Microsoft Licensing Costs

Comprehensive Guide to Understanding Microsoft Licensing Costs

• Types: Perpetual, subscription, volume, OEM licenses.
• Factors: Number of users, software type, subscription plans, location, agreement duration.
• Programs: EA, MPSA, Open License, CSP.
• Benefits: Cost management, compliance, access to updates.

Introduction to Microsoft Licensing Costs

Navigating the costs of Microsoft licensing can be a complex task. Microsoft offers various licenses, each tailored to different business needs, and these licenses often come with different pricing models.

This guide will break down the costs associated with the most common types of Microsoft licensing, helping you understand where your money goes and choose the right plan for your budget.

Factors Affecting Microsoft Licensing Costs

Microsoft licensing costs can vary based on a range of factors, including:

• Number of Users or Devices: Costs depend heavily on whether you need licenses for users, devices, or both.
• Subscription vs. Perpetual Licensing: Subscriptions like Microsoft 365 are billed monthly or annually, while perpetual licenses are one-time purchases.
• License Type: Retail, OEM, Volume Licensing, and Cloud subscriptions have different price structures.
• Software Edition: The cost can differ depending on whether you choose Standard, Pro, Enterprise, etc.
• Additional Services: Costs increase if you need additional features, like Azure services or more cloud storage.

Understanding these factors helps estimate your licensing expenses and determine which options will best meet your needs.

If you are a beginner, read our article about Microsoft Licensing for Beginners.

Retail Licensing Costs

Retail Licensing refers to purchasing software directly from Microsoft or a third-party retailer, typically for products like Windows or Microsoft Office.

• Office Home & Student 2021: This license is a one-time purchase that costs around $149.99. It includes core apps like Word, Excel, and PowerPoint.
• Office Home & Business 2021: Priced at around $249.99, this license includes everything in Home & Student plus Outlook. It is also a one-time purchase.

Retail licenses tend to be more expensive per seat than other licensing models, making them best suited for individuals or very small businesses that need only a handful of licenses.

OEM Licensing Costs

OEM (Original Equipment Manufacturer) licenses are bundled with new hardware, such as desktops or laptops.

• Windows 11 Pro OEM License: Typically, the cost is already included in the price of your hardware, but if broken down, it can range between $100 and $150.
• Limitations: OEM licenses are often cheaper because they are tied to specific hardware and cannot be transferred if the machine fails or is replaced.

OEM licenses provide a cost-effective way to obtain Windows licenses but lack flexibility, so they aren’t always ideal for growing businesses that expect frequent hardware upgrades.

Read about Microsoft License Terminologies.

Volume Licensing Costs

Volume Licensing is aimed at businesses, government bodies, and educational institutions that need multiple licenses and want to centralize their management.

It includes several programs, such as Open License, Enterprise Agreement, and Microsoft Products and Services Agreement (MPSA).

• Microsoft Open License: This licensing model is designed for small to medium-sized businesses and generally requires a minimum purchase of five licenses. Prices can range from $50 per seat for products like Office Standard to over $200 for higher-end products like Windows Server.
• Enterprise Agreement: For larger organizations with 500+ users or devices. Enterprise Agreements offer significant cost savings but require a commitment to purchase licenses for all eligible devices or users in the company. The starting costs are usually $100,000 per year or more, depending on the scale and the type of software included.
• Microsoft 365 Enterprise is part of a volume license and includes productivity apps, device management, and security features. Microsoft 365 E3 typically costs about $32 per user per month, while Microsoft 365 E5, which adds advanced security, costs approximately $57 per user.
• Windows Server CALs (Client Access Licenses): In addition to server licenses, businesses also need CALs for users or devices accessing the server. CALs typically cost around $30-$40 per CAL, which can add up quickly in larger organizations.

Volume Licensing tends to be more economical for companies with many employees, offering discounts that significantly reduce the cost per user compared to buying individual retail licenses.

Microsoft 365 Subscription Costs

Microsoft 365 comes in a variety of editions and subscription plans designed for different types of users and organizations:

• Microsoft 365 Personal: This subscription is ideal for individual users and costs $6.99 per month or $69.99 annually. It includes apps like Word, Excel, PowerPoint, and OneDrive with 1 TB of storage.
• Microsoft 365 Family: Designed for up to six users, it costs $9.99 per month or $99.99 annually and includes all the apps available in the Personal plan.
• Microsoft 365 Business Basic: This plan costs $6 per user per month for small to medium-sized businesses. It includes Teams, Exchange, and OneDrive but doesn’t include desktop versions of Office apps.
• Microsoft 365 Business Standard: At $12.50 per user per month, this plan includes everything in Business Basic, plus the desktop versions of Office apps.
• Microsoft 365 Business Premium: This plan costs $22 per user per month and adds advanced security and device management features to Business Standard.

Comparing Subscription Costs vs. Perpetual Licensing

• Subscription Licensing: Microsoft 365 subscriptions are generally more cost-effective in the short term because they lower upfront costs and include access to the latest software versions and cloud services.
  • Example: A company with ten users opting for Microsoft 365 Business Standard will pay $125 per month, up to $1,500 annually.
• Perpetual Licensing: For companies or individuals who prefer a one-time payment, perpetual licenses (e.g., Office Home & Business) may initially seem like a better deal. However, they require regular updates or eventual replacement to stay current.
  • Example: Buying ten perpetual licenses for Office Home & Business at $249.99 each will cost $2,499 upfront, but there will be no ongoing costs until the software becomes outdated.

Cloud Licensing Costs (Azure)

Azure licensing works on a pay-as-you-go model, and costs can vary significantly depending on the services you use:

• Virtual Machines (VMs): Pricing for virtual machines starts at $0.02 per hour for smaller instances but can easily climb to $5 per hour or more for high-performance configurations.
• Storage: For hot storage, Azure Blob Storage is billed at approximately $0.0184 per GB per month. Cool and archive storage are cheaper but incur additional access costs.
• Networking: Data transfer costs can increase, with outgoing transfers beyond 5 GB starting at $0.087 per GB.

Azure offers the flexibility to scale your infrastructure as needed, which can be a cost-saver compared to buying physical servers, but careful planning is needed to avoid runaway expenses.

Windows Server Licensing Costs

Windows Server is available in different editions, and costs vary based on the edition and the number of cores in your server:

• Windows Server Standard: A 16-core license costs around $972. Additional core packs are available if your server exceeds 16 cores.
• Windows Server Datacenter: This edition, designed for highly virtualized environments, starts at $6,155 for a 16-core license.

Besides the server licenses, businesses also need CALs. As mentioned, CALs generally cost around $30-$40 per user or device.

If your business needs high availability and redundancy, costs can increase significantly due to the need for additional servers, CALs, and possibly Windows Server Failover Clustering.

SQL Server Licensing Costs

SQL Server is available in several editions, and licensing costs depend on whether you opt for per-core or server + CAL licensing:

• SQL Server Standard (Per Core): Costs around $3,586 per core. A minimum of four core licenses is required, meaning costs start at about $14,344 for a server.
• SQL Server Standard (Server + CAL): The server license costs approximately $931; each CAL costs about $209. This option is generally more cost-effective if you have few users or devices.
• SQL Server Enterprise: This is the top-tier edition, priced at $13,748 per core, suitable for larger, mission-critical applications that require advanced performance and scalability features.

Licensing SQL Server can quickly become expensive, especially for larger deployments. Based on the number of users and the expected workload, organizations need to carefully evaluate whether per-core or server + CAL licensing will be more cost-effective.

Service Provider License Agreement (SPLA) Costs

Microsoft offers the Service Provider License Agreement (SPLA) for hosting companies or managed service providers. This type of licensing allows service providers to license Microsoft products on a monthly subscription basis and report usage to Microsoft each month.

• Costs: SPLA costs vary by product and are charged monthly. For instance, Windows Server under SPLA may cost around $20 per core per month, while SQL Server might cost $200 per core per month.

SPLA is particularly advantageous for service providers as it allows for monthly billing and flexibility, but it does tend to have a higher overall cost compared to volume licensing for long-term use.

Comparing Licensing Costs for Small vs. Large Organizations

The ideal Microsoft licensing model varies greatly between small and large organizations:

• Small Businesses typically benefit from Microsoft 365 Business plans. These plans provide cloud services, Office apps, and the ability to scale up or down as needed. The monthly subscription keeps costs predictable.
  • Example: A small business with 10 users opting for Microsoft 365 Business Premium will pay $220 per month or $2,640 annually.
• Large Organizations often use Enterprise Agreements or Volume Licensing. These offer significant discounts and benefits, such as deployment tools and centralized license management, but they come with higher initial costs.
  • Example: A corporation with 1,000 users might pay $120,000 annually for an Enterprise Agreement, but they receive discounts and consistent access to the latest Microsoft products across the organization.

Cost Optimization Tips for Microsoft Licensing

1. Assess Your Needs: Regularly review your software requirements. Organizations often over- or under-license software, which leads to unnecessary expenses.
2. Take Advantage of Microsoft 365 Plans: If you have a dynamic workforce, Microsoft 365 offers flexibility and ensures everyone is always up-to-date.
3. Leverage Volume Licensing: If you have many users or devices, opting for Volume Licensing can result in significant savings.
4. Use Azure Cost Management Tools: If you’re using Azure, use Microsoft’s tools to monitor your costs and set spending limits.
5. Consider SPLA for Hosting: If you are a service provider, SPLA licensing can help you avoid upfront costs, although it’s important to monitor monthly usage to control expenses.

Software Assurance Costs

Software Assurance is an optional program that provides benefits like free upgrades, training, and support. It can be added to many volume licenses at an additional cost of 25-29% of the license price per year.

• Example: Adding Software Assurance to a Windows Server Standard license at $972 might cost an additional $243 annually. This investment can be worthwhile if your business needs regular software upgrades or plans to transition to the cloud.

Software Assurance provides peace of mind and long-term value, but it adds a recurring cost that must be factored into your licensing budget.

Licensing Pitfalls That Can Increase Costs

• Incorrect Licensing Models: Choosing per-device licensing for a remote workforce that requires more user-based flexibility can lead to higher costs.
• Unused Licenses: Many organizations pay for licenses that are never used. Reviewing license usage periodically can help in cutting unnecessary costs.
• Non-Compliance Penalties: Failing a Microsoft audit due to incorrect or insufficient licensing can lead to hefty fines. Staying compliant with proper licensing helps avoid these unexpected costs.

Microsoft licensing costs are multifaceted, influenced by factors like the type of license, software edition, the number of users, and the specific needs of your business. Understanding these costs helps businesses make informed decisions that align with their budget while ensuring compliance and efficiency.

FAQ: Understanding Microsoft Licensing Costs

What is Microsoft Licensing?

Microsoft Licensing defines the terms under which Microsoft software can be used. It includes various models, such as perpetual, subscription, and volume licensing, each suited to different needs.

What are the main types of Microsoft licenses?

The main types include perpetual, subscription-based, volume, and OEM licenses. Each type has different cost structures and benefits.

How do subscription-based licenses work?

Subscription-based licenses require recurring payments, either monthly or annually. This model provides continuous access to the latest updates and features.

What is volume licensing?

Volume licensing is designed for organizations that need multiple licenses. It offers discounts based on volume and simplifies management under a single agreement.

What is the Microsoft Enterprise Agreement (EA)?

The Microsoft Enterprise Agreement (EA) is a volume licensing option for large enterprises with 500 or more users or devices. It offers significant discounts and comprehensive support.

How does Microsoft Open License differ from Open Value?

Microsoft Open License allows purchasing licenses as needed over two years. Open Value offers additional benefits like software assurance and flexible payment terms for over three years.

What is the Cloud Solution Provider (CSP) program?

The CSP program allows businesses to purchase Microsoft cloud services through a Cloud Solution Provider. CSPs offer tailored solutions, ongoing support, and flexible billing options.

What are the different Office 365 plans?

Office 365 plans include Business Basic, Business Standard, Business Premium, and various Enterprise plans (E1, E3, E5). Each plan offers different features and services.

What is the difference between SharePoint Online and SharePoint Server?

SharePoint Online is a cloud-based service in Office 365 subscriptions, offering scalability and accessibility. SharePoint Server is an on-premises solution that provides full control over the environment.

How is SQL Server licensed?

SQL Server can be licensed based on the number of cores in the server (core-based licensing) or through a server license plus Client Access Licenses (CALs).

What are the benefits of Dynamics 365 licensing?

Dynamics 365 licensing offers integrated sales, customer service, finance, and operations applications. It provides flexibility, scalability, and extensive customization options.

How does Azure licensing work?

Azure offers pay-as-you-go pricing, where costs are based on actual resource usage, and reserved instances, which provide significant cost savings for long-term commitments.

What are the licensing options for educational institutions?

Educational institutions can benefit from discounted pricing through Office 365 Education plans (A1, A3, A5) and Azure for Education, providing access to essential tools and resources.

How can nonprofits benefit from Microsoft licensing?

Nonprofits can access discounted Office 365 and Microsoft 365 plans, which include tools like SharePoint Online, Teams, and OneDrive, which help improve collaboration and document management.

What tools are available for managing Microsoft licenses?

The Microsoft Volume Licensing Service Center (VLSC) and the Office 365 Admin Center are key tools for managing licenses. These tools help track usage, manage subscriptions, and ensure compliance.