Microsoft's Price Increases Are Coming: What to Know Before Your Renewal

With just weeks from Microsoft’s recently announced enterprise price increases to some Office 365 and Microsoft 365 product suites, customers should take note on how the increases will impact them.

Microsoft justified these price increases for two reasons.  First, there hasn’t been a price increase to these product suites in over a decade.  Second, over that 10-year period, there has been considerable value added to the Office 365 and Microsoft 365 product suites.

Microsoft specifically pointed out that there were 24 new apps and 1,400 new features added since Microsoft 365 was rolled out, including Microsoft Teams, OneDrive and the Power Platform apps.  Further, Microsoft touted their ability to innovate in the ‘community and collaboration’, ‘security and compliance’, and ‘AI and automation’ spaces since the introduction of Office 365 to further illustrate the value that has been added to their product suites over time.

Understanding these price increases and why Microsoft is adding them will be critical to your negotiation strategy moving forward.  

Why Microsoft is Increasing Its Pricing

Microsoft is really drawing attention to the value added to their product suites over the past 10 years to justify this price increase.  But if you take the Power Platform as an example, which Microsoft cites as a key value-add, the version of these products included in the Microsoft 365 product suites is water-downed.  Customers need to pay more for premium versions to get the increased value they are often looking for.

While many customers have already moved to the Microsoft 365 bundle, they will need to move up to E5 for advanced security, compliance and voice offerings, which all continue to drive momentum in E5 revenues.  Movement to E5 will drive average revenue per user and overall cloud revenue for Microsoft.

Outside of value add, when you think about the fact that Commercial Office 365 and Microsoft 365 bundle subscriptions represent a meaningful portion of Microsoft’s Cloud revenue, it comes down to also finding ways to increase this revenue stream.  One way to do that is to simply increase the often talked about average revenue per user (ARPU), something all cloud vendors are focused on.  If the underlying list price goes up across key products like Office 365 and the all-in cloud bundle Microsoft 365, that’s a fast way to increase the ARPU tied to their entire base of customers using these products.

Microsoft is also ultimately trying to move their customers to the Microsoft 365 E5 or even E3 bundles.  If you increase the Office 365 components of these all-in cloud bundles, which also have Windows Online and EMS, it certainly helps “motivate” (or perhaps force) customers to consider moving to the more robust bundle.

What is NOT Increasing