Microsoft’s cloud licensing landscape is evolving rapidly. This comprehensive playbook covers the shift from EA to MCA, operational best practices under new agreement models, M365 and Azure subscription management, license hygiene, cost recovery strategies, self-service governance, true-up/true-down tactics, and a governance checklist to help CIOs maximise value, maintain control, and avoid common pitfalls.
Microsoft is moving away from Enterprise Agreements towards the Microsoft Customer Agreement (MCA), especially for customers who buy directly from Microsoft. Starting in 2025, Microsoft is phasing out EAs for many mid-sized customers in favour of MCA. Enterprise Agreement “Level A” customers (up to ~2,400 users) will no longer be able to renew under an EA and must transition to either an MCA or another model.
The MCA is a simplified, evergreen (non-expiring) digital contract designed to replace older agreements. Key characteristics include no minimum seat requirements, modular terms that update dynamically as you add services, and a single agreement covering all cloud services — Azure, Microsoft 365, Dynamics 365, Power Platform — without needing separate enrolments or annual renegotiation.
Unlike the rigid 3-year EA term, MCA is evergreen with monthly, annual, or 3-year subscription options. Organisations can scale licences up or down more fluidly without a hard renewal deadline every three years.
EAs typically require 500+ users and enterprise-wide coverage of core products. MCA has no minimum user/device requirement, eliminating “shelfware” licences purchased just to meet EA thresholds.
Under MCA, customers can add services or licences via Microsoft’s web portals without formal ordering paperwork. Microsoft’s New Commerce Experience enables even large enterprises to transact in a self-service manner.
MCA terms update dynamically to include new services and policy changes, reducing the need for signing new contracts — but also providing less negotiation leverage on contract language compared to a heavily negotiated EA.
Some EA-specific benefits may not carry over to MCA — including “Step-up” licences and certain Software Assurance perks such as training vouchers and long-term support rights. Review which benefits you rely on (dual use rights, licence mobility, etc.) and confirm how they translate under an MCA or CSP.
Recommendation: Begin planning your transition strategy well before your EA expires. Engage Microsoft or your licensing partner to understand MCA pricing and terms. Large EA customers with custom discounts will need to negotiate those into their MCA or consider a CSP partner who can offer comparable discounts.
Choosing the right licensing model involves understanding the operational differences. The table below compares the Enterprise Agreement, Microsoft Customer Agreement, and Cloud Solution Provider programme.
| Aspect | Enterprise Agreement (EA) | Microsoft Customer Agreement (MCA) | Cloud Solution Provider (CSP) |
|---|---|---|---|
| Contract Term | 3-year fixed enrolment. Renewal required to extend. | Evergreen (no end date). Subscriptions 1-month, 1-year, or 3-year. | No master term; ongoing via partner. Subscriptions typically 1-month or 1-year. |
| Minimum Commitment | 500+ users. Enterprise-wide coverage of core products. | No minimum. Start with any number of licences. | No Microsoft-set minimum. Partners may target SMB/enterprise as they choose. |
| Purchase Channel | Direct with Microsoft via LSP reseller. Formal quotes and signed agreement. | Direct with Microsoft via digital agreement. Purchases in admin portals. | Through a Microsoft partner. Partner handles quoting and provisioning. |
| Pricing | Discounted volume pricing. Price protection for 3-year term. Custom negotiation. | Standard web commerce rates unless custom deal via account team. Limited price lock. | Partner-set pricing (base + margin or discount). Monthly usually ~20% higher than annual. |
| Licence Additions | Add anytime; formal true-up at each anniversary. All subscriptions co-terminate. | Add or remove in real-time via admin portal. Each subscription independent. | Add/remove via partner. Similar flexibility to MCA but coordinated through partner. |
| Licence Removal | Not during term. Can reduce only at EA renewal. | Month-to-month: reduce any time. Annual: reduce at term end. | Similar to MCA. Monthly terms flexible; annual terms committed for year. |
| Admin Tools | M365 Admin Center + separate EA portals (VLSC, EA Portal). Reseller coordination. | Unified M365 Admin Center and Azure Portal for both management and purchasing. Self-service. | Microsoft admin portals for day-to-day; licence procurement through partner’s systems. |
| Software Assurance | Yes — on-prem licences with SA benefits (upgrade rights, training vouchers, hybrid use). | Limited/no on-prem SA. Cloud subscriptions include some hybrid rights but fewer SA benefits. | Varies. CSP can sell certain on-prem. Long-term SA benefits not provided via CSP. |
EA offers predictable costs and comprehensive benefits at the cost of flexibility. MCA provides greater agility and direct control but may lack some legacy perks. CSP sits in between — flexibility similar to MCA, but you outsource some management to a partner. Many organisations may mix models depending on the best pricing and management fit.
With an MCA in place, IT administrators have direct control to provision and de-provision licences in real time. Effective management of Microsoft 365 licences is critical to avoid overspending.
Navigate to Billing → Your Products to view each subscription and see purchased versus assigned counts. From here, you can increase or decrease licence quantity on the fly for flexible-term subscriptions. Under Users → Active Users, select users and use Assign/Unassign Licence to manage access — changes take effect almost immediately.
Consider using Group-Based Licensing via Azure AD (Entra ID) for efficiency. Assign a licence SKU to an Azure AD security group — when a user joins the group they automatically receive a licence, and when removed, their licence is revoked. This is especially useful for large organisations and onboarding/offboarding batches.
Decrease quantity at any time. Microsoft reduces the charge in the next monthly invoice. Most flexible option for fluctuating staff counts.
You commit to a number of licences for the year. You can unassign licences from users but generally cannot reduce the total purchased quantity until the annual term ends. Plan to turn off auto-renew or renew with a lower count if needed.
Keep ~10% of headcount on month-to-month subscriptions as a buffer for unexpected changes, even though the unit cost is slightly higher. This allows rapid downsizing without penalty.
New Hire Process: Map job roles to licence types (e.g., Salesperson → E5, Contractor → F3). Use Azure AD groups or scripts to automate based on department or role attributes.
Departures Process: Immediately disable accounts and reclaim licences when employees leave. Integrate with HR offboarding checklists to avoid “ghost users” consuming seats.
Periodic Access Reviews: Perform licence audits quarterly to identify users who haven’t logged in or used services for 30–90 days. Reclaim unused licences and reduce subscription counts accordingly.
Renewal Management: Even though MCA is evergreen, individual subscriptions have specific renewal dates. Treat these dates like EA anniversaries — review needs 1–2 months prior. Decide whether to reduce quantity, change edition, or cancel before auto-renewal locks you in for another full term.
With the move to MCA, Azure management becomes more integrated into the Azure Portal and follows a pay-as-you-go model unless you have separate Azure commitment discounts.
Under an MCA you have a Billing Account visible in the Azure Portal’s Cost Management + Billing section. This contains Billing Profiles (e.g., one per region or business unit, each with its own invoice), Invoice Sections (grouping subscriptions for invoicing), and Azure Subscriptions associated with invoice sections. This hierarchy is more flexible than the EA’s fixed Department/Account structure.
Establish an internal process or request form for creating new Azure subscriptions to avoid sprawl. Each subscription should have a clear owner, purpose, and naming convention.
Use RBAC to control who can manage resources or view costs. Enforce least privilege — give finance “Invoice Reader” roles, restrict who can create new subscriptions to a central cloud team.
Configure budgets for each subscription or resource group to catch runaway cloud spend. Use Cost Analysis to break down charges by service, resource group, or tag.
Mandate that all Azure resources are tagged with department, project, or environment information. Azure Policy can enforce required tags at resource creation — crucial for showback/chargeback.
With pay-as-you-go, you truly pay only for what you use. Continuously optimise — use Azure Advisor, shut down underutilised VMs, purchase Reserved Instances or Savings Plans where it makes financial sense.
Set up cost anomaly alerts. The agility of the cloud makes it easy to overspend quickly if something is misconfigured — real-time monitoring is essential for operational excellence.
EA to MCA Migration: When transitioning Azure from EA to MCA, resource access does not change — it’s essentially a billing swap. Work closely with Microsoft during migration to align invoice timing and inform resource owners of any new subscription IDs. After moving, decommission the old EA enrolment.
Poor licence hygiene can cost enterprises millions in wasted spend or compliance issues. These best practices ensure you use what you pay for — and pay only for what you need.
Use M365 Admin Centre Reports to identify inactive users (no login in 30–90 days). Cross-check that departed employees’ licences are removed. Leverage Azure AD access reviews or third-party tools to automate identification.
Align HR and IT so that departures immediately trigger account disabling and licence reclamation. Integrate HR systems with identity management — or at minimum, include “remove licences” on the last-day checklist.
Right-size licences to user needs. Frontline workers may only need F3 instead of E3. Conversely, buying E1 plus separate add-ons may cost more than a single E3. Review periodically whether users are in the correct tier.
If a user has M365 E5, don’t also assign standalone Power BI Pro or Office 365 E3. Regular audits of per-user licence lists can catch anomalies — watch for users with multiple Exchange Online plans.
Keep a centralised calendar of renewal dates. 90 days before renewal, review if you need the same quantities. Don’t rely on auto-renewal — treat each subscription like a mini-contract that needs a decision.
Present each department with a summary of their licence usage and costs (“licence scorecard”). This promotes awareness and accountability — department heads can identify discrepancies.
Many CIOs now include licence utilisation as a KPI: “<5% of licences unassigned” or “90%+ of purchased licences have active users.” These targets ensure efficient use of Microsoft investments and make optimisation a continuous discipline rather than an annual scramble.
As IT expenditures shift to subscription and consumption models, CIOs must implement mechanisms to allocate and recover costs internally. Showback reports costs without billing departments, increasing transparency. Chargeback directly bills departments for their usage, transferring cost ownership.
For M365: associate every user with a department/cost centre (via Azure AD or HR system). For Azure: tag resources with department or use separate subscriptions per business unit. Under MCA, use one Invoice Section per department.
Generate monthly or quarterly IT cost reports for each business unit. Present these alongside context — visibility alone often prompts questions like “Can we reduce that cost?” Start with showback to work out data kinks and build cultural readiness.
Coordinate with Finance to set up internal billing codes. For M365, charge a flat rate per user per month by licence type. For Azure, charge actuals with a month delay — or charge a fixed monthly budget and reconcile quarterly.
Export Azure cost data via APIs and combine with directory data to create automated dashboards. Use Power BI to join licence assignments with departmental information. Consider third-party IT Financial Management tools if complex.
Address Shared Services: For broadly shared infrastructure (company-wide SharePoint, ExpressRoute), allocate by user count, specific usage metrics, or treat as central overhead. Be explicit in policy about which services are charged back vs. centrally funded.
By implementing showback/chargeback, CIOs transform IT from a black-box cost centre into a transparent service provider. When departments see they “own” their cloud costs, they naturally optimise. Reinvest savings to fund further projects — positive reinforcement drives engagement.
Microsoft’s self-service purchase capability lets end users buy licences (Power BI, Power Apps, Power Automate, Project, Visio) using their corporate Azure AD account and a credit card — without IT involvement. By default, all eligible products are enabled for self-service in a tenant.
Compliance & Security: Users purchasing software on their own may bypass normal vetting. Shadow IT & Redundant Spend: IT may be unaware, leading to duplicate licences. Support Ownership: If a user leaves with an active subscription, it could continue charging indefinitely. Budgeting: Purchases outside standard procurement bypass spending controls.
In the M365 Admin Centre → Billing → Your Products → Self-service purchases tab, disable each product. This forces purchases through IT/procurement, maintaining oversight. Unless your organisation explicitly wants this freedom, disabling is generally safer.
If enabled, regularly check the Admin Centre for new self-service subscriptions. Communicate a policy that employees should not expense self-purchased Microsoft licences without approval. Take over and merge any discovered subscriptions.
Use the MSCommerce PowerShell module to enumerate products and disable self-service at scale. Schedule a script to run periodically — so when Microsoft adds new eligible products, they’re auto-disabled before anyone can purchase them.
Review the list of products with self-service capability immediately. Decide on a policy and configure your tenant. Update IT policies and educate procurement/finance — they may notice small charges on credit cards for Microsoft and can flag them to IT.
In legacy EA licensing, true-up was an annual ritual and true-down was only allowed at renewal. In modern subscription models (MCA/CSP), these concepts operate continuously.
True-Up: Annual assessment of usage increases at each EA anniversary. A final true-up occurs at the end of the 3-year term. True-Down: Generally not allowed mid-term. You can only decrease at renewal, setting a new baseline.
Review licence needs monthly (or at least quarterly). Make incremental adjustments instead of large, once-a-year jumps. If you open a new branch with 20 hires, simply add 20 licences — and remove them when those positions close.
If you foresee downsizing (e.g., a project ending), put those users on monthly subscriptions so you can cancel with minimal penalty. Commit only core, stable staff to annual terms — keep contingent/seasonal staff on monthly.
In MCA pay-as-you-go, you save money by not using resources (opposite of EA’s “use it or lose it” pre-paid commitment). Embrace auto-scaling, shut off VMs on weekends, and right-size instances continuously.
Limit who can adjust licence quantities to designated IT asset managers. Require a short justification for any reduction (ensuring no user loses needed access) and budget confirmation for additions above a threshold.
Financial Impact: Under EA, adding licences late in the year was financially advantageous; under MCA, you pay as soon as you add. Budget-wise, costs spread more evenly — no large surprise true-up bills. Communicate this change to your finance team so they’re prepared for the different spending pattern.
Months after layoffs or attrition, IT discovers hundreds of licences still allocated for former employees. Fix: Automate licence removal when accounts are disabled. Run monthly reports of disabled users with active licences. Audit after any large organisational change.
Multiple subscriptions across Azure and M365 created without central tracking — leading to duplication and management complexity. Fix: Establish a central registry of all subscriptions. Require tagging with owner and project. Consolidate same products that exist via multiple channels.
Upgrading everyone to E5 for a few features but then not deploying those features — paying ~50% more per user with no ROI. Fix: Pilot top-tier licences with a subset first. If E5 features are unused after a year, downgrade to E3 + targeted add-ons.
A 1-year Visio subscription auto-renews because no one remembered to cancel it — now you’re locked in and double-paying. Fix: Maintain a renewal calendar with alerts 60 and 30 days before each term ends. Assign responsibility to a specific person or team.
Users with multiple accounts (standard + admin + guest) each consuming a licence unnecessarily. Fix: Use Privileged Identity Management for admin roles instead of second accounts. Use Azure AD reports to check for multiple accounts sharing the same email.
Tribal knowledge about why certain licences exist disappears when staff leave. Fix: Document your licence allocation strategy and special cases. Record assumptions like “50 E5 kept for contingency — if unused by Q4, drop them.”
Investing in SAM tools but not taking action on their findings. Fix: Pair tools with process. Designate that every month an ITAM analyst produces a report and a manager signs off on actions to take.
Avoiding these pitfalls requires a blend of technical tools, process rigour, and people awareness. Regular internal audits and post-mortems help — if you find an unused licence that sat for a year, trace back how it happened and fix the process.
Use this checklist to ensure your Microsoft cloud governance framework covers all critical bases.
Compile a list of all Microsoft licensing agreements (EA, MCA, CSP) with end/renewal dates. List all active subscriptions — M365 SKUs, Azure subscriptions, Dynamics, Power Platform.
Designate who in IT is responsible for licensing management (ITAM lead for M365, FinOps lead for Azure). Ensure they have executive support and access to tools/data.
If moving from EA to MCA or CSP, create a project plan covering stakeholder engagement, process changes, Azure subscription migration, and communication to IT staff.
Periodically re-evaluate whether your current programme is the best fit. If user count dropped significantly, CSP or MCA may be better. If you’ve grown, an enterprise MCA with negotiated discounts may save money.
Have a single intake (IT service catalogue or ticket system) for any software requests. This prevents end-runs and ensures IT approves all additions.
Documented, mandatory step to remove/reassign licences at departures and role changes. Conduct periodic audits with HR to ensure no former employee accounts remain enabled.
Configure weekly licence usage emails, monthly Azure cost reports. Set threshold alerts for unassigned licences or Azure spend exceeding budget.
Quarterly meeting with IT asset management and finance to check licence counts vs. active users, evaluate downgrade/upgrade opportunities, review Azure spend, and forecast next quarter’s needs.
Start planning 3–6 months before major renewals. Gather usage data, decide changes, discuss pricing with Microsoft or your partner. Leverage renewal moments to optimise and negotiate.
Decide your stance on self-service purchases and configure accordingly. Disable if chosen, communicate in user guidelines, and schedule scripts to auto-disable new eligible products.
At minimum, produce showback reports for transparency. Ensure Azure tagging and user-to-department mapping is in place. Work with Finance on cost communication and recovery.
Have a process to evaluate new products (Copilot, Viva, security offerings). Who decides to purchase? How to pilot? What are the licensing implications? Be proactive, not reactive.
Engage regularly for insights on optimisation, upcoming changes, and price increases. Validate any advice independently. Use vendors’ knowledge to your advantage.
Keep proofs of licences — MCA acceptance, EA order history, records of licence assignments. Stay audit-ready even if audits are rare for purely cloud services.
Train IT staff on admin portal changes. Educate finance and business managers on how Microsoft licensing works — knowledge prevents missteps and makes cost conversations smoother.
By following this checklist, you establish a robust governance framework that ensures predictability in cost, agility in operations, and strategic alignment. Microsoft licensing need not be a painful compliance chore — with the modern cloud model and proper management, it becomes an enabler for innovation on a controlled budget.
Whether you’re transitioning from EA to MCA, optimising subscriptions, or building a governance framework — Redress Compliance provides expert, independent Microsoft advisory.