Microsoft Offers Details On Coming Office 365 Price Hike For Enterprise Customers

Microsoft is preparing to raise its Office 365 pricing for enterprise volume licensing customers, and some will be paying around 15 percent more for the suite of cloud-based apps.

Starting in August, Microsoft will raise Office 365 prices for its Enterprise Agreement customers that don't have an active Software Assurance (SA) plan. SA is a 3-year subscription that lets organizations upgrade to the latest versions of on premise software released during the period.

The new Office 365 pricing is included in Microsoft's August price list, which the Redmond, Wash.-based vendor published Tuesday.

Lars Johnson, director of Microsoft Office licensing, told CRN in a recent interview that 15 percent is a "general range" for the Office 365 price increase, which will only apply to EA customers without SA.

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Johnson said the "vast majority" of Microsoft customers won't be affected by the Office 365 price increase, which he described as a way for Microsoft to "reward" SA customers for their previous investments in on premise software.

"We have many customers coming from an SA world. They invested in perpetual licenses to get into that world," Johnson said.

Customers that buy Office 365 direct from Microsoft or through its Open licensing program won't see any pricing changes. Existing Office 365 customers won't have to pay the higher rates when they renew their subscriptions, according to a Microsoft spokesperson.

With the change, Microsoft is moving to ensure that its Office 365 pricing for non-SA customers is aligned across EA, Open and its direct web site, the spokesperson said in an email.

While Microsoft's non-SA customers will be paying more for Office 365, those with active SA subscriptions will be getting even bigger discounts, according to Johnson.

Microsoft last year launched a promotion in which customers that make the transition from on premise Office to Office 365 ProPlus -- the version that installs locally but is sold through a monthly subscription -- receive discounted pricing.

Starting in August, Microsoft will expand this discount to its Office 365 E1, E3 and E4 subscriptions, Johnson said. These plans are priced at $8, $20 and $22 per user per month respectively.

It's not clear how much of a price break Microsoft's SA customers will be getting, however. Microsoft didn't respond to requests for clarification.

Paul DeGroot, principal analyst at Pica Communications, a Camano Island, Wash.-based Microsoft licensing consultancy, sees the SA discounts as a sales tactic.

"Since a lot of agreements come up for renewal in June, if customers renew SA on Office, Microsoft will give them relief from the price increase," DeGroot said.

Subtracting the cost of SA when customers purchase cloud services is an approach Microsoft has used since launching Office 365's predecessor -- known as Business Productivity Online Services, or BPOS -- in 2008, DeGroot said.

NEXT: Why Microsoft Is Raising Office 365 Pricing

Microsoft's fiscal 2015 year starts Tuesday, and Microsoft may be looking to drive more revenue from Office 365, which it claims is the fastest growing business in its history, selling at a $2.5 billion annual rate.

Microsoft launched Office 365 globally three years ago this week. It has cut pricing many times since then, lopping around 30 percent off the original price of the cloud suite.

At the same time, Microsoft has moved features and functionality from higher-priced Office 365 SKUs to lower-priced ones without raising prices. Just last week, Microsoft bumped up Office 365's storage allotment from 25 GB to 1 terabyte for all customers.

So while this is the first major price hike for Office 365, Johnson said it shouldn't be interpreted as a sign of things to come.

"We have not had a history of price increases for Office 365 in enterprises, and we've continued to add value. We believe it's a fair decision," Johnson said of the price increase.

Chris Hertz, CEO of New Signature, a Washington, D.C.-based Microsoft partner, told CRN Microsoft has made tons of improvements to Office 365 in the past 12 months, with many more on the way in the next year.

"I imagine that if Microsoft is increasing the cost of Office 365, they want to keep the product priced appropriately relative to the value of the service," Hertz told CRN.

Tim Hegedus, senior analyst at Miro Consulting, a Woodbridge, N.J.-based firm that helps customers with Microsoft licensing, said by offering discounted pricing to SA customers, Microsoft is looking to build and sustain a critical mass of commercial Office 365 accounts.

"More organizations are contemplating, or have already experimented with a move to hosted services, with Office 365 being an important driver due to more pliant work environments, bring-your-own-device, and a re-direction -- though not necessarily a lessening -- of costs," Hegedus said in an email.

The Office 365 price hike probably won't cause enterprises to ditch their subscriptions for Google Apps, but the timing is less than fortuitous after last week's major outages to its Exchange and Lync cloud services, which are part of the suite.