Microsoft ends volume pricing, potentially costing companies millions

Microsoft will eliminate volume discounts for online services Nov. 1, potentially creating huge price increases for some large enterprises, but some industry observers expect customers may still be able to save money through channel partners.

In the name of pricing consistency, Microsoft in mid-August announced an end to volume-based discounts for online services such as Microsoft 365 that are covered by its traditional Enterprise Agreements (EAs) and Microsoft Products and Services Agreements. On-premises software pricing isn’t affected.

Large enterprise customers under the EA program could see price increases of nearly 13%, potentially running into the millions of dollars for some large organizations.

The software giant had already done away with bulk discounts on Azure and other products. “This update builds on the consistent pricing model already in place for services like Azure and reflects our ongoing commitment to greater transparency and alignment across all purchasing channels,” the company said in an Aug. 12 blog post.

Microsoft’s move shows an increasing reliance on subscription-based pricing, with the company rewarding Copilot deployment and the adoption of advanced security features in Defender, says Tony Mackelworth, head of solutions at Codestone Group, a digital transformation consulting firm.

Changing partner landscape

The change will force a major pivot in Microsoft’s partner ecosystem, he says. In the past year, the software provider has already cut licensing solution providers (LSPs) out of EA deals and reduced their revenue streams.

In recent years, Microsoft has moved to tighten its relationships with large enterprise customers, while encouraging smaller clients to use its partner-driven Cloud Solution Provider (CSP) program, observers say.

At the same time, Microsoft is pushing partners away from global or regional price arbitrage and toward outcome-based delivery and pricing, Mackelworth wrote in an August blog post. In response, partners have begun to look for other ways to prove their worth, he now tells CIO.com.

“Leading partners are differentiating by providing continuous optimization — helping clients right-size licensing, accelerate Copilot and security adoption, unlock Microsoft funding, and unlocking the value of their Microsoft 365 investment,” Mackelworth adds.

While some customers may look to LSPs to optimize their spending, those that have moved to the CSP program are insulated from the new pricing changes, notes Carly Moree, client success manager at digital transformation provider Myriad360.

Partners under the CSP program, including Myriad360 itself, can negotiate prices with customers, she says. Through CSP, customers can still negotiate competitive pricing and, in some cases, lock in rates for up to three years on some products, she adds.

“Under CSP, pricing has always been more flexible — partners aren’t bound by rigid discount tiers or volume thresholds,” Moree adds. “That means our clients will continue to benefit from adaptable terms that align with their specific business and technology goals.”

More control for Microsoft

Microsoft’s announcement will push more customers to the CSP partner ecosystem, which gained three-year pricing protections in June, says Jake Giffin, a director with IT research and advisory firm Information Services Group. Giffin played down Microsoft’s stated reason of pricing consistency for the changes, saying the company had earlier opportunities to do so.

Microsoft has already started removing the licensing solution providers from strategic accounts and investing in resources to expand its footprint with their largest customers, he says.

“This was a control move that has the advantage of normalizing to higher price points in the process,” Giffin adds. “Microsoft will continue to directly interact and provide custom concessions to the customers they deem worthy, and anyone else can source from the partner ecosystem.”

The move will increase prices across most EA customers or will pressure customers to act early and commit to configurations in product lines such as 365 and Copilot that Microsoft prioritizes, he says.

Giffin recommends that customers proactively scrutinize their Microsoft partnerships and investments. “It’s still very early, but I anticipate some clients will start to scale back their reliance on Microsoft and right-size their commitments,” he says.

Huge impact for some — with defections possible

While experts like Mackelworth and Moree say some customers may be able to skirt the new pricing structure, some Microsoft customers are still wary about the changes.

The pricing changes are likely to disproportionately impact midsize businesses, says Amruth Laxman, founding partner at VoIP provider 4Voice. Scale licensing for Microsoft products has been an important cost strategy for 4Voice, he adds.

“For us, the lack of volume discounts will easily push our annual Microsoft software expenses up by 10 to 15 percent,” he says. “When managing hundreds of seats, that is a big impact.”

His company has looked to lock in multi-year agreements that extend past November and to work with Microsoft partners or resellers that still have room for flexibility, Laxman says. Microsoft’s decision tightens its control over pricing and leaves less room for traditional negotiations, he adds.

“This is yet another large vendor example of power consolidation and leaving their customer base, which built their ecosystem, with fewer options,” Laxman says. “I can understand the business rationale, but it shifts the burden entirely to the IT leaders and is an encouragement to find efficiencies in other areas like cloud management and license optimization or even moving to a competitor.”