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Deciphering Office 365 licensing for businesses

A subscription-based model allows an organization to choose an Office 365 license that fits its size and more importantly its needs.

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Guide to easing the migration to Office 365

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When a new customer signs up to Microsoft Office 365, she must decide which licenses to purchase.

A glance at the plans and pricing page reveals a dizzying array of Office 365 licensing options for small businesses, enterprises, governments, educational institutes, nonprofits and even home and personal users.

For small businesses and commercial enterprises, you can ignore the other licensing options as you make your decision. Government, education and nonprofit plans are only available to organizations that qualify in those categories, and the home and personal licenses are not permitted for business use.

There are two classes of Office 365 licensing plans for businesses and enterprises to choose from, named Business and Enterprise. Office 365 Business plans are available for up to 300 seats, and Office 365 Enterprise plans have an unlimited number of seats. Other service-specific plans are available, such as Exchange Online plans that provide a mailbox only, but for this licensing discussion, we'll stick solely to the Office 365 plans that provide a suite of software and services.

Even within Enterprise and Business, there are still many options to weigh. A business can choose to license just the Office applications themselves, all the way up to the full complement of Office 365 services and enterprise-level features.

Office 365 licensing

Before we dig into what those options actually provide in terms of software and services, let's cover some general points about Office 365 licensing.

Always shop for Office 365 licensing plans based on features, not seat numbers.

An Office 365 plan starts with just a single license. From there, the business can purchase any number of licenses it will need on a month to month basis, including mixing and matching different licenses to suit per-user needs. If you only need Microsoft Visio for five members out of your 100-person staff, then just buy five Visio licenses from Microsoft. You can also scale up and down as your business staffing levels fluctuate. Need a mailbox for a short-term contractor? Buy one license for that person, and cancel it when they leave at the end of the project.

This subscription licensing model for Office 365 allows for flexibility and a "pay for only what you need" approach to IT software and services that is of tremendous benefit, but it also comes with some caveats. If you cancel a user's license, then any data stored in the Office 365 services by that user is eventually deleted. The deletion process is not instantaneous, with grace periods that vary between the various services so you can reverse a mistake, but generally speaking, administrators must understand when you are no longer paying for something you don't get to keep it. There is an exception though, which I'll address in this article.

Even though the Office 365 Business plans are available to organizations under 300 seats, that doesn't make Business an automatic choice for smaller companies. Both the Business Essentials and Business Premium plans come with a range of services most organizations need from the IT department, such as Exchange Online mailboxes, instant messaging and conferencing with Skype for Business, and OneDrive for Business cloud storage. But the Business plans lack important features found in Enterprise plans, such as eDiscovery, legal hold, unlimited email archiving and voicemail integration. The top tier of Enterprise plans, known as E5, even includes features such as the ability to broadcast Skype for Business meetings to up to 10,000 people, and the option to replace your phone system with a cloud private branch exchange. Even a business with few staff members, in the right industry, could need those features.

Save money without sacrificing communications

Of course, even on a per-user basis, Office 365 license fees add up, and some IT organizations start to look at ways to trim costs. There are some quick ways to make sure you're only paying for living and breathing mailbox users.

The easiest way to reduce unnecessary license consumption is to use the correct mailbox type. Shared mailboxes, group mailboxes and meeting room mailboxes do not consume a license. Some Office 365 adopters, particularly those migrating from on-premises communications environments, tend to overlook mailboxes that are technically a "shared" mailbox, but have been incorrectly created as a user mailbox. Therefore, they end up paying for more licenses than they would otherwise need. Undertake a review of mailboxes to ensure licensing is at the optimal level when adopting or revisiting Office 365.

Another quick win comes with how the IT administrators handle departed users. Inevitably, the staff in an organization will come and go, and you must decide what to do with the departed user's mailbox data. I often see admins converting old mailboxes to shared mailboxes so they can remove the license, however this is not the correct way to handle it. Converting to a shared mailbox causes Office 365 to remove the associated archive mailbox, if one existed. Furthermore, converting to a shared mailbox does nothing to preserve the data from deliberate or accidental deletion. The correct action is to make the mailbox into an inactive mailbox, by applying an in-place hold or a litigation hold on the mailbox before the Office 365 user is deleted. The mailbox is preserved indefinitely, without consuming an Office 365 license. Inactive mailbox management is available for Enterprise plans E3 and above, but not Business plans.

Office 365 licensing is a complex beast; however, it can be made easier to manage once you understand the business' needs. Always shop for Office 365 licensing plans based on features, not seat numbers. However, even if your requirements change over time, the nature of Office 365 subscriptions allows you to change licensing to suit new requirements.

Next Steps

Office 365 migration options

When to use a single Office 365 tenant

Comparing Office 2013 and Office 365

This was last published in March 2016

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