I often like to start the week off with market conditions. I will mix it up this week because Directions on Microsoft has an interesting new analysis. From their latest study, Microsoft 365 customers are facing an increasing number of paid add-ons, with the count rising from 14 in December 2019 to 61 in December 2023. These add-ons include features, apps, and licenses that go beyond what is included in standard subscriptions. The costs of these add-ons can add up, and there may be additional expenses for evaluating, implementing, and managing the new tools. Some Directions on Microsoft analysts speculate that Microsoft may release a new high-end subscription tier, while others believe they will continue to offer add-ons to maximize revenue per user.
Both The Register and Runtime picked it up. Runtime highlighted speculation about a premium E7 bundle and the challenges of breaking up a bundle. The Register highlighted that the cost of add-ons on top of base subscriptions has grown more than 4X in the last four years, with 61 add-ons identified by the end of 2023. These additional costs, along with the high prices of E3 and E5 subscriptions, are raising concerns about the value and affordability of Microsoft 365 for customers.
Why do we care?
I want to focus on the value of bundling. Bundling products or services often creates a perception of increased value for customers. By offering multiple products or services together at a price perceived to be lower than the sum of individual purchases, customers feel they are getting a better deal.
But there’s a cyclical nature to bundling and unbundling. nitially, companies often bundle products or services to offer comprehensive solutions, aiming to establish a strong value proposition. As markets mature and customers become more knowledgeable, there’s a shift towards preferring choice and customization. This leads to the unbundling of products and services, allowing customers to select and pay for only what they need. In response to market saturation and intense competition, companies often revert to bundling as a differentiation strategy. Re-bundling can also occur when introducing new technologies or features, adding them to existing bundles to create renewed value.
And it’s technology shifts that often trigger shifts in bundling strategies. AI is one of those shifts, so it should be unsurprising that we may be moving into an unbundling phase for Microsoft.
IT provider value shifts, too, with regular assessments of customer needs and experiences to determine whether a bundled or unbundled approach would better serve their evolving demands.
