Microsoft has announced a 9-15% price increase for all Cloud services in United Kingdom and Europe starting April 1, 2023. See how multinational, UK, and EU enterprises can avoid or offset the new Microsoft licensing cost hikes.
Audience: CIO and IT Executives | Sourcing, Procurement and Vendor Management | IT Software Asset Management (ITAM/SAM)
April 1st 2023 is the beginning of the new Microsoft Cloud price increase. The price increase will affect all Microsoft cloud services, including popular offerings such as Azure, Dynamics 365, and Microsoft 365.
Below are the price adjustment rates for the European region including United Kingdom:
|CURRENCY||MICROSOFT PRICE INCREASE|
Some more details:
Because there is a (maximum) semi-annual price adjustment, this means that during 2023 there can be another update. This could be another price increase, but a decrease is also possible if the US Dollar valuation drops – local currency exchange rates change in the benefit of the local currency.
While this news may be unwelcome to many enterprises and organizations, Microsoft has stated that the change is necessary in order to maintain consistent global pricing for their cloud services. In a statement, the company explained that “periodic adjustments to local currency pricing are necessary to ensure that customers in different regions are paying consistent prices for similar cloud services.”
Prices for all cloud services are going up April 1. For some products, you can have price protection depending on your contract. For an EA, SCE or EAS, that’s 3 years from the start date. For most CSP products, it’s 1 month (if you chose monthly subscriptions) or one year (if you chose annual subscriptions).
That price protection applies only to “plans,” such as M365 F1 or E3 or EMS E3. For services that charge based on usage, the protection does not apply. Nor is there a price noted for those in your contract. Think of storage, network and compute costs. There are a lot of services in Azure that are charged based on usage.
A commitment is often issued for that usage. This involves the customer agreeing with Microsoft to spend a certain amount on these types of usage costs. Usually over a period of 3 years. In return, the customer gets a discount on the usage fee. But that discount is always calculated on the current price for a service. The price itself is not fixed.
Normally not such a problem, because price changes in Azure services are usually quite limited. Now suddenly the prices for those services all become 9-15% higher!
Say a particular service costs €1 per unit. And you got a 10% discount. So then you pay €0.90. With the price increase, that service suddenly costs € 1.11 per unit. Then you get a 10% discount on that and you pay € 1 per unit. So with that, your negotiated discount has suddenly disappeared because of a price increase by Microsoft.
So customers are going to pay more for these types of services because of the price increase, even if they have agreed to a commitment. You can’t actually avoid the price increase for these services. You will need to find a way to offset these new Microsoft cost increases.
Microsoft are increasing their pricing by 9% on April 1st, 2023. This will affect ALL Microsoft products/services, so not to be confused with the NCE and Microsoft 365 price increases in 2021.
As many of you recall, in March 2021, Microsoft change their licensing model to the New Commerce Experience (NCE). As regular upgrades take place to enhance the NCE, a further increase will take place on April 1st.
As a reminder, the NCE cost increases affected the following license types:
In January 2019, Microsoft launched its new commerce experience (NCE) for Microsoft Azure. In October 2021, it added end-user subscriptions to the NCE. The old way of doing things is referred to as Legacy CSP.
Under legacy CSP, there was one commitment term: annual. Customers were allowed to pay monthly or annually, but the subscription was renewed yearly. Its price remained unchanged for the duration of the term (i.e., the whole year).
NCE introduced three different commitment terms: monthly, annual, and triennial. The same rule of maintaining a subscription’s price applies, but now it can change as frequently as every month if you have committed to a monthly subscription.
For UK and EU customers transacting directly with Microsoft for Azure consumption through Azure.com, prices will increase on 1 April 2023.
On the other hand, Azure customers buying through a Microsoft Cloud Solution Provider (CSP) under the new commerce experience (NCE)* are not impacted.
This is because Microsoft CSP partners are charged in US Dollars for their customers’ Azure consumption. The cost is converted to the local currency using a monthly variable exchange rate.
If you have an Enterprise Agreement (EA), you’ll receive price protection up to the baseline price stated in your agreement. But only for the duration of your contract.
Prices may go up for some EA customers but not above the baseline price stated in their agreement.
Azure Commitment Discount (ACD) customers in the UK and EU will see prices increase, but not above their baseline price protection.
Customers who purchase annually-committed end-user subscriptions through a Microsoft CSP under the NCE are price-protected for the duration of their subscription. So that’s annually-committed subscriptions of Microsoft 365, Dynamics 365, billed monthly, annually or tri-annually
However, if you are on a monthly-committed subscription, you will pay the higher prices starting 1 April 2023. Furthermore, any new product subscriptions added or renewed after this date will be charged at the higher prices. This applies to both monthly-committed or annually-committed subscriptions.
“Effective software asset management is important,” says Michelle Cowan, a SAM pro. “Knowing what you have, who has it, why they have it, and how long they need it are key questions to answer regarding your Microsoft licensing portfolio.”
“Being able to offset Microsoft licensing price increases with viable cost savers such as third-party Microsoft support is key” adds Michael Jones, VP of Microsoft Support Services at US Cloud.
Organizations that already have seat-based subscriptions within the New Commerce Experience Cloud Solution Provider (NCE CSP) program will have price protection until the renewal date.
Furthermore, if these organizations add any new subscriptions before April 1st, 2023, the licenses on those subscriptions will be price protected, along with any additional licenses added during the subscription term.
Organizations on month-to-month Microsoft 365 subscriptions can avoid the price increase for up to a year by committing to a 12-month term.
Those with an annual commitment up for renewal before the April 2023 can also avoid the price increase for up to a year by renewing their subscription.
For Azure subscriptions; legacy subscriptions will be impacted by the price increases, but any Azure plans purchased through the NCE program will NOT be impacted.
Furthermore, existing reserved instances (RI) won’t be impacted by the price rise until the end of the term.
For those unable to avoid the Microsoft licensing increases on April 1, analysts agree that Microsoft cloud heavy organizations should take a serious look at Microsoft third-party support. 30-50% savings on Microsoft Premier/Unified Support is common in year 1 with additional cost avoidance opportunities over the course of the EA lifecycle.
Audience: IT Sourcing, Procurement and Vendor Management | Enterprise IT Executives | EU Financial & Banking
In order to make the transition from Premier Support to Unified in 2020 as painless as possible, Microsoft included a 35% Transition Adjustment and 37% Software Assurance Benefit credit to offset the Unified cost increases across all divisions for the Financial enterprise.
Some European Microsoft support customers are being sold Premier but the contract has all the monikers of Unified. Analysts note that most enterprises are now in Unified with the exception of government and education verticals.
With the global economy shifting into recovery mode, analysts are reporting less discounting being offered by Microsoft for Premier or Unified support services.
Year 2 of MSFT Unified resulted in the removal of the 35% Transition Adjustment discount and 37% Software Assurance Benefit (SAB) credit.
Cost avoidance analysis of years 2022-2025 highlighted additional increases of 259% over the next 4 years when overlaying the firm’s IT roadmap with associated Unified costs.
The financial enterprise recouped €4 M Euros (EUR) in year 1 and an additional €17 M Euros (EUR) over the next four years allowing them to invest in strategic IT initiatives driving competitive advantage and growth.
Cost cutting of 72%
Singular Focus on Microsoft enterprise support
24/7/365 global coverage
Sub 15-minute response times
An analyst in London recommended US Cloud. Once IT Compliance addressed GDPR and follow the sun support, the transition was fairly straightforward. The cost avoidance will allow us to fund our new mobile platform scheduled for release in Q3 2022. — Phillipe I, Office of the CTO, Global 2000 EU Investment Firm
It’s the first time we’ve seen a client report the CSAM contract explicitly calls out Microsoft Affiliate service delivery in India. This results in a double efficiency gain and gross profit increase for Microsoft.
1) Moving from Technical Account Managers (TAM) to Customer Success Account Manager (CSAM) cuts the average EU salary from €183,000 to €83,000.
2) By offshoring the CSAM function to India, Microsoft cuts that cost in half again to an average of €38,000 fully loaded with benefits.
US Cloud predicts this model will become the norm for 2022 and beyond as the “unlimited ticket” Unified load builds and the IT outsourcers scale out the CSAM delivery model for Microsoft.
Client: Large European Union (EU) Investment Firm
Industry: Wealth Management
Annual Revenue: €10 B
Key Drivers: Cost avoidance
Client Profile: A European (EU) multinational investment bank with over 11,000 employees that had migrated a majority of key Microsoft systems to the cloud.
Why Leave Microsoft Support: This sophisticated EU wealth management firm was being forced from Microsoft Premier Support into Unified Support. Traditionally the Client’s high-caliber internal IT staff solved the majority of Microsoft break-fix tickets. Only ultra-complex issues or ones that required code or tenant access were submitted to Microsoft Support. With the “all-or- nothing” pricing of Unified Support, the Client’s traditional approach of buying just the support hours they would need became impossible. Forced into the new pricing formula the Client immediately started to search for a replacement for Unified Support that more closely matched the Premier Support model they had tailored their internal resources to.
Switching to US Cloud: After searching for multiple alternatives in mid 2021, the Client admitted that only US Cloud had a service capable of replacing their Microsoft Support.