Microsoft is changing its pricing and licensing model: What you need to know

Microsoft is always adapting its offering to meet the evolving needs of businesses. It is currently in the process of making big changes to the way you purchase Microsoft licences, which will result in price increases and contract changes for organisations that use various products such as Office 365. In this article, we explain what […]

by KBS Group

Microsoft is always adapting its offering to meet the evolving needs of businesses. It is currently in the process of making big changes to the way you purchase Microsoft licences, which will result in price increases and contract changes for organisations that use various products such as Office 365. In this article, we explain what the changes involve and what you can do to avoid an immediate price increase, so that your transition is as smooth as possible.

What are the changes?

As a Microsoft Gold Partner, we work closely with Microsoft and are currently suppliers of their Cloud Solutions Provider (CSP) products.

In October 2021, Microsoft announced two major changes in the way CSP products will be consumed and billed, which will affect product pricing, terms, cancellations and agreements. These changes will come into effect from the 1st of March 2022.

  • There will be a new licensing model called New Commerce Experience (NCE), affecting Office 365, Microsoft 365, Dynamics 365, Windows 365 and Power Platform subscriptions. You will be able to purchase licences monthly (this will attract a significant premium) or under a committed, fixed-term agreement paid for upfront, annually, or monthly.
  • There will be price increases for certain Microsoft products, such as some Office 365 and Microsoft 365 options. It is important to note that these price increases are separate from the New Commerce Experience announcement.

What is the New Commerce Experience?

The New Commerce Experience (NCE) is a new ‘per-seat’ model for Microsoft 365, Dynamics 365, Windows 365 and Power Platform subscriptions.

Here are the main points:

  • New subscription term options: Customers can choose to commit to monthly subscriptions, annual subscriptions (paid monthly or upfront), or 36-month* subscriptions.
  • New monthly-term offers: For a 20% premium, Microsoft will offer monthly subscriptions allowing customers to cancel or reduce seat counts on a monthly basis, and these can be combined with annual subscriptions to help balance costs.
  • Consistent cancellation policies: You will no longer be able to decrease the number of seats you have purchased mid-term – any cancellations must be made within 72 hours of purchase.

*36-month terms are available for Dynamics 365 from January 2022, and for select Microsoft 365 subscriptions from March 2022. 36-month subscriptions with upfront payment will be available from March 2022.

Timeline of changes

  • January 2022: The NCE is made widely available to customers who can begin to purchase their Microsoft products through the new model, but the previous options are still available.
  • 1st March 2022: From this date, any new subscription orders must be purchased through the NCE model.
  • February 2023: All Microsoft customers still using legacy subscriptions will be transitioned to the NCE per-seat model.

Price increases for Microsoft products

Alongside the NCE announcement, Microsoft also announced that there would be a price increase of around 20% for certain Microsoft products (also known as SKUs), effective 1st March 2022. This is the first price increase since the launch of Office 365. Affected SKUs include:

  • Microsoft 365 E3
  • Office 365 E5
  • Office 365 E3
  • Office 365 E1
  • Microsoft 365 Business Basic
  • Microsoft 365 Business Premium

How to avoid a price increase

The NCE model is available now but price increases for Microsoft products don’t come into effect until the 1st of March 2022, so if you move to the NCE model before this date, you won’t be subject to the price increase until after the term of the committed agreement.

Ultimately, you won’t be able to avoid a price increase entirely for the affected SKUs as all customers will be subject to the price increase after the new term of the NCE agreement, but you can at least postpone this until after the new committed term.

Why are these changes happening and how will they affect my business?

Though these changes will result in a price increase for most businesses, there are plenty of benefits to the new system which will help to:

  • Simplify the licensing process
  • Provide cost savings for longer-term commitments
  • Allow greater choice and flexibility in how customers purchase
  • Enable growth through digital transformation and flexible buying opportunities

Want to know more about the New Commerce Experience?

We have already contacted our customers regarding these changes and will be in touch throughout the coming weeks to discuss the course of action for individual businesses.If you have any queries about the NCE or the price increase, or Cloud Solutions in general, please don’t hesitate to get in touch and we’ll be happy to help ensure you get the best possible value from your products and services.

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