Uncle Rob’s O365 Licensing Primer

O365 licensing seems to confuse a lot of people so I’m going to attempt to demystify it somewhat for all concerned.  Hopefully, my explanations will help dispel confusion!

The first thing to understand is that O365 is a subscription service; you purchase a subscription that is valid for a certain period of time then you have to renew (repurchase) your subscription.  This is no different than any other kind of subscription service from magazines to cable TV to Internet.  You are not buying the license, you are renting it.

The second thing to understand is that there are two fundamental ways for you to purchase a subscription:

  • You can purchase a subscription online via the Office 365 portal
  • You can purchase O365 license SKU’s through various reseller channels and licensing programs

The subscriptions purchased through the above mechanisms don’t differ at all; an E3 subscription, for example, is the same bundle of services regardless of the way it is purchased.  The only thing that differs is how you pay for the subscription.

The SKU purchase is a pretty straightforward thing; you purchase a SKU for, say an E3, and the SKU purchase provides you with a license key (also referred to as a token) that when applied in the O365 admin portal will enable the subscription for one year from date the key (token) is applied.  Pretty simple.  Depending on what you purchase a single SKU token can enable subscription rights for one license (user) or many.  So this method of subscription licensing is somewhat analogous to what you could do with OpenLicense (Volume License) purchases where a single VL key could allow for one or many license activations depending on what was purchased.  And, like all subscriptions in O365, the subscription can be moved amongst users during the active subscription period; you can de-assign the subscription license from User A and then assign the now “available” license to User B.

Online subscription purchases work in a slightly different manner.  When you purchase the license online you are generally given some purchase options:

  • The first option is to purchase the license for one year with a single payment.  The license is active for one year and can be moved around between users (as described above).
  • The second option is to purchase a license for one year but pay for it monthly.  You agree that you are purchasing the license for one year so you are on the hook for the 12 payments.
  • The third option is to purchase a month-to-month license with no fixed term, it can be cancelled at any time.

The trick that most people miss is the term of the subscription in the first two options.  These two options are always less costly per month than the third option (pure month to month) but you are locked in for the one year term with the first two options.  I always advise customers to think very carefully about what their needs are and then purchase subscriptions accordingly.  Don’t buy more licensing than you need and don’t buy yearly term subscriptions for users that are seasonal or temporary as you may end up paying for subscriptions that “sit on the shelf” unused for large periods of time which is a waste of your money.

The third thing to understand is the difference between renewal and extension of licenses.  This is really important with SKU tokens!

Renewal is just what it sounds like, time is up on the current subscription (be it one or many) and you purchase an appropriate number of subscriptions for another year (or month if you are on the pure monthly plan).  With SKU tokens you apply tokens to renew the same number of licenses currently licensed (or a number greater than what is currently licensed) and you then select the renewal option when it is offered.

Extension is the process where you add additional subscriptions (usually with SKU tokens) to a current subscription group.  The licensed number of subscriptions will increase BUT the subscription end date will change because the system will prorate the additional licenses and calculate a new ending date.  This is because SKU tokens are sold with a specific subscription period (12 months).  If you are already 6 months through the subscription period with your current licenses you cannot obtain a 6 month license to bump up your count.  So, when you add the additional license the system has to somehow “rationalize” the extra time on the license you just added.  Ergo the prorated end date for the license group as a whole. 

We (itgroove) got caught in the extension thing when we were trying to renew our E3 subscriptions that we receive as a part of our Silver Partnership with Microsoft.  Our current license count was 25, Microsoft gave us 3 sets of SKU tokens, 2 x 5 users and 1 x 25 users, and I was trying to apply the tokens one at a time (silly me).  Applying a 5 user token would cause the system to extend, not renew, and I was ending up with a larger number of users with a shorter subscription period – not what I wanted.  I finally figured out that I could stack all of the tokens (the system lets you add multiples) which ended up renewing, not extending.  Huzzah!

The subscription model is very different from what most of us have been used to and it does take some time to get your head wrapped around how you have to manage it.  I have seen some really crazy messes inside customer tenancies because people weren’t thinking about what they were doing when they purchased licenses.  Luckily, O365 support can be very helpful if you need to untangle a mess.  And, as with anything, if you have questions about O365 licensing, reach out to your reseller or O365 support for help and answers to your questions.  A little thought and effort up front can help save you from a tonne of frustration!