Microsoft sued for allegedly misleading millions of Australians with its AI pricing

Microsoft Faces Legal Reckoning Over AI Pricing Transparency in Australia

In a dramatic turn of events that underscores the growing scrutiny of tech giants’ pricing practices, Microsoft has been sued by the Australian Competition and Consumer Commission (ACCC) for allegedly misleading millions of Australians regarding its AI-integrated Microsoft 365 subscription plans.

The lawsuit, filed in federal court, accuses Microsoft of failing to adequately inform approximately 2.7 million personal and family plan subscribers about a critical third option available to them when the company announced a steep price hike tied to the inclusion of its AI assistant, Copilot.

The controversy centers around Microsoft's communication strategy following its decision to integrate Copilot into Microsoft 365 plans starting 31 October 2024. Customers were told they had two choices: accept the new AI-enhanced subscription at a significantly higher price or cancel their plan. The ACCC alleges that Microsoft deliberately omitted a third, less costly alternative, the “classic” plan, which retained all existing features without Copilot, and at the original price. This omission, according to the regulator, was not just misleading but strategically timed to only surface when users initiated cancellation procedures.

The price increase was substantial. The annual cost of the Microsoft 365 personal plan jumped 45%, from $109 to $159, while the family plan rose 29%, from $139 to $179. Microsoft communicated these changes through two emails and a blog post, which the ACCC claims falsely conveyed that the AI-integrated plans were the only viable path forward. ACCC Chair Gina Cass-Gottlieb stated that Microsoft’s failure to disclose the classic plan option may have coerced consumers into paying more than necessary, especially given the essential nature of office applications and the limited alternatives available.

The ACCC’s case is built on a foundation of consumer complaints and online commentary, including discussions on platforms like Reddit. The regulator is seeking penalties, injunctions, declarations, consumer redress, and costs. If found guilty, Microsoft could face fines up to $50 million, or potentially more depending on the financial benefits accrued from the alleged misconduct.

Microsoft, in response, has expressed its commitment to transparency and cooperation, stating that it is reviewing the ACCC’s claims in detail and remains dedicated to upholding legal and ethical standards.

This case could set a precedent for how AI integrations are marketed and priced, especially as more tech companies embed advanced features into their subscription models. It also raises broader questions about consumer rights in the digital age, particularly the obligation of corporations to present all available options clearly and honestly.

As the legal proceedings unfold, millions of Australians, and perhaps consumers worldwide, will be watching closely to see whether the courts hold Microsoft accountable for what the ACCC describes as a deliberate act of concealment.