campaigns" to tarnish how global competition authorities, policymakers, and the public view Microsoft’s methods.
Google, Alaily said, has gone to "great lengths to obfuscate its involvement, funding, and control" of a new coalition of European cloud providers formed to attack how Microsoft monetizes and tries to protect its cloud infrastructure.
The group called the Open Cloud Coalition publicly launched on Tuesday, with Google and nine smaller cloud providers as members. The coalition's website states its members are "committed to creating a fair and open cloud ecosystem" and can benefit by "influencing policy."
A spokesperson for Google objected to the claim it operated in the shadows, instead saying the company had been "very public" about its concerns.
At the heart of the disagreement with the two companies are Microsoft’s cloud licensing agreements.
Google has complained to the European Commission that these agreements are "anticompetitive," arguing that Microsoft illegally leveraged enterprise server software "Windows Server" licenses to force customers to stick with Microsoft for cloud computing.
Microsoft argues its cloud licensing agreements are needed to protect its intellectual property rights in Windows Server and that regulators should not force the company to give the server IP away for free.
"When a streaming service, like Netflix or Disney, includes a movie in their service, they pay for that right," Alaily said in her blog post. "They don’t get a credit or discount if a subscriber happens to own a DVD of the same movie. Software and the cloud are no different."
The escalating rhetoric from both companies is a sign of how much is at stake in the cloud computing market as both Google and Microsoft push for more gains.
Google CEO Sundar Pichai highlighted the growth of the cloud unit in an earnings call for Google’s parent company Alphabet on Tuesday, noting that the company's AI portfolio is attracting new customers and leading to larger deals.
Cloud revenue came in at $11.4 billion, up 35% from the same period last year, surpassing expectations.
“This business has real momentum, and the overall opportunity is increasing as customers embrace gen. AI," he said.
Google CFO Anat Ashkenazi told analysts that Google's strong cloud revenue made it Alphabet's second largest revenue driver behind Google Search.
"Obviously, as we scale the business, we have more opportunity for margin expansion," Ashkenazi added.
Google's search business has been under intense antitrust pressure in the US and abroad. Search revenue, by comparison, grew 12% in the third quarter over third quarter 2024, roughly half the pace of Google Cloud.
Google's cloud business is in a third-place position behind Amazon’s Web Services (AMZN) and Microsoft’s Azure, but there are signs it could be gaining.
"I think when we see the results from Microsoft Azure and Amazon Web Services and even Oracle Cloud Infrastructure that you'll see that Google Cloud really gained some share in cloud infrastructure market," Paul Meeks, chief investment officer at Harvest Portfolio Management Meeks, told Yahoo Finance.
Microsoft did show its own cloud strength Wednesday, beating Wall Street expectations for its third-quarter earnings.
Commercial cloud revenue, which includes cloud services sales, came in at $38.9 billion versus expectations of $38.1 billion. The company's Intelligent Cloud segment, which includes its Azure business, brought in $24.1 billion in the quarter, up 20% year over year.
Two-decade-long feud
These two tech giants have spent the last two decades battling for supremacy in technologies ranging from online search and cloud computing to the markets for operating systems, gaming software, online advertising — and now artificial intelligence, or AI.
The feud began in the first decade after Microsoft settled a landmark antitrust case brought by the US Justice Department alleging it boxed out rivals by making its browser free and the default on its dominant Windows operating system.
A 2002 settlement opened the door to broader competition in the internet browser software market and created an opportunity for Google, then a startup formed by Stanford students Sergey Brin and Larry Page, to begin its period of meteoric growth in the 2000s.
Microsoft defended its reestablished territory in a series of videos first released in 2011, in which Microsoft skewered Google with parodies suggesting that Google’s competing Gmail service, Chrome browser, and accompanying software lacked quality and privacy.
In 2016, the companies entered into a ceasefire with an agreement to end regulatory complaints against each other globally as two new CEOs — Google's Pichai and Microsoft's Satya Nadella — took over.
The pact came to an end in 2021 as regulators in the US and EU stepped up pressure on both companies, and Microsoft complained that Google used unfair tactics to compete in online search and advertising.
Things really got uncomfortable last year during a high-profile antitrust trial that pitted Google against the US Justice Department — a case that alleged Google illegally monopolized the online search engine market and had echoes of the case the DOJ filed against Microsoft in the 1990s.
The most prominent witness to testify against Google was Nadella. The CEO said Microsoft’s own search engine, Bing, failed to gain traction because Google had negotiated for Google Search to get default placement on browsers, desktops, and mobile devices like Apple's iPhones and iPads.
Nadella went on to describe the imbalance as a “vicious cycle” that he worried would intensify with the development of AI.
Google lost the case in a judge’s ruling that labeled its search business an illegal monopoly. The resolution is now pending a remedies phase that could result in a breakup of Google’s empire.
Microsoft is taking a similar approach in yet another antitrust lawsuit against Google that is still in its initial trial phase. It argues there that Google’s control of online advertising technologies has harmed the success of its Bing browser.
And now the two are clashing in the cloud computing realm, as well. Microsoft said this week that Google's latest cloud coalition is part of a wider set of distraction tactics intended to insulate Google from competing on the merits.
Those efforts, Microsoft said, are designed to tilt the regulatory landscape in Google’s favor by turning attention away from scrutiny Google faces around the world.
Google "is fully capable of competing head-to-head with AWS and Microsoft," Microsoft’s Alaily said. "It does not need competition authorities to put a thumb on the scale in its favor."
