Published on the 11/04/2024 | Written by Heather Wright

Is Microsoft the biggest beneficiary of regulatory moves?…

Microsoft’s plans to unbundle Teams from Office on the back of regulatory scrutiny heralds a new battleground: Pricing, with the move dubbed ‘a sneaky price hike’, with up to 30 percent price increases.

The tech behemoth announced its plans to remove the collaboration and video meeting app from its Microsoft 365 and Office 365 enterprise suites worldwide on April Fool’s Day – though it was no joke.

“The company already has a history of absurd pricing constructs for add-ons.”

The global unbundling follows similar moves in the European Economic Area and Switzerland last October in an effort to quell antitrust scrutiny following complaints from competitors such as Slack and Zoom. They argued that Microsoft’s bundling of Teams within 365 suites was an abuse of the vendor’s market dominance in workplace productivity software.

Microsoft dubbed the change a move to ‘globally consistent marketing’ and says it will ensure clarity for customers and streamline decision making and negotiations.

And while there will be some happy to dump Teams for the (very small) discount they’ll get from removing the Teams component of their license – which can according to Microsoft be done on their contract anniversary or renewal – Forrester analysts say the unbundling amounts to a ‘non-trivial’ price increase for most enterprises or business customers wanting to provide workers with both Teams and Office 365 or Microsoft 365 licenses.

Forrester says the price increase for some users (albeit, based on US pricing) will amount to an effective increase ranging from 5.3 percent to 30 percent. Most impacted, according to the Forrester calculations will be Office 365 E1 users, whose per user, per month cost before unbundling was previously US$10 and will increase to US$13. At the other end of the scale, Microsoft 365 E5 monthly per user cost will increase $3 from $57 to $60.

In New Zealand, pricing for M365 E3 without Teams is NZ$57.70 per user/month while E5 is $88.60 per user/month, with Teams Enterprise NZ$8.50 per user/month. In Australia Teams Enterprise will cost UA$7.90 per user/month on top of the AU$53.30 user/month for E3 without Teams or $81.90 user/month for E5.

New Office 365 or Microsoft 365 customers will have to purchase two licenses, one for the core Office/Microsoft 365 product, and the second for Teams Enterprise. (Current Microsoft Business and Frontline suites will continue to coexist alongside sans Teams offerings.)

“For most customers opting to purchase both SKUs for their employees, this represents an unanticipated price hike of $3/user/month across plans,” Forrester says.

Companies with existing subscriptions are temporarily insulated from the new pricing – until renewal at least, with Microsoft noting customers can continue to use, renew, upgrade and add seats to their current plans as usual.

Forrester VP principal analyst JP Gownder, says he expects Microsoft to argue that offering products à la carte and unbundled should command a higher price for each component of the former bundle, as costs to the vendor are higher.

“This contention is true, at least to some extent,” Gownder says.

For vendors, individual offerings are more expensive for them to manage, develop and sell. Higher marketing budgets will also likely be required to ‘clarify’ their offerings in the unbundled world, he adds.

Regulators, however, are likely to bulk at increases.

“Regulators won’t like seeing prices rise and will be inclined to think Microsoft is punishing EU companies over the unbundling rules,” Gownder says. However, he adds: “Regulators will be overstating their case if that’s their contention.”

He says for many enterprises purchasing won’t change much, with most Australian and New Zealand organisations likely to continue to purchase bundled choices.

“There’s no harm to them when another choice – the bundled choice – comes to market.”

Organisations using Zoom currently will ‘perhaps save a tiny amount of money’ by eliminating the un-needed Teams component and going for an unbundled offering.

“Zoom and Slack will both try to use this as a market opening, but I don’t think it changes the fundamentals of the market much,” Gownder says. Competing options such as Zoom and Slack are often more expensive and are not integrated as tightly into the Microsoft ecosystem.

Some of his colleagues, however, appear far less sanguine. In a blog post analysts Leslie Joseph, William McKeon-White, Liz Herbert and Bill Martorelli, call Microsoft out, saying the company has ‘effectively turned the bogeyman of a wider antitrust investigation into an excuse to reprice its products in ways that are advantageous to Microsoft’.

“The company already has a history of absurd pricing constructs for add-ons, particularly for its lower tier plans,” they say, noting the $30 charge for Copilot alongside M365 F1 plans which cost $2.25.

“Customers should not be surprised if there are further price hikes to Teams in the future.”

The quartet believe Microsoft has already won the battle against its competitors including Zoom and Slack and say they don’t expect competitors to gain any significant advantage from the unbundling unless there is significant market realignment to the Teams price point.

Meanwhile, the Coalition for Fair Software, which is an initiative – believed to be backed by Google and AWS – to expunge anticompetitive software licensing practices, has dubbed the moves ‘hollow’.

“This announcement pays lip service to fair competition but leaves interoperability and licensing restrictions in place that prevent true customer choice. Despite the shortcomings of the terms, they demonstrate that Microsoft is capable of making changes when held accountable by regulators.”