Microsoft SAM In Cloud Transition and Hybrid Licensing
As organizations modernize IT, many find themselves in a hybrid state, straddling on-premises software, cloud infrastructure (IaaS/PaaS), and SaaS offerings like Microsoft 365.
Managing Microsoft licensing in this hybrid environment can be challenging. Companies must transition licenses from old models to new ones, control costs across different platforms, and ensure compliance rules are met. This article offers practical guidance for SAM professionals overseeing Microsoft licensing during cloud transitions and ongoing hybrid deployments.
We will discuss how to approach license transitions (moving from perpetual on-prem licenses to cloud subscriptions or vice versa), how to take advantage of hybrid use benefits and avoid double-licensing users or systems, strategies to keep costs in check during and after migration, and tips to remain compliant throughout.
With careful planning and understanding of Microsoft’s hybrid licensing provisions, SAM managers can turn the complexity of hybrid IT into an opportunity to optimize and future-proof their license position.
Read about Microsoft Software Asset Management.
Hybrid Licensing Challenges
In a hybrid deployment, some workloads run on-premises under traditional licenses. In contrast, others run in Microsoft’s cloud under subscription models, and often, they are integrated (e.g., directory synchronization, hybrid Exchange deployments).
Key challenges in this scenario include:
- Dual Environments, Dual Metrics: On-prem licensing often counts devices, cores, or users in a static environment, whereas cloud services might count active users or consumption dynamically. SAM teams must reconcile these different metrics. For example, you might have 500 users licensed under an Enterprise Agreement for on-prem software, and the same 500 now also enabled in Office 365. Without coordination, one might accidentally maintain an EA license for a user and a cloud subscription for that user, effectively licensing them twice. Avoiding such overlaps is critical – it requires holistic visibility of who/what is licensed in both environments.
- License Tracking Across Boundaries: Traditional SAM tools and processes might track on-prem installations well, but not cloud usage, or vice versa. In hybrid mode, you need tools and processes that cover both. This might mean integrating data from your Microsoft 365/Azure admin portals with your on-prem configuration management database (CMDB) or SAM database. A simple example: ensure that when a user is assigned a Microsoft 365 E3 license (cloud), you mark in your SAM records that this user’s on-prem access to Exchange, SharePoint, etc., is covered by that (via included CAL rights), so you don’t also count them in a CAL requirement. This mapping is a new task for SAM in the hybrid era.
- Keeping Compliance in Sync: Compliance rules can differ. Something allowed on-prem may not be in the cloud, and vice versa. For instance, you might be used to the idea of license mobility with Software Assurance, letting you move a license to third-party data centers (like AWS). If you shift to Azure SaaS, that concept changes to subscription assignments per user. Another example: on-prem Windows Server licensing requires covering all physical cores on hosts, but if you move those workloads to Azure, Microsoft’s data centers cover that underlying infrastructure, and you just need the VM subscription (or use Hybrid Benefit). During transition, it’s easy to get confused about which rules apply when. Clear delineation of what is running where, and under which license model, is necessary to apply the right compliance checks.
Understanding these challenges upfront helps you plan a transition that allows you to maintain control. Essentially, SAM professionals need to expand their purview to combined license management—not treating on-prem and cloud as separate silos but as parts of one integrated licensing strategy.
Read Microsoft SAM and License Optimization.
Planning License Transitions to the Cloud
When migrating to cloud services, whether moving from on-prem servers to Azure or from legacy Office apps to Microsoft 365, a well-thought-out transition plan for licensing will save money and headaches.
Here are important considerations and steps:
- Inventory Existing Licenses and Map to Cloud Equivalents: Start by documenting your current licenses related to the workloads moving to the cloud. For example, if moving an on-prem CRM to Dynamics 365 Online, list your Dynamics on-prem server licenses, CALs, etc. Microsoft often has migration paths or discounts for customers going to the cloud (sometimes called bridge licenses or From-SA SKUs). If you have Software Assurance on a product, you might be entitled to discounted cloud licenses (e.g., customers with Windows Server SA can get reduced rates on Azure via AHB; those with on-prem Exchange SA might get a credit towards Office 365). Engage your Microsoft account team or an independent licensing advisor to identify these mapping SKUs. A classic case is the “From SA” user subscription licenses that Microsoft 365 offers: if you owned Office, Windows, and CAL Suite on-prem with SA, you can transition to Microsoft 365 E3/E5 at a lower price than buying net-new, but you must request those SKUs. Plan to take advantage of such transition offers.
- Use Dual-Use Rights During Migration: Microsoft allows concurrent use of on-prem and cloud services for limited periods to facilitate migration. Azure Hybrid Benefit, for instance, grants 180 days of dual-use for Windows Server and SQL Server licenses – meaning you can use your license both on your old on-prem server and in an Azure VM simultaneously for up to 6 months while you transition. Similarly, certain Microsoft 365 plans include the right to run on-premises server software (Exchange, SharePoint, Skype for Business servers) for hybrid deployments. If you are migrating mailboxes to Exchange Online, Microsoft lets you keep a hybrid Exchange server on-prem for free (with a special license key) as long as you’ve licensed the users in the cloud. Leverage these allowances: they prevent you from having to double-pay for the same capability during a migration period. The key is to be aware of the time limits and conditions – mark those dates and ensure decommissioning or full cutover happens so you don’t extend beyond the grace period and fall into non-compliance.
- Avoid “Double Licensing” Users and Systems: During transitions, it’s easy to accidentally pay twice for the same user or server. For example, if you move a user from an on-prem Office + CALs environment to Microsoft 365, once they are fully on M365, you likely don’t need to include them in your on-prem license counts (their M365 license gives them access rights to on-prem servers too). Failing to adjust counts means you might renew unnecessary on-prem licenses. To manage this, maintain a running list of who has been migrated and update your license entitlement needs accordingly. Many organizations do this in phases: e.g., when 100 users move to M365, mark those 100 as no longer needing Office ProPlus volume licenses or Exchange CALs at the next true-up. In server context: if a certain application server is moved to Azure as a PaaS service, you can potentially retire the on-prem license for that server (or reallocate it elsewhere). The moment a workload is fully cut over, repurpose or plan to drop the now-unused on-prem license. One caution: ensure the migration is final and stable before terminating licenses; sometimes you might keep some on-prem licenses as a fallback until you’re confident, which is fine, but have a timeline for it.
- Staged Migrations and License Rebalancing: Rarely does everything move simultaneously; you might have a hybrid state for an extended period. You might need to maintain some on-prem licensing and cloud subscriptions simultaneously during that time. This is expected – the goal is not to over-maintain. For instance, if half of your users are on Exchange Online and half still on Exchange Server, you don’t need Exchange Server CALs for the first half (assuming their Exchange Online license covers access to any remaining on-prem Exchange for hybrid). You may be able to reduce your CAL purchases proportionally. On the infrastructure side, if 3 out of 10 on-prem SQL databases move to Azure SQL, you can reduce the cores licensed under your SQL Server Enterprise agreement accordingly (or use those licenses via Hybrid Benefit for the Azure side). Continually rebalance your entitlements to match the shifting center of gravity between on-prem and cloud. This might involve frequent communication with Microsoft or your reseller to adjust orders, or using flexible licensing programs (CSP, etc.) to add/drop as you go. It’s an effort, but it prevents overspending on duplicate capacity.
Read Microsoft SAM – License Compliance and Governance.
Hybrid Environment Cost Control
Running a hybrid can sometimes feel like paying for two environments. However, with smart management, you can keep costs optimized:
- Utilize Hybrid Benefits to the Fullest: We discussed Azure Hybrid Benefit (AHB) for VMs and databases. In a hybrid scenario, make it standard practice to check if an existing license can cover it whenever an on-prem workload is moved to Azure. For example, if you decommission a physical SQL Server that had eight core licenses with SA, and spin up an Azure SQL Managed Instance, apply those now-free licenses via AHB to the managed instance – you’ll only pay for the Azure compute, not SQL licensing in Azure. Also remember AHB applies to other products: Windows client OS licenses (Windows 10/11) can be brought to Windows Virtual Desktop/Azure Virtual Desktop scenarios if you own them, and there’s even an AHB for Linux (not Microsoft licensing, but Azure offers usage of Red Hat or SUSE subscriptions you own). The takeaway: whenever “hybrid” means you have existing entitlements, use them in the new environment to reduce cost.
- Don’t Overlap Maintenance Fees and Subscriptions Needlessly: A common situation: an organization with an EA has paid annual Software Assurance on, say, Exchange and SharePoint servers and CALs. Now, they are using Office 365 (which includes Exchange Online and SharePoint Online). At some point, paying for both doesn’t make sense. Plan the timing to drop SA renewals on products you are moving to cloud services. Microsoft’s licensing cycles are often 3 years; if you know you’ll be mostly on the cloud by next year, consider not renewing that third year of SA on the on-prem product (or reduce the quantity). There are “bridging” SKU programs where you can convert the remaining SA value into a credit towards the new cloud subscription – ask about those. For instance, Microsoft 365 “From SA” SKUs let you transition mid-term by acknowledging your prior investment. The key is to avoid paying continuing maintenance on a perpetual license when you’ve already shifted to a subscription that includes that functionality. If possible, coordinate with finance and your Microsoft rep to execute these transitions at contract anniversaries to maximize cost efficiency.
- Monitor Cloud Spend with the Same Rigor as On-Prem: In hybrid setups, it’s easy to focus on legacy license compliance and forget that cloud can spiral in cost if left unchecked. Implement FinOps principles (cloud financial management) for your Azure/O365 usage. Set budgets or thresholds so that if, for example, Azure usage in a project exceeds a limit, you get alerts. Use tagging in Azure for resources, distinguishing production vs test, or by department, to identify unused resources and attribute costs. Many companies in early cloud adoption see unexpected bills because resources were spun up and not shut down. SAM professionals should extend their governance to the cloud: treat cloud subscriptions similarly to licenses – they are assets that need lifecycle management (provision, monitor usage, deprovision if not needed). This ensures the hybrid environment doesn’t become a money pit.
- Optimize Network and Infrastructure for Hybrid: While not licensing per se, consider that running hybrid (especially with things like Azure ExpressRoute, data egress costs, etc.) can have cost implications. Plan which applications remain on-prem vs go cloud in a way that minimizes costly data transfer or duplication of systems. For example, suppose you keep an on-prem database but have moved the application to Azure. In that case, you might incur bandwidth costs and need extra licensing for connectivity tools – maybe it would be more cost-effective to move the database or keep the app on-prem until it can all move. Align your architecture with cost control in mind. Microsoft licensing costs often intersect with architecture: e.g., if you keep a read-intensive workload on-prem because it’s cheaper license-wise and only send occasional data to the cloud, that might save on needing a high-cost cloud DB tier. Conversely, retiring many on-prem servers might let you consolidate Windows licenses and use one Azure service, saving on hardware and support costs. Always evaluate the total cost of a workload in a hybrid context, not just the licensing in isolation.
Ensuring Compliance in a Hybrid World
Compliance oversight must evolve to cover hybrid use cases.
Consider these practices to remain compliant across both environments:
- Align User Licensing with Hybrid Use Rights: One big advantage of Microsoft 365 Enterprise licenses (E3/E5) is that they include the equivalent of CALs for on-prem servers (Windows Server, Exchange, SharePoint, Skype for Business) and even a Windows Enterprise OS upgrade for the user’s device. SAM managers should make sure they fully understand these rights. What it means is that if Bob has an E5 license, Bob can access a SharePoint on-prem server or file shares on a Windows Server without needing a separate CAL – E5 grants it. If most of your users are now on E3/E5, you might only need to maintain CALs for those who aren’t on those subscriptions (like maybe external users or a subset on cheaper plans). This avoids double licensing users. However, you must document this carefully, so that if an auditor asks, “Where are your CALs for these users?” you can show M365 licenses covered them. Record who is licensed via M365 versus who might still require standalone CALs. Also, track external user access – for some on-prem server scenarios, if external users (like clients or partners) use your systems, you might need an External Connector license if any user subscription does not cover them. The rules can get nuanced, so maintain a matrix of “license entitlements per user type” in your hybrid environment.
- License Mobility and Outsourcing Rules: Many organizations use a mix of Azure and other clouds or hosting providers. Microsoft has specific rules (updated in October 2022) about bringing licenses to third-party clouds. For example, Windows Server licenses without Software Assurance generally cannot be used on AWS/Google; even with SA, Microsoft introduced restrictions for certain products unless they’re in their “Authorized Outsourcer” program. Ensure that if you run Microsoft workloads on non-Azure cloud platforms, you comply with those licensing terms – often, it means having active SA or subscriptions that include license mobility. If you plan a hybrid cloud strategy beyond Azure, budget for keeping SA on those licenses or using the provider’s license-included options. Not doing so can lead to compliance gaps (e.g., running SQL Server on AWS EC2 using your license, but without SA post-2022, is not allowed – instead, you’d need to use AWS’s license-included instances or have grandfathered rights). As a SAM pro, be the checkpoint for any deployment that isn’t in your own data center or Azure: double-check the Product Terms to confirm if BYOL (Bring Your Own License) is permitted. This is a subtle but crucial compliance aspect in hybrid multi-cloud setups.
- Keep Hybrid Configuration Documentation: Auditors and Microsoft’s compliance teams are increasingly interested in hybrid scenarios because they know that’s where mistakes happen. To demonstrate compliance, keep architecture and license assignment documents on hand. For instance, if you’re running Exchange in hybrid mode (with some mailboxes on-prem, some in the cloud), keep a diagram or description showing which users are where and how they are licensed. If you use Azure Site Recovery (DRaaS) or similar, document how those failover instances are licensed (Azure DR rights allow some free time for failovers, etc.). Document use of any dual-use periods (like “We migrated these servers to Azure in Q1 2025 under Azure Hybrid Benefit dual-use; by July 2025, all were decommissioned on-prem”). Essentially, be ready to explain to an auditor, “Here’s how we are compliant even though we have systems in two places.” Clarity and evidence are your friends.
- Monitoring for Compliance Drift: Compliance can drift if not watched in a dynamic hybrid environment. Perhaps a VM that was supposed to be deleted after migration is still running on-prem months later (now unlicensed because you repurposed its license to Azure). Or vice versa – a cloud workload falls out of the scope you thought was covered. Implement monitoring, such as monthly checks on whether any “decommissioned” on-prem servers have been powered back on, or whether cloud usage matches license assignments. Some organizations tag servers or add markers like “Do not start – retired under cloud migration” on decommissioned VMs to avoid someone accidentally using them. Also, continue doing periodic true-ups for on-prem and scrutinize cloud admin portals for any accounts/resources created outside of the planned licensing approach (e.g., someone spinning up an Azure VM outside of IT’s knowledge using a personal account – that might violate corporate licensing structure or missing AHB usage).
Adapting to Evolving Licensing Policies
Microsoft’s licensing schemes in 2024–2025 are visibly shifting to favor cloud subscriptions.
SAM professionals must stay agile and informed as policies change, especially those affecting hybrid usage:
- Price Increases for On-Premises and New Subscription Requirements: Microsoft has been raising prices on perpetual licenses and pushing subscription-based models for traditionally on-prem products. For example, starting late 2025, new versions of certain server products (Exchange, SharePoint) are only available as subscription licenses (often called “Subscription Edition” for on-prem) rather than one-time buys. And the cost of standard on-prem licenses has been hiked ~10% or more. This is relevant if you plan to maintain some on-premises footprint: you might need to budget for higher costs or consider accelerated cloud moves if on-prem becomes too expensive. If Exchange Server vNext requires a subscription (or Software Assurance), some companies might go to the full cloud instead of paying again for on-prem. In hybrid terms, it may mean that if you keep an on-prem Exchange for hybrid, you must have SA or a subscription to stay supported, which could be covered if you have Exchange Online licenses for all mailboxes, but if not, you may need to invest. Keep an eye on these announcements to avoid running unsupported or unlicensed versions.
- New Commerce Experience (NCE) and Commitment Terms: Microsoft’s NCE for cloud services standardizes subscription terms and has stricter rules on cancellation. This affects hybrid flexibility – for instance, once you commit to X number of Microsoft 365 licenses annually, you can’t reduce that count until renewal (aside from a 72-hour cancellation window or using monthly subs). Plan your hybrid migration licensing with these rules in mind: if you expect to migrate users gradually, it might be worth putting migrating users on month-to-month licenses initially, even if slightly pricier, so you can reduce the count each month as you turn off on-prem usage. Once fully migrated and stable, commit to an annual term for better pricing. Essentially, match your subscription commitment lengths to your project timeline. This is a new nuance SAM managers must manage – earlier, under legacy CSP or EA, there was a bit more flexibility to reduce mid-term, which is now limited. Educate procurement and budget owners to avoid paying for cloud licenses you intended to drop.
- Independent Advice and Keeping Vendor-Neutrality: As licensing grows more complex with hybrid entitlements and changing rules, consider periodic reviews with independent licensing consultants. They often have up-to-the-minute insight on Microsoft’s licensing tweaks and how best to take advantage of or avoid traps. For example, an independent expert might inform you that “if you plan to use AWS for part of your infrastructure, invest in Datacenter edition with SA because Standard licenses won’t be portable after 2022 changes” – advice like that could save a compliance mess. Microsoft’s own account teams might not highlight that nuance since their interest is to move you all-in on Azure. Maintaining a vendor-neutral perspective means evaluating your hybrid strategy on technical and business merits and ensuring licensing supports it at minimum cost, not letting licensing drive you solely to what Microsoft prefers. It might even mean using third-party tools to manage hybrid deployments cost-effectively, which is fine as long as you stay compliant.
What SAM Professionals Should Do
- Design a License Transition Plan: Before moving any workload to the cloud, map out how its licensing will transition. Identify which existing licenses can be converted or reused (via Hybrid Benefit or swap programs) and line up any necessary new subscriptions. This planning will prevent gaps or duplicates.
- Use Hybrid Rights Wisely: Use Microsoft’s hybrid use rights and grace periods. Run on-prem and cloud in parallel only as long as needed, and mark those timelines. Use dual-use rights (like the 180-day rule) to avoid purchasing interim licenses, and document your usage of these rights in case you need to demonstrate compliance.
- Consolidate and Cut Over Incrementally: During hybrid phases, constantly reevaluate your license allocations. Remove redundant on-prem licenses as users or systems move to the cloud—for example, don’t keep paying for a Windows Server license on a decommissioned server. Conversely, ensure any workload moved to the cloud is properly licensed immediately, either by existing entitlements or new subscriptions.
- Manage Hybrid Costs Proactively: Track combined spending. Set budgets for both on-prem licensing and cloud usage and report on them together to leadership (e.g., “Total Microsoft spend = On-prem licenses + Azure/M365”). This comprehensive view helps justify optimizations. Flag when maintaining a dual environment incurs too high a cost and might warrant accelerating migration or scaling back one side.
- Stay Informed and Adaptive: Keep up with Microsoft licensing announcements, especially those affecting hybrid deployment scenarios. If Microsoft changes a policy (like outsourcing rights or introducing a new required subscription for on-prem), assess quickly how it impacts your compliance or costs. Update your license strategy accordingly. This could involve re-signing contracts, adjusting SA coverage, or altering migration plans.
- Engage Expertise for Complex Scenarios: For tricky hybrid situations, such as a multi-cloud approach or a phased migration with regulatory constraints, involve independent licensing experts or specialized SAM consultants. They can validate your approach and suggest improvements (for instance, ensuring you don’t miss a little-known entitlement or helping negotiate a custom licensing arrangement with Microsoft if needed). The cost of advice is often far less than the potential savings or audit exposure in a complex hybrid deal.
By embracing a strategic approach to hybrid licensing, SAM professionals can guide their organizations through the cloud transition while minimizing cost and risk.
Hybrid IT doesn’t have to mean double spending or compliance nightmares – with careful management, it can be the best of both worlds while it lasts, and set the stage for a fully optimized future state in the cloud.
