Sales down, Microsoft raises prices radically

Analysis: Squeeze those that can't get away

2012 Microsoft LogoMicrosoft is going to make up for the Windows 8 sales shortfall in a brilliant move, milking the trapped. In a shock to no one, they are raising prices on their enterprise customers to cover consumer revenue potholes.

As SemiAccurate has been saying for years, Microsoft is in deep trouble, they are irrelevant to what computing has become, and are living off an ever shrinking customer base. The company is repeating the one still working play they have, circling the wagons around the enterprise market, effectively raising the barriers to exiting. This allows them to jack up revenue almost on a whim from those that are left.

The problem for Microsoft is that this playbook was written when there was no alternative to what they offered so it worked well. Times have changed and there are now multiple replacements for every piece of the Microsoft stack, most being much more attractive than what Redmond offers. A decade ago, Microsoft sales agents were quick brush off potential defectors, where would they go? Now that question has a different answer, and the cracks are showing.

Those barriers to exiting that grow ever higher are equally effective, if not more so, at keeping outsiders at bay. As the low end Office discounts show, Microsoft is palpably desperate for new customers, but have nothing to offer them. As we have been saying for years, Management does not comprehend the problems they face well enough to change, and now it is too late.

As you might be aware, the worldwide economy been a bit tepid of recently, worse for enterprises than consumers. Companies are just not buying anything they don’t have to, and haven’t for quite a while. Luckily for Microsoft, they used their monopoly might years ago to force customers larger than about 50 or more licenses on to a subscription payment model called Software Assurance. Microsoft has quite a lock on this customer base, so it was steady, recurring revenue.

Unfortunately for the company, new paradigms like Salesforce and other ‘cloud’ services popped up. Microsoft had no response. The younger generation moved to phones, tablets, and other devices, and Microsoft still had no response, much less a viable alternative. Traditional desktops and laptops were losing marketshare slowly, but the segment itself is withering.

The next generation grew up outside the circle, and as sales of Windows Phone are vividly illustrating, those barriers are just as effective at excluding them now. Microsoft just cut their order for the overhyped Surface tablet in half, and that was selling orders of magnitude better than all the other Windows 8 tablets. Combined. And still the plans didn’t change.

The first sales numbers for Windows 8 are out, and the numbers are devastating. Luckily for Microsoft, even thought their internal sales figures have essentially written off adoption for that OS in the business space, Software Assurance means that those customers will pay full price for it, even if doing so makes them understandably annoyed. Unfortunately for the accountants, the consumer side does not have to purchase it, and they quite simply are not. The overall income stream side needs a helping hand lest Wall Street start asking pesky questions.

Faced with both an urgent need to boost revenue and shrinking customer base, what is a company to do in such a down economy? Entice customers with lower prices? Yes, there is a bit of that, but not on the parts that really count, at least publicly. Lowering prices would be a sensible, easy, and likely very successful way to make a few (billion) bucks. It isn’t even a hard concept for the layman to grasp, sweeten the deal a bit, and make it up in added volume.

In light of all this, Microsoft did exactly what you would expect, they raised prices radically. How radically? Between 8 and 400%. The most pertinent of the numbers is the CAL raise of 15%, this effectively jacks the price of Windows up by 15% for everyone who is buying volume licenses. The assurance side of Software Assurance is not for the customer’s benefit, and they know it.

Ostensibly, the CAL raise is to make up for the mobile device boom, basically tax that which you can’t control. It doesn’t take a genius to realize that Microsoft would rather own those devices too, but that market is closed to them now. Other items are given the same tired excuse as the last few price rises, essentially otherwise nonsensical product mix changes. Add this program to one suite, remove that one from the next. While Microsoft spins this as a value proposition, if you run the numbers the price always goes up radically.

What does this all mean? Easy, Microsoft management is painfully out of touch with their customers, the markets, technology in general, and the overall economic situation. When faced with a shortfall, shrinking customer bases, a widely disliked core product line, and unprecedented partner defections, what do they do? Circle the wagons and radically raise prices on those that can’t get away. Unfortunately for the software giant, this time it is not playing out like the last few times.S|A

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Charlie Demerjian

Roving engine of chaos and snide remarks at SemiAccurate
Charlie Demerjian is the founder of Stone Arch Networking Services and is a technology news site; addressing hardware design, software selection, customization, securing and maintenance, with over one million views per month. He is a technologist and analyst specializing in semiconductors, system and network architecture. As head writer of, he regularly advises writers, analysts, and industry executives on technical matters and long lead industry trends. Charlie is also a council member with Gerson Lehman Group.