Licensing complexity in M365: the conversation nobody wants to have

I used to joke that Microsoft has a licensing specialist role because even Microsoft employees don't fully understand their own licensing. After years of having these conversations with customers, I've stopped finding it funny.

Microsoft 365 licensing has become genuinely difficult to navigate, and the problem is getting worse rather than better. Here's how I approach it.

Why it's actually complicated

It's not just that there are a lot of SKUs (though there are). It's that:

Features move between tiers without clear communication. A feature available in Business Premium gets moved to E3 (or vice versa) in a licensing change that's buried in a product blog post. Unless you're actively monitoring Microsoft licensing announcements, you'll miss it.

Licences stack in non-obvious ways. The interaction between base M365 licences, add-on licences, and feature-specific licences isn't always intuitive. Microsoft's own licensing documentation frequently conflicts with itself.

The "included" vs "additional cost" line moves. Features that were included in an E3 licence as of 18 months ago may now be separately licensed (like Copilot), or vice versa.

Different customer types have different licensing. The Commercial, Education, Government, and Nonprofit licensing programmes have different available SKUs and pricing. Solutions that work for one customer type may not be available for another.

The Business Premium vs E3 decision

This is the most common licensing conversation I have, and it doesn't have a clean answer.

Business Premium (maximum 300 users) includes security features (Defender for Business, Intune Plan 1, Azure AD Premium P1) that in the commercial world are only available in the much more expensive E3 + EMS bundle. For organisations under 300 users, Business Premium is often the right call from a security-per-pound perspective.

E3 doesn't have the user limit, and includes desktop Office apps licensed per user for use across devices. For larger organisations or those with complex Office deployment requirements, E3 is usually the right starting point.

The catch: neither Business Premium nor E3 includes everything many organisations need. Defender for Endpoint Plan 2, Azure AD Premium P2, Microsoft 365 Copilot, Purview compliance features above basic: all additional costs on top of either SKU.

The approach I use

I've learned to start with business requirements rather than licences. What are you trying to do? What security controls do you need? What compliance requirements apply? What collaboration tools do you need? Once I have a clear requirements picture, I map it to licences, not the other way around.

The most expensive mistake is working backwards from licences and building your requirements to fit what's included. The second most expensive mistake is buying more than you need because the sales pitch made more features sound more valuable.

Things I always verify independently

I verify every licensing claim against the Microsoft licensing documentation and, where I'm not sure, against the product comparison tables on Microsoft's website. I don't rely on memory or on what I was told in the last sales briefing.

The field changes frequently enough that what was true six months ago may not be true now. For significant licensing decisions, particularly anything above £50k TCV, I also recommend customers get formal written confirmation from their Microsoft Account Executive, because verbal licensing guidance from any source (including Microsoft partners) can be wrong.

Licensing is not glamorous. But getting it wrong is expensive. These conversations are worth having carefully.