Microsoft Ends Enterprise Discounts for Microsoft 365 Subscriptions and Cloud Applications: Impact on Financial Performance and Pricing Explained
Microsoft announced last week its intention to discontinue offering discounts on enterprise purchases of its Microsoft 365 productivity software subscriptions and other cloud applications. This change, according to analysts at UBS, is already accounted for in Microsoft’s financial projections.
In a report released Tuesday, the UBS analysts stated that the pricing adjustment is assumed to be included in Microsoft’s forecast, maintaining a buy rating on the stock.
Following Microsoft’s disclosure on August 12, which came two weeks after the software giant reported double-digit year-over-year revenue growth for its fiscal fourth quarter, the company’s shares rose by 4%.
Microsoft explained in a blog post that this pricing change aligns with the consistent model already in place for services like Azure and reflects its commitment to greater transparency and uniformity across all purchasing channels.
The new policy applies to companies categorized into pricing tiers A, B, C, and D based on their employee count. It will take effect when organizations renew existing agreements or sign up for new services starting November 1.
According to a Microsoft spokesperson, this move aims to provide more consistent and transparent pricing, thereby facilitating informed decision-making for customers and partners.
Jay Cuthrell, product chief at Microsoft partner NexusTek, anticipates price increases ranging from 6% to 12%. Partners have projected impacts as low as 3% and as high as 14%, according to UBS analysts.
Growth in the number of Microsoft 365 commercial seats – a metric representing licenses purchased for employees – has remained under 10% since 2023. Microsoft seeks to generate additional revenue per seat by selling Copilot add-ons and transitioning some users to pricier plans.
Given that most of Microsoft’s $128.5 billion in fiscal 2025 operating profit stemmed from the Productivity and Business Processes unit, with about 73% of revenue coming from Microsoft 365 commercial products and cloud services, expanding this segment is crucial.
Some customers may choose to pay more to continue using the applications rather than switching to alternative services, according to Adam Mansfield, practice lead at advisory firm UpperEdge. These customers could potentially lower their commitments in other areas, such as Azure cloud infrastructure, Mansfield added.
One potential strategy for companies to secure lower prices with the elimination of discounts is by purchasing through cloud resellers instead of directly from Microsoft, suggested Nathan Taylor, a senior vice president at Sourcepass, an IT service provider catering to small businesses.
Sourcepass has yet to receive many leads due to Microsoft’s change, according to Taylor. He noted that it takes time for such information to reach the industry as a whole.
Microsoft’s shares have risen by 20% this year, while the Nasdaq has gained approximately 10%.