Microsoft 365 up 33% in July: save 86% with these alternatives

I won't sugarcoat it: Microsoft just announced the biggest Microsoft 365 price hike in four years, and small businesses are taking the hardest hit. Starting July 1, 2026, commercial plans go up between 5% and 33% depending on the tier, and the kicker is that the full Copilot experience remains a paid add-on.

After months of crunching the numbers, comparing alternatives, and speaking with IT managers at several companies, my verdict is clear: not every business needs to keep paying Microsoft. There are alternatives that can save you up to 86% without sacrificing critical functionality.

Let's look at the numbers.

The new prices: who pays more and why

Microsoft officially announced the changes on December 4, 2025. Here's the full breakdown of what changes starting July:

See the pattern? The cheapest plans — the ones SMBs rely on — get the highest percentage increases. Business Basic jumps 16.7%. M365 E3, the workhorse of mid-sized companies, goes up 16.7%. Meanwhile, Business Premium doesn't budge.

If you ask me directly: this is a deliberate strategy to push businesses toward premium plans where margins are better.

The real impact on your budget

Let's put real numbers on this. A typical SMB with 50 employees on Business Standard:

• Before: $12.50 × 50 × 12 = $7,500/year
• After: $14 × 50 × 12 = $8,400/year
• Difference: +$900 per year (+12%)

A company with 500 employees on M365 E3:

• Before: $36 × 500 × 12 = $216,000/year
• After: $42 × 500 × 12 = $252,000/year
• Difference: +$36,000 per year (+16.7%)

That's $36,000 that could go toward hiring a junior employee. And all without receiving anything revolutionary in return.

Copilot: the carrot they won't give you for free

Microsoft justifies the increases by citing "over 1,100 new features shipped in the past year," including security improvements and AI capabilities. Sounds impressive until you read the fine print.

What IS included in the new prices

• Basic Copilot Chat in Word, Excel, PowerPoint, Outlook, and OneNote
• Defender for Office 365 Plan 1 (for E3 plans)
• Intune Plan 2 with Remote Help and Advanced Analytics (for E3 and E5)
• Security Copilot (M365 E5 only)

What is NOT included

The full Microsoft 365 Copilot — the generative AI that actually transforms how you work — remains a paid add-on:

This means if you want M365 E3 with full Copilot, you're paying $42 + $30 = $72 per user per month. For 100 employees: $86,400 per year.

My verdict is clear: Microsoft is raising the base price while selling AI as a premium extra. They're not giving you Copilot — they're charging more for the basics and then offering the real value as an add-on. It's a double-charge strategy.

The context: SaaS inflation is 5x normal inflation

Before anyone argues that "all prices go up," let's look at the data from the Vertice SaaS Inflation Index 2026:

Software inflation is nearly five times higher than general inflation. And Microsoft isn't alone: 60% of SaaS vendors are aggressively raising prices, many in opaque ways disguised as "product improvements."

The average SaaS cost per employee jumped from $7,900 in 2023 to $9,100 in 2025. That's a 15% increase in two years. Every eighth dollar a company spends goes to cloud software.

But here's the concerning part: SMBs have less negotiating power than enterprises. Microsoft offers volume discounts and multi-year contracts to large corporations. Small businesses pay list price, with no room to negotiate.

Price hike history: this isn't new

Microsoft has consistently raised prices in recent years. This isn't an isolated event:

Over four years, a plan like Business Standard went from $12.50 to $14. But looking at the full arc from before the 2022 hike, it went from $12 to $14: a cumulative 16.7% increase in four years. Add the 20% monthly surcharge implemented in 2022, and companies paying month-to-month are paying significantly more.

5 alternatives to Microsoft 365: from free to premium

After months evaluating options for consulting clients, here's my honest ranking of alternatives.

1. Google Workspace — The most complete alternative

Price: $6-$18/user/month

Pros:

• Superior real-time collaboration compared to Microsoft
• Native integration with Google Meet, Chat, and the entire ecosystem
• Clean, modern interface
• Gemini AI included (basic features)

Cons:

• Lower compatibility with complex .docx/.xlsx files
• Limited offline functionality
• Some businesses need Active Directory, which Google doesn't offer natively

My verdict: If your team lives in the browser and doesn't depend on complex Excel macros, Google Workspace Business Standard at $12/mo is the best direct alternative.

2. Zoho Workplace — The best-kept secret

Price: $3-$6/user/month

Pros:

• Unbeatable price: half of Google, one-third of Microsoft
• Complete suite: mail, docs, sheets, presentations, drive, chat, video conferencing
• Free plan available for teams up to 5 people
• CRM and business tools integrated in the Zoho ecosystem

Cons:

• Less known = less community support
• More limited third-party integrations
• Learning curve for those coming from Microsoft

My verdict: For budget-conscious SMBs, Zoho Workplace Professional at $6/mo offers 90% of Microsoft 365 Business Standard functionality for less than half the price.

3. LibreOffice — The free option

Price: $0 (100% open-source)

Pros:

• Completely free, no subscriptions
• Compatible with Microsoft Office formats (.docx, .xlsx, .pptx)
• No cloud dependency
• Version 25.2 (2026) with significant performance improvements

Cons:

• No real-time collaboration (you'd need a separate cloud solution)
• No email or cloud storage included
• Occasional formatting issues with complex Word documents
• No official support (community only)

My verdict: Perfect for freelancers, small teams, or any business that doesn't need intensive cloud collaboration. Combined with free Gmail and Google Drive, you can have a functional solution for $0 per month. That's an 86% saving compared to Business Standard.

4. OnlyOffice — The pro open-source alternative

Price: Free (desktop) / from $5/user/month (cloud)

Pros:

• Highest compatibility with Microsoft formats (uses native OOXML)
• Interface similar to Microsoft Office (easy transition)
• Completely free desktop version
• Self-hosting option for businesses wanting full control

Cons:

• Cloud suite is paid
• Small integration ecosystem
• Fewer advanced spreadsheet features than Excel

My verdict: If Microsoft document compatibility is your number one priority and you don't want to pay, OnlyOffice desktop is the best choice. The interface is practically identical to Microsoft Office.

5. Hybrid strategy — The best of both worlds

You don't have to pick just one alternative. My recommendation for mid-sized companies:

• Microsoft 365 E3: Only for teams needing specific tools (Project, Power BI, Dynamics)
• Google Workspace: For the rest of staff (email, docs, collaboration)
• LibreOffice: For roles that don't need cloud (warehouse, production)

A 200-employee company could go from 200 M365 E3 licenses ($252,000/year) to 50 M365 E3 + 100 Google Workspace + 50 LibreOffice = $126,000 + $14,400 + $0 = $140,400/year. Savings: $111,600 per year (-44%).

Alternative comparison table

Strategies to minimize the impact if you stay on Microsoft

If migrating isn't a realistic option for your business, here are four concrete strategies:

1. Renew before July 1, 2026

If your renewal falls between January and June, renew now. You'll lock in the current price for another 12 months while still receiving the new features when they launch.

2. Audit your licenses

The problem I see in 80% of the companies I advise: they're paying for licenses nobody uses. Run a real inventory:

• How many users actually need E3 vs E1?
• Are there licenses assigned to employees who've already left?
• Does everyone need the same plan?

A typical audit saves between 10% and 30% without changing anything else.

3. Switch from monthly to annual billing

Since June 2022, monthly plans carry a 20% surcharge (Microsoft's NCE policy). If you're still paying month-to-month, committing annually saves that 20% immediately.

4. Negotiate directly with Microsoft or a CSP

Larger businesses can negotiate volume discounts through a Cloud Solution Provider (CSP). Don't accept list price if you have more than 300 licenses.

What Europe gets (and the rest of the world doesn't)

Interesting detail: Microsoft announced that in February 2026, before the July hike, it will apply 7% to 13% reductions in local European currencies (EUR, CHF, DKK, NOK, SEK). It's a currency adjustment, not a real discount, but it partially cushions the blow for European businesses.

The rest of the world pays full price in dollars. Yet another reason why SMBs outside Europe and the US get the worst deal: they pay in dollars with no local adjustments.

FAQs

When exactly do the new prices take effect?

July 1, 2026. It applies to both new subscriptions and renewals. If your contract renews after that date, you'll pay the new prices. Microsoft announced the changes on December 4, 2025, giving roughly 7 months of notice.

Is Copilot included in the price increase?

Not exactly. The new prices include basic Copilot Chat (limited AI features in Office apps), but the full Microsoft 365 Copilot remains a separate paid add-on ($21-$30/user/month additional). Microsoft is giving a free AI "appetizer" to generate demand for the premium product.

Does this affect Microsoft 365 Personal and Family?

No. The announced increases are exclusively for commercial and government plans. Consumer plans (Personal at $6.99/mo and Family at $9.99/mo) are not affected by this announcement. That said, Microsoft typically raises consumer prices in separate cycles.

Can I lock in the current price by renewing before July?

Yes. If you renew your subscription before July 1, 2026, you'll pay the current price for the renewal period (typically 12 months). It's the simplest strategy to buy time while you evaluate alternatives.

Is it worth migrating to Google Workspace?

It depends on your case. If your company relies on Excel macros, Power BI, or Active Directory, migration is complex. But if your primary use is email, documents, and collaboration, Google Workspace offers equivalent functionality at a lower price. The typical migration takes between 2 and 6 weeks for a 50-200 employee company.

Conclusion: stop overpaying

The Microsoft 365 price hike is real, significant, and disproportionately harsh on SMBs. But it's not the end of the world. There are viable alternatives for every company type and budget.

If you ask me directly: the biggest mistake you can make is doing nothing. Don't start evaluating alternatives in July when it's already too late. Start today:

1. Audit how many licenses you actually need
2. Evaluate whether Google Workspace or Zoho covers your requirements
3. Renew before July if you decide to stay with Microsoft
4. Negotiate if you have enough volume

Microsoft 365's 345 million users aren't going anywhere, and Microsoft knows it. That's why they can raise prices with confidence that most will pay without questioning. Don't be one of them. Question, compare, and choose based on data.

Your IT budget has better uses than subsidizing the $80 billion a year Microsoft invests in AI.