The sharp fall in sterling following Brexit has triggered Microsoft to announce sterling price increases, effective January 2017. Price increases will be 13% for on premise software and 22% for cloud services.
Software resellers, integrators and cloud service providers were warned late on Friday afternoon.
Microsoft said “sustained currency changes” had led to “price misalignment” of the British pound,” “this [price] change is an outcome of this periodic assessment and will realign British pound prices close to euro levels”.
This was easy to see coming, hardware manufacturers such as Dell had already been quicker off the mark with price increases. When sterling saw a 10% decline against the US dollar in late June Dell swiftly followed up with a 10% price increase across the board. No doubt further increases will be on the way. IT hardware is typically made of components from manufactured in many countries (see the Macworld article on the Apple supply chain). These are nearly all USD linked economies, little is manufactured in the UK.
So why the difference in the rate of increase. Some are questioning the logic but Microsoft are clearly showing that while they can afford to absorb some of the loss of revenue in the higher margin software licensing area, they are not willing or able to reduce their margins in the provision of the much lower margin cloud services where their input costs (38%+ staff, 20% energy, 24% power and cooling equipment etc) remain constant.
We must expect the rest of the large cloud providers to follow Microsoft’s lead. Most have the majority of their Data Centres outside of the UK and they must guard against customers with international footprints attempting to exploit substantially different pricing levels in different countries.
So, what should businesses be doing or considering at this time of change.
The first thing to do is quickly ‘get your skates on’ and bring forward any impending orders for Microsoft licences. If these are products previously ordered and you are mid-term on a Volume Licencing Agreement there is price protection but not otherwise.
Secondly, make sure your budgets for next year take account of these and other expected IT price rises.
Finally, if you are about to revisit your hosting or managed services arrangement, remember that a comprehensive review of options against business needs and a professional procurement exercise involving a range of UK centred vendors will be the best route to getting best value and price stability.
