Microsoft does not sell software. Microsoft sells the right to use software. The price of that right depends on which of three counting systems applies: the number of people using it, the number of devices running it, or the number of processor cores hosting it. Per User licensing emerged to monetise cloud and mobility. Per Device licensing dates from the desktop era when one person sat at one machine. Per Core licensing was built for the data centre, where servers run headless and nobody logs in. The problem for every enterprise in 2026 is that all three models coexist, often within the same Enterprise Agreement. This independent guide dissects all three models, maps the decision logic for when each delivers the lowest cost, and identifies the optimisation opportunities most organisations miss.
This guide explains the three licensing models that underpin every Microsoft product. For the complete reference, see the Microsoft Licensing Guide 2026. For metrics specifics, see Licensing Metrics: Cores, Users, Devices. For beginners, start with Microsoft Licensing for Beginners.
Microsoft's licensing architecture is the product of three decades of adaptation. Each model was created to monetise a different era of computing. All three persist because enterprises still operate across all three eras simultaneously.
Per Device was the original model, born in the 1990s when computing meant one person sitting at one desktop PC. You bought a licence for the machine, and whoever sat at that machine was covered. Per Device licensing still governs products like Windows Desktop OS (Windows 11 Pro/Enterprise), certain Microsoft 365 Apps deployments, and Office LTSC for shared machines.
Per User emerged as workers became mobile, using a desktop at the office, a laptop at home, a tablet on the road, and a phone everywhere. Licensing every device separately was prohibitively expensive. Per User licensing solved this: one licence per person, entitling them to use the software on any number of their devices. This model now dominates Microsoft 365 (E3, E5, F1, F3), Dynamics 365, Power Platform, and the entire cloud subscription portfolio.
Per Core was designed for the data centre, where the relevant question is not "who is using it?" or "what device runs it?" but "how much compute infrastructure hosts it?" Windows Server and SQL Server are licensed by the number of processor cores in the physical server. See our Microsoft Licensing Metrics guide for the high-level framework.
The most expensive licensing mistake most organisations make is applying the wrong model. A company licensing Microsoft 365 Apps Per Device for 5,000 shared kiosk machines might save 60% by switching those devices to a Microsoft 365 F3 Per User licence for the frontline workers who use them. Conversely, a manufacturing facility licensing Windows Enterprise Per User for 200 workers who each use a single dedicated workstation is overpaying compared to Per Device. The metric must match the access pattern.
Per User licensing has become Microsoft's preferred model. Not because it is always cheapest for the customer, but because it generates the most predictable recurring revenue for Microsoft and aligns with their strategic push toward cloud subscriptions.
One licence per person. The user is entitled to install and use the licensed software on any number of their personal devices. Typically up to five PCs/Macs, five tablets, and five smartphones for Microsoft 365 subscriptions. The licence follows the person, not the machine. If a user leaves the organisation, the licence can be reassigned (subject to a 90-day minimum assignment period).
Microsoft 365 (E3, E5, F1, F3, Business plans): The core productivity suite licensed as a per-user monthly subscription. The E3 vs E5 vs F3 decision is one of the highest-impact licensing choices in any Microsoft estate. E5 costs roughly double E3, and most organisations have a significant population of users who do not need the E5 security and compliance features. Paying for E5 across the board when 60% of users could run on E3 or F3 is one of the most common and costly errors.
Dynamics 365: Each Dynamics module (Sales, Customer Service, Finance, Supply Chain Management, Human Resources) is licensed per user per month, with different user types: full users, team members, and self-service users. See our Dynamics 365 negotiation playbook.
Power Platform: Licensed per user per month, though Power Platform licensing also offers per-app and per-flow alternatives that can be cheaper for specific deployment patterns.
Microsoft Copilot: Licensed per user at $30/user/month on top of the M365 E3/E5 subscription. See negotiating Copilot licensing and assessing Copilot ROI.
Over-provisioning by edition: Assigning E5 to users who need E3 functionality. The delta is roughly $20 to $25/user/month. Multiplied across thousands of users, this is a six- or seven-figure annual cost. Ghost licences: Paying for users who have left the organisation, are on extended leave, or have duplicate accounts. In our EA optimisation engagements, we consistently find 8 to 15% of Per User licences assigned to inactive or departed users. Frontline worker over-licensing: Giving full E3/E5 licences to employees who only need email and basic document access. The F1/F3 SKU at $2.25 to $8/user/month serves this population at a fraction of the cost. Use our M365 Licence Optimisation Calculator to identify mismatches.
A professional services firm with 12,000 employees deployed Microsoft 365 E5 across the entire organisation, a $5.04M annual subscription. Our analysis found 3,200 employees (administrative and support staff) used only email, Teams, and basic Office apps, fully covered by E3. Another 1,800 frontline workers needed only Teams and email, covered by F3. Rebalancing the SKU mix: 7,000 x E5 + 3,200 x E3 + 1,800 x F3 = $3.38M annually. Annual savings: $1.66M, a 33% reduction from simply matching the SKU to the user's actual needs.
Per Device licensing is the oldest Microsoft model. It remains the right choice in specific scenarios that are frequently overlooked because the industry's attention has shifted to Per User.
One licence per device, regardless of how many users access that device. The licence is assigned to the physical machine (PC, tablet, thin client, kiosk, or workstation). Any number of users can access the licensed software on that device without needing individual licences. The device licence cannot be reassigned for 90 days.
Shared workstations: Factory floors, hospital nursing stations, call centres, retail POS terminals, and reception desks where multiple users share the same machine. If 50 users share 10 machines, Per Device licensing requires 10 licences; Per User requires 50. Kiosks and digital signage: Devices with no named user. Per User licensing does not apply because there is no user to assign the licence to. Lab and training environments: Computer labs with 200 machines used by rotating populations. Per Device is significantly cheaper than licensing every potential user. Dedicated single-user desktops: Where each user has exactly one device and never accesses Microsoft software from any other device, Per Device may be cheaper than Per User.
Device sprawl: As organisations issue laptops, desktops, tablets, and smartphones, Per Device licensing becomes expensive because each device needs its own licence. A user with a desktop and a laptop needs two device licences. One Per User licence covers both. BYOD incompatibility: Per Device licensing requires you to licence devices you do not own. This is operationally impractical. Per User is the only workable model for BYOD environments. VDI complications: Virtual Desktop Infrastructure creates complex Per Device counting scenarios. See our VDI licensing playbook.
Per Core licensing is Microsoft's model for server infrastructure. It is the most complex, the most expensive, and the most frequently misconfigured of the three models. The majority of Microsoft licensing compliance gaps we identify in enterprise audits are Per Core counting errors. See our Windows Server and SQL Server practical guide.
Server products (Windows Server and SQL Server) are licensed based on the number of physical processor cores in the server. The licence count is determined by counting every core in every populated processor socket, subject to minimums: a minimum of 8 cores per physical processor and a minimum of 16 cores per physical server. Core licences are sold in 2-packs. You always buy in increments of 2.
Windows Server comes in two editions: Standard and Datacenter. Both are licensed Per Core, but the editions differ dramatically in virtualisation rights. Standard Edition allows two VMs per core licence set. Datacenter Edition provides unlimited VMs on the licensed host. The edition choice depends on virtualisation density: if you run more than two Windows Server VMs per physical host, Datacenter is cheaper. See core-based licensing mechanics and the SAM professional guide.
SQL Server is available in two Per Core editions: Standard (capped at 24 cores, limited features) and Enterprise (unlimited cores, full feature set). The Per Core cost for SQL Server Enterprise is approximately $15,123 list price per 2-core pack. A 32-core server at list price costs $241,968 in licensing alone. SQL Server Standard also offers Server + CAL licensing as an alternative to Per Core. See the edition strategy guide and SQL Server Licensing Calculator.
Virtualisation under-licensing: The most common and most expensive Per Core error. Running SQL Server on a VMware host without licensing the physical cores creates immediate compliance exposure. See our virtualised environments guide and SQL Server virtualisation strategy. Core count misidentification: Organisations frequently confuse physical cores with logical processors (hyper-threads), use socket counts instead of core counts, or fail to account for multi-chip module processors. Minimum core floors: The 16-core server minimum is particularly painful for SQL Server Enterprise, where each unnecessary core licence costs over $7,500.
A logistics company runs SQL Server Enterprise on a VMware cluster with 4 hosts, each with 2x 20-core processors (40 cores per host, 160 cores across the cluster). The SQL Server VM is allocated 8 vCPUs. The IT team purchased 8 core licences, believing they only needed to licence the vCPUs. Microsoft's position: without Software Assurance and Licence Mobility, all hosts in the cluster must be licensed. At $15,123 per 2-core pack, the compliance gap: 80 two-core packs x $15,123 = $1.21 million. The IT team's 8-core purchase covered $60,000. The gap is over a million dollars from a single virtualised SQL Server instance.
| Scenario | Best Model | Why | Cost |
|---|---|---|---|
| Knowledge workers with multiple devices | Per User | One licence covers desktop + laptop + phone + tablet | $$$ |
| Frontline workers (email + Teams only) | Per User (F1/F3) | Low-cost SKU covers limited functionality needs | $ |
| Shared workstations (factory, hospital, call centre) | Per Device | 10 machines x many users costs less than many users x Per User | $$ |
| Kiosks and digital signage | Per Device | No named user exists to assign a Per User licence to | $ |
| Computer labs with rotating users | Per Device | 200 devices costs less than 2,000 potential users | $$ |
| BYOD environment | Per User | Cannot practically licence employee-owned devices | $$$ |
| Dense virtual server environment (>2 VMs/host) | Per Core (Datacenter) | Unlimited VMs per host for a single core licence set | $$$$ |
| Small physical servers (1 to 2 VMs) | Per Core (Standard) | Standard covers 2 VMs per licence set, cheapest for low density | $$ |
| SQL Server with few users | Server + CAL | CAL-based licensing avoids the full Per Core cost | $$ |
| SQL Server with many/unlimited users | Per Core | CAL count exceeds Per Core cost at scale | $$$$ |
| Azure hybrid (on-prem + cloud) | Per Core with SA | Azure Hybrid Benefit converts on-prem licences to cloud savings | $$$ |
Your knowledge workers are Per User. Your factory floor is Per Device. Your data centre is Per Core. The danger is managing them as if they are one model. Applying Per User everywhere because it is simpler, or licensing everything Per Device because "that is what we have always done." The optimal Microsoft licensing posture is a portfolio of models, each applied to the workload it was designed for. The savings from correct model selection typically run 15 to 30% of total Microsoft licensing spend.
Virtualisation introduces complexity that multiplies across all three licensing models and is the single largest source of Microsoft audit findings.
Windows Server and SQL Server Per Core licensing in virtualised environments follows a specific hierarchy. Without Software Assurance: you must licence the physical cores of the host. Virtualisation does not reduce the core count. With Software Assurance: you can license individual VMs based on their virtual core count (minimum 8 cores per VM), and you gain Licence Mobility rights allowing VMs to move between hosts without relicensing. For Windows Server in virtualisation and container environments, Datacenter Edition is particularly valuable because it permits unlimited VMs regardless of whether they move between hosts. See our virtualised environments guide.
Virtual Desktop Infrastructure creates a special licensing challenge. A single VDI session can require three separate licence components: a Windows Enterprise licence for the virtual desktop, a Windows Server Datacenter licence for the host (Per Core), and appropriate CALs for Remote Desktop Services. See our remote work and VDI licensing playbook and Entra ID licensing guide.
The intersection of on-premise licensing models with Azure cloud services is where Microsoft's licensing architecture reaches its maximum complexity and where the greatest optimisation opportunities exist.
Azure Hybrid Benefit (AHB) allows organisations with existing Windows Server or SQL Server licences (with active Software Assurance) to apply those licences to Azure VMs, effectively eliminating the Windows or SQL Server component of the Azure VM cost. AHB can reduce Azure VM costs by 40 to 80%. The benefit requires Per Core licences with active SA. Per Device licences do not qualify. See our BYOL vs Azure Licensing Calculator and our Azure cost optimisation playbook.
Windows Server CALs cover access to on-premise Windows Servers. They do not cover access to Azure-hosted Windows Servers. Organisations running hybrid environments need CALs for the on-premise component and Azure subscriptions for the cloud component. Use our cloud migration licensing implications guide to plan the transition.
Azure Reserved Instances (RIs) provide discounted VM pricing in exchange for 1- or 3-year commitments. When combined with Azure Hybrid Benefit, RIs create double-stacked discounts that can reduce Azure compute costs by 60 to 80%. See our Azure commitments negotiation guide and Azure spend management guide.
Software Assurance (SA) is Microsoft's maintenance and upgrade programme, an annual fee (typically 25 to 29% of the licence cost) that provides version upgrade rights, planning services, training vouchers, and critically important virtualisation rights and Azure Hybrid Benefit eligibility.
Per Core products in virtualised environments: SA provides Licence Mobility and enables VM-based core counting instead of physical host counting. For SQL Server and Windows Server in VMware or Hyper-V environments, SA is essentially mandatory. The cost of licensing without SA's virtualisation benefits is 3 to 10x higher. Azure Hybrid Benefit: Only available with active SA. The AHB savings typically exceed the SA cost by 2 to 5x. Version upgrades: SA includes rights to deploy the latest version. Without SA, you are locked into the version you purchased.
Stable, non-virtualised environments: A physical server running a single instance of Windows Server Standard that will never be virtualised, never moved to Azure, and does not require the latest version gains minimal value from SA. Products approaching replacement: Paying SA on SQL Server licences being migrated to Azure SQL Database within 12 months. Over-provisioned SA: SA applied to licences that exceed your actual deployment (shelfware SA). See our Software Assurance CIO Playbook and SQL Server-specific SA benefits.
Strategy 1: SKU Right-Sizing (Per User). Audit every Microsoft 365 licence assignment against actual usage. Move E5 users who do not need advanced security/compliance to E3. Move E3 users who only use email and Teams to F3. The typical enterprise can reduce Per User costs by 15 to 30% through SKU right-sizing alone. Use our M365 Licence Optimisation Calculator and the M365 plan selection playbook.
Strategy 2: Shared Device Conversion (Per Device). Identify workstations shared by multiple users and convert from Per User to Per Device licensing where the economics favour it. A call centre with 200 shared machines used by 800 agents on rotating shifts needs 200 Per Device licences, not 800 Per User licences. The savings are 75% in this scenario.
Strategy 3: Datacenter vs Standard Edition Analysis (Per Core). Count the Windows Server VMs per physical host across your estate. Any host running more than two VMs should be evaluated for Datacenter Edition. Most organisations are using the wrong edition on at least 20% of their hosts. See our Windows Server and SQL Server hybrid licensing playbook.
Strategy 4: Azure Hybrid Benefit Maximisation. Ensure every eligible Windows Server and SQL Server Per Core licence (with SA) is applied to Azure through AHB. Many organisations have AHB-eligible licences that are not being used. The savings are typically 40 to 80% per eligible VM. Our BYOL vs Azure Calculator identifies the opportunity.
Strategy 5: CAL Model Optimisation (Per User vs Per Device). Windows Server and SQL Server CALs can be purchased Per User or Per Device. The optimal choice depends on the ratio of users to devices. If users outnumber devices, Per Device CALs are cheaper. If devices outnumber users, Per User CALs are cheaper.
Strategy 6: Licence Elimination for Redundant Products. Eliminating redundant licences, products you are paying for twice because one is included in a bundle you already own, delivers immediate savings with zero operational impact.
Strategy 7: True-Up Governance. Microsoft EA true-ups are annual reconciliations where you report and pay for any licences deployed beyond your contracted quantities. Implement a quarterly internal true-up process that tracks licence additions in real time. See our true-up guide and risk assessment tool.
Applied together, these seven strategies typically reduce total Microsoft licensing spend by 20 to 35% for enterprises that have never undergone a formal optimisation. For a company spending $8M annually, that is $1.6M to $2.8M in recurring savings, achieved without changing any technology, reducing any capability, or degrading any user experience. Our Microsoft EA Optimisation Service delivers this analysis, and our EA Renewal Readiness Assessment ensures you capture these savings before your next renewal.
For most products, yes. Windows Server and SQL Server CALs can be mixed: some users licensed with Per User CALs and some devices with Per Device CALs. However, you must be consistent per entity. A specific user is either covered by a User CAL or by the Device CAL on the machine they are accessing, not both. For Microsoft 365, the Per User subscription is the primary model, but Microsoft 365 Apps can be licensed Per Device for shared machines through a separate SKU. Each access point must be covered by exactly one licence, with no gaps and no double-counting.
Microsoft counts physical cores, not logical processors, not hyper-threads, not virtual CPUs. A dual-socket server with two 16-core processors has 32 physical cores and requires 32 core licences (16 two-core packs). Hyper-threading does not affect the core licence requirement. The 16-core server minimum and 8-core processor minimum still apply. In virtualised environments, you can choose to licence the VM's virtual cores instead of the host's physical cores, but only with Software Assurance and subject to the 8-core VM minimum. See our core-based licensing mechanics guide.
It depends entirely on which benefits you will actually use. SA costs 25 to 29% of the licence price annually. SA is clearly worth it when you are running virtualised Windows Server or SQL Server (Licence Mobility and VM-based counting), using Azure Hybrid Benefit (SA is required for AHB eligibility), or you need version upgrade rights. SA is not worth it when you are on stable, non-virtualised infrastructure with no Azure plans, not upgrading to newer versions, or paying SA on shelfware. See our Software Assurance playbook.
Microsoft audits focus on three areas: Per Core under-licensing (SQL Server and Windows Server in virtualised environments), Per User/Per Device over-deployment (more users or devices accessing Microsoft products than licences purchased), and CAL shortfalls. The most common finding is SQL Server in VMware environments where the physical cores were not licensed. See our Audit Defence Service and the Audit Survival Checklist.
The EA vs CSP vs MCA decision depends on your organisation's size, purchasing pattern, and cloud strategy. Enterprise Agreement (EA) is best for 500+ users needing centralised licensing and volume discounts. Cloud Solution Provider (CSP) offers monthly flexibility for fluctuating user counts. Microsoft Customer Agreement (MCA) is Microsoft's newer framework. See our MCA guide and Enterprise Agreement Guide.
For any organisation spending $2M+ annually on Microsoft licensing, independent advisory pays for itself many times over. The complexity of managing three licensing models simultaneously, across on-premise, virtualised, and cloud environments, combined with opaque pricing, SA optimisation opportunities, and Azure Hybrid Benefit mechanics, creates a surface area that most internal teams cannot fully optimise without specialist support. Our Microsoft Advisory Services cover the complete lifecycle. Visit the Microsoft Knowledge Hub for additional resources, or explore our Assessment Tools.
Redress Compliance analyses your Microsoft licensing across Per User, Per Device, and Per Core. We identify the optimal metric, the right SKU mix, and the savings available at your next EA renewal. Fixed-fee. 100% vendor-independent.
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