Microsoft jacks price of top-tier Office 365 plan by 59%

Analysts argue Office 365 Enterprise E5 -- and its telephony upside -- will appeal to small- and mid-sized businesses

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"If I'm an enterprise, I'm not going to go half-way in [to a PBX swap]. But if you go all-in on cloud PBX you have to retire the on-premises system," Snodgrass pointed out. "That takes a lot longer, that's a multi-year plan."

And potentially very expensive if, for instance, a company only recently rolled out a new PBX system, meaning that a change would require tossing aside a multi-million-dollar investment. Down the line, when enterprises committed to Office 365 have gotten their money's worth out of their existing telephony platform, they may be more amendable to taking up E5, Snodgrass said.

Some companies might find E5's cloud-based PBX -- and the associated PSTN calling that Microsoft offers as an add-on -- intriguing for deployment in far-flung branch offices. "It might be good for a business with a lot of small sales offices. Now all of a sudden you don't have to set up independent plans [and PBX systems] for each office."

But that approach means the enterprise will be running a hybrid solution, partly composed of a dedicated PBX system at headquarters, and Microsoft's -- via E5 -- elsewhere. "Hybrids can be difficult to deploy," Snodgrass acknowledged. "There are lots of moving parts."

Ullman disagreed on the likelihood that E5 -- because of its PBX and PSTN offerings -- would be a hit. Calling E5 a "niche" SKU in the Office 365 Enterprise line-up, Ullman said E3 would continue to be the dominant plan. "E5 is too expensive currently and Microsoft has gone too high on pricing. It conceivably has a lot of value, but it's too high to capitalize on a large market segment."

DeGroot echoed Ullman, but conceded that Microsoft's sales teams are not to be underestimated. "Given the success of the Microsoft sales force in selling Office 365 E3 in spite of [the] downsides, I would not bet against their success with E5," DeGroot said.

Why are calling plans 71% to 300% higher for corporate workers than for consumers?

DeGroot had a beef with Microsoft's pricing of E5, specifically with the optional PSTN calling plan, an add-on offered to subscribers who use the cloud-based PBX system. (PSTN calling is available only for firms or organizations that have a U.S.-based billing address.) Companies that want to add PSTN calling to E5 must pay $24 per month per user for unlimited domestic and international calls, or $12 per user per month for domestic calls only.

Those prices are considerably higher than the same plans for individual consumers -- who pay $14 per month for unlimited domestic and international calls, and for U.S.-and-Canada calls only, pay just $3 a month.

"I'm struck by how much money customers have to pay for PSTN connectivity. This is on top of $35 for E5?" opined DeGroot. "What's egregious about this is that Microsoft will charge enterprise customers far more for PSTN connectivity than it [does] consumers.

"I presume the additional charge is for all the management and centralized control the companies get with E5, although if I got worldwide long-distance to land lines and mobile, I wouldn't necessarily feel I needed to manage that, since an employee calling their grandma in Kazakhstan shouldn't add a penny to my monthly bill," DeGroot continued. "The customer inputs all the data about their employees and a computer takes about five seconds to generate the total monthly bill for thousands of employees. I'd argue that for that volume, enterprises shouldn't have to pay any more than consumers. It certainly isn't worth a $10 a month premium per employee."

There's no doubt that Microsoft's pricing of E5 was much higher than anticipated, even without the additional fees for the Skype-based PTSN calling. Although experts were not expecting a simple one-for-one swap of E4 for E5 without a concurrent price increase this summer, when Microsoft first talked up the premium plan, at the time sources told Computerworld that E5 would be priced at around $25 per user per month, or about $36 more a year, for a relatively small 14% price increase over E4.

That didn't happen.

And that gives customers the short end of the stick, DeGroot contended. Companies lose significant negotiating power when they shift from the every-so-often purchase of Microsoft's on-premises software, he asserted. "They will be at Microsoft's mercy when it comes along with a price increase, as E4 customers will shortly discover when they get renewed into E5."

Copyright © 2015 IDG Communications, Inc.

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