Microsoft Office 365 price increases are upsetting companies, says report

By Robert Carnevale
published

Say goodbye to the old pricing model.

Office desktop
Office desktop (Image credit: Windows Central)

What you need to know

  • In August 2021, Microsoft announced it'd be upping the price of Office 365 subscriptions.
  • Microsoft deemed it the "first substantive pricing update" to the service since its launch.
  • Now, reports are coming out that companies aren't happy with either the annual or monthly pricing adjustments.

In August 2021, Microsoft broke the news that it'd be increasing pricing for its Office 365 options. This change will affect users regardless of what Office 365 model they subscribe to, be it annual or monthly. However, there's the added wrinkle that those who opt for monthly subscriptions will incur an additional Microsoft tax seemingly designed to incentivize the long-term annual route. Those who want to stick with Office 365 on a per-month basis will be facing a 20% price hike, meaning an additional fee atop the initial cost raise.

As reported by CNBC based on internal documentation it saw, Microsoft will expect subscription payments even if the subscriber wants out midway through a term.

In the same report, it's noted that many companies are none too happy about the situation and its ramifications for those who want or need the flexibility of monthly subscriptions. Microsoft partners such as Intivix have been put in the uncomfortable position of having to be the bearers of bad news, and it's attracting pushback. According to CNBC's sources, partners have had "intense meetings" with Microsoft as a direct result of the price increase backlash.

The question is whether the price increase will be enough to drive customers, either existing or prospective, into the arms of rival company Google, which has its own productivity suite. Another risk Microsoft faces is, as a result of its Office 365 bump, scaring off potential cloud customers who see how the company is handling its pricing models and don't want to risk being affected.

Robert Carnevale
Robert Carnevale

Robert Carnevale is the News Editor for Windows Central. He's a big fan of Kinect (it lives on in his heart), Sonic the Hedgehog, and the legendary intersection of those two titans, Sonic Free Riders. He is the author of Cold War 2395. Have a useful tip? Send it to robert.carnevale@futurenet.com.

11 Comments
  • Tbh this was expected. No price rise since lanunch they had to at some point and let's be honest, what you get with office 360 nothing else really matches it. Especially business side.
  • While this is true, and to be expected... I think the latter might be the reason why some are a little disingenuous about it. If a company is already on a budget, and they see Microsoft's offerings with Office 365 it would have seemed like a no-brainer. Budget for the year, everything included, free upgrades etc. Now the same people are having to budget this year with a price hike, and in some cases +20% for the monthly seat allowance. This isn't something that is typically seen outside of the cloud space even for those who are buying perpetual licences. With cloud services the lines are blurred with software and the resulting hardware (such as required for storage space with the One Drive upgrades), it's not in line with what the end user is going to be seeing. For them, it's just going to be a price and access to the software as a service. There is no doubt that a lot of smaller businesses will try to move away from cloud services back to software they own for this very reason. Unfortunately, they have an easy way out. For bigger businesses that have already sunk a lot of resources into provisioning and training for Office365, it'll not only be a costly price hike giving the users they'll have, but maybe still cheaper than getting out of it.
  • I don't feel like O365 has a real justification for a price hike. Yes, they've added Teams...I guess, but it's still mostly a giant package of software where most users are only using a smaller percentage of the stuff you have forced upon you with the purchase. Given how easily that product scales to more customers without a meaningful increase in work on Microsoft's side, it just seems like it's too easy to profit off of a growing user base. They shouldn't have any real need to raise the price, unless customer growth is slowing and they need to magically generate more revenue to look good to shareholders who aren't satisfied with a company's $3 trillion worth.
  • Given that prices rise on everything, it's only reasonable that prices on software rise too. Whether or not this specific prices rise is reasonable or not is a different matter but, in general, the price of subscription software should rise at the same rate as inflation. Remember that Microsoft 365 is not just the software but the cloud infrastructure that it runs on. There are ongoing and increasing costs associated with that.
  • Sure, but I think the margins and growing consumer bases on these products is so high that the added infrastructure costs shouldn't hit MS too hard. I think it's more about making shareholders happy. They have to prove an endlessly available means of revenue increases, and if the growth rate of new customers slows, the next-best solution is the increase the per-unit cost on existing customers. I think that's kind of what we saw them doing when they tried to double the cost of XBL Gold last year, and I would suspect that Game Pass will see something similar in a few years.
  • I feel like there could be a better tier system in play with 365, kind of like Adobe's approach with CC. Nobody likes the idea of paying more for junk they're never going to use. Adobe, for example, has a tier where you can just sub to Photoshop/Lightroom without the rest of CC. Microsoft could really do the same and offer tiers that just offer the Office apps, for example.
  • Erm, they already have literally hundreds of SKUs including just office apps...
  • The downside is those piecemeal solutions usually end up as bad, if not worse. As of now, the suite is $100/year. If the new pricing is $120/year, I'll bet they'd strip a "basic" subscription to the 3 or 4 most-common apps and charge the same $100/year they are now. If you ONLY want Word, it'd be $50/year. That's how Adobe's suite usually is--so expensive to piecemeal that you end up buying the overpriced, full package. You think "it doesn't cost much more to add these 5 apps I might use once in 2 years, but adding them later is even more expensive." So, while I agree it COULD be a good solution, companies usually make those solutions even worse so people accept the excess programs.
  • They'll remove Outlook from it and keep it the same price but hike it up if you want Outlook which is the only reason I use Office 365 personal.
  • Agreed. Maybe a core 365 with Word, Excel, PP, Teams, and OneDrive for a bit less per seat.
  • Large companies are not paying those prices anyway. Like all things B2B, there is the public price and there is the price actually paid.