Microsoft SAM and License Optimization

Microsoft SAM and License Optimization

Microsoft software and cloud services often represent a significant portion of an organization’s IT budget. Yet many companies overspend on Microsoft licenses due to underutilization, over-provisioning, or suboptimal license choices.

A 2025 industry analysis found that over half of enterprise Office 365 subscriptions were not fully utilized, indicating huge savings potential through optimization.

This article focuses on strategies to reduce spend across Microsoft’s licensing estate (from Office 365 and Azure to on-premises products like Windows and SQL Server) by right-sizing licenses to actual needs, reclaiming and reusing licenses that would otherwise go to waste, consolidating workloads to maximize license efficiency, and leveraging entitlements and special programs to stretch your budget.

The aim is to empower SAM and IT procurement professionals with a toolkit of cost-saving measures that maintain compliance and service levels while trimming unnecessary expenditures.

Read about Microsoft Software Asset Management.

Identify and Eliminate Wasted Licenses

The first step in cost optimization is highlighting where money is spent but not needed.

Common areas of waste include:

• Unused or Inactive User Licenses: It’s common in Office 365/Microsoft 365 environments to find licenses assigned to employees who no longer use them – for instance, departed employees whose accounts weren’t deactivated, or users who never adopted a particular application. Regularly audit your user accounts for activity. Microsoft 365’s admin center provides reports on active users for Exchange, Teams, SharePoint, etc. Consider reclaiming that license if a user hasn’t logged in or used any service in months. CoreView (a Microsoft 365 analytics firm) has reported that better management of inactive O365 licenses can cut total O365 spend by around 10-15%. The quick win: immediately remove or reassign licenses for users who have left the organization or are dormant.
• Over-licensing with Higher Editions: Many organizations purchase premium editions (like Office 365 E5 or E3 plans, or Windows Enterprise upgrades) for broad swathes of users who don’t need those features. This “one-size-fits-all” approach wastes money. For example, a user who only needs email and basic Office apps could be on a Microsoft 365 Business Standard plan rather than an E3/E5. Similarly, not every server needs to run Windows Server Datacenter edition if Standard would suffice for the virtualization needs. The key is to align license levels with usage profiles. Identify users assigned to high-tier plans (E5, etc.) and verify if they utilize advanced features (advanced security, voice, analytics). If not, downgrading some users to more appropriate plans can save tremendously while meeting their needs.
• Shelfware – Purchased but Unassigned Licenses: Companies often buy more licenses than they immediately need, anticipating growth or to get volume discounts. For instance, you might have purchased 500 licenses of a product, but only 450 are in use, leaving 50 as “shelfware,” incurring costs with no return. Examine all your licensing counts versus actual assignments. If you consistently have a surplus, adjust your purchase quantities at renewal or use more flexible subscription models where possible. It’s better to scale up when needed than to over-commit and let licenses sit idle. Modern cloud licensing (like CSP programs or monthly subscription options) can help here by allowing month-to-month adjustments. At minimum, ensure any unassigned licenses are tracked, and have a plan to either deploy them (if they’re paid for anyway) or reduce them in the next agreement cycle.
• Redundant Software and Overlapping Tools: Overspending occurs when you pay twice for capabilities. For example, an E5 license includes advanced security features and Power BI Pro; if you’re also separately paying for a third-party security solution or another analytics tool, you might be duplicating costs. Conduct a rationalization exercise: List the major features of your Microsoft subscriptions and see if you have separate products that provide similar functionality. If so, evaluate if you can drop one in favor of the other. Perhaps you can eliminate a redundant VPN solution if you’re already entitled to Azure AD Application Proxy and Conditional Access with your Microsoft licenses, or stop a separate cloud storage subscription because OneDrive/SharePoint covers that need. Consolidating on capabilities you’ve already paid for in Microsoft licenses can reduce vendor sprawl and costs (while simplifying the environment). Of course, ensure the Microsoft feature meets your requirements before eliminating an incumbent tool – but often, companies don’t realize they’re double-paying for overlapping services.

Organizations often find immediate budget savings by systematically rooting out these waste areas. One real-world example: a global firm discovered nearly 20% of their Office 365 licenses were assigned to accounts without activity. By reclaiming and right-sizing those, they saved over $1 million in the next renewal. This kind of cleanup is the precursor to deeper optimization.

Read Microsoft SAM In Cloud Transition and Hybrid Licensing.

Strategies for Right-Sizing and Optimization

Once obvious waste is addressed, the next level is right-sizing licenses and usage to fit actual needs. This involves human licensing (user accounts, subscriptions) and infrastructure licensing.

Key strategies include:

• License Tiering by Role: Not every user needs the same level of software. Develop a license profile for each role or department in your organization. For instance, frontline workers or infrequent IT users might only need email and Teams access – they could use Office 365 F3 or E1 licenses (or even shared kiosk licenses) instead of a full desktop suite. On the other hand, power users like data analysts might justify E5 licenses for Power BI and advanced analytics. By mapping roles to appropriate license tiers, companies avoid giving everyone an expensive license many won’t fully utilize. Many organizations find they can downgrade a significant portion of users to lower-cost plans without impacting productivity. Conversely, they might upgrade a small percentage of those needing premium features rather than licensing everyone at a mid-level by default. This tailored allocation ensures you pay for exactly what each user needs, no more, no less.
• Continuous Usage Monitoring and Reallocation: Optimization is not a one-time project – set up a cadence (monthly or quarterly) to review license usage metrics. Microsoft 365 provides usage analytics (covering who is using which Office apps, storage consumed, etc.), and Azure has cost management dashboards to identify idle resources. Use these tools to find things like underutilized licenses or cloud services. For example, if a user hasn’t used a particular add-on (like an Audio Conferencing license) in 3 months, consider removing it until they need it. If a developer has an expensive Visual Studio subscription but hasn’t logged into the portal for a year, maybe you can allocate that subscription to someone else. Ongoing monitoring catches new waste as it arises (such as when someone changes roles and no longer needs certain software), so you can reassign or remove licenses promptly instead of accumulating waste over time.
• Implement a License Lifecycle Policy: Implement an automated license lifecycle management process to operationalize the above. This involves workflows for provisioning licenses when a user joins or changes role, and importantly, reclaiming licenses when a user leaves or no longer requires them. For example, integrate with HR: when an employee exits, an automated trigger could remove their Office 365 license and put it back into the available pool. Similarly, set rules that if an account is inactive for X days, it flags for review. By automating these checks and reclamations, you ensure license counts adjust dynamically with your workforce and usage patterns, preventing overspend from creeping back in. Many organizations use identity management or SAM tools to assist here (some ITSM systems can be configured to handle license assignments during onboarding/offboarding). The goal is a “use it or lose it” approach for licenses – they are dynamically allocated as needed and pulled back when not needed.
• Negotiate Contract Flexibility: Right-sizing isn’t only at the technical level – it’s also about how you procure. When negotiating agreements with Microsoft or resellers, aim for flexibility that allows cost optimization. For instance, if you’re in an Enterprise Agreement, remember you have an annual true-up/down opportunity – you can reduce license counts on the anniversary if your usage went down. Don’t miss that window; mark it in your calendar to adjust quantities. If you anticipate fluctuating needs (perhaps due to seasonality or project-based staff), consider purchasing some licenses through a Cloud Solution Provider (CSP) program or a monthly subscription, which allows month-to-month adjustments, rather than locking all licenses in an annual commitment. Many companies choose a hybrid procurement: a base of core users on annual (cheaper) commitments, and a buffer of extra licenses on flexible terms that can be scaled down. During negotiation, push for rights like transferability (to move licenses between users or subsidiaries freely) and clarity on refund/credit for reductions, if possible. While Microsoft’s newer commerce model has made mid-term reductions harder (you generally commit for the term), you can strategically choose shorter-term commitments for uncertain portions of your user base. The bottom line: align your contract structure with your optimization goals so that you’re not forced to pay for licenses you’ve right-sized out of.

Infrastructure and Cloud Optimization

Optimizing user licenses is half the battle; significant savings lie in optimizing server and cloud licensing.

Microsoft’s infrastructure products and Azure services present opportunities to cut costs if managed wisely:

• Consolidate and Virtualize to Maximize License Value: Review your server deployments on-premises for consolidation potential. For example, if you’re running many separate SQL Server instances on underutilized hardware, you may be paying for more licenses than needed. You can retire some licenses by consolidating databases onto fewer SQL Server hosts (especially if you own SQL per-core licenses with unused capacity). Similarly, suppose you have Windows Server Datacenter edition licensing on a host. In that case, that license allows unlimited VMs on that host – make sure you’re taking advantage by running all possible Windows Server VMs there instead of on another host that would require separate licensing. Conversely, suppose your virtualization density on certain hosts is low. In that case, you might downshift those from Datacenter to Standard edition licensing to save on Software Assurance renewals (Standard edition requires you to license per host per a limited number of VMs, but if you aren’t using the unlimited VM right of Datacenter, you might be overspending on it). This is sometimes called license re-harvesting: use the full capacity of what you’ve bought, and eliminate or reduce licenses that aren’t giving returns.
• Optimize Azure Usage and Licenses: Azure’s pay-as-you-go model is convenient but can lead to overspending without oversight. Use Azure Cost Management tools to find idle or underutilized resources – e.g., VMs running at 5% CPU or storage that’s allocated but empty. Rightsize or eliminate those resources to cut the bill. From a licensing perspective, leverage Azure Hybrid Benefit (AHB) whenever possible. AHB allows you to apply your existing on-premises Windows Server and SQL Server licenses (with active Software Assurance or subscription) to Azure VMs and databases, which dramatically reduces the Azure cost (you’re billed a lower compute rate, as if running Linux or as if the SQL license portion is removed). AHB can save roughly 40% of the VM cost for a Windows Server VM. For SQL Server, savings can be even greater – Microsoft cites up to ~85% when combining AHB with reserved instance discounts. Ensure you have an accurate count of available eligible licenses and apply them to Azure workloads through the portal or scripts. It’s a cost-saving if you own those licenses on-prem, using your investment twice. Also consider moving some workloads from expensive VM deployments to PaaS services like Azure SQL Database or Azure App Services, which might be more cost-efficient for the performance needed (and include the license in the service price).
• Use Reserved Instances and Savings Plans: For predictable Azure workloads, purchase reserved instances or Azure Savings Plans, which commit you to 1-3 years for substantial discounts (often 20-50% off versus pay-as-you-go). This isn’t a license per se, but a financial optimization. It pairs well with license optimizations – for example, reserve a VM at a discount and apply AHB to eliminate the license charge, yielding a big combined savings. SAM professionals should coordinate with cloud operations teams to forecast usage and lock in reservations for steady-state workloads. Be cautious not to over-commit: reserved instances are best for servers you know will run continuously (like a production database). Azure also provides budgeting and alerting tools, which can be used to avoid surprise costs.
• Dev/Test Environments Cost Control: Many organizations unnecessarily pay full price for development and test environments. Microsoft offers Dev/Test subscriptions for Azure (via Visual Studio subscriptions and the Azure Dev/Test offer), which provide discounted rates as long as the environment is non-production. Similarly, on-premises, Visual Studio with MSDN licenses allows running many Microsoft software products in dev/test without separate licenses for each server (covered under MSDN usage rights). Ensure your dev teams are using those benefits: e.g., connect your Azure subscriptions to your dev/test offers so that any VMs created for testing don’t incur licensing charges for Windows/SQL. By segmenting production vs non-production and using appropriate licensing (including free/trial/dev licenses where permitted), you avoid paying production rates for every environment. This requires coordination: tag resources as dev/test, educate developers on using the correct subscriptions, and periodically audit that test machines don’t unintentionally consume production licenses.

Leveraging Entitlements and Programs for Savings

Microsoft licensing comes with a variety of entitlements, benefits, and programmatic options that can be used to optimize costs if you know about them:

• Software Assurance Benefits: If you maintain Software Assurance (SA) on your licenses or are in subscription programs, take advantage of the benefits that come with it. For example, SA on Windows or SQL Server grants you rights to use newer versions at no additional cost, meaning you don’t have to buy new licenses when upgrading, which is a cost avoidance. SA on certain products provides License Mobility, which allows you to bring licenses to third-party clouds (like AWS or Google) without additional fees, potentially letting you shop for cheaper cloud hosting while using your existing licenses. SA can also include vouchers for training or planning services and support incidents, which, while not direct license cost savings, can save IT budget elsewhere (training or support costs). Ensure these are utilized so your money on SA yields full value. An often underused benefit is the Azure credit for SA: customers with enterprise agreements and SA sometimes get Azure credits or discounts – ensure you redeem those to offset cloud spend.
• Dual Use and Transition Rights: Microsoft provides “bridge” licenses and dual-use rights to facilitate transitions to the cloud. For instance, if you have an Enterprise Agreement for on-prem products and decide to move to Microsoft 365 or Azure, Microsoft offers transition SKUs or the ability to convert certain licenses. These typically come at a discounted rate to account for your investment on-premises. Use these to avoid double-paying during a migration. A concrete example: if you own Exchange Server licenses with SA and are migrating to Exchange Online, you can often get an Exchange Online user subscription at a transitional price or use a hybrid license key on your on-prem Exchange during migration. Microsoft 365 Enterprise plans (E3/E5) include on-prem server CAL rights – meaning once a user is licensed for M365 E3/E5, you don’t need to also buy them Windows Server, Exchange, SharePoint CALs separately for on-prem access. SAM pros should capitalize on this by not renewing redundant CALs in their next agreement once M365 licenses cover the workforce. In hybrid scenarios, ensure each user/device is covered by the most cost-effective license that grants rights to both environments, rather than layering licenses. For 180 days, Azure Hybrid Benefit even grants dual-use: you can use a Windows Server or SQL license both on-prem and in Azure simultaneously while migrating. Plan your cloud transitions to fit within that window to avoid extra costs.
• Choosing the Right Licensing Program: Microsoft offers multiple licensing channels (Enterprise Agreement, CSP, Microsoft Customer Agreement, Open programs (until recently), etc.). The right choice can save money. Large enterprises often get the best unit pricing via an EA, but an EA also requires a committed spend and often an upfront annual payment. Suppose your organization is smaller or needs more agility. In that case, a CSP (Cloud Solution Provider) program might allow you to pay only for what you use month-to-month, avoiding overspend on unused licenses (albeit at possibly slightly higher unit costs). Microsoft’s New Commerce Experience (NCE) allows mixing annual and monthly commitments for purely cloud services. For example, commit annually to your stable base of 500 users, but keep 50 licenses monthly to scale up/down with contractors. This prevents paying 12 months for someone who is a 3-month hire. Regularly review if your current license program still fits your consumption profile – companies sometimes stick with an EA out of habit when their scale has changed, or vice versa. Adapt the purchasing vehicle to maximize discounts and minimize lock-in where it doesn’t benefit you. Also, leverage any incentive programs – Microsoft and partners sometimes run promotions for moving to the cloud (e.g., free months, or a discount on Azure if you bring workloads by a certain date). Keep informed on these through your Microsoft reseller or independent advisors to take timely advantage.

Read Microsoft SAM – Audit Readiness and Response.

The table below summarizes key optimization opportunities and tactics across different areas of Microsoft licensing:

By deploying these tactics in combination, organizations can typically shave a substantial percentage off their Microsoft spending year over year while still delivering the necessary capabilities to users.

It’s about working smarter with what you have: ensuring every dollar spent on licenses either drives business value or is eliminated.

Cultivate a Cost-Conscious Licensing Culture

Cost optimization isn’t solely a technical exercise; it’s also cultural. SAM professionals should champion a mindset across IT and procurement that emphasizes value from licenses:

• Encourage application owners and business unit IT leads to justify the licenses and capacities they’re using periodically. When people know that unused resources will be reclaimed and that spending will be monitored, they tend to be more prudent upfront (for example, not requesting E5 licenses “just because” if they’ll be challenged on usage later).
• Incorporate cost metrics into your SAM reporting. Instead of just tracking compliance, report utilization rates. For instance, show the CFO or CIO a chart of Office 365 utilization vs licenses paid for – this can spur support for optimization projects.
• Reward or acknowledge teams that find ways to save money on licenses (while still meeting needs). If a development team consolidates databases and frees up a SQL Server license that can be used elsewhere, recognize that initiative.

Finally, remain vendor-neutral and critical in evaluating Microsoft’s pitches. Microsoft often promotes upgrading to higher license tiers or adding more cloud services to meet various needs.

While those might bring new capabilities, weigh them against the cost and whether cheaper alternatives exist. Optimization sometimes means saying “no” to unnecessary add-ons or cloud services that your Microsoft rep is suggesting, and instead fully utilizing what you already pay for.

In some cases, it might even mean considering non-Microsoft solutions if they offer significantly better economics for a particular workload – use that as leverage in negotiations (Microsoft might offer discounts if they know you’re considering a competitor for certain functions).

What SAM Professionals Should Do

• Baseline Your Usage: Start with data – get a clear inventory of all Microsoft licenses owned and how they’re being used. Identify immediate waste (inactive accounts, idle VMs, duplicate solutions) and take action to eliminate it.
• Right-Size Proactively: Don’t let “set and forget” happen with licenses. Implement processes to review and adjust license allocations regularly. Downgrade over-licensed users and deallocate unused subscriptions continuously, not just at renewal time.
• Maximize Existing Investments: Ensure you are getting every benefit from what you already pay for. Use Software Assurance rights (like Azure Hybrid Benefit, upgrade, and mobility rights) and utilize features in high-end licenses to replace third-party spending where sensible. Essentially, squeeze more value out of current licenses before buying new ones.
• Optimize Infrastructure Costs: Work closely with cloud and infrastructure teams to optimize server licensing and cloud consumption. This includes consolidating servers, fully utilizing virtualization, and taking advantage of cloud cost management tools, reservations, and license benefits. Treat cloud costs with the same discipline as on-prem licensing—establish governance so that resources (and their associated licenses) aren’t left running or over-provisioned without purpose.
• Plan and Negotiate for Savings: Before every agreement renewal or new purchase, do scenario planning. What if you reduced quantity X or switched product Y to a cheaper alternative? Come armed to negotiations with data on usage and a wish list of optimizations. Push Microsoft or resellers for flexibility—e.g., the ability to true-down licenses or to receive price protection on additional licenses you might need later. Don’t simply renew what you had last time; use each contract event to reset your actual needs and cut out bloat.
• Monitor and Repeat: Make license optimization a continuous cycle. Set KPIs for license utilization rates and track them. For instance, target a certain percentage of Office 365 licenses active, or a cap on Azure spend growth relative to usage. When those metrics drift in the wrong direction, convene an optimization review. By making it an ongoing program, you prevent overspend from accumulating, capturing savings in real time.

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