Software Subscriptions Tighten Grip as Licensing Costs Climb

The ownership era is ending, and earnings show why

For most of the past two decades, the move from owning things to renting them looked like a gradual shift in consumer habits. By late 2026 it has become the way the technology industry does business. Juniper Research expects the global subscription economy to grow from $722 billion in 2025 to $1.2 trillion by 2030. That growth spans media, software, games and now physical devices12. In the same analysis, eMarketer argues that most consumers now rent access to their media, software and games instead of owning them, with Adobe's Creative Cloud and Microsoft 365 as the main software examples12.

The headline numbers are not the main story. The model has matured, and the financial reports and pricing notices from the largest vendors point to the same conclusion: subscription growth now depends less on signing up new customers and more on charging existing customers more. That favors vendors and costs buyers, and this year's earnings show it plainly.

Microsoft: growth from price, not new seats

Microsoft's fiscal 2026, which ended June 30, was a record year. Revenue passed $331 billion, up 18%, and operating income rose 21% to more than $155 billion32. Fourth-quarter revenue was $90.0 billion, and Microsoft 365 Commercial cloud revenue grew 16% on an adjusted basis, or 14% as reported31.

The more telling figures sit in CFO Amy Hood's commentary. Paid Microsoft 365 Commercial seats grew just 6% year over year, mostly from small businesses and frontline-worker plans. Premium tiers such as Copilot, E5 and the new E7 drove growth in average revenue per user (ARPU)32. In other words, cloud revenue grew more than twice as fast as the customer base. The consumer business shows the same pattern. Consumer cloud revenue rose 24% while subscriptions grew 7%, and Hood said growth would slow to the mid-teens as the company laps last year's price increase32.

That comment shows how the business works. When a price increase stops boosting the growth rate, the growth rate falls, which gives the vendor a reason to raise prices again. Microsoft also said it is adding usage-based billing alongside per-seat licensing and expects that to speed up Microsoft 365 Commercial cloud growth through the current fiscal year32.

The split between product and service revenue tells the same story. Fourth-quarter product revenue was about flat at roughly $17.2 billion, while service and other revenue rose from about $59.3 billion to $72.8 billion31. Microsoft's hardware-heavy segment shrank. Windows OEM and Devices revenue fell 7%, and Xbox content and services fell 10%31.

The customer side: a year of price notices

The flip side of Microsoft's ARPU gains shows up in renewal quotes. On July 1, Microsoft raised prices on most of its commercial suites. Business Basic went from $6 to $7 per user per month, Office 365 E3 from $23 to $26, and Microsoft 365 E5 from $57 to $603. Frontline plans saw the biggest percentage jumps: F1 rose 33% to $3 and F3 rose 25% to $108. Versions without Teams went up even more, with one licensing analysis putting the F1 increase at 43%9.

Coverage agrees on the list prices but describes their effect differently. Microsoft's stated reason, as relayed in TechSoup's nonprofit pricing notice, is added value: new security, storage and AI features7. Several analyses note that the higher prices come with new features, such as Copilot Chat improvements in the frontline plans and Defender components in Office 365 E389. IT consultants put it in budget terms instead. One estimates that a 13% increase across 500 Office 365 E3 seats adds about $18,000 a year10. Another warns that support, Azure usage and AI capacity costs can rise along with license prices6.

The increases continued. Starting October 1, Microsoft added 5% to annual-term Cloud Solution Provider software subscriptions billed monthly, covering Windows Server, SQL Server and related products5. Partners on industry forums described it as the second year in a row of this kind of surcharge. One said customers who commit for a year but pay monthly will now pay about 10% more than those who prepay1. Power Apps Premium is next, going from $20 to $22 per user on January 1, 20275.

Microsoft is not unusual here. It is the most visible case. One mid-market licensing analysis describes several changes hitting customers at once. Broadcom ended perpetual VMware licenses and moved customers to bundled three-year subscriptions, with reported increases of 150% to over 1,500%. Oracle switched Java to per-employee pricing, so every employee needs a license whether or not they use it2. Those figures come from a firm that sells license-management services and should be read with that in mind. Still, the trend matches the rest of the coverage: once perpetual licenses go away, buyers lose most of their bargaining power.

Adobe: almost entirely subscriptions

Adobe shows where this ends up. In its fiscal third quarter, which ended August 28, revenue was $6.76 billion, up 13%. Subscription revenue reached $6.58 billion, which is 97% of the total41. Annualized recurring revenue (ARR) rose 11.2% to $27.50 billion, and Adobe raised its full-year revenue target to as much as $26.626 billion4446. Revenue from its AI-first products passed $650 million, growing more than 150%42.

Adobe is also pushing new paid features on top of existing subscriptions. Firefly ARR grew 40% from the previous quarter across the app and credit packs47. Credit packs are a metered add-on to a subscription, much like Microsoft's usage-based billing, and they suggest the next stage for software vendors: a monthly fee plus charges based on usage.

The picture is not entirely positive. Net income grew only 3% because costs rose faster than revenue41. One earnings summary notes that net new ARR declined during a deliberate shift toward a freemium model48. A company that already earns almost all its revenue from subscriptions has few one-time buyers left to convert, so its growth has to come from upselling or reaching new users.

Hardware is next

The same approach is now spreading to devices. On July 28, Apple launched Apple Upgrade, a leasing program financed through Klarna. It covers most iPhones, iPads, Apple Watches and Macs, with Macs starting around $25 a month on 24- or 36-month terms13. Reports link the program to Apple's growing services business and to hardware prices rising amid AI-driven memory shortages13. eMarketer notes that leasing also gives Apple a steady supply of returned devices to refurbish and resell12. Asus has started renting server and workstation motherboards to business customers, and Gartner expects infrastructure sold as a service to grow almost three times as fast as device spending in 202611.

Media is facing the same questions about ownership. Sony plans to stop producing discs for new PS5 games in January 2028. It is also removing more than 550 previously purchased films from PlayStation libraries over licensing disputes, which shows that a digital purchase does not guarantee permanent access12.

Where the coverage diverges

Estimates of the subscription economy's size vary a lot. Juniper's $722 billion figure for 202512 is more than double the $330 billion one commerce guide cites for 202629. The gap probably comes from different definitions of what counts as a subscription rather than a real disagreement. Readers should treat any single total with caution.

Coverage also splits on whether this shift is good for customers. Industry writers argue that subscriptions give CFOs flexibility and predictable spending instead of large upfront capital costs18. Critics see it as a loss of control over the things people pay for, and they point to features locked behind subscriptions in cars and printers1517. Regulators are also involved. The EU's Right to Repair Directive is built on the idea that buyers should keep meaningful control over the goods they purchase, which conflicts with leasing models that leave control with the vendor11.

Some buyers are pushing back. In computer-aided design (CAD), vendors offering perpetual licenses, such as BricsCAD and progeCAD, are pitching themselves as cheaper than AutoCAD subscriptions that cost more than $2,000 per seat each year16. That is a niche market, and the pitch comes from vendors with a stake in it, but it shows that subscription pricing is high enough to make switching worth considering.

The takeaway

The evidence points one way. Subscriptions have mostly beaten ownership in software, and the main source of revenue growth has moved from adding customers to raising what each customer pays through price increases, premium tiers, AI add-ons and usage-based charges. Microsoft's 6% seat growth against double-digit cloud revenue growth32, and Adobe's 97% subscription share41, show what this looks like at scale. For enterprise buyers, managing renewals is now a finance task that needs regular attention. For consumers, Apple's leasing program13 suggests that paying monthly for devices is the next step. Vendors are likely to keep raising prices until enough customers start leaving.