How does Microsoft licensing work in the cloud?

In this introductory article, we will explain a bit about how Microsoft licenses its cloud products. We will focus most on the Microsoft 365 products, but several of the principles also apply to other products such as Dynamics 365 and similar.

Microsoft 365 licenses

If you go to Microsoft’s landing page for Microsoft 365, you will see that Microsoft has created different product packages for different segments:

How do you buy licenses?

Enterprise agreement (for companies with over 500 users).
The agreement is entered into with Microsoft and requires a commitment of at least three years, with annual adjustment. Can provide good discounts and predictability.

Directly from Microsoft’s websites.
No discounts, and usually paid with a credit card.

Through a Cloud Service Provider (CSP) partner.
CSPs with “reseller” status can sell licenses on behalf of Microsoft. They have a margin and can sometimes also give discounts. The CSP receives an invoice from Microsoft and invoices the end customer. Either directly, or as part of a service package.

About subscriptions and licenses

What is really the difference between a subscription and a license? A subscription is an agreement to purchase a number of licenses. It is fine to have several subscriptions, i.e. agreements, for the same product.

Commitment length and price
Microsoft sells licenses with monthly, annual, and in some cases three-year commitment. On annual and three-year subscriptions, you can choose on most subscriptions whether you want to be invoiced monthly or the entire period “up front”. Monthly subscription is 20% more expensive than annual subscription. The prices Microsoft presents on its websites are most often the monthly price for a subscription with an annual commitment.

Combine monthly and annual commitment
It is perfectly possible to buy both licenses with monthly and annual commitment on the same product. A company that needs e.g. 500 licenses, but who are unsure if they will have as many employees in a year, can choose to only buy 400 licenses as an annual subscription, and the rest on a monthly subscription.

Renewal
As standard, subscriptions are automatically renewed for a new period when they reach the end date. It is therefore important to be aware when the subscriptions you have are to be renewed, both if you need to reduce the number of licenses and if you plan to discontinue the use of a product.

Price changes
Microsoft adjusts its prices towards the US Dollar twice a year. It has been especially noticeable in Norway in recent years, with a price increase both in April 2023, and now most recently in February 2024. This is probably mainly due to the Norwegian krone weakening against the US dollar. If the krone should strengthen in the future, the price may go down at the next currency adjustment. It has done so previously in certain other markets.

When you purchase a subscription, you also lock the price of the subscription. If Microsoft increases (or lowers) the price in the subscription period, that change will not take effect until the subscription is renewed. If you increase the number of licenses on an existing subscription, the “price lock” also applies to these.

How to check which subscriptions you have
An administrator can check which subscriptions the company has in its tenant by going to Billing – Your products in Microsoft 365 Admin Center.

All subscriptions in the tenant from all sales channels will be displayed here. And you can check when the various up for renewal or expiration.

If you select a subscription, you will get more details. The example below shows a subscription for 10 Power BI Pro licenses that have been purchased directly from Microsoft with a credit card. If you have bought licenses via one or more CSPs, you can also see here who it is.

Licenses
As mentioned earlier, a subscription is an agreement to buy a number of licenses. And you can have several subscriptions for licenses for the same product. For example, a monthly and an annual subscription. In Microsoft 365 admin center under Your products – Licenses, you can check the total number of licenses you have in the tenant.

It is also possible to manage the licenses in Microsoft Entra admin center, or in the Entra ID section of the Microsoft Azure portal if you prefer that. It is exactly the same licenses that are displayed there.

Be aware that all licenses for a product, even if they are from different subscriptions, end up in the same “license bucket” in the tenant. It is therefore impossible to say who it is that uses the licenses that are purchased on, for example, a monthly subscription versus an annual subscription.

How is a license structured?

A cloud license from Microsoft contains service plans that provide access to the various components that are included in the license. Here is an example of some of the service plans that are included in Microsoft 365 E3:

Microsoft 365 E3 is a large license package and contains many “sub-products”. When assigning licenses, you can choose to deactivate certain service plans if you do not want some of the sub-products to be available to end users.

In addition, it is important to have a relationship with what is included in the various licenses, to avoid buying licenses with overlapping functionality for your users. We will go more in-depth on this in later blog posts.

License assignment

Licenses can be assigned direct or based on group membership. Group-based assignment is preferable, as this gives better control over the assignment, and it is easier to deactivate certain service plans for all users if needed.

Group-based assignment must be done in Entra ID.

The example here shows that the group LIC-Employees will be assigned a license for Office 365 E3 with all service plans activated:

There is different practice on whether to choose to have a 1:1 relationship between group and license, or whether to gather the assignment of all licenses a user group should have in the same group. Each company must assess for itself what suits best.

If we go to the group LIC-Employees in Entra ID, we see that the same group also assigns several other licenses to the members:

Under Licensed users on a license in Entra ID, you can see if the users are assigned the licenses directly, or if they have received the license due to a group membership:

Note that there is a requirement that the users who use this functionality must have a license that includes Microsoft Entra ID P1:

Summary

This was a quick overview of how licensing works in the Microsoft cloud. We will follow up with more articles in the future, which will delve deeper into the various issues that exists.

The topic may feel complex and extensive for many, and difficult to understand. We at Bsure are passionate about providing better insight into this, so that one is able to make the right choices.

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