Microsoft is raising SaaS prices, and other vendors will, too

Dive Brief:

Microsoft is raising the prices for SaaS solutions, including its Microsoft 365 and Office 365 bundles. With options to sign month-to-month licenses, businesses can earn a 20% discount by signing up for annual commitments.
The month-to-month is new for Microsoft 365 subscriptions, and, "as is typical with subscription models, the annual term offers a lower rate, whereas the month-to-month subscription provides greater flexibility at a higher monthly cost."
The actual price increases for businesses will depend on licensing. Businesses have from January through March next year to receive a 5% discount on annual subscriptions. They can sign up for monthly subscriptions at an annual price from January through the end of June.

Dive Insight:

Microsoft's increased pricing highlights the power, and stickiness, of SaaS vendors. Businesses depend on high-profile SaaS tools, like Microsoft 365, to maintain business operations. Without them, communications, collaboration and bottom-line work could grind to a halt.

It's the first significant price change for Microsoft SaaS products in a decade. It also marks a shift in the subscription model Microsoft laid out for customers, emphasizing discounts through high-tier subscriptions.

While SaaS tools are often bundled, the more value they provide, the more vendors can justify price increases, which experts believe industry will start seeing annually in the SaaS space.

"We believe it will become the norm that SaaS pricing, the business model itself, will have expected price increases of 2% to 10% every year," said Cyndi Tackett, VP of product marketing at Flexera. "To justify that, with SaaS you get continuous value or more capabilities, more value added in."

Microsoft is not alone. Atlassian also increased prices this year, emphasizing that enterprise subscriptions can save businesses more money than standard and premium subscriptions.

For Microsoft, Teams is an example of the value-add, a free add-on that has seen widespread adoption. Teams has 115 million daily active users and large-scale adoption buoyed by the pandemic work-from-home era.

Microsoft will change Office 365 and Microsoft 365 prices in March, though its Microsoft 365 E5 tier, its highest, will remain unaffected, according to Pax8. The cloud channel company has a rundown of the changes coming in Microsoft's New Commerce Experience, which it extended from Azure through its software stack.

"What Microsoft wants to do, is they want to keep pushing people up the ladder," said Scott Bickley, principal research director at Info-Tech Research Group.

The largest price increase businesses will see is in the lowest tier of Office 365, the E1 license. Companies maintaining that license will see a 25% increase, whereas the E5 license will only have an 8.5% increase.

Microsoft is going to price customers out of lower tiers, with the goal of pushing businesses to the Microsoft 365 E3 license, Bickley said.