Microsoft Cloud price increases – what are your options?

On 5 January 2023, Microsoft announced that it will be taking steps to align pricing of all Microsoft Cloud solutions globally – reflecting the exchange rate of the local currency to US dollars. The first of these changes will come into effect on 1 April 2023 and adjustments will be made every six months.

The first price adjustments will be as follows:

• British Pound: +9%
• Danish Krone:+11%
  
• Euro: +11%
• Norwegian Krone: +11%
• Swedish Krone: +15%
• Swiss Franc: not affected by the adjustment

The impact of these price increases depends on the licensing programme your organisation uses. SoftwareOne has created a price increase matrix to demonstrate where existing online services & Azure customers will be impacted (see table below^*). This has not been produced by Microsoft and details of the impact may change so please contact your SoftwareOne account manager or speak to our Microsoft Advisory Services team  to clarify the impact to your licensing.

But the key things to note:

• If you are a CSP (Cloud Solution Provider) customer, the Azure plan already has a monthly foreign exchange rate impact for partner tenants not invoiced in USD (US Dollars), so the six-month revisions don’t apply.
• If you have an existing EA/EAS or SCE, you have price protection. You will only receive limited price changes during the term of your agreement. All products are price protected (as per the table below) except for where you buy newly released products after 1 April 2023. On these products, you will pay the new increased price.
• If you are 'Mid-term' in your Enterprise Agreement (EA), EA Subscription (EAS), and have Azure added as an ‘additional product’ or have an Azure Server Cloud Enrollment (SCE), you have price protection on currently offered Azure services and will receive the lower of your ‘baseline price’ or the new market price. The baseline price is the price of all products at the point Azure is added to the agreement or the price when the Azure service was made ‘generally’ available. If the new market price is higher than customers’ baseline prices, you may see an increase up to but not above the baseline price. New Azure services will be priced at the then current pricelist price.
  

Volume Licensing

CSP

¹ Legacy CSP is no longer available for commercial customers
² All products are generally transitioned to Modern Commerce Azure Plan
^* (EO&E - this has been created as a guide and has not been produced by Microsoft

How this affects customers with discounts on their Azure Enterprise Agreements

At the start of an Enterprise agreement Microsoft will set up ‘baseline pricing’ for the then-available products. When you have negotiated a discount (ACD - Azure Commitment Discounts), each month Microsoft applies the pre-agreed discount percentage to that month’s EA price list and invoices your Azure consumption using the lower of the baseline price or the discounted monthly price. By increasing the list price customers pricing will move to or closer to the pre-set Baseline pricing and not the negotiated discounted price. Please see 2 examples below:

1. Customer 1 has a Baseline price of 1 euro for a service and a 3% ACD. The baseline is 1 euro, but they will pay 97 cents with their ACD of 3% applied. After the price rise is applied (Euro 11%) the Recommended Retail Price goes to 1.11 euros and so the ACD is 1.11 minus 3% = ~1.08. They will pay 1 euro as this is the original baseline price. Customer 1’s price goes from 97cents to 1 euro (3 cent increase).
2. Customer 2 has the same Baseline price of 1 euro, but their ACD is 15%. Using the same example as above, the customer would pay 85 cents after applying the 15% ACD. After the price rise to 1.11 euros (as above) the discount of 15% applied this makes this 94 cents. The price increases here from 85 cents to 94 cents (9 cent increase). Customer 2 will be invoiced for the current price list minus 15% ACD, since this is still below the Baseline price.

The degree to which this affects customers with negotiated discounts (ACD) will vary as the customer price could be near to or at the baseline price already due to other pricing fluctuations at a service level. However, we expect that discounted EA customers will receive substantial price increases in their Azure Pricing whilst having to maintain the spend commitments that enabled them to get the original discount (ACD) percentage.

Conclusion

Our conclusion is that optimisation is vital. Even if you avoid price increases as you have an undiscounted Enterprise Agreement with established baseline pricing, you are only temporarily avoiding the increases and so optimization of the environment is essential. The only way to avoid increasing the expenditure on your current environment is to ensure it is running as efficiently as possible.

Five ways to prepare for these price changes

1. Download your pricelist today

For Azure EA customers, download your pricelist so that you can cross check that Microsoft’s price protection promise after 1 April 2023 is met.

2. Conduct a road mapping exercise and buy now to lock pricing on Online Services³

For desktop cloud customers, if you know you are going to need new cloud solutions for your workplace environment in the next year, it may be prudent to plot out what you are likely to need and buy now to lock in the current price. Purchase a single unit now and lock the price for these online services the remainder of your agreement.

3. Perform a cloud cost optimisation exercise for cloud desktop and Azure

Whether you are an MCA/CSP customer or an EA customer you need to ensure you are getting good value for money from your cloud investments. Cloud cost optimisation can look at your desktop environment to ensure the licenses you have bought correspond to usage, and that your Azure consumption is both right sized from a licensing perspective with hybrid benefits and reserved instances, as well as technically right sized with the removal of zombies that consume resources and money. It is possible to mitigate the whole price increase simply by right sizing.

4. Implement a FinOps Strategy

After ensuring that your cloud environment is optimised to reduce wasted costs, our FinOps Starter Pack helps you put cloud governance in place and optimises your ongoing/future spend. Whilst you won’t be able to avoid the price increase forever, we can help you be more cloud efficient and align your cloud spend to the value it provides to the business. One of the key strategies of the SoftwareOne FinOps service is reviewing and implementing a Reserved Instance (RI) strategy which can be used to optimise and protect from price increases.

5. Get expert guidance on structuring your agreements

Our Microsoft advisory experts know how to structure your Microsoft agreements now before the changes come into effect. From splitting payments across years two and three of a contract to creating stable pricing out of your US entity by identifying currency gaps, our Microsoft Advisory team know all the details so that you get maximum value from your Microsoft spend.

³ Online services such as Project & Visio Online as well as Azure Active Directory Premium & Defender for Cloud Application (if unsure speak to your SoftwareOne Account manager