Microsoft to increase monthly subscription costs by 20%

Microsoft will increase the cost of monthly Microsoft 365 subscriptions by 20% starting next year.

While the company did not explicitly say that it would increase monthly pricing, it alluded to the 20% premium for customers choosing to remain on monthly subscriptions in an announcement post for partners last month. CNBC reported on the matter from an inside tip this week.

The changes will protect Microsoft's more than 400,000 partners from financial losses incurred when customers not on annual plans leave, and will help forecast revenue for the year, Microsoft explained in a blog post earlier this year.

But customers, especially those at small and medium-sized businesses, took to Reddit and Twitter to voice their opposition to the new pricing model.

One Reddit member wrote that the increase will be, "a huge hassle for those of us that build our stack around month to month." Another wrote, "I think Microsoft is not hearing from the smaller-business side." Customers complained that they would not have the flexibility to cancel licenses if workers leave.

"Flexibility is huge for our clients," said Charles Black, president of Chicago-based IT services firm Oscillas Technologies. "With the 20% step up from the annual to monthly price, we and our clients are going to have to put a lot more time and effort into maintaining license pools economically."

Some customers started a petition on Change.org to urge Microsoft to revoke the changes. The petition has garnered more than 1,400 votes. It explained that monthly subscriptions were an invaluable tool to help with cost reduction during the COVID pandemic and other economic events.

"This move will certainly hurt small businesses the most, who often go month-to-month with Office subscriptions to manage cash flow," said Dion Hinchcliffe, an analyst at Constellation Research.

The pricing changes are part of the New Commerce Experience (NCE) model for Azure, which Microsoft launched in 2019. The licensing will also include Dynamics 365, Windows 365 and other Microsoft business services.

NCE was developed to reduce licensing complexity and costs, Microsoft partner and managing service provider Pax8 wrote in a blog post communicating the pricing changes to its customers.

Hinchcliffe said the plan lets Microsoft forecast its revenue for the year based on the annual subscribers by decreasing churn.

Pricing plans will begin in January, according to Microsoft. Companies must renew subscriptions through NCE by the end of June. There will be a promotional discount of 5% for those that adopt the annual term pricing before April. There will be no 20% increase in monthly term pricing before July.

The pricing scheme is part of a series of changes Microsoft made to the way it sells its products.

In August, Microsoft announced that it will increase the price of Microsoft 365 in 2022 for the first time in a decade. The company argued that the new pricing reflected the "innovations" it had delivered since launching Office 365.

Prices for Microsoft 365 Business Basic will increase from $5 to $6 per user per month; Microsoft 365 Business Premium from $20 to $22; Office 365 E1 from $8 to $10; Office 365 E3 from $20 to $23; Office 365 E5 from $35 to $38; and Microsoft 365 E3 from $32 to $36.

Last week, the company made it possible for SMBs to purchase Teams separately from its Microsoft 365 offering for $4 per user per month.

Maxim Tamarov is a news writer covering mobile and end-user computing. He previously wrote for The Daily News in Jacksonville, N.C., and the Sun Transcript in Winthrop, Mass. He graduated from Northeastern University with a degree in journalism. He can be found on Twitter at @MaximTamarov.