Microsoft Office prices going up 20% for some business clients unless they move from monthly to annual subscriptions

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  • Microsoft is telling partners that if customers choose to keep paying for the month, they will soon be charged 20% more for an Office subscription.
  • By prompting more users to subscribe to annual subscriptions, Microsoft can potentially gain better visibility into its revenue and reduce concerns about customer churn.
  • Some partners are pushing back, taking to Reddit to complain and signing a petition on Change.org.

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Microsoft is using its market dominance in productivity software to force some of its Office suite customers into one big decision: Pay more or commit to a longer subscription.

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In 2022, what’s called the New Commerce Experience for Microsoft Office is improving the way customers buy their software through business partners. While the company hasn’t publicly announced a specific price change, it has informed partners that organizations that pay for the month will face a 20% increase unless they move to annual subscriptions.

For Microsoft, the opportunity to lock customers into longer arrangements with potentially better visibility into revenue and less worry about churn is an important element of subscription businesses. Software vendors typically offer discounts for annual subscriptions compared to monthly sign-ups, and many large enterprises prefer that option.

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However, some smaller companies trying to preserve cash to tackle challenges related to the pandemic are disappointed with the changing model, which comes after it announced a price hike in August for Microsoft 365, a bundle called Previously known as Office 365.

Meanwhile, Microsoft is thriving. Its stock is up 46% this year, pushing its market cap past $2.4 trillion, while revenue growth is up 20% over the past two quarters.

Most of Microsoft’s revenue comes from business customers rather than consumers, and 95% of its commercial revenue comes through partners. Customers who buy exclusively through Microsoft’s cloud solutions provider program are affected by the subscription plan change, and Microsoft does not state what percentage of its customers purchase products this way.

Rob Schenk, Co-Founder intivix, a Microsoft partner with offices in the Bay Area, said it has begun reporting customers about a 20% increase for month-to-month arrangements. Responses have been mixed, he said, and some customers have told him they “don’t like it at all.” The rollout could be particularly difficult for distribution partners like Intivix, as they have had to take on the role of messenger to customers.

Schenk said Microsoft’s lack of clear information on the monthly price bump has complicated negotiations with customers. And Microsoft will expect to pay for the subscription even if customers decide they no longer want Office services for half the period, according to an internal document obtained by Businesshala.

Partners have pushed back on several forums. people have spoken on reddit, and more than 1,400 have signed a Change.org petition For Microsoft to cancel its planned price hike. The backlash sparked intense meetings between Microsoft and its partners, said a person familiar with the launch, who did not wish to be named due to confidentiality.

A spokesperson told Businesshala in an email, “Microsoft provides flexible purchase options to meet the diverse needs of our customers, and we do not publicly disclose information about our premium and pricing approach to partners. We do.”

The new program “introduces a monthly term option that enables partners to offer customers flexibility at a premium price,” the email said. While Microsoft hasn’t officially sold Office 365 subscriptions on a per-month basis, customers have, in practice, been able to go month to month and increase or decrease the number of users as needed, the partners said. This option proved valuable for organizations that had reduced workforce during the pandemic due to low demand.

The inability to withdraw subscriptions can be a bigger issue for customers than high prices, said George Hammerschmidt, executive vice president of Nortec Communications, a partner based in the Washington, DC area.

“There are some people who are going to be upset,” said Hammerschmidt.

Microsoft had planned to implement the new commerce experience in October, but delayed it to January 2022. New orders will go through the new Commerce experience starting in March, and upgrades should begin in July, Microsoft said in a statement. blog post,

Between January and June, Microsoft will charge the same price for monthly and annual offers, the company said. After that, the monthly growth begins.

The change is a publicly announced The increase in August, when Microsoft said it was increasing the prices for subscriptions to its Microsoft 365 bundles in March 2022 from 8.5% to 20% per user, depending on the tier. The company said at the time that “this is the first real pricing update since we launched Office 365 a decade ago.” Microsoft noted that the bundle now includes more collaboration, security, and automation tools.

Adam Mansfield, a consultancy that helps companies negotiate software purchases from Microsoft, Salesforce and Service Now upper end, told Businesshala that the August hike announcement was unsolicited news inside some organizations.

Microsoft is betting customers will stick around, as Google’s Workspace bundle, formerly known as G Suite, presents the only significant competition.

“The customers that run Google today are either too price-sensitive or too small,” Hammerschmidt said.

Mansfield said one concern for Microsoft, however, should be the ability for unhappy customers to choose a different public cloud provider when they have upcoming projects. In that market, Microsoft lags behind Amazon Web Services, while Google is investing heavily in wooing new customers.

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