Breaking the Habit of No Price Rises in a Decade
In my article about the launch of Office 365 ten years ago, I think I jinxed Office 365 pricing for everyone. I noted that Microsoft hadn’t increased prices for headline plans like Office 365 E3 since 2011. Well, now Microsoft plans to increase the monthly fee for most Office 365 and Microsoft 365 plans effective March 1, 2022.
The net effect is a $36 per user per year uplift for Office 365 E3 and Office 365 E5. Microsoft 365 E3 increases by $48 per user per year while Microsoft 365 E5 is left untouched, perhaps to encourage more customers to opt for this high-end $57/user/month plan. Microsoft is not lining up any increases for academic and personal Office 365/Microsoft 365 products.
Lucrative Revenues as Numbers Mount
$36 extra per year mounts up fast as user numbers increase. An enterprise tenant with 10,000 users needs to find an extra $360,000 or so to maintain services (I wonder how delirious Accenture will be to pay an extra $18 million for their 500,000+ users?).
Across the 300 million-odd Office 365 installed base, the new pricing scheme has the potential of delivering billions of extra revenue in a full year. The exact number depends on the mix of different licenses and the extra revenue from each type, discounts negotiated with customers, and local pricing at a country level. Overall, some eyewatering numbers are involved to add to the $78 billion annualized run rate for commercial cloud products reported by Microsoft in their Q4 FY21 results.
One thing’s for sure, the new prices will make tenant administrators pay more attention to license management. ISVs who specialize in license management will be very happy as they’ll be able to make a pitch on the basis that they can save customers even more money by eliminating unused or underused licenses.
Justifying the Increase
Microsoft’s justifications for the increase include:
- Adding more than 1,400 new features to Office 365 since 2011. One might ask how many of the updates were useful. Certainly, many were, but there are some failures in that number.
- The introduction of information protection and information governance capabilities across Office 365 (if only so many of the features were available without the need for high-end licenses).
- The addition of many features powered by artificial intelligence and machine learning to help users work faster.
- Adding 24 apps since 2017. The cited apps include Teams, Stream, Planner, Visio (a recent addition), Yammer (bought in 2012), and Whiteboard plus the Power Platform suite which is basically an opportunity for organizations to pay more fees (and users to buy self-service licenses).
I don’t know how Microsoft counted 24 apps unless they’re throwing in solutions like Communications Compliance and Advanced eDiscovery which are limited to higher plans or add-on apps like Viva Topics and SharePoint Syntex, both of which attract additional $5/user monthly fees.
One good thing that’s coming is the addition of unlimited dial-in audio conferencing capabilities for Teams meetings across Microsoft’s enterprise, business, frontline, and government suites. This is currently an Office 365 E5 and Microsoft 365 feature and will allow users to join Teams meetings from phones without any extra cost.
Still Good Value
There is no denying that Microsoft can argue a good case for bumping its prices to match competitors, generate revenue, and offset the massive investment made in cloud datacenters and network deployed around the world. The core Office 365 workloads (Exchange Online, SharePoint Online, OneDrive for Business, and Teams) are good value by themselves. Planner is OK, Yammer is useful to some organizations, and Whiteboard and Stream both badly need the refreshes that are coming soon. Overall, the collection of capabilities available through an Office 365 license is second to none, even if it’s going to cost 15% more after March 2022.