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Microsoft 365 Licensing Comes with Compliance Perils

Organizations purchasing Microsoft 365 subscription licenses can easily face licensing compliance issues, upping their costs.

That's the gist of a Thursday online presentation by Directions on Microsoft (DoM), a Kirkland, Wash.-based independent consultancy focused on Microsoft roadmap and licensing issues. The presentation, "Microsoft 365 Hidden Licensing Costs," was conducted by Rob Horwitz, DoM's CEO and research chair. His descriptions mostly applied to large organizations purchasing Microsoft 365 subscription licensing.

Licensing compliance is still a potential problem for organizations despite the "moving to the cloud" concept of buying Microsoft 365 subscription licenses. Those licenses provide use rights for applications such as Office, Exchange and SharePoint, where Microsoft provides hosting services. However, Microsoft sells access to them as plans (such as F1, E3 and E5 plans) that are nested "like Russian dolls," creating licensing dependencies that are associated with accessing certain software features. Throughout the presentation, Horwitz dissected those feature dependencies using charts.

The worst part of it for organizations is that licensing compliance isn't always built into these Microsoft 365 subscription licensing plans, even though Microsoft controls the software. Hidden licensing costs especially become possible when organizations mix the Microsoft 365 F1, E3 and E5 plans, which appears to be a practice that's fraught with peril.

Hidden costs for Microsoft 365 subscribers fall into three categories, according to Horwitz:

  • The organization needs to buy "standalone licenses" for lower level plans because users accessed features "exclusive to higher level suites."
  • The organization needs to buy licensing for "additional components" or capabilities that "don't come with any Microsoft 365 suite."
  • The organization needs to buy more licenses than the number of users because of specific circumstances, which occur for "certain dev/test and provisioning requirements."

Avoid Mixing Microsoft 356 Plans
The first hidden cost can get triggered when an organization mixes Microsoft 365 subscription plans. An F1 subscriber can access some E3 or E5 features, for instance, triggering licensing compliance troubles.

"They are not licensed for the feature, but that feature is accessible to them. That puts you, the customer, into a license compliance quandary," Horwitz said. He later explained that having "access" is rather loosely defined by Microsoft.

In the presentation, Horwitz showed exactly which features caused licensing compliance problems when Microsoft 365 subscription plans get mixed. In some cases, organizations can set up manual configurations to avoid falling out of compliance. In other cases, though, achieving compliance turns out to be "impractical or not possible."

Horwitz cited the Advanced Data Governance feature in Microsoft 365 E5 as an example of the latter case. It's either on or off for the whole Microsoft 365 tenancy and there's "no granularity of control."

Beware of Added Component Costs
Organizations just might not be getting all of the capabilities they need when buying Microsoft 365 subscription plans. They may outgrow the plan's base capabilities, as with Power BI, and then have to buy additional licenses. They may need to buy licensing to meet organizational compliance with regulations, such as organizations in the European Union needing Office 365 Multi-Geo support for General Data Protection Regulation requirements.

Organizations may need licenses for devices that aren't covered by the Microsoft 365 plans. Horwitz cited the Microsoft Surface Hub as an example. Also, other capabilities simply cost extra, such as needing Calling Plans User subscription licensing for Microsoft 365 E5 users that use voice-over-IP applications.

Check Licensing Counts
Oddly, organizations may need more licenses than the number of Microsoft 365 users. Horwitz cited the case of DevOps scenarios, where organizations may carve out a "separate development and test tenancy." Another scenario for having more licenses than users is having to create a "provisioning buffer." It's done to account for the time delays that happen when services become available or when services get decommissioned.

Horwitz suggested that these extra license buffers could "amount to a percent or two of user base size, so [it's] not insignificant for large organizations."

Overall Suggestions
Organizations should avoid mixing Microsoft 365 plan levels. High-level Microsoft 365 features bear extra costs, so they should be used sparingly. Given this information, organizations should try to negotiate amendments to Microsoft's licensing rules. The time to negotiate needs to happen before licensing renewal.

Organizations should not try to set up separate F1, E3 and E5 Microsoft 365 tenancies to deal with these licensing compliance issues. Doing that is fraught with its own licensing issues, which are described in this new publication authored by DoM analyst Wes Miller, Horwitz said.

Horwitz's presentation really needs to be viewed to get these concepts. The presentation, though, requires having a DoM membership. DoM offers presentations, publications and "licensing bootcamp" meetings on various Microsoft technicalities. The consultancy is largely staffed by former Microsoft veterans, although it's independent.

About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.

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