Microsoft 365's add-on avalanche is putting the squeeze on customers

Microsoft's demands for extra cash from customers wishing to use Copilot for Microsoft 365 has highlighted a growing problem – the number of paid add-ons.

The cloud and software biz is now the world's most valuable company with a market capitalization of $2.89 trillion, just ahead of Apple with $2.82 trillion. Quarter after quarter, Microsoft has reported increases in revenues, yet it is still squeezing customers for more cash to the delight of shareholders.

Analysts at Directions on Microsoft have noted that extra cost features on top of a base E3 or E5 subscription have grown more than 4X over the last four years. According to the group, in 2019, it found 14 add-ons. By the end of 2023, the figure had risen to 61.

And those E3 and E5 subscriptions aren't cheap. Depending on the deal secured with Microsoft, an enterprise can expect to pay around $36 (£33.10) per user per month – with an annual commitment – for an E3 subscription or $57 (£52.40) per user per month for E5. While both include a set of productivity applications and E5 adds some security services, there is still plenty missing from the toy box.

You want Copilot for Microsoft 365? That'll be another $30 per user per month. Teams Premium? We'll need another $10 per user per month. Perhaps some Defender Vulnerability Management?... and so it goes on.

"Microsoft is making more and more new features and apps available as paid add-ons for Microsoft 365 customers," notes Mary Jo Foley, enterprise strategy expert at Directions on Microsoft. And like many parents and kids discover the hard way, when the expected batteries aren't included with your new, pricey toy, no one is happy."

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Analyst Michael Cherry added: "Microsoft and other cloud vendors promised the cloud would help reduce IT costs, not just in terms of on-premises hardware and software, but also in terms of IT headcount. It now seems that the cloud is the cause of significant new costs."

In the past, enterprises could simply buy perpetual licenses and be done. However, over recent years, Microsoft has encouraged those enterprises to move to a subscription model, resulting in lawsuits against the company in the UK.

While Microsoft will contend that relentlessly adding extras is improving value because it allows customers to choose only the services they require for specific staff, it is hard to avoid the feeling that the company is nickel-and-diming by charging for so many services.

Microsoft's insistence on the inclusion of AI and Copilot also raises the specter of another tier – perhaps an E7, if Microsoft sticks with its naming convention – that might include more services as standard, except at a higher price. The Directions team said that just such a bundle might be lurking around the corner.

Whether it is easier to continue with the extra cost add-ons or opt for a hypothetical bundle will depend on how brave IT is feeling at budget time. ®