The news: Microsoft is experimenting with AI-driven pricing, raising Microsoft 365 subscription costs in six Asia-Pacific (APAC) nations. The move aims to gauge consumer willingness to pay for AI tools like Copilot but could result in significant backlash.

• The hikes range from 29% to 45% in Australia, Malaysia, New Zealand, Singapore, Taiwan, and Thailand and face strong customer reprisal. 
• The change is particularly relevant in Australia, where Microsoft 365 Personal yearly subscriptions jumped to AUD159 from AUD109 (to $105 from $72). The company said price changes would not affect business or enterprise customers.

Subscribers can opt for a cheaper Microsoft 365 version without Copilot, but users report it’s hard to find, appearing only during cancellation, per The Register. 

AI’s markup is inevitable: Microsoft’s aggressive pricing strategy will likely continue the trend of software providers hiking up pricing to help pay for AI’s costly compute and energy requirements. 

• Adobe raised subscription prices in October to account for new AI features. The Creative Cloud All Apps plan, for example, increased to $59.99 from $54.99 per month in October, reflecting the addition of generative AI (genAI) tools like Firefly.
• OpenAI, the leading genAI provider, hasn’t raised prices significantly, but it did introduce a $200 monthly subscription for ChatGPT Pro that features its most powerful AI models.

AI software price hikes could put financial pressure on existing customers, especially those who might not be looking for AI features in their applications.

Microsoft’s challenges: Copilot is struggling to deliver on its promises, and only 3.3% of IT leaders saying Copilot has provided significant value to their companies, per Gartner.

Copilot’s user count grew 131.5% YoY to 19.3 million in 2024, per our forecast. We expect that user growth to drop to 15.8% YoY in 2026.

Our take: AI-driven price increases could spark further antitrust complaints against Microsoft’s bundling of AI tools within software suites. Price hikes could result in customers seeking more affordable options or productivity tools without an AI component.

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