Microsoft’s Elimination of Volume-Based Price Levels: A New Era in Enterprise Licensing Economics

October, 2025

The enterprise software market is undergoing a fundamental shift in pricing. Following Broadcom’s shift of VMware to subscription-only models, Adobe’s global standardization of Creative Cloud pricing, and Salesforce’s move away from rigid discount tiers, Microsoft has now executed one of its most consequential licensing changes in decades.

On August 12, 2025, Microsoft announced the elimination of volume-based “waterfall” price levels across its flagship volume licensing agreements — the Enterprise Agreement (EA), Microsoft Products & Services Agreement (MPSA), and Online Services Premium Agreement (OSPA) unique to China — covering all Online Services such as Microsoft 365, Dynamics 365, Windows 365, and the company’s security and compliance cloud offerings. The policy, set to take effect on November 1, 2025, will reshape how global enterprises buy, budget for, and negotiate Microsoft software.

Understanding Microsoft’s Legacy Price Tiers (A–D)

Before this change, Microsoft applied price levels that scaled with customer size:

    • Level A: Entry tier for smaller customers or those with low volume commitments (no volume discount)
    • Level B: Moderate volume with around 2,400 to 5,999 seats (3%–5% discount range)
    • Level C: Large enterprise with generally 6,000 to 14,999 seats (6%–9% discount)
    • Level D: Very large or global enterprise with 15,000 seats or more (up to 12% or more discount)

These levels were programmatic and predictable; moving to a higher tier automatically delivered deeper discounts, forming the backbone of enterprise IT budgeting for decades.

As of November 1, 2025, however, all new purchases and renewals under EA, MPSA, and OSPA default to Level A pricing — the baseline list rate published on Microsoft.com — regardless of customer scale. This will be consistent with the pricing model already in place for services like Azure.

However, the changes would not apply to the following:

    • On-premises software pricing
    • US Government and worldwide Education price lists

Microsoft frames this policy as part of its “ongoing commitment to greater transparency and alignment across all purchasing channels,” aiming to align legacy licensing models with its Microsoft Customer Agreement (MCA) and Cloud Solution Provider (CSP) programs. Yet, behind the language of simplification lies a profound structural shift: a revenue uplift for Microsoft and a cost shock for its largest customers, signaling the end of scale-based discounting in enterprise cloud software.

Complications: Early Realities of a Post-Tier World

For more than two decades, Microsoft’s EA price levels provided a stable, automatic discount mechanism—a dependable input to IT budgets and multiyear forecasting. As organizations scaled from hundreds to tens of thousands of seats, they automatically moved into higher price levels and enjoyed proportional discounts, typically ranging from 3%–12%.

The removal of those levels introduces four cascading complications:

    1. Budget escalation for large customers
      Enterprises previously at Levels C or D will see price increases of 6%–12% or more, depending on their SKU mix and regional adjustments. A 10,000-user organization that once enjoyed a 9% discount could now pay several hundred thousand dollars in additional annual costs.
      While Education and US Government programs are formally exempt from this policy, the impact has been particularly significant for large commercial enterprises, small and midsized businesses (SMBs), and non-federal public-sector organizations (such as municipal bodies or public hospitals) that procure through commercial EAs or MPSAs. These entities, without access to Education or government enrollments, are experiencing direct cost escalations as their previous tier-based discounts are retired.
    1. Loss of programmatic leverage
      Discounts that were once formulaic are now negotiation-driven exceptions. Procurement teams lose automatic volume leverage and must instead negotiate on the basis of strategic commitments—longer terms, multiproduct bundling, or cloud-consumption targets.
    2. Complex regional implementation
      While the policy is global, execution varies. Certain education and government sectors remain exempt, and regional list-price variances (currency and tax) can amplify or soften the impact. Customers in the APAC region, including those in India and South Asia, must confirm local adoption timelines and partner pass-through terms.

These shifts create commercial uncertainty at scale. Licensing managers who once relied on static price sheets must now manage dynamic negotiations, and CFOs lose a key predictor in multiyear budgeting models.

Question: What Should Enterprises Do Now?

The central strategic question is no longer “How do we manage our Microsoft spend?” but rather “How should we adjust our contracting, budgeting, and vendor management for flat pricing without scale discounts and new value negotiation terms?”

Answering that requires both short-term mitigation and long-term repositioning. In the near term, enterprises must protect budget integrity and contractual flexibility; in the long term, they must revisit their dependence on Microsoft’s ecosystem and explore procurement models that restore leverage.

Strategic Response: Navigating the Post-Waterfall Pricing Era

With automatic tier-based discounts now retired, enterprises must adopt a structured and data-driven approach to manage the financial and contractual impact of Microsoft’s new pricing model. The following seven steps outline immediate actions and strategic responses that can help organizations regain control, mitigate budget shocks, and regain negotiation leverage under the post-waterfall framework.

  1. Conduct a rapid exposure assessment
    Map every active EA/MPSA/OSPA enrollment and renewal date. Determine the current price level and calculate the delta to Level A pricing for each major SKU (M365 E3/E5, Dynamics 365 CE, Windows 365 Enterprise, and Defender Suite). Build a three-year projection model that illustrates the cumulative impact.
    Example: A 6,000-seat enterprise at Level C spending USD 2 million annually would face a roughly 8% uplift (USD 160,000 per year), or USD 480,000 over three years.
  1. Exploit timing and transition windows
    Where possible, pursue early renewal under current tiers. Early renewals can lock pricing for the next three years, buying time to plan longer-term transitions. Evaluate the financial trade-off of early renewal versus flexibility loss.
    If early renewal isn’t feasible, identify any price-protection or carry-forward clauses in your existing EA/MPSA. Some agreements preserve older rates through the end of enrollment; use them to delay exposure.
  1. Elevate negotiation from transactional to strategic
    Without automatic tiers, discounts now depend on strategic bargaining. Enterprises should:
    • Bundle multiple product families (M365 + Dynamics + Security) to unify the negotiation scope.
    • Link concessions to cloud-consumption commitments (Azure spend targets, Copilot adoption) that align with Microsoft’s growth priorities.
    • Use competitive benchmarks (Google Workspace, Oracle Fusion, and AWS WorkSpaces) to demonstrate credible alternatives and regain leverage.
    • Escalate negotiation to executive levels; EA renewals now require CFO and CIO sponsorship.
  1. Reinforce software asset management (SAM)
    Licensing optimization becomes the first line of defense:
    • Audit inactive and duplicate seats.
    • Rationalize SKUs—downgrade users who don’t need premium features. For instance, not everyone needs E5. Many users can be just as productive on E3.
    • Centralize subscription governance to avoid “license sprawl.”

Every unused seat eliminated offsets a portion of the uplift introduced by Level A pricing.

  1. Reevaluate procurement channels
    Evaluate alternate procurement paths:
    • Cloud solution providers (CSPs) often provide monthly billing, partner value-adds, and more agility.
    • Microsoft Customer Agreement (MCA) aligns pricing with Azure consumption and simplifies billing.

Comparative TCO analyses can reveal cases where CSP or MCA delivers equivalent or better economics than EA under Level A pricing.

  1. Develop an enterprise-wide communication and budgeting plan
    Communicate the pricing change across IT, finance, and procurement leadership. Update FY 2026–FY 2028 budgets with adjusted forecasts, and identify funding offsets through optimization savings or vendor-portfolio diversification.
  1. Leverage ecosystem intelligence
    Engage independent licensing advisors and SAM specialists to validate Microsoft’s proposed price structures, benchmark against peers, and uncover non-published concessions (for instance, temporary rebates or term-extension credits).

Turning Microsoft’s Pricing Shift into a Strategic Advantage with Avasant

As Microsoft’s licensing transformation reshapes enterprise economics, procurement and IT leaders are under pressure to optimize spend, strengthen vendor governance, and realign budgets to a flat-pricing model. Avasant brings deep expertise in software asset management (SAM), contract optimization, and cloud transformation to help enterprises navigate this new commercial environment.

  1. Immediate optimization
    Avasant enables organizations to rapidly assess and rationalize their Microsoft estates through:
    • License and usage audits to identify inactive, duplicate, or over-provisioned seats.
    • License allocation across E5, E3, and Frontline users to eliminate feature redundancy.
    • Use of Azure cost optimization levers such as reserved instances, rightsizing, and hybrid benefit utilization.

Through this immediate action, enterprises can reduce spend leakage by 8%–15% within a single renewal cycle.

  1. Strategic contracting
    With automatic volume discounts now eliminated, enterprises must negotiate strategically to recover value. Avasant helps clients:
    • Evaluate EA versus CSP commercial paths and develop scenario-based total cost of ownership (TCO) analyses.
    • Identify non-price negotiation levers, including transition credits, extended payment terms, and service funding.
    • Benchmark renewal terms using proprietary Microsoft pricing intelligence to uncover hidden commercial opportunities.

These interventions enable procurement teams to move from reactive renewal management to data-driven contract strategy.

  1. Sustainable governance
    Avasant establishes long-term governance frameworks to institutionalize cost control and transparency.
    • Implements license reclamation automation and chargeback models to prevent seat sprawl.
    • Introduces FinOps practices to align cloud cost accountability across IT and finance.
    • Provides governance dashboards that integrate license, spend, and consumption analytics for continuous optimization.

This fosters a sustainable discipline around software economics, ensuring post-renewal value realization.

  1. Transformation enablement
    Avasant helps clients turn Microsoft renewals into transformation catalysts.
    • Aligns Microsoft spend with modernization initiatives in cloud, security, and AI-driven productivity.
    • Guides Copilot and Fabric adoption strategies to unlock operational efficiency while accessing AI-based pricing incentives.
    • Designs portfolio rebalancing road maps that integrate Microsoft with alternative SaaS platforms to maintain a competitive leverage.

Through this approach, Avasant helps enterprises shift from tactical cost reduction to strategic value realization—positioning Microsoft’s new model as a foundation for digital transformation rather than a budget constraint.

Conclusion: From Cost Pressure to Commercial Control

Microsoft’s decision to eliminate volume-based price levels marks the end of a long-standing licensing era and the beginning of a negotiation-driven SaaS economy. This change fundamentally transforms Enterprise Agreements (EA), Microsoft Products & Services Agreements (MPSA), and Online Services Premium Agreements (OSPA) from predictable, tier-based pricing models into bespoke commercial instruments—where value, not volume, defines the deal.

While many enterprises will face immediate cost escalation, those that respond with data-driven optimization, disciplined governance, and strategic negotiation will emerge more resilient. The shift from automatic discounts to outcome-based value unlocks new opportunities for procurement maturity, financial control, and technology alignment.

By combining deep licensing expertise, cross-industry benchmarks, and transformation advisory, Avasant enables enterprises to regain control over Microsoft’s new commercial landscape.

Enterprises that leverage Avasant’s methodology can:

  • Contain renewal-driven cost spikes,
  • Rebuild procurement leverage, and
  • Institutionalize financial discipline across the Microsoft ecosystem.

In a post-tier pricing world, Avasant’s structured approach ensures that organizations no longer merely absorb cost changes—they engineer lasting commercial advantage.

By Krishnendu Moulick, Partner and Gaurav Dewan, Research Director