Understanding Microsoft’s $6B savings package for federal agencies: what it means

Across the government, Microsoft’s Office software is already a staple. When Trump returned to office, his administration introduced OneGov, a procurement strategy designed to consolidate IT spending through the General Services Administration (GSA). Instead of each agency negotiating its own contracts, OneGov directs them to buy through a single channel.

The idea is simple: by pooling demand, the government gains leverage to negotiate much bigger discounts. That’s exactly where Microsoft’s $6 billion savings package comes in.

Microsoft’s $6B savings package explained

Microsoft projects $3.1 billion in potential savings for agencies in the first year alone. Over the full three-year span, the total savings could top $6 billion, making it one of the biggest cost-cutting packages the government has ever secured.

These discounts aren’t permanent. They run until September 2026, and agencies must go through the GSA under OneGov to qualify. Not every office is eligible for the lower rates.

With federal spending on IT products and services sitting at around $80 billion a year — much of it on software, cloud, and cybersecurity — shaving costs represents a meaningful reduction. It also feels like a strategic play from Microsoft to deepen its role in government technology while pushing further into the competitive AI space.

What agencies get in the deal + Copilot’s free year for federal workers

Microsoft 365 is one of the main services included in the deal, with discounts on Word, Excel, PowerPoint, Outlook, and Teams. These are everyday apps most federal employees already use, so the savings apply to tools that are already deeply embedded in government work.

Azure’s cloud infrastructure is also covered. Agencies will see lower prices on hosting, storage, and compute services, and Microsoft is waiving its data egress fees — the charges for moving data out of Azure — which can add up quickly at scale.

The agreement also extends to Dynamics 365 business applications, used to manage case files, finances, and HR, as well as Sentinel, Microsoft’s cloud-based cybersecurity platform that helps agencies detect and respond to threats.

On top of the discounts, agencies with Microsoft 365 G5 licenses will receive a year of Copilot for free. It’s a clear signal of Microsoft’s intent to make its AI assistant a standard part of government workflows, with the hope that agencies will continue using it once the free period ends.

Why Nadella got personally involved + Microsoft’s entrenched role in federal IT

Microsoft CEO Satya Nadella personally got involved in this agreement, speaking directly with Josh Gruenbaum, head of the GSA’s Federal Acquisition Service. His involvement shows just how important the deal is to Microsoft, especially as it pushes to get more agencies to use its AI tools.

Nadella has made it clear that AI is now at the center of Microsoft’s strategy. The goal isn’t just to compete, but to surpass rivals like Google and Amazon. Locking government agencies into Microsoft’s ecosystem gives it long-term leverage and a stronger hold on the market.

The deal also reinforces Microsoft’s position as one of the government’s most trusted partners. It goes beyond simply selling Office subscriptions, aiming instead to tie agencies into a broader suite of apps, cloud services, and AI-powered tools.

What’s the competition doing?

Microsoft isn’t the only company cutting deals with the GSA under OneGov. Adobe has offered a 70% discount on its Paperless Government Solution, available through November 2025.

Amazon and Google have also stepped in. Amazon is providing up to $1 billion in cloud-related savings, while Google has introduced a 71% discount on Google Workspace. Impressive as these are, none quite match the scale of Microsoft’s $6 billion package.

On the AI side, the discounts are even more striking. Anthropic’s Claude for Enterprise is available across all three branches of government for just $1 per agency, and OpenAI has matched that pricing with ChatGPT Enterprise. However, the deal only runs for one year.

The AI race shows no signs of slowing down. It can feel overwhelming to see AI creeping into every corner of technology, but deals like these could prove pivotal. In a few years, it will be worth looking back to see whether agreements with the government played a key role in deciding which platforms became the true leaders in AI.