License terms explained - Microsoft
Rick de Laat
Microsoft 365 is a cloud-based subscription that combines Microsoft Office products (such as Word, Excel, and PowerPoint) with tools for improving productivity and collaboration. Microsoft 365 provides services such as email, cloud storage, communication platforms, and security features.
Features and Licenses
Microsoft 365 Features
Some Microsoft 365 features include:
Microsoft 365 offers various (generally user-based) subscription license plans for individual users, small businesses, large organizations, and educational institutions. Microsoft 365 licenses are divided into four categories:
Some Microsoft 365 features include:
- Office: for (collaboratively) creating and editing documents, spreadsheets, and presentations.
- Communication tools: for real-time collaboration in documents, video calls, and (chat) messaging.
- Cloud storage and file sharing: for securely storing and sharing files within the organization so everyone can access and collaborate.
- Business email: for email including calendar tools.
- Security: for data protection with MFA, encryption, and threat detection.
- Device management: for managing devices and ensuring secure access to company data on those devices.
Microsoft 365 offers various (generally user-based) subscription license plans for individual users, small businesses, large organizations, and educational institutions. Microsoft 365 licenses are divided into four categories:
- Personal & Family: for individual users and families. Provides access to basic Office apps (Word, Excel, PowerPoint, etc.) including cloud storage and online features.
- Business: for small and medium-sized businesses (maximum 300 users per plan). Offers collaboration and communication tools, file sharing, and business email. You typically pay based on the number of users and included features.
- Enterprise: for large organizations with more complex needs. Provides the most comprehensive set of features, including security and compliance tools, desktop apps, and more storage. Pricing is also per user, but without a user limit.
- Education: for educational institutions. These licenses (A1, A3, A5) offer access to Office apps and collaboration tools. The A1 license is free for students and teachers with an institutional email address.
Microsoft 365 Business
Microsoft 365 Business is particularly suitable for small and medium-sized companies. The Microsoft 365 Business offering is modular. Each suite provides identity, access, and user management for up to 300 employees. Organizations can combine suites (e.g., 300 licenses of M365 Business Standard + 300 licenses of M365 Business Premium).
Microsoft 365 Business Basic
All features in Business Basic, plus:
Everything in Business Standard, plus:
Microsoft 365 Business Basic
- Web and mobile versions of Office (Word, Excel, PowerPoint, and Outlook);
- Business email;
- 1 TB OneDrive storage;
- Microsoft Teams and SharePoint.
All features in Business Basic, plus:
- Desktop versions of Office (Word, Excel, PowerPoint, and Outlook);
- Microsoft Loop for online collaboration;
- Clipchamp for online video editing;
- Webinars with participant registration and reporting.
Everything in Business Standard, plus:
- Advanced protection against cyber threats;
- Device and endpoint security with Microsoft Intune;
- Advanced identity and access management;
- Microsoft Defender.
Microsoft 365 Enterprise
Some benefits of Microsoft 365 Enterprise are:
Like Microsoft 365 Business, the Enterprise offering is modular. You can select a suite and optionally add features such as Copilot, Teams, Defender, and Viva.
Microsoft 365 E3
Microsoft 365 E3 combines Office apps with security and compliance functionalities:
Microsoft 365 E5 is the most comprehensive Enterprise suite and includes all E3 features plus:
Microsoft 365 Frontline Suites are for employees in operational roles or those who only need limited computer access and/or have no fixed workplace.
Microsoft 365 F1
Microsoft 365 F1 provides basic functionalities for workers:
Microsoft 365 F3 gives employees full access to documents in Microsoft 365 and includes all F1 features, plus:
- Scalability: suitable for organizations with many employees or those planning to grow and expand.
- Enhanced security and compliance: offers advanced security, Data Loss Prevention, and Threat Protection (E5).
- Centralized management and control: tools for centrally managing user accounts and controlling access to apps and data.
- Improved collaboration between teams and locations: enables real-time communication, document collaboration, and video conferencing.
- Support: Microsoft provides dedicated Enterprise support with direct access to assistance and troubleshooting.
Like Microsoft 365 Business, the Enterprise offering is modular. You can select a suite and optionally add features such as Copilot, Teams, Defender, and Viva.
Microsoft 365 E3
Microsoft 365 E3 combines Office apps with security and compliance functionalities:
- Desktop and mobile versions of Office (Outlook, Word, Excel, PowerPoint, OneNote);
- 1 TB OneDrive storage;
- Email and data security;
- Data Loss Prevention;
- eDiscovery for legal and compliance purposes;
- Windows for Enterprise.
Microsoft 365 E5 is the most comprehensive Enterprise suite and includes all E3 features plus:
- Advanced security and compliance capabilities, including:
- Threat Protection;
- Insider Risk Management.
- Power BI Pro;
- Audio conferencing.
Microsoft 365 Frontline Suites are for employees in operational roles or those who only need limited computer access and/or have no fixed workplace.
Microsoft 365 F1
Microsoft 365 F1 provides basic functionalities for workers:
- Read-only access to web and mobile versions of Office (Word, Excel, PowerPoint, OneNote);
- 2 GB OneDrive storage;
- Basic security.
Microsoft 365 F3 gives employees full access to documents in Microsoft 365 and includes all F1 features, plus:
- Access to web and mobile versions of Office (Outlook, Word, Excel, PowerPoint, OneNote);
- Malware protection with Microsoft Defender Antivirus and Device Guard;
- Data leak protection with Windows Information Protection and BitLocker.
| Features | M365 F1 | M365 F3 | M365 E3 | M365 E5 |
|---|---|---|---|---|
|
Access to Office apps |
Read-only |
Web and mobile |
Desktop and mobile |
Desktop and mobile |
|
Email & calendar |
x |
Yes |
Yes |
Yes |
|
OneDrive storage |
2 GB |
2 GB |
1 TB |
1 TB |
|
Security & compliance * |
Basic |
Basic + |
Advanced |
Advanced + |
|
Windows 11 Enterprise |
x |
Yes |
Yes |
Yes |
|
Power BI Pro |
x |
x |
x |
Yes |
|
Audio conferences |
x |
x |
x |
Yes |
*Security and compliance in Microsoft 365
While all suites provide a level of security, E3 and E5 offer more advanced protection:
The Microsoft 365 E3 Unattended License is designed for situations where applications or processes need to run without user interaction. This is particularly useful for automation, system integrations, and background services that require access to Microsoft 365. Unlike other Microsoft 365 licenses, Unattended licenses are device-based subscriptions (rather than user-based). An Unattended license is required for solutions running on a server and activated via Robotic Process Automation (RPA).
While all suites provide a level of security, E3 and E5 offer more advanced protection:
- Microsoft 365 F1: basic threat protection for securing data against common risks.
- Microsoft 365 F3: similar security and compliance features as F1, plus malware protection with Microsoft Defender Antivirus and Device Guard, and data leak protection with Windows Information Protection and BitLocker.
- Microsoft 365 E3: advanced threat protection with features such as Data Loss Prevention, Message Encryption, and eDiscovery.
- Microsoft 365 E5: similar to E3 but with even more robust features like Threat Protection and Insider Risk Management.
The Microsoft 365 E3 Unattended License is designed for situations where applications or processes need to run without user interaction. This is particularly useful for automation, system integrations, and background services that require access to Microsoft 365. Unlike other Microsoft 365 licenses, Unattended licenses are device-based subscriptions (rather than user-based). An Unattended license is required for solutions running on a server and activated via Robotic Process Automation (RPA).
Acquiring Licenses
Microsoft 365 licenses can be acquired in several ways:
Software Assurance (SA) is a form of maintenance cost for Microsoft products. SA is only available through Volume Licensing. It is included in Enterprise Agreements and Open Value and optional for other Microsoft products and Service Agreements. A major benefit of SA is the right to new versions released during the term of the licensing agreement — you may always use the latest version.
Step-up Licenses
Step-up licenses allow you to upgrade the current version or edition of a Microsoft 365 product within a licensing agreement to a higher version or edition without paying the full price of the higher one. For example, you can upgrade Windows Server Standard (with SA) to Windows Server Enterprise. Step-up licenses are not available for all Microsoft products and only available under an Enterprise Agreement.
Add-ons
Add-ons are additional licenses for features not included in the purchased Microsoft 365 plan. Popular add-ons include Power BI Pro, Enterprise Mobility + Security (EMS), and Defender for Cloud Apps. This allows you to use these features without upgrading to a higher edition. There are also add-ons for E5 (E5 is not an “all-inclusive” suite).
Dual Use Rights
Dual Use Rights allow users to run software such as Word, Excel, and PowerPoint both on-premises and in the cloud. This is especially useful for environments where users must work offline or when cloud access is limited or unavailable. With Dual Use Rights, users can connect to on-premises environments through their Microsoft 365 suite with CAL (Client Access License) Equivalency Licensing. Dual Use Rights are not available for all Microsoft 365 products, but primarily for Microsoft 365 E3 and E5.
- Online: for Personal and Business licenses, it is common to purchase individual Microsoft 365 licenses directly from Microsoft’s website.
- Volume Licensing: large organizations often purchase licenses in bulk via Enterprise Agreements. This option is more flexible and cost-effective, as it lowers the per-license cost, allows scalability, and simplifies software management.
- Cloud Solution Provider (CSP): licenses can also be purchased through an authorized Microsoft partner that assists with purchasing, management, and implementation. This offers more personalized support and guidance and takes care of maintenance and management.
Software Assurance (SA) is a form of maintenance cost for Microsoft products. SA is only available through Volume Licensing. It is included in Enterprise Agreements and Open Value and optional for other Microsoft products and Service Agreements. A major benefit of SA is the right to new versions released during the term of the licensing agreement — you may always use the latest version.
Step-up Licenses
Step-up licenses allow you to upgrade the current version or edition of a Microsoft 365 product within a licensing agreement to a higher version or edition without paying the full price of the higher one. For example, you can upgrade Windows Server Standard (with SA) to Windows Server Enterprise. Step-up licenses are not available for all Microsoft products and only available under an Enterprise Agreement.
Add-ons
Add-ons are additional licenses for features not included in the purchased Microsoft 365 plan. Popular add-ons include Power BI Pro, Enterprise Mobility + Security (EMS), and Defender for Cloud Apps. This allows you to use these features without upgrading to a higher edition. There are also add-ons for E5 (E5 is not an “all-inclusive” suite).
Dual Use Rights
Dual Use Rights allow users to run software such as Word, Excel, and PowerPoint both on-premises and in the cloud. This is especially useful for environments where users must work offline or when cloud access is limited or unavailable. With Dual Use Rights, users can connect to on-premises environments through their Microsoft 365 suite with CAL (Client Access License) Equivalency Licensing. Dual Use Rights are not available for all Microsoft 365 products, but primarily for Microsoft 365 E3 and E5.
Usage Rights and Restrictions
Microsoft 365 licenses have specific terms and restrictions that define how the software may be used within organizations.
Installation and Use
Microsoft 365 licenses are generally user-based, meaning one user can install the software on multiple devices. Restrictions include:
Commercial Use
Microsoft 365 Personal licenses are for non-commercial use only and may not be used for business or commercial purposes — for that, Business and Enterprise licenses are required.
Violations
Microsoft considers the following as misuse or unauthorized use of licenses:
Installation and Use
Microsoft 365 licenses are generally user-based, meaning one user can install the software on multiple devices. Restrictions include:
- Each licensed user may install Microsoft 365 apps on up to five PCs, tablets, and smartphones.
- The software may not be used simultaneously by multiple users on different devices, unless a multi-user license is held.
- Users must be signed in with the Microsoft account linked to the license.
Commercial Use
Microsoft 365 Personal licenses are for non-commercial use only and may not be used for business or commercial purposes — for that, Business and Enterprise licenses are required.
Violations
Microsoft considers the following as misuse or unauthorized use of licenses:
- Sharing licenses between users (using a single license for multiple employees).
- Using consumer licenses in business environments.
- Reverse engineering or bypassing security measures in Microsoft 365 software.
- Reselling or renting Microsoft 365 software without Microsoft’s permission.
Microsoft True Up
Microsoft True Up helps organizations manage their licenses and align the number of purchased licenses (via Volume Licensing) with actual usage. Organizations compare purchased licenses with usage over the year to correct any under- or over-licensing.
The True Up usually occurs once a year, at the end of the (typically 12-month) license period. At year-end, organizations must report their number of users, devices, and software solutions to Microsoft. Based on this information, a True Up adjustment is made, and Microsoft issues an invoice for any additional licenses that need to be purchased.
The True Up usually occurs once a year, at the end of the (typically 12-month) license period. At year-end, organizations must report their number of users, devices, and software solutions to Microsoft. Based on this information, a True Up adjustment is made, and Microsoft issues an invoice for any additional licenses that need to be purchased.
Would you like to learn more about the licensing terms of other software vendors as well? Read more via the links below!