Microsoft announced its biggest commercial Microsoft 365 pricing update since 2022 in December 2025, with a seven-month runway before the changes land. The deadline is now six weeks away, and Microsoft resellers report that many of their customers are yet to act. Strategic Micro Systems, which has managed Microsoft 365 licensing for hundreds of businesses since 2002, says:
“The price increase is not a surprise anymore. What is still catching businesses off guard is not having a plan before the deadline hits.”
The increases take effect on 1 July 2026. They range from modest on enterprise tiers to significant on business and frontline plans, and they compound with the volume discount removal Microsoft introduced in November 2025. For large enterprises, the two changes together produce a materially larger cost increase than the headline SKU percentages suggest.
What Is Changing on 1 July 2026
Microsoft’s official pricing and packaging page confirms the following US list price changes:
- Business Basic: $6 to $7 per user/month (+16.7%)
- Business Standard: $12.50 to $14 per user/month (+12%)
- Business Premium: unchanged at $22 per user/month
- Office 365 E1: unchanged at $10 per user/month
- Office 365 E3: $23 to $26 per user/month (+13%)
- Microsoft 365 E3: $36 to $39 per user/month (+8.3%)
- Microsoft 365 E5: $57 to $60 per user/month (+5.3%)
Frontline plans take the heaviest hit. Microsoft 365 F1 rises 33% with Teams included and 43% without it. F3 goes up 25% with Teams. Standalone Microsoft Teams and standalone Copilot licences are not part of this update.
Microsoft framed the increases around the investment it has made in the platform since 2022, citing over 1,100 features added in that time. In its December blog post, the company said:
“Organizations face an increasingly complex threat landscape, rising IT demands, and the urgent need for AI-powered transformation. To help our customers meet these challenges head-on, we’re enhancing our Microsoft 365 offerings with additional security and management capabilities empowered by AI.”
The broader intent is clear from what CEO Satya Nadella told investors at a Morgan Stanley conference in May. He described Copilot as a “coworker”: a persistent enterprise layer that builds intelligence over time. On the data layer beneath Microsoft 365, Nadella told the audience:
“Think of Work IQ as our frontier model. It’s basically the data plus the model embedded together. That’s what the CIOs see the value of.”
Nadella also told investors he now looks at “all agents as users,” signalling that Microsoft’s licensing model is being built to extend to autonomous AI agents as well as human workers. The July price increase is part of that repositioning.
What Microsoft Is Adding to Justify the Cost
Alongside the price changes, Microsoft is bundling new capabilities into existing tiers between June and August 2026. For organisations currently buying equivalent tools separately, some of these represent a genuine cost offset.
Business Basic and Standard customers gain 50GB of additional email storage, URL time-of-click phishing protection, and Copilot Chat enhancements across Word, Excel, PowerPoint, Outlook, and OneNote. E3 customers gain Microsoft Defender for Office 365 Plan 1, previously a $2 per user per month add-on, along with Intune Remote Help and Advanced Analytics. E5 customers gain Security Copilot agents, Intune Endpoint Privilege Management, Enterprise Application Management, and Microsoft Cloud PKI.
For organisations running a non-Microsoft security stack, the bundling is less convincing. SAMexpert’s licensing analysis notes:
“Those running CrowdStrike, SentinelOne, or another endpoint vendor have no use for a bundled Microsoft alternative they never asked for. The honest answer for most E3 customers is that Microsoft has added security features you did not request and will now charge you for them.”
The bundled Copilot Chat features arriving in June are also not the full Microsoft 365 Copilot licence, which remains a separate $30 per user per month. As our Copilot ROI analysis from Ignite 2025 noted, organisations that invest seriously in Copilot Studio face Azure consumption costs that can significantly exceed base licensing spend.
The Real Cost Impact for Enterprise Customers
For large organisations, the SKU percentage figures understate the actual impact on their Microsoft spend.
The volume discount removal in November 2025, covered by UC Today at the time, compounds directly with the July list price increase. According to SAMexpert’s modelling, a 25,000-user E5 organisation that held Level D discounts and renewed before November 2025 paid approximately $15 million annually. The same organisation renewing after July 2026 pays around $18 million, close to $3 million more per year. The E5 list price rise accounts for $900,000 of that. The discount removal accounts for the rest. For E3 customers at that scale, the effective annual increase runs to approximately $2.2 million, or 23%.
Frontline worker organisations face the most concentrated pressure. The 25% rise on F3 applied at scale across retail, manufacturing, healthcare, or logistics workforces compounds quickly. For an organisation with 2,000 F3 users, the annual increase from the list price change alone is $48,000, before any discount changes are counted. At the extreme end, F1 without Teams rises 43%, the steepest increase in the entire update by percentage.
There is also a billing structure factor. The 5% premium on annual subscriptions billed monthly, introduced in April 2026, remains in place. Organisations paying monthly without an annual commitment face a combined increase of 10-12% against customers on annual prepaid once both changes are stacked.
Is the Value Case Credible?
Our December 2025 analysis of the original announcement raises the central question: are these increases justified by the bundled capability additions, or is Microsoft recovering AI investment revenue at a time when Copilot adoption across the enterprise remains uneven?
There is a pricing dynamic worth noting. Microsoft is closing the gap between Business Standard and Business Premium, from $9.50 to $8. That makes the upgrade case to Premium significantly easier to present to budget holders, particularly for organisations already buying security add-ons separately. The value proposition and the commercial incentive are pointing in the same direction, and that is not a coincidence.
What IT Teams Should Do Before 1 July
Check your renewal date. Existing customers on annual or multi-year agreements stay on current pricing until their next renewal after 1 July. If that date falls between July and December 2026, most Microsoft resellers will allow early renewal at current rates, locking in pre-increase pricing for a further annual term.
Audit your licences before renewing. Microsoft 365 deployments accumulate unused seats over time: former employees whose accounts were never deprovisioned, users on Business Standard when Basic covers their actual needs. David Errington, Lead Cloud Architect at CSI, describes running a “forensic audit” with customers ahead of renewal. He explains:
“Efficiencies like to hide in plain sight in your environment and, as you scale, they can become harder to identify. This is no different with licensing.”
Locking in current pricing on seats you do not need produces no saving.
Model the Standard to Premium gap. With Business Standard rising to $14 and Premium holding at $22, the difference is now $8. For organisations already paying separately for Defender or Intune add-ons, upgrading to Premium may cost less overall than continuing on Standard with separate security licensing.
Flag the frontline exposure now. If your organisation runs F1 or F3 licences at scale, calculate the annual impact and bring it to budget conversations before the deadline. A 33-43% increase across a large frontline workforce is a procurement decision, not a line item to absorb quietly at renewal.
Reach a clear Copilot position. Organisations that have been deferring a Copilot decision now face higher base costs regardless. The July pricing change is a reasonable prompt to reach a deliberate conclusion, one way or another, before the next renewal cycle.
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