Azure Under Antitrust Investigation, Microsoft Japan Executive Emphasizes Compliance Operations

Microsoft Japan’s head stated that Microsoft (MSFT.US) is cooperating with Japanese antitrust regulators to investigate potential anti-competitive behavior related to Azure cloud services. Earlier reports indicated that Japan’s Fair Trade Commission is examining whether Microsoft has hindered customer choice of competing cloud services by restricting its software to run only on the Azure platform.

Microsoft Japan President Miki Tsubaka said Thursday, “Japan is one of Microsoft’s most important strategic markets, and all our operations are conducted with integrity. I hope this is reflected in our daily market practices.” She declined to comment further on the details of the investigation.

Tsubaka pointed out that Japan, facing challenges from an aging and shrinking population, is expected to benefit significantly from artificial intelligence applications, but “the human touch in transformation remains a key bottleneck.” She emphasized, “Without changing our work methods, we will continue to hold the same meetings and use traditional tools like PDFs and PowerPoint slides.”

However, the executive expressed “very satisfied” with the pace of AI adoption in Japan. She stated, “Compared to previous technological revolutions, Japan is slightly behind, but the gap isn’t large.” She further added, “I’ve observed clear signs of growth—companies and individuals are proactively embracing change and adopting new technologies. This dynamic development gives me confidence in the future.”

The controversy at the heart of the investigation centers on Microsoft’s software licensing mechanisms. Regulators suspect that Microsoft has charged unreasonable “additional fees” to companies running Windows or Microsoft 365 on competitor platforms or set high technical barriers, significantly increasing costs for customers running Microsoft products outside of Azure.

This practice, known as “software bundling” or “restrictive licensing,” is believed to violate Japan’s Anti-Monopoly Act regarding “exclusion of competitors” and “interference with trading partners.” If proven, Microsoft could face hefty fines and mandatory restructuring of its business operations.

Additionally, Japan is the second-largest economy in Asia after China and a key market in Microsoft’s global competition against giants like Amazon AWS and Google Cloud. In 2024, Microsoft announced it would invest approximately $2.9 billion over the next two years to strengthen its AI and cloud infrastructure in Japan.

Japan’s Fair Trade Commission’s move is not accidental but a proactive response to the global trend of regulating large tech giants’ “vendor lock-in” practices. Regulators are concerned that if Microsoft leverages its software licensing advantages to force users into Azure, it could severely harm free competition in the cloud market and increase the long-term costs of digital transformation for businesses.

Therefore, Japanese antitrust authorities are adopting increasingly tough measures to curb what they see as the growing oligopolistic dominance of U.S. tech giants, aligning with the stance of overseas regulators.

As the EU and U.S. have previously conducted in-depth reviews of similar bundling practices, Japan’s high-profile intervention signals a strengthening global consensus on fair access to cloud infrastructure. Notably, last year, Japan’s Fair Trade Commission issued an order to Google (GOOGL.US), accusing the Android software provider of requiring business partners to prioritize promoting its mobile apps, allegedly abusing its market dominance.

With the rapid development of generative AI, the cloud services market is expected to accelerate—this technology heavily relies on high-performance server clusters. Although Japan has domestic data center operators (with government support to enhance national cybersecurity), the local cloud market remains firmly dominated by U.S. providers, similar to most countries worldwide.

Research firm IDC predicts that Japan’s cloud computing market will reach 19 trillion yen (about $121 billion) by 2029, nearly double the total in 2024. Meanwhile, Japan’s Fair Trade Commission has explicitly stated its intention to ensure a fair and orderly competitive environment during this critical period of surging market demand.