Since its launch in June 2011, Microsoft Office 365 has grown to over 300 million commercial monthly users. Microsoft 365 has different plans for every type of business, organization or government entity. The benefit of Microsoft 365 is that it frees organizations from maintaining the server and other infrastructure needed to host email, and the 365 suite also provides online versions of SharePoint, OneDrive for Business and Teams. However, Microsoft's own service agreement recommends that "you should have a regular backup plan" for your 365 data.
Microsoft has created numerous 365 plan options. Some plans provide for email-only Exchange hosting. Another plan is for the Microsoft Office suite of applications only, which includes the latest versions of Outlook, Word, Excel, PowerPoint, Access, Publisher and OneDrive, allowing licensed users to legally install and use these applications on up to five devices. Another plan combines these two plans, allowing users access to all of the features. The 365 program has plans for small businesses, enterprises, education and government agencies. Microsoft has added 24 applications to the 365 suite of services, including Teams, Power Apps, Power BI, Power Automate, Stream, Planner, Visio and others since the suite's initial launch.
The rate of adoption for 365 services has been amazing, allowing Microsoft's market capitalization to exceed $2 trillion and making it the most valuable company in the world. Microsoft operates hundreds of thousands of servers around the world, providing circuits and data center infrastructure and powering data centers in an ongoing operation with ever-increasing costs -- not to mention the vast 24/7 labor required to design, build, implement, market and maintain this global infrastructure. Like many modern services, Microsoft aimed to secure market share as people transitioned from buying retail or volume licensing to paying monthly or annually for ongoing services that were continuously being updated.
It was bound to happen, but the price of cloud services had to increase eventually. Microsoft announced it will be increasing prices on most Microsoft Office 365 SKUs by 15 percent on March 1, 2022. Additionally, they are going to add an extra 20-percent fee/penalty to licenses that remain in a monthly billing status. If you pay annually, then the 20-percent fee doesn't apply; therefore, this extra 20 percent is an effort for Microsoft to force millions of companies worldwide to pay annually. We recognize that month-to-month subscriptions are invaluable, as they allow flexibility to increase or decrease license counts based on their actual usage. Monthly subscriptions have also been an invaluable tool to help with cost reductions during COVID-19 and other economic events. Adding an additional 20 percent on these types of SKUs seems almost punitive. Hopefully, pressure from the IT community and customers will cause Microsoft to allow the same rate increase to occur over a period of years. We shall see.
We have absorbed smaller single-digit rate increases in the past from Microsoft and other vendors, but every IT service provider will have to pass these costs on to their clients because these rate increases are greater than our gross margins on these Microsoft products. Obviously, internal IT departments will incur these same cost increases. While you may find this concerning, it is only the tip of the iceberg. If the world's largest software provider succeeds in passing along up to 15-percent to 35-percent rate increases, then every other software vendor will feel emboldened to make similar rate increases.
Of course, the federal government and Biden administration will have you believe that inflation is transitory, based on their multiple public statements. If that is true, does anybody believe software companies will lower their rates to current levels sometime in the future after their costs for wages, benefits, infrastructure, electricity and other items have already increased? Microsoft will set the standard for the greatest IT expense increase in history over the next year. You should adjust your budgets accordingly.
For more information, visit www.omnipotech.com or call (281) 768-4308.
