Microsoft To Raise Prices for Commercial Office Subscriptions in July as Competition Escalates and AI Upgrades Accelerate

Microsoft will raise the prices of its Office productivity software subscriptions for commercial and government clients on July 1, marking a significant shift for one of the company’s most profitable franchises.

The adjustment comes as Microsoft pushes deeper into AI-driven workplace tools, faces stronger competition from Google, and continues positioning Microsoft 365 as a premium, enterprise-grade ecosystem.

Nicole Herskowitz, corporate vice president for Microsoft 365 and Copilot, said in a statement that the company has delivered more than 1,100 new features across Microsoft 365, Security, Copilot, and SharePoint in the past year. She argued that those additions strengthened the overall value of the suite and justified the upcoming changes.

Office remains central to Microsoft’s dominance in enterprise software, though Google Workspace has become a tough rival in areas such as small business, education, and cloud-native companies. With both companies embedding generative AI across their tools, the competition has shifted from basic productivity to automation, writing assistance, and analytics — and Microsoft wants customers to pay a premium for features it sees as foundational to modern work.

Price increases are relatively uncommon for the company. Microsoft last adjusted commercial Office pricing in 2022, the first major shift since Office 365 launched in 2011. The bundles were rebranded to Microsoft 365 in 2020. Earlier this year, Microsoft announced higher prices for consumer-grade Office subscriptions.

The new changes affect nearly all commercial offerings. Microsoft 365 Business Basic will rise to seven dollars per user per month, up from six. Microsoft 365 Business Standard will increase to fourteen dollars from twelve fifty. Business Premium remains at twenty-two dollars. Office 365 E1 stays at ten dollars, while Office 365 E3 rises to twenty-six dollars from twenty-three. Microsoft 365 E3 will go to thirty-nine dollars from thirty-six, and Microsoft 365 E5 climbs to sixty dollars from fifty-seven. Microsoft 365 F1 for front-line workers rises to three dollars from two twenty-five, and Microsoft 365 F3 increases to ten dollars from eight. Government clients will face similar percentage increases.

None of the price points include Microsoft 365 Copilot, the thirty-dollar AI add-on that offers generative capabilities across apps. Adoption of Copilot varies widely. Some companies have begun large deployments, while others are still studying cost and workflow impact.

Although many large organizations negotiate discounts that reduce the sting of list price adjustments, Microsoft has recently scaled back some categories of volume deals. That shift means certain customer groups will absorb more of the increase directly.

The productivity division remains one of the company’s most important businesses. In the first quarter of its fiscal year, the Productivity and Business Processes segment contributed almost 43 percent of Microsoft’s seventy-seven point seven billion dollars in revenue. The company also reported seventeen percent growth in Microsoft 365 commercial cloud revenue in October, with seats up six percent, driven largely by small and midsize businesses and front-line worker deployments.

How Previous Price Hikes Have Affected Microsoft’s Retention Rates

Microsoft has historically been able to raise prices for Office-based products with minimal impact on overall customer retention. While the company does not publish detailed churn figures for specific subscription tiers, several structural factors have consistently kept retention high after past adjustments.

The company’s last major commercial price increase in 2022 is a clear example. After the change, Microsoft reported continued growth in commercial seat counts, steady expansion among small and medium-sized businesses, and increasing adoption of Microsoft 365 bundles that include Windows and security features. The absence of any reported decline in seats or revenue growth suggests the price hike did not cause a broad pullback.

A large part of that stability comes from the nature of Office itself. Most enterprises have deeply integrated Word, Excel, Outlook, and Teams into their internal processes, training cycles, and compliance frameworks. Migrating tens of thousands of users to alternative platforms would require retraining, rewriting workflows, revising document templates, and recertifying security systems — steps that are costly and time-consuming even before technical differences are considered.

Another factor is contractual structure. Many organizations operate under multi-year enterprise agreements, meaning short-term fluctuations in list prices have a limited immediate effect. Changes typically take hold at renewal, not mid-contract, giving customers time to budget and plan.

The broader context is that Office remains a standard across corporate environments. Even when Google Workspace adds users in specific segments, most large enterprises maintain Microsoft 365 as their primary suite. The company’s integration of cloud security, mobile device management, and Windows licensing into higher-tier bundles has also reduced the likelihood of customers peeling away individual components.

Microsoft’s track record suggests that while price hikes draw criticism and increase budget pressure, they have not triggered meaningful waves of customer departures. Instead, the company has consistently retained — and continued to grow — its commercial base during previous adjustments.

This history forms a key backdrop to the July 1 changes. Microsoft is betting that long-standing customer stickiness, combined with sharply expanding AI capabilities, will keep retention high even as organizations face rising software costs and more aggressive competition from Google.