4 questions customers are asking about licensing Office 365

 In Cloud, Office 365, Software, Volume Licensing

This post was updated on Dec. 4, 2015.

Microsoft has attempted to simplify the licensing of Office 365, but the rules can still be confusing, especially when migrating from a perpetual-based licensing model to a subscription. To clear the air, we’ve compiled and answered four of the most common licensing questions organizations ask when looking to transition to Office 365.

What is a CAL Bridge?

Microsoft introduced the Client Access License (CAL) Bridge to help organizations transition their on-premises workloads to the cloud while maintaining their enterprise-wide commitment and licensing rights. Each CAL Bridge consists of CAL Suite workloads that aren’t included in the corresponding Office 365 service plan.

Consider this example. The Core CAL Suite grants all of an organization’s users and devices access to on-premises servers that run any of the following workloads:

  • SharePoint Server
  • Windows Server operating system (OS)
  • Skype for Business
  • Exchange Server
  • System Center Configuration Manager
  • System Center Endpoint Protection

When an organization transitions to Office 365 Plan E1, its users gain cloud access to some of those same workloads. However organizations must still remain licensed for the workloads not included in Office 365 plan E1. The Core CAL Bridge accommodates the change in access rights for those users. Instead of licensing users for Core CAL Suite, an organization can license its users for Office 365 plan E1 and Core CAL Bridge for Office 365.

The new licensing configuration divides users’ licensing workloads as follows:

Office 365 Plan E1 gives users licenses to SharePoint Server, Exchange Server, and Skype for Business while Core CAL Bridge for Office 365 provides licenses to Windows Server OS, System Center Configuration Manager, and System Center Endpoint Protection.

*UPDATE: In August 2015, Microsoft introduced a new CAL Bridge licensing structure that is more closely aligned with how online services are licensed. Moving forward, the company now only offers a User Subscription CAL Bridge. Existing customers licensed for CAL Bridge prior to Aug. 1 can transition to the new monthly user subscription option at renewal.

Once I transition to Office 365, can I move back on-premises?

A transition to Office 365 involves a switch from perpetual licenses with Software Assurance (SA) to a subscription-based licensing model, at which time SA or license with SA must be active at the time of transition. Once an organization transitions, it can move back to perpetual licenses with SA under two conditions.

First, SA cannot exceed the number of perpetual licenses in existence at the time of transition. For example, an organization can’t transition 200 perpetual licenses to 200 subscription licenses, add 50 subscription licenses, and then transition back to 250 perpetual licenses. It could only move back to 200 perpetual licenses. Second, an organization can transition back to perpetual licenses as long as there haven’t been any lapses in SA coverage.

What is License Reservation?

Under a traditional Enterprise Agreement (EA) when an organization procures on-premises licenses with SA, new deployment payments take place during the true-up process. The company submits an order to increase the number of desktops or servers, and pays for deployment at its anniversary.

Microsoft introduced the concept of License Reservation to help organizations provision cloud services without the immediate need for a purchase order (PO).

License Reservation is a process unique to EA customers that makes cloud services available for consumption without an initial PO in two ways.

  1. If an organization plans to deploy Office 365 immediately, the product SKUs are listed on the customer’s CPS as part of its annual order commitment. If the organization doesn’t plan to deploy Office 365 right away but might do so in the future, Microsoft adds the Office 365 SKUs to the CPS as “future pricing” SKUs. In both scenarios, once Microsoft processes the CPS and activates the customer’s agreement, that organization can then go into its Office 365 Portal and reserve additional services without a PO.
  2. If there are no Office 365 services on the CPS, Microsoft offers a service called Quickstart Reservation, which allows customers to reserve services and gives users 30 days to lock in the Office 365 services on its CPS.

License Reservation is a financial commitment, therefore it’s important for an organization to understand the services and their costs. License Reservations are typically reconciled as part of the organization’s annual true-up process, which should occur 30 to 60 days prior to the agreement anniversary.

Can I reduce the number of Office 365 licenses under my current service plan?

Under the traditional perpetual license with SA model, an organization cannot reduce its number of licenses. However, License Reduction allows organizations to reduce subscription licenses on an annual basis, under the following guidelines.

In a hybrid environment with both on-premises and cloud licenses:

  • Companies can reduce subscription licenses under an enterprise-wide commitment. However the total quantity of subscription and perpetual licenses with SA can’t fall below the quantity of qualified devices submitted at initiation. If a company starts its commitment with 500 licenses, it can’t drop down to less than that.
  • Companies can reduce subscription licenses designated as additional online services in the Microsoft product list, even down to zero.

In a cloud-only environment:

  • Subscription licenses can be reduced to a minimum of 250 licenses.
  • Subscription licenses designated as additional online services in the Microsoft product list can be reduced to any quantity, even down to zero.

These are some of the most frequent questions we receive about licensing Office 365. If you have other questions about cloud licensing rules and how they could impact your transition to Office 365, reach out to your SHI Account Team or leave a comment for us below.

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Showing 17 comments
  • Johan

    Hi there,

    My client subscribed Office 365 E1 and the Core CAL Bridge a year ago (My client had already, years ago, fully acquired a CoreCAL that was under SA until the transition).
    Hence, we have 3 components of the Core CAL that are OnLine : Exchange, Lync and Sharepoint ; and 3 components tjat are OnPremise : Windows Server OS, SCCM, SCEP.

    When we where discussing this hybrid setup, Microsoft kept telling us that this hybrid scenario would maintain the SA for our CoreCAL, for all 6 CALs : SA through the CoreCAL Bridge for one half, and “SA” through the Office 365 E1 subscription for the other half. That was the best option, since it was combining both the Transition to O365, and the new versions on our CoreCAL, thus keeping our OnPremise assets with up to date versions, may we have to switch back to an OnPremise architecture.

    Our representative now tells us that it is not the case : if we were to cancel our O.365 E1 subscription, we would “lose” the “SA” on half of the CoreCAL (Exchange, Lync, SP), and that we would go back to the versions available at the time we stop the actual CoreCAL SA, so versions available in 2013.

    => What is your point of view on this matter?

    Many thanks for your help.


    • Blake Gollnick

      Hello Johan,
      Thanks for the comment. As I understand it, your client transitioned midterm on an existing enrollment from Core CAL SA (fully paid “L”) to O365 E1 and Core CAL Bridge. The language in the enrollment permits moving back on premises to Core CAL SA for the # of licenses that have active SA at time of transition. This is documented as follows:

      (iii) If a Transition is made back to a License that had active Software Assurance as of the date of Transition, then Software Assurance must be re-ordered for all such Licenses on a prospective basis following the Transition Period. Software Assurance coverage may not exceed the quantity of perpetual Licenses for which Software Assurance was current at the time of any prior Transition. Software Assurance may not be applied to Licenses transferred by Enrolled Affiliate.

      So, the question on loss of SA coverage is really dependent on the following:

      When did the transition occur? Was it under an active enrollment, which you now want to transition back to on premises? Or, is this a case where the Core CAL was transitioned under one enrollment and now you are licensed for E1 and CAL Bridge under a separate enrollment? If now under a separate enrollment, your representative might be telling you that since the “transition period” has since lapsed, the ability to move back on premises and pick up SA is no longer an option. I would ask for clarification from your representative as to where he/she has supporting documentation on this.

  • Eirik


    Is it allowed on an EA Agreement to have
    500 core cal suite bridge for office 365
    100 Offce 365 E1 or K1
    400 Office 365 E3
    Or must there be 500 E3 plans that match the suite?

    • Blake Gollnick

      It is permitted to have an EA with Core CAL Bridge for O365 with a combination of E3 and E1. Not K1, however, as K1 is not considered an Enterprise Online Service. K1 could be added as an additional order for your users requiring just Exchange/Sharepoint.

  • Elio

    I have a question, if a company acquires office 365 E3 licenses, doest that allows to install Exchange/sharepoint on-prem?

    • Blake Gollnick

      Yes, they have rights to access on-premises servers as documented in the Product Use Rights.

  • Nathan

    We’ve got 15000 Office licenses that are on EA Subscription (EAS). As part of the EAS agreement, we have a buyout clause. Last year we converted 5000 seats to E4. If we decide to back out of the cloud, can we still buy out those 5000 seats at the end of the agreement for the same price as is listed in the buyout clause?

    • Blake Gollnick

      Hi Nathan,
      You have a buyout option applicable to the on-premises licenses for Office covered under your EAS at the buyout price documented on your current CPS. However, there would not be a programmatic option for the buyout of your O365 subscriptions, which were converted from on premises. Since these are now O365 online service subscriptions, there is not a perpetual license buyout option associated with these.

      The option to convert those back from O365 services to on-premises licenses could take place at your next renewal if you so choose – as the EAS is purely subscription based, you could “reset” your license entitlements at your next renewal and make a decision on how to account for on-premises vs. cloud-based services at that point.

  • Juan

    Hi Blake,

    I went through all theMicrosoft licensing in my company and I found we subscribed to Office 365 E1 a couple of years back, but when we went through the payments, we found we are currently paying for this subscription, plus a CoreCAL ALNG SA MVL UsrCAL and a CoreCALBridgeOff365 ALNG SA MVL UsrCAL. We also found we were paying for the following licenses: ExchgSvrStd ALNG SA MVL, a SharePointSvr ALNG SA MVL, a LyncSvr ALNG LicSAPk MVL, LyncSvrPlusCAL ALNG LicSAPk MVL DvcCAL, LyncSVrEnCAL ALNG LicSAPk MVL DvcCAL, Lync ALNG LicSAPk MVL.

    Do you think all of these are necessary?

  • Janet

    How long after an organisation has opted for Office 365 on EA, must the organisation upgrade all devices (no downgrade rights on O.365)?

    • Blake Gollnick

      Hi Janet,
      This depends on how the organization is currently licensed. If the organization has perpetual license rights for Office, it still has rights to run this on premises until it can transition to the cloud.

  • kay robinson

    We are a small start up company with a need of only 5 office 365 licenses. Is that even possible?

  • Johnny Trombley

    Would there be a benefit for buying (375)Office 365 E3 licenses through an EA as opposed to Open License?

    • Blake Gollnick

      @Kay – Yes, there are programs in which you can purchase only 5 licenses for O365. We’d be happy to get you in touch with an SHI representative to discuss further.

      @Johnny – Yes, there are benefits for organizations to purchase O365 under an EA vs. Open. We’d be happy to get you in touch with an SHI representative to discuss further.

  • Azeem

    Hey, This is best available article to understand O365 Licensing.

    Please help me on my below requirement.

    Q1. Suppose we have Active Directory with 1000 users
    Out of which 100 are enabaled for O365 E3 license.

    The rest 900 users are listed as unlicensed
    I want this 900 users to access sharepoint portal of O365.

    Technically they are able to access the portal. i would like to know if there is any licensing overhead if unlicensed users are accessing the SPO.

    Q2. We have 1000 Core CAL for Sharpeoint, I want this to use so ative directory users can access SPO of O365, is this possible.

  • Wayne

    WE have an EA agreement and recently purchased another company that uses Office 365 as well. We would like to add them to our EA license but keep them under their own tenant.

    Is that possible?

    • Blake Gollnick

      Technically speaking it is possible, but the issue today is how Microsoft creates tenants under its VL programs. Each enrollment (i.e., EA) will require a separate tenant. This is why many customers have multiple tenant enrollments for the same organization under a single enterprise agreement. If the O365 licenses were added to the existing EA, they would align to the existing tenant. My suggestion is to discuss what options would exist to accommodate these circumstances with Microsoft.

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