What Are the Different Microsoft Licensing Models?
- Volume Licensing: This is for businesses needing multiple licenses.
- Microsoft 365: Subscription-based service for software and cloud.
- OEM Licensing: Pre-installed on devices.
- Retail Licensing: For individual consumers or small businesses.
- Cloud Solution Provider (CSP): Reseller-based, cloud-centric model.
What Are the Different Microsoft Licensing Models?
Microsoft offers a broad range of licensing models designed to meet the diverse needs of organizations, from small businesses to large enterprises and even educational institutions, non-profits, and government entities.
The licensing structure is tailored to accommodate varying software access, support, scalability, and pricing flexibility requirements.
In this article, we will explore the core Microsoft licensing models, their key features, and how organizations can navigate them to optimize their software investments and ensure compliance.
Core Licensing Models
Microsoft’s licensing framework is organized into three primary categories determining how software and services are licensed. These categories are:
- Online Services
- Desktop Software
- Server Software
Each category is designed to cater to different organizational needs. Some offer subscription-based pricing, while others are based on traditional one-time purchases.
Let’s examine each of these models more closely.
1. Online Services
Online services are subscription-based offerings that provide organizations with access to cloud-based solutions. These scalable services allow businesses to pay for only what they use. The pricing model generally follows a per-user or consumption-based approach, meaning that the more users or resources you need, the higher the cost.
Microsoft’s cloud services, such as Microsoft 365 (formerly Office 365), Azure, and Dynamics 365, fall under this category. These services allow organizations to leverage the power of cloud computing without investing heavily in on-premise infrastructure.
One of the key benefits of online services is their flexibility. Businesses can scale up or down based on their usage needs, ensuring they always pay for what they consume.
2. Desktop Software
Desktop software includes traditional Microsoft products installed directly on individual computers or devices. These include Windows and Microsoft Office, two of the world’s most widely used software suites.
Desktop software is generally available through two types of licenses:
- Perpetual Licenses: A one-time upfront payment granting the user the right to use a specific software version indefinitely. However, perpetual licenses do not include automatic upgrades, which can be an issue if you want access to the latest features or security updates.
- Subscription Licenses: A subscription-based model, such as Microsoft 365, allows users to pay monthly or annually for access to the latest versions of Microsoft software. This model includes regular updates and support, ensuring users have the most up-to-date tools.
3. Server Software
Server software licenses cover products designed for server environments, such as Windows, SQL, and Exchange Server. These licenses are more complex, especially when used in virtualized environments where multiple virtual machines (VMs) are run on a single physical server.
Server software licensing can involve:
- Core-based licensing: Where the number of processor cores in the server determines the license cost.
- CAL-based (Client Access License): Where businesses pay for licenses based on the number of users or devices accessing the server.
Server software licenses are often customized to suit the specific needs of a business, and managing these licenses requires careful planning, especially in highly virtualized or cloud environments.
Read about Microsoft Licensing changes.
License Duration Types
Microsoft offers two primary types of licenses based on the duration of use: perpetual licenses and subscription licenses.
1. Perpetual Licensing
Perpetual licensing allows an organization to use a specific version of the software indefinitely.
Key characteristics include:
- One-time upfront payment: Organizations pay a lump sum to acquire the software.
- Permanent right to use: The software can be used as long as the organization desires, and no ongoing payments are required.
- No included maintenance or upgrades: Perpetual licenses typically do not include future software updates or enhancements. However, Software Assurance can be purchased to add benefits like upgrade rights, technical support, and access to new versions.
2. Subscription Licensing
Subscription licensing is a more flexible, modern approach that allows organizations to pay for access to software regularly, typically monthly or annually. Features include:
- Regular monthly or annual payments: Businesses make periodic payments to access software instead of a one-time payment.
- Access to the latest versions: Users can always access the most up-to-date software versions with a subscription license.
- Technical support and maintenance are typically included in subscription licenses, reducing the risk of software obsolescence or security vulnerabilities.
- Scalability: Subscription models are often easier to scale, allowing businesses to add or remove users as needed.
Measurement Units
Microsoft employs various units to measure and charge for licenses, depending on the product and the organization’s specific needs.
The most common units of measurement include:
1. Per-User Licensing
This model assigns a license to individual users, allowing them to access software across multiple devices. It is particularly useful for businesses that want to enable employees to work from different locations or devices.
2. Per-Device Licensing
Under this model, licenses are tied to specific devices rather than users. This model works well for organizations where multiple users share a single device, such as in a call center or kiosks.
3. Capacity-Based Licensing
Capacity-based licensing charges organizations based on their usage of system resources, such as processor cores or storage. This model is often used for server-based software, where resources like processing power and storage must be scaled up or down based on demand.
4. Consumption-Based Licensing
Consumption-based licensing, commonly found in cloud services like Microsoft Azure, bills organizations based on their actual usage of services. For example, a business will be charged accordingly if it uses more storage or computing power in a given month.
Volume Licensing Programs
Microsoft offers several volume licensing programs to cater to the needs of small businesses, large enterprises, educational institutions, non-profits, and government entities.
These programs are designed to make it easier for organizations to manage licenses and access discounted pricing.
Small Business Options
For organizations with fewer than 250 devices, Microsoft offers several volume licensing options:
- Open Value Agreement: A three-year perpetual agreement that includes Software Assurance, allowing businesses to stay up-to-date with the latest versions of Microsoft products.
- Open Value Subscription: A three-year subscription-based model that provides flexibility and lower upfront costs, with the option to adjust the number of users as business needs change.
- Open License Program: A two-year perpetual license program that offers immediate access to software, with the option to add Software Assurance if desired.
Enterprise Solutions
For organizations with 250+ users, Microsoft offers more comprehensive licensing options:
- Enterprise Agreement (EA): A three-year perpetual agreement that includes Software Assurance, cloud, and on-premises services, providing a standardized IT platform across the organization.
- Enterprise Agreement Subscription: A subscription-based version of the Enterprise Agreement, offering a lower initial investment and greater flexibility with annual payments.
Specialized Licensing Programs
Educational Institutions
Microsoft offers discounted pricing and special programs for educational institutions.
These include:
- Access to discounted software pricing.
- Specific academic licensing programs that allow educational institutions to use Microsoft products at a reduced cost.
- Tools and software for students and faculty.
Non-Profit Organizations
Non-profit organizations that qualify can benefit from special pricing and donations:
- Access to donated software licenses.
- Discounts on Microsoft products through Microsoft Philanthropies.
- Support for mission-critical work, along with cloud service access.
Government Organizations
Government entities can access tailored licensing options that address the specific needs of public sector organizations:
- Specialized government pricing.
- Compliance-focused solutions to ensure that licensing meets regulatory requirements.
- Enhanced security and privacy features, with custom licensing arrangements available.
License Assignment Rules
Microsoft enforces certain rules around license assignment to ensure compliance.
Key principles include:
- Pre-Assignment Requirement: Licenses must be assigned to users or devices before using the software.
- Coverage for All Authorized Users/Devices: Every user or device accessing the software must be properly licensed.
- Virtual Environment Considerations: Licensing rules differ between physical and virtual environments, especially in cloud scenarios or when using virtual machines (VMs).
- Remote Access: Special rules apply to remote access scenarios, including external or mobile workers licensing.
Software Assurance Benefits
Software Assurance (SA) enhances standard licenses with additional benefits such as:
- Upgrade rights to new versions of software.
- Access to technical support for troubleshooting and assistance.
- Training resources to help users maximize the value of Microsoft products.
- Deployment rights for additional installations and configurations.
Compliance and License Management
Proper license management is crucial for organizations to maintain compliance.
Microsoft recommends that organizations:
- Regularly monitor usage and assignments to ensure that all software is appropriately licensed.
- Track software and license details to maintain accurate records.
- Regular compliance checks should be conducted to identify potential issues before they become costly problems.
FAQ: What Are the Different Microsoft Licensing Models?
What is Volume Licensing?
Volume Licensing offers discounted software licenses to organizations purchasing in bulk.
How does OEM Licensing work?
OEM Licensing allows software to be pre-installed on hardware, typically with a non-transferable license.
What is Retail Licensing?
Retail Licensing is purchased directly from stores or online. It’s for personal or small business use.
What is Subscription Licensing?
Subscription Licensing is a pay-as-you-go model where users access software as a service, such as Microsoft 365.
What is Cloud Licensing?
Cloud Licensing covers services like Azure, offering scalable licensing based on usage.
What is Academic Licensing?
Academic Licensing provides discounted rates for students, teachers, and educational institutions.
How is pricing determined for Volume Licensing?
Pricing for Volume Licensing is based on the number of licenses and the type of agreement.
Can I transfer an OEM license to a new computer?
No, OEM licenses are not transferable and tied to the original device.
Is Subscription Licensing more flexible than Retail?
Yes, Subscription Licensing allows users to pay monthly or annually and offers more flexibility in scaling.
How does Microsoft Azure licensing work?
Azure licensing is based on consumption, charging for specific services and resources.
Can I mix different licensing models?
Yes, businesses can combine different Microsoft licensing models to fit their needs.
Are there special offers for non-profits?
Yes, Microsoft offers discounted licenses for qualifying non-profit organizations.
How often do I need to renew Subscription Licensing?
Subscription Licensing is typically renewed annually, but users can also choose monthly plans.
Can I downgrade my software license?
Downgrading is sometimes possible, but it depends on the specific license terms.
What’s the difference between Microsoft 365 and Office 365?
Microsoft 365 includes Office apps and additional services like OneDrive and Teams, while Office 365 only includes Office apps.
