An in-depth look to navigate the maze of licensing for Microsoft’s productivity suite
Microsoft 365 is now one of the most widely adopted products in the business world, but also one of the most complex to license correctly. It’s often perceived as a “plug-and-play” productivity solution: all it takes is an account, and within minutes, users and departments can start working with Outlook, Teams, Word, and other familiar applications. This apparent simplicity has facilitated its adoption across all types of organizations, from small and medium-sized businesses to large multinational corporations. The numbers confirm its widespread adoption: according to DataStudio, over 3.7 million companies worldwide use Microsoft 365, representing about 1% of all global businesses. In the cloud productivity suite market, the platform holds approximately 30% of the global market share, ranking it right behind Google Workspace.
Behind its familiar interface and ease of adoption, however, lies a complex and constantly evolving licensing system full of variables: plans with similar names but subtle differences, key features sold as add-ons, contracts and purchasing channels with different rules, and time constraints that may prevent reducing the number of licenses before expiration. To this are added frequent updates and name changes, which make it difficult to understand what is actually being paid for and whether resources are being used optimally.
The result is a paradox: a tool adopted for its ease of use can turn, in terms of management and cost control, into a labyrinth where companies risk wasting budget and facing compliance risks.
Further complicating the picture is the coexistence of three main types of Office/Microsoft licenses within organizations.
The first is Microsoft 365, the current reference cloud suite and the basis of this guide. The second is Office 365, the “legacy” cloud suite: for the most part it was renamed in 2020 to Microsoft 365, but it is still present in some specific plans (such as Office 365 E1, E3, E5), especially in the enterprise sector. These plans include the main apps and cloud services, but not all the extra security and management features offered by the corresponding Microsoft 365 plans.
Finally, there are the standalone versions that can be purchased with a perpetual license, which Microsoft continues to sell. Editions such as Office 2024 do not include cloud services or feature updates: they are installed locally on a device and remain usable for their entire lifespan, receiving only security patches until the end of the support period.
This guide focuses on Microsoft 365 licensing, but it's important to remember that the simultaneous presence of Office 365 and standalone versions can lead to license duplication and budget waste if not managed carefully.
When it comes to Microsoft 365, license management revolves around two main elements: the plan you choose and the way the license is assigned.
1) Microsoft 365 Plans
Microsoft 365 plans are structured into two main families: Business and Enterprise. The key differences relate to the maximum number of supported users and the depth of features included.
The Business plans — Basic, Standard, and Premium — are designed for organizations of up to 300 users and differ mainly in the level of applications, services, and security they offer. The Basic plan provides the essential cloud services, such as Exchange Online, OneDrive, and Teams, along with the web and mobile versions of the Office applications.
With the Standard plan, full desktop versions of Word, Excel, PowerPoint, and Outlook are added, offering users a richer experience that can also be used offline. Finally, the Premium plan includes everything in the Standard plan, integrating advanced security and device-management tools such as Microsoft Defender and Intune. This family of plans is ideal for small and medium-sized businesses seeking a balance between costs and features, without the complexity of the Enterprise world.
The Enterprise plans — F1, F3, E1, E3, and E5 — have no user limits and are designed for medium to large companies or organizations with more sophisticated needs, especially in the areas of security, compliance, and analytics. F1 and F3 (only for Microsoft 365 plans) are intended for frontline workers who need limited but constant access to the web versions of the apps (F1 is view-only) and to the main cloud services. E1 (only for Office 365 plans) provides access only to the web versions of the apps and to cloud services. E3 expands the offering by including full desktop apps, unlimited storage, and advanced compliance and management features. E5 represents the highest tier, adding advanced security tools, data analytics, and integrated telephony.
One element to consider is that, following regulatory and commercial changes, Microsoft began in October 2023 to separate the Teams app from the Microsoft 365 and Office 365 packages sold in Europe (EEA and Switzerland), and then extended this new structure globally from April 1, 2024. In many cases, especially in Enterprise plans, Teams is no longer included by default and must be purchased as a separate license. This requires careful evaluation of the budget impact, both when choosing the initial plan and during renewal or upgrade. We also discussed this here, with the news that it will now be possible to choose packages with Teams included. This agreement was formalized in September 2025 when the European Commission approved the commitments proposed by Microsoft for greater interoperability with other systems and the separation of the commercial offering.
Completing the picture are the add-ons and modular components, which allow the basic capabilities of each plan to be expanded. These range from solutions like Enterprise Mobility + Security (EMS), for advanced user and device management and protection, to Teams Premium for advanced meeting and webinar features, to additional Microsoft Defender licenses and the recently introduced Copilot, which brings integrated artificial intelligence tools. These components offer great flexibility for customization, but if managed without a clear strategy, they can quickly drive up overall costs.
Between Business and Enterprise plans, variants with or without Teams, add-ons, and individual licenses, navigating the options becomes far from straightforward. To make understanding easier, there are resources such as the Microsoft 365 map created by Aaron Dinnage, a visual diagram that organizes plans, applications, and included services, providing a clear overview of what is offered with each license.
2) Licensing Models
Another crucial aspect is the type of license used. This affects not just cost, but flexibility and how services are accessed.
The most common model is the User Subscription License (USL): One license per named user, who can access Microsoft 365 from up to 5 PCs/Macs, 5 tablets, and 5 smartphones with no additional charges. Ideal for mobile or multi-device workers.
A less common but still relevant option is the Device Subscription License (e.g., through Microsoft Apps): The license is tied to a single device, allowing any user of that device to access included services. Suitable for shared workstations in places like front desks, factory lines, libraries, or classrooms.
There are also Tenant-level licenses, applied at the organizational level (e.g., SharePoint Online Storage Additional). These licenses are not tied to users or devices but enable specific features or services across the entire Microsoft 365 tenant — such as global security add-ons or extra storage capacity.
For those transitioning from on-prem environments, Microsoft 365 marks a clear shift from the traditional Server + CAL (Client Access License) model. In the legacy model, companies had to buy:
With Microsoft 365 Enterprise, cloud services are included — and in some cases, so are CAL rights for on-prem servers (Exchange, SharePoint, Skype for Business), useful in hybrid scenarios. This can eliminate the need for separate CAL purchases.
However, some CALs are not included, such as:
Many organizations still buy traditional CALs without checking if they’re already included in their Microsoft 365 Enterprise subscriptions — a proper analysis can uncover cost-saving opportunities and ensure full value from existing licenses.
The cost of Microsoft 365 does not depend only on the chosen plan, but also on the type of contractual agreement. This can influence discounts, minimum commitments, and flexibility in license management.
In enterprise contracts such as the Enterprise Agreement, in addition to volume discounts, a multi-year commitment on a minimum number of licenses is required, which allows prices to be locked for the entire duration of the agreement.In the CSP model, however, there is no multi-year commitment: one pays more for the same plan, but the number of licenses can be increased or decreased on a monthly basis.
Small businesses or micro-enterprises can also purchase Microsoft 365 directly from the Microsoft website at the full list price: this is the simplest option, but also the least cost-effective proportionally.
Even the choice of the purchase channel, even within the same type of contract, can significantly influence the final cost of Microsoft 365.
Proper Microsoft 365 license management isn’t just about avoiding non-compliance risks during audits, but also identifying concrete opportunities for budget optimization.
For example, an internal audit at one company revealed 120 active Microsoft 365 E3 licenses, but only 95 active users. The remaining 25 were former employees or staff with lower needs who could have used a Business Basic or F3 plan instead. By removing unused licenses and assigning more suitable plans, the company cut its annual spend by over 35% for that user segment.
This shows how regular license audits can turn compliance activities into tangible, ongoing savings. To explore how rising Microsoft 365 costs (such as the 2022 increase) impact IT budgets and discover effective optimization strategies.
At WEGG, we are expert Microsoft licensing consultants. If you need support to clarify Microsoft 365 licensing, monitor compliance, and optimize licenses—even in complex hybrid scenarios—contact us for a consultation.
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