Microsoft Hikes Microsoft 365 Prices by 10%

Microsoft, the American technology giant, recently announced plans to discontinue discounts on enterprise purchases of Microsoft 365 productivity software subscriptions and other cloud software product lines. This change is expected to result in a price increase of 10% or more, according to a high-ranking executive from NexusTek. The announcement has sparked discussions among analysts and investors about the potential impact on Microsoft's financial performance.

Analysts from UBS have suggested that the price increase may already be factored into Microsoft's recent guidance on financial performance. However, the move is expected to drive stronger revenue growth from new subscriptions, particularly for the combined offering of Microsoft 365 and "Copilot for Microsoft 365." The integration of advanced AI capabilities, such as those provided by OpenAI's large models, is anticipated to accelerate the migration of customers to Azure's cloud computing services.

Microsoft first disclosed the potential price increase on August 12, just two weeks after releasing its fourth-quarter earnings report for the fiscal year ending June 30. The report included a forecast of double-digit annual revenue growth for the new fiscal year. Following the earnings release, Microsoft's stock price surged by over 6%, pushing the company's market capitalization above 400 billion dollars and making it the second company, after NVIDIA, to achieve this milestone.

In a blog post, Microsoft explained that the price changes are based on a consistent pricing model already implemented for cloud computing services like Azure. The new pricing structure aims to enhance transparency and consistency across all purchasing channels. The changes will take effect on November 1, applying to new service contracts and renewals for large enterprises with sufficient employees to qualify for pricing tiers A, B, C, and D.

Microsoft's spokesperson emphasized that the new pricing model will provide greater transparency and help customers and partners make informed decisions. The price increase is expected to range from 6% to 12%, with an average increase of around 10%, according to NexusTek's product manager. UBS analysts estimated the impact to be between 3% and 14%.

Microsoft 365's seat growth, which measures the number of licenses purchased for employees, has been below 10% since 2023. The company aims to boost per-seat revenue by selling the Copilot AI add-on and transitioning some users to more expensive subscription plans with enhanced AI features. This strategy is crucial as the "Productivity and Business Processes" segment, which includes Microsoft 365 commercial products and cloud services, is expected to contribute significantly to Microsoft's 128.5 billion dollars in operating income for the 2025 fiscal year.

Consultants from UpperEdge believe that most customers will agree to pay more to continue using Microsoft's proprietary applications rather than switching to less popular alternatives. However, some customers may reduce their commitments in other areas, such as Azure's cloud infrastructure. Sourcepass, an IT service provider for small businesses, noted that the changes have not yet significantly impacted their potential client base. The company may explore alternative purchasing methods, such as buying through other cloud distributors at lower prices.

Microsoft 365 subscriptions offer a suite of cloud applications and services, including Word, Excel, PowerPoint, Outlook, OneDrive for Business, and SharePoint Online. Enterprise versions also include Windows 11 Enterprise and security/compliance features like Purview, Defender, Entra ID, and Intune. The price increase for existing Microsoft 365 customers may already be reflected in the company's financial guidance, but the advanced AI features are expected to attract new enterprise users, driving growth in "Copilot for Microsoft 365" subscriptions.

Copilot for Microsoft 365 is an optional add-on that leverages OpenAI's GPT large models and is not included by default in Microsoft 365 subscriptions. It offers deep integration with applications like Word, Excel, PowerPoint, Outlook, and Teams, providing advanced AI capabilities. Copilot Chat, a free feature included with qualified Microsoft 365 subscriptions, offers a basic AI chat experience but lacks the deep integration and advanced features of Copilot for Microsoft 365.