Microsoft 365 Will Have a Price Increase for Businesses

Microsoft’s Jared Spataro:

Today we are announcing changes to our commercial pricing for Microsoft 365 — the first substantive pricing update since we launched Office 365 a decade ago. This updated pricing reflects the increased value we have delivered to our customers over the past 10 years. Let’s take a look at some of the innovations we’ve delivered over the past decade in three key areas — communications and collaboration, security and compliance, and AI and automation — as well as the addition of audio conferencing capabilities that we’re announcing today.

Another way to read this is that Microsoft used its unique market position to subsidize the cost of its dramatically expanded feature set, and is now coming to collect.

Alex Morris in a tweet quoting Warren Buffett:

“The single most important decision in evaluating a business is pricing power. If you have the power to raise prices without losing business to a competitor, you’ve got a very good business.”

Sure, but it could also mean that the business has no true competitors. What other fully-integrated enterprise software suite are disgruntled Microsoft 365 customers going to switch to?

Google, its closest competitor, has just 10% of the market compared to Microsoft’s 87%, according to the most recent figures released I can find which are about a year old. Google may have increased its active user count to 2.6 billion by October last year, but the vast majority of those are not paying. If Microsoft is increasing its pricing, it clearly does not see Google as a major threat.

Steven Sinofsky on Twitter:

Microsoft will raise Office 365 business subscription prices in 2022 // putting this in perspective relative to “boxed” software. A consumer might have paid $150 for Office once every 4 yrs. A biz paying $150/yr now pays $450/yr (and can’t stop). #saas

That is great news for Microsoft’s bottom line. It is less good for businesses that may not need these new capabilities but are forced to keep paying. In the old boxed software days, a business could choose whether the new features justified the cost of an upgrade. Now, in the days of software-as-a-service, Microsoft will simply charge more because it can, and customers are going to accept because they have no other choice.