Redmond Negotiator

Microsoft's Stealth Price Hike

Microsoft helps its quarter but hurts its customers by holding back details on price hikes -- more than quadruple on some products -- during the all-important October budget season.

• By Scott Braden
• 11/21/2006

Then surely you saw the announcement that Project Server prices QUADRUPLED as of Nov. 1, right?

You're not alone. Even us "insiders" were told only that "there's a price increase coming Nov. 1." As late as the last week of October, resellers and distributors either didn't have, or weren't allowed to release, the new prices to customers.

Here's an example: If you ordered Office Pro, 2003, via Select level A pricing, on Oct. 31, you'd pay $453 (list). The next day, Nov. 1, you get rights to Office Pro 2007, and for that you pay $475 (again, list price).

No, it's not a huge price increase, and to be fair, you do get the new 2007 version. But if you're a volume customer, it can make a significant impact on your budget.

By my quick math, here are the (approximate) price increases that went into effect Nov. 1:

• Office Pro: Up 5 percent, $453 to $475
• Office SharePoint Designer (formerly FrontPage): Up 64 percent, $114 to $187
• Office SharePoint Server: Up 11 percent, $3,975 to $4,396
• Project Server: Up 485 percent, $752 to $4,396
• Project Server CAL: Up 20 percent, $132 to $158
• Visio Pro: Up 13 percent, $401 to $450
• Visio Standard: Up 28 percent, $160 to $204

It would be easy to pile it on Microsoft for raising prices, but that's the company's right since it owns the products. And you have the ability to choose a different product from one of the many alternatives...right? Please stop laughing. C'mon now, don't cry. OK, well, maybe you don't really have an option.

But you do have good reason to be steaming mad if you've been making budget plans, contract plans and spending decisions based on the prices you have (which have been steady for many months) and then, with little or no warning, Microsoft jacks up the cost by a big chunk.

Want to hear the really annoying part? Microsoft has had these prices "in the can" for months now. And the resellers have had access to the specific details for at least 60 days. During October, I had several customers and resellers tell me “prices are going up Nov. 1,” but none were able to supply any specifics.

Now, why would Microsoft, a company that says it wants to help you succeed, withhold information that could potentially be very important to your planning and budgeting during October -- which is prime budgeting season for many organizations, and also the time of year when year-end buying decisions are made?

Microsoft knew that Nov. 1 would be the first day that volume customers can purchase the 2007 editions of Office and the other new products. If you were paying attention to Microsoft’s announcements, you knew this too.

Normally, I’d advise customers who needed Office licenses to wait until after Nov. 1 in order to get the 2007 version, instead of buying the 2003 version in October. This, of course, would slow down Microsoft’s cash flow ever so slightly, but the total sales for the quarter would be the same.

But if I knew that prices were going up Nov. 1, I’d take a hard look at whether I should buy in October or November. Some clients (such as those buying Software Assurance) might decide to accelerate their October purchases at the lower price, since they get the 2007 anyway via Software Assurance. This would have the effect of moving sales from November (at the higher price) into October (lower price), effectively taking cash out of Microsoft’s pocket, and to some degree, damaging their quarterly numbers.

So we have a situation where, if Microsoft discloses the full facts about a significant price increase pending, it potentially hurts its bottom line. But by not disclosing the full facts, some of its best customers (volume license customers) get hurt by a surprise price increase.

No surprise which way Microsoft went.

So next time you get a call from a reseller or Microsoft rep who wants to "help you plan more effectively," you might ask for a 60-day price guarantee on all quotes.

Did you get burned by Microsoft's stealth price increase? Send me an e-mail with your story. I'll keep it confidential and I'll send you a limited edition "There's no way we're paying that much" coffee mug.