More Software Now Has AI Added by Google and Microsoft, It Has a Price

In 2025, Microsoft and Alphabet, the parent company of Google, are expected to demonstrate some return on their investment after spending a total of $99 billion to develop their AI infrastructure in the previous 12 months.

In light of these high expectations, Google and Microsoft both made significant adjustments last week to the cost of their productivity suites as well as the AI functions they offer, such as document production and summarization and interaction with Word and Excel.

Last Wednesday, Google set the stage by announcing that its Gemini Business plan, which was previously an optional $240-per-year AI add-on to its $144-per-year Google Workspace productivity suite, would now be free. However, Google is increasing the annual subscription fee for all users by 17% to $168. This price adjustment cannot be opted out of.

A day later, Microsoft announced that Copilot Pro AI features will be included in consumer Microsoft 365 packages, which were formerly an add-on to Office 365 that cost $240 annually. Similar to Google, Microsoft is increasing subscription fees altogether. The cost of the individual plan increased by 43%, from $70 to $100 annually. Subscribers who choose not to use the AI features might maintain the previous pricing for a restricted period of time.

AI usage will still be metered and limited for Microsoft customers on the new consumer plans; those who require more can purchase unlimited AI features for $240 per year. Microsoft 365 Copilot corporate subscriptions, which still operate on an add-on basis and cost $360 annually, are unaffected by this.

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The price changes might suggest that the prior AI pricing tactics weren't drawing in enough clients. Google and Microsoft are effectively requesting that all of their customers—even those who do not utilize these features—subsidize AI by opting in current consumers to AI services at a higher total cost. It is hoped that a sufficient number of them would be satisfied with the services and be prepared to pay more in the future.

As they search for business models that can support the high data center costs of AI, they will need to be agile. The previous add-on prices reflected those significant costs. Microsoft 365 used to cost $70 a year for an individual membership that included all Office applications. The cost increased by 343 percent to incorporate AI services. This thing is not inexpensive.

Because each new customer came at a low marginal cost, software businesses' business plan for years was to scale swiftly. AI somewhat reverses this equation. Businesses are still working to swiftly expand their AI offerings, but each new client is costly.

Google and Microsoft have a unique approach to booking AI revenue at the moment as they manage all of that.