Britain's competition watchdog proposed designating Microsoft with "strategic market status" in business software, potentially paving the way for interventions in how the US tech major bundles products such as Excel, Teams and its Copilot AI assistant.
The Competition and Markets Authority launched an investigation in May into whether Microsoft's position in software used by around 20 million people a month in Britain was uncompetitive.
On Friday, the regulator said it had found that Microsoft had a strong position in personal computer operating systems and productivity, security, server and database management software, reinforced by barriers customers faced when switching.
A Microsoft spokesperson said it did not share the CMA's view.
"All our products — including Copilot — are open and interoperable, giving customers the ability to use them alongside competing services," the spokesperson said.
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The CMA said it would investigate whether customers could freely choose AI tools and whether rivals could compete with Copilot.
It would also examine whether Microsoft's bundling of security products limited choice and how its licensing practices affected customers' cloud options.
CMA Chief Executive Sarah Cardell said business software and cloud services underpinned workplaces across Britain, from small firms to vital public services.
"Organisations should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers," she said.
"We want to ensure businesses have the freedom to choose how they use Microsoft's products alongside alternatives."
The regulator will invite views on the proposed designation and will then make a final decision by February.
If designated, Microsoft would become the third company subject to Britain's new digital market powers. Alphabet-owned Google was designated in online search, while Google and Apple were designated in mobile platforms in October 2025.
In June, the CMA imposed new conduct requirements on Google's search services, including allowing publishers to stop their content being used to power the US company's AI features and requiring greater transparency over how its search rankings work.
The CMA also said on Friday that Amazon Web Services and Microsoft needed to address remaining barriers to switching between cloud providers and using multiple cloud services.
Both companies had taken steps to support greater choice, including connecting their data centres with rivals, starting with Google, and removing data transfer fees for customers switching providers. But the CMA said more could be done.
The regulator said it would continue working with the companies while keeping the possibility of launching a formal investigation into the cloud sector under review.
"We welcome the CMA's acknowledgement that Microsoft's market position in cloud does not justify a Digital Markets Competition Regime designation," a Microsoft spokesperson said.
AWS said it also welcomed the update. "We've continued to invest throughout 2026 in new AI, multicloud, and open-standard capabilities that give customers more control over how they build and operate," AWS said.