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More price rises ahead for Microsoft Office?

Some Microsoft 365 plans have already increased in price and there’s likely more to come after an analyst’s report led to a drop in the Microsoft stock price.

A UBS research note, as reported by Barrons, expressed concerns about the growth in sales of Microsoft 365/Office 365.  That led to a drop in the MSFT stock price.

Microsoft Office’s numbers are impressive:

  • Office 365 has projected sales of $35.1 billion for the year to June 2022
  • Sales have increased by between 19% and 21% in each of the past six quarters
  • Commercial Office 365 revenue modelling for fiscal 2023 suggests a ‘mere’ 17.4% growth (down from 19.1%)
  • Office is now Microsoft’s second largest business, only Azure does better.

Microsoft seems to have beaten Google (Alphabet) in the Office software stakes, according to the USB report:

“… the Google Cloud leadership has all but given up on the goal to displace Microsoft Office 365 in the enterprise segment and has instead shifted its efforts to boost [Google Cloud’s] competitiveness against Azure”

What’s the problem?

That all sounds great, so what’s the problem?

Mostly, Microsoft is reaching saturation in the business market.  Their relentless push of cloud-based services has worked, or as the report says “… the high penetration rate among commercial PC user”

There was also a temporary jump in sales as people bought new computers to work from home.  But now staff have either ‘geared up’ for WFH or are returning to offices.

The downturn in the global economy and uncertainty about the future (COVID isn’t over, war in Europe, rising oil prices) don’t help either.

Mind you, any business that’s expected to see 17% growth in the next year is still doing very well.  Just not as well as the stock market expected, hence the drop in MSFT stock price.

What surprised us in the public reporting of the UBS note was no mention of potential price increases.

Microsoft has already upped the price of their Microsoft 365 business plans, or paying monthly and now the non-profits are getting a price hike.  Both price increases not only increase revenue to Microsoft but are also higher for the lesser and probably more popular plans.

They’ve continued to discourage sales of perpetual license Office software, Office 2021 and Office LTSC, not just with an uncharacteristic lack of hype but also higher prices and even less support time.

As Microsoft 365 plans reach market saturation, Redmond is switching from signing-up customers to getting more money from those captive customers.

It’s harder to switch away from Microsoft Office cloud services that few others can offer.  That’s an opportunity for Microsoft to raise prices, knowing that customers are too entangled to move away.

The Office Watch crystal ball (foggy as it is) suggests there’ll be more price increases for Microsoft 365 customers in the future.  That Microsoft can continue to meet the stock market expectations of double-digit revenue growth.

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