Microsoft Australia emailed the offer to software subscribers on Thursday and admits the pricing structure and plans lacked clarity and fell short of its standards.
The apology comes 10 days after the Australian Competition and Consumer Commission launched legal action against Microsoft Australia and its parent company in Federal Court, claiming it had misled consumers about the price of their subscriptions and the availability of cheaper plans without AI tools.
The US firm could face multimillion-dollar penalties if the court finds in the commission's favour.
Microsoft Australia began sending messages to Microsoft 365 Personal and Family subscribers on Thursday morning, outlining available plans and apologising for a lack of clarity about them.
The plans include $16 and $18 per month packages that include access to the company's AI assistant Copilot, and $11 and $14 "classic" subscriptions that do not include the tool.
Microsoft said subscribers who opt to switch back to the cheaper plans before the end of 2025 would receive refunds dating back to payments made after November 30, 2024.
"Our relationship is based on trust and transparency and we apologise for falling short of our standards," the email said.
In its lawsuit, the commission alleges Microsoft misled about 2.7 million subscribers into paying higher prices to maintain their subscriptions with Copilot added and were not advised of a cheaper alternative.
Only when subscribers sought to cancel their service were they told about a non-AI option, commission chair Gina Cass-Gottlieb said.
"We're concerned that Microsoft's communications denied its customers the opportunity to make informed decisions about their subscription options," she said.
In a statement, Microsoft Australia said the company should have done better.
"In hindsight, we could have been clearer about the availability of a non-AI-enabled offering with subscribers, not just to those who opted to cancel their subscription," the statement said.
"In our email to subscribers, we expressed our regret for not being clearer about our subscription options, shared details about lower priced alternatives that come without AI, and offered a refund to eligible subscribers who wish to switch."
While customer refunds could cost the company millions of dollars, Microsoft could also face large fines if the watchdog pursues and is successful in its lawsuit.
Maximum penalties for corporations found guilty of anti-competitive practices include a $50 million fine, three times the value of the misleading act, or 30 per cent of the company's adjusted turnover during the breach.
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