Microsoft appears confident that its long-established software subscription pricing model will remain viable even as we enter an era of always-on AI agents, and that customers will accept continuously rising prices.
On Monday, Microsoft announced a new AI subscription bundle, marking the first time it has packaged Office 365 with 365 Copilot—a suite of AI tools for automating Office tasks—for enterprise customers.
This move has been anticipated for nearly two years, following the promotion of Takeshi Nomoto, the Microsoft executive who successfully shaped previous bundling strategies, to Chief Marketing Officer.
The new E7 bundle, launching in May, integrates Copilot tools with Office applications, Outlook email, Teams, and security software. Notably, Microsoft has priced the E7 bundle higher than the combined cost of previous software bundles plus a Copilot add-on. To enhance the appeal of the new bundle, Microsoft has included additional security software and a new tool called Agent 365, designed to help businesses track and manage AI agents developed on the Microsoft platform.
Microsoft also unveiled new Copilot features powered by Anthropic's models, with a style similar to Anthropic's Cowork, aimed at handling more complex white-collar tasks. (As previously reported, Microsoft is racing to catch up with Cowork.)
This move by Microsoft is significant as there is currently intense debate between AI providers and users regarding how AI tools should be priced.
While other companies like OpenAI also benefit from AI subscription models, many other software and AI executives have suggested that per-seat pricing might be replaced by usage-based or outcome-based billing due to the rising costs of running AI, including agents.
In fact, some AI vendors claim that sticking to a subscription model could make it difficult for them to achieve substantial profit margins.
However, Microsoft does not face the same margin pressures as other AI companies when selling 365 Copilot. Its executives have publicly stated that Copilot's gross margins have improved because Microsoft owns the cloud hardware required to run the models. CEO Satya Nadella said last week at a Morgan Stanley investor event that a key focus of the company's R&D spending is "continuously lowering the cost of goods sold for AI tools like Copilot."
In contrast, Cursor, an AI programming startup without its own hardware, raised prices for high-volume users last year, citing the high cost of calling Anthropic's models for its programming product relative to subscription fees.
There are multiple reasons behind Microsoft's strong push for per-seat pricing and the new bundle, a key one being that it operates the world's largest subscription business.
Firstly, the new pricing model allows Microsoft to continue growing its Office revenue without necessarily adding new subscribers. It's worth noting that part of the logic behind the "SaaS crisis" narrative is that if companies use AI to improve efficiency and reduce headcount, subscription software firms will struggle to gain new enterprise customers.
Rajesh Jha, Microsoft Executive Vice President in charge of businesses like Office 365, stated at a UBS conference in December that Microsoft's productivity apps business still sees "healthy seat growth," but recent growth has come more from increasing Average Revenue Per User. This includes upgrading customers to the E5 bundle—which includes Office 365 and some security software—and promoting 365 Copilot, which is priced separately at $30 per user per month for enterprise clients.
A fixed per-seat price makes Copilot revenue more stable, even within companies where employees do not use Copilot frequently—a key focus for Jha, as previously reported. (Some of Microsoft's AI features, such as Security Copilot for automating cybersecurity tasks and other AI agents, are billed based on usage, but 365 Copilot is only available via subscription.)
Whether customers will accept a bundle priced at $99 per user per month remains to be seen. Companies like Salesforce and ServiceNow, which offer automated AI tools within their own software, will be watching the outcome closely.
Adam Mansfield, a consultant at UpperEdge, a firm that negotiates with software vendors like Microsoft on behalf of large enterprise clients, said some customers might be attracted to the new Agent 365 product, but that doesn't mean they will purchase the full E7 bundle.
"Even if the E7 bundle is about $15 cheaper than buying everything separately, that might not be enough to convince customers to buy the full suite," Mansfield said. "Bundles can be problematic for customers because, by design, you might be buying tools for employees that they simply don't need."
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