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Microsoft Financial Results FY26 Q2


Microsoft Financial Results for Q2 FY26

Revenue = $81.3 billion (up 17%)

Net Income = $38.5 billion (up 60%)

Microsoft Cloud = $51.5 billion

As it has been every quarter for many years now, more big increases across the board as Microsoft continues to grow. They have RPO (Remaining Performance Obligation) of $625 billion, an increase of 110%, which indicates a lot of multi-year agreements have been signed. This huge backlog of guaranteed revenue likely means that Microsoft aren’t as bothered about your order/renewal as you might like them to be…making discounts harder to come by for many customers.

Is AI still a hot topic?

Yes!

Satya Nadella, Microsoft CEO said:

“We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises”

“We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.”

And devoted the majority of his time on the earnings call to discussing AI, both software and hardware.

Additionally, Q2 saw commercial booking increase 230%, “driven by Azure commitments from OpenAI and Anthropic”. Further more, Perplexity have also signed a $750 million deal with Azure – https://www.msn.com/en-us/money/other/perplexity-inks-microsoft-ai-cloud-deal-amid-dispute-with-amazon/

Productivity & Business Processes

Revenue = $51.5 billion, an increase of 26%

Dynamics 365 revenue increased 19%

Microsoft 365 Commercial cloud revenue increased 17% with ARPU (Average Revenue Per User) driven by E5 and M365 Copilot.

Microsoft 365 Copilot seats added increased 160% year on year in FY26 Q2 (Oct – Dec 2025) taking them to 15 million paid seats. Of course, how many of those are being used – and being used well – is a different question entirely. 

Tracking and understanding ROI of AI investments isn’t as high a priority for most organisations as it should be. This really is an areas where ITAM & FinOps professionals can help organisations take a deeper, more data driven approach to AI procurement and value. I wrote this over 2.5 years ago – https://cloudywithachanceoflicensing.com/2023/07/21/microsoft-365-copilot-pricing-and-licensing-strategy/ – and I don’t think much has changed tbh.

Intelligent Cloud

Revenue = $32.9 billion, an increase of 29%

Azure increased by 39% (down from 40% in the previous quarter) but gross margin on cloud declined slightly. Market analysts were hoping for higher Azure growth so this perceived miss was partially responsible for a drop in Microsoft’s stock after the announcement.

They are also concerned that the huge amount of money Microsoft are spending on CAPEX related to AI datacentres etc. isn’t generating ROI fast enough.

Conclusion

Microsoft’s results underscore that licence management, cloud cost control, and financial governance are now inseparable, particularly as AI accelerates both consumption and complexity. 

For ITAM and FinOps leaders, Q2 FY26 is less about Microsoft’s growth and more about the operational response it demands: proactive review of AI and cloud commitments, tighter contract scrutiny, and implementation of usage intelligence. 

Organisations that align ITAM and FinOps processes to anticipate consumption variability and optimise spend can mitigate financial risk while maximising value from licences, cloud services, and emerging AI capabilities. Success will increasingly depend on granular monitoring, AI-informed analytics, and governance tools that bridge licensing, cloud, and financial metrics.

See more here – FY26 Q2 – Press Releases – Investor Relations – Microsoft

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Flexera acquire ProsperOps and Chaos Genius


Flexera have kicked 2026 off with a bang!

They’ve acquired both ProsperOps and Chaos Genius – further adding to their FinOps portfolio after their recent acquisition of Spot from NetApp…and their 2018 acquisition of RightScale of course.

ProsperOps focuses on automated cloud commitment and resource management while Chaos Genius focuses on automated savings and management of Databricks and Snowflake costs.

The convergence of software spend is here and getting bigger. Whether something is on-prem, SaaS, Cloud, Data Cloud, AI etc. matters less and isn’t always easy to define as more and more services span multiple billing models. For customer organisations being able to see technology spend holistically is more important than ever and these purchases give Flexera some real end to end software spend coverage from on-premises through SaaS and Cloud.

Some orgs will prefer to go with multiple point products, which is a perfectly viable option that can work better for certain types of business. Others prefer a platform – one foundation that gives the info they need across the business – and Flexera are, in my opinion, probably the leader in that space now. Adding Databricks and Snowflake cost management into their portfolio is a great move and puts them at the forefront of conversations around boardrooms…

The Flexera announcement is here – https://www.flexera.com/about-us/press-center/flexera-expands-its-finops-solution-with-agentic-and-ai-enabled-cost-optimization

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Microsoft retire Power Apps per App


Microsoft have (quietly) retired the Power Apps per App SKU.

They’ve not made an announcement, they’ve simply removed it from the January 2026 licensing guide.

Update: 14 days later, they finally made an official announcement here:

https://www.microsoft.com/en-us/licensing/news/power-app-per-app-end-of-sale

If this license is in use within your organisation, be prepared for changes at your next renewal. It’s still showing on pricelists as it will be available to existing customers until their next renewal but if you haven’t bought any already, you’ve missed your chance.

Sticking with licenses will mean a move to Power Apps Premium, which will be a price increase.

Alternatively, you can move to Power Apps Pay As You Go (PAYG) which is going to be Microsoft’s preference as they want as many customers on consumption billing as possible.

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Microsoft Product Terms: January 2026


Photo by Markus Winkler on Pexels.com

“Azure AI Foundry” renamed to “Microsoft Foundry” – a common move

Microsoft Security Copilot SCU included in M365 E5 – read more here:

https://cloudywithachanceoflicensing.com/2025/11/20/microsoft-security-copilot-scu-included-with-microsoft-365-e5/

Microsoft Defender Experts Suites P1 & P2 added. Can be added to:

Microsoft 365 E5
Microsoft Defender + Purview Suite FLW
Microsoft Defender Suite
Microsoft Defender Suite FLW

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Microsoft reduce cloud prices in Europe


As part of their twice early price harmonisation efforts, Microsoft have announced price decreases for “Commercial Cloud” products in certain European currencies from February 1st, 2026:

https://news.microsoft.com/source/2025/12/11/local-currency-price-adjustments-for-microsofts-commercial-cloud-2/

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Microsoft announce 2026 price increases


Following Microsoft’s Ignite 2025 conference, they have announced some feature additions to Microsoft 365…and some price increases to go along with it.

Copilot Chat

This free entry point to Copilot, included with various Microsoft products, will have new features to work with Outlook inboxes and calendars and standard access to Agent Mode. There will also be additional management and security capabilities around Copilot Chat.

Enhancing Copilot Chat makes sense as an entry point into M365 Copilot…effectively a “freemium” model albeit in a product you’re already paying for.

Addition Security Features

Microsoft Defender for Office 365 Plan 1, currently only available with Microsoft 365 E5, is being added to:

  • Microsoft 365 E3
  • Office 365 E3

It appears that all features are being added but that is to be confirmed.

Furthermore, URL checking features are being added to Office 365 E1, Business Basic, and Business Standard. The Business SKUs (including Premium) are all getting 50GB email inboxes too.

Boosting the security capabilities of lower SKUs is a welcome move, given the importance of security in today’s tech world.

Endpoint Management

A range of Microsoft Intune products are being added to both Microsoft 365 E3 and E5, these are:

  • Intune Plan 2
  • Intune Advanced Analytics
  • Intune Remote Help

While M365 E5 will also receive:

  • Intune Endpoint Privilege Management
  • Enterprise Application Management
  • Microsoft Cloud PKI
https://www.microsoft.com/en-us/microsoft-365/blog/2025/12/04/advancing-microsoft-365-new-capabilities-and-pricing-update/

Security Copilot and Microsoft 365 E5

The Microsoft announcement also talks about the adding of Security Copilot SCUs to Microsoft 365 E5. I covered that a few weeks ago here – https://cloudywithachanceoflicensing.com/2025/11/20/microsoft-security-copilot-scu-included-with-microsoft-365-e5/

2026 Pricing

Of course, these new features come at a cost. Pricing for the included suites will be increasing as of July 1, 2026 (aka Microsoft’s new financial year)…even Microsoft 365 E5.

https://www.microsoft.com/en-us/microsoft-365/blog/2025/12/04/advancing-microsoft-365-new-capabilities-and-pricing-update/

M365 E3 increases by 8% and M365 E5 by 5%. An organisation with 15,000 E5 SKUs will see an increase of $1.6 million over a 3-year contract – so understanding how the additional features may work for you will help you decide what steps to take at renewal.

Something that I did notice is that, while there is no mention of new features being added to the Frontline Worker F SKUs, they too are increasing in price – with M365 F1 rising by 33% and M365 F3 by 25%.

8,000 F3 users will lead to an increase of almost $600,000 over 3 years…seemingly with no new features to show for it.

Note as well that these increases will also apply to non-profit pricing.

See the Microsoft post here – Advancing Microsoft 365: New capabilities and pricing update | Microsoft 365 Blog

What’s it all about?

ARPU (Average Revenue Per User) is a key metric for Microsoft (and all SaaS publishers) and this will help keep that growing for several more quarters through their next financial year and beyond. Increasing the amount they earn from each user is key to driving shareholder value…especially as the amount of new users to buy M365 licenses is decreasing. Higher pricing also increase the Customer Lifetime Value (CLV), another important metric that helps businesses plan future campaigns and initiatives.

There is the risk that customers will become angry and disillusioned and look for alternatives. However it’s likely that Microsoft are confident in their view that there are very few real alternatives to many of their products and, even when they are available, the time and effort involved in swapping will discourage most organisations. While some may leave, the increased revenue from those who stay will more than offset the losses.

For some organisations, the additional products in E3 and E5 may mean that they can reshape their licensing slightly – dropping additional SKUs or possibly even dropping from E5 to E3. However, it is yet another price increase from Microsoft…particularly galling if you don’t need or want those additional features. Review your Microsoft budget projections and work to lock in the lower pricing for as long as possible.

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Microsoft SQL Server 2025 Failover Rights – staying or going?


Microsoft released SQL Server 2025 on November 18th 2025 and updated the Product Terms. However, the update has caused confusion and consternation amongst the Microsoft community – as it seems to suggest that failover rights as a Software Assurance benefit have been removed!!! 😱 (Spoiler alert – it’s almost certain they haven’t).

If you’re not familiar with this right it means, in a nutshell, that organisations who purchase SQL Server licenses with Software Assurance (SA) may license additional servers at no extra cost, as long as those servers are used only for disaster recovery/failover purposes. This is a long standing and widely used benefit – removing this right will mean one of 2 things:

  • Organisations’ SQL Server licensing will double/triple by millions of £/$/€ more per year
  • Organisations will be forced to have less resilient SQL Server systems, potentially leading to more downtime and lost revenue

Ultimately, if either of those were the case, I believe it would lead to a mass exodus of SQL Server customers. Microsoft may hope they would move to SQL Azure/SQL Server enabled by Azure Arc but I’d expect many to explore other options – Oracle, Postgres, Amazon RDS etc.

Largely because of that, and the fact that we have seen an increase in Product Terms errors over the last couple of years, I’m of the opinion that it is an error and will – eventually – be corrected…but it is worth looking at anyway.

As I was about to press publish, Peter Van Uden has commented on LinkedIn that he’s had confirmation that it is an error and will be corrected in the coming days.

Fellow Microsoft watcher Alex Golev noticed that the whole section had been deleted without replacement:

Other parts of the Product Terms still refer to this section which suggests this is an erroneous deletion…but it could also mean that they just didn’t edit those sections correctly.

This Microsoft page – https://www.microsoft.com/licensing/guidance/SQL?msockid=144db73d53b469e721fda347528468b6 which is licensing guidance for SQL Server 2025 still contains the failover rights information:

I genuinely believe this is an error. It is a huge change that would have significant consequences for most Microsoft customers, including their largest and most significant customers. Making this change would be an enormous risk and to do so without any official announcement or warning is unbelievable. I’m sure we’ll see a reversal in the coming days and that’s why I haven’t posted about this already.

However, I feel it does highlight the increasingly slapdash approach that has been taken to the Microsoft Product Terms since it became an online site, rather than document downloads. It seems likely to me that updates are being made by people with little understanding of software licensing and so they don’t see the consequence of their actions.

The fact that it’s 4 days since this change was made and there has been no word from Microsoft is disappointing – but hopefully that correction will appear soon.

So, don’t panic but do remember that these things happen and that Microsoft experts like me, Alex, Peter and more can be very useful in these scenarios. 😁

Update: The missing text has been reinstated so the panic is over. It does highlight the need for us all to be vigilant in the future though.

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Microsoft SQL Server 2025 – what’s new


SQL Server 2025 has been released and, while the licensing model remains the same, there are few changes worthy of note:

  • Developer now comes in “Standard” and “Enterprise” versions.
  • SQL Server Standard max compute capacity per instance increased from 24 to 32 cores
  • SQL Server Standard max buffer memory increased from 128GB to 256GB
  • SQL Server Express now supports a 50GB database size

The first will help with a common problem. With just a single Developer product, it contained all the features of both SQL Server Standard and Enterprise; often I see scenarios where a product/system was inadvertently created with a dependency on an Enterprise feature…hugely increasing the required licensing costs. As you can see, the price difference between Standard and Enterprise is significant:

https://cdn-dynmedia-1.microsoft.com/is/content/microsoftcorp/microsoft/bade/documents/products-and-services/en-us/cloud/SQL-Server-2025-Pricing.pdf

That price difference is also why the changes to maximums for compute capacity and memory are important. The increased allowances may mean that some SQL Server Enterprise scenarios within your environment could be migrate to Standard edition with a 2025 upgrade. If it’s a 32 core setup, that’s a $176,000 reduction.

Finally, the increased database size for SQL Server 2025 Express may increase its viability for production scenarios – although it retains the single CPU limit.

See a comprehensive list of features here – Editions and Supported Features of SQL Server 2025 – SQL Server | Microsoft Learn

Another change is that SSRS (SQL Server Reporting Services) is now replaced with PBIRS (Power BI Reporting Services). 

PBIRS is available to customers with SQL Server 2025 Standard and Enterprise but for prior versions, PBIRS is SQL Enterprise only and only with active SA.

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Microsoft Agent Pre-Purchase Plan (P3)


Microsoft have announced the Agent Pre-Purchase Plan (P3) – a new unified offer that covers both Copilot Studio and Microsoft Foundry services with one pool of credits.

How is the Agent Pre-Purchase Plan priced?

This annual commitment has 3 pricing tiers:

And covers a range of services:

Note the asterisks as always – some things are in preview and all are subject to change.

My big question is whether this offer sits alongside the recently announced “Copilot Credit Pre-Purchase Plan (P3)” or if it replaces it after just 3 weeks?! They seem slightly different but also very similar…

Microsoft Agent P3 – https://techcommunity.microsoft.com/blog/azure-ai-foundry-blog/introducing-microsoft-agent-factory/4470732

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Microsoft Security Copilot SCU included with Microsoft 365 E5


Microsoft Security Copilot uses Security Compute Units (SCU) to measure the compute power used to run various workloads. A quantity of these is now available with Microsoft 365 E5 licenses, rollout starting from November 18th 2025..

What SCU capacity is included with Microsoft 365 E5 licenses?

Each Microsoft 365 E5 license includes 0.4 SCU so, for example, an organisation with 1,000 M365 E5 licenses will have 400 SCU per month. The allocation resets monthly and unused SCU cannot be rolled over to the next month.

There is a maximum limit of 10,000 included SCU per month – this is equivalent to 25,000 M365 E5 licenses.

Pricing considerations

Should organisations exceed their M365 E5 included SCU quantity, overage SCU will be available for $6 per SCU on a Pay As You Go (PAYG) basis. That is 50% higher than the “Provisioned” SCU pricing of $4.

However, an interesting point – and something that adds complexity to these decisions – is that the included SCU provide more flexible billing than the traditional provisioned capacity model.

Under provisioned capacity, an organisation commits to a set number of SCU per hour and is charged for that amount even if actual usage is lower. With E5, the included SCU are drawn down only by the amount actually consumed each hour, which provides a more accurate reflection of usage and avoids paying for unused capacity:

  • With Provisioned Capacity, if you provision 5 SCU but only use 3.5 – tough, you pay for all 5.
  • With E5 Included, you would only use 3.5 SCU.

This addition is another move to keep organisations on M365 E5, rather than stepping down to E3 +add-on.

SCU included with Microsoft 365 E5 – https://learn.microsoft.com/en-gb/copilot/security/security-copilot-inclusion

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