How to decide on what Office 365 add-on licenses to use

A switch to Office 365 offers many perks, but it takes substantial effort to find the right balance of cost and features for your organization.

As more companies move to Microsoft 365 services, such as Exchange Online, SharePoint Online and Microsoft Teams, it’s important to get a handle on licensing. Nearly all services within Microsoft 365 require a license. Licensing within many Microsoft services and applications is often hard to understand and, sometimes, costs more than it should. Though documentation exists for licenses, it takes work to know what you have access to with the current licenses and what services you might want to add.

Over the past few years, Microsoft 365 licensing has evolved with specific plans for government, education, frontline workers, small businesses and enterprises. The licenses include various features and services depending on the level purchased. Most organizations buy the Office 365 E3 licenses as a starting point for all employees with some opting for Office 365 E5 licenses to add extra capabilities. Microsoft modified the licensing even more to include Office 365 and Microsoft 365 licensing, the latter of which includes the Office 365 equivalent licenses and Windows 10/11 licensing.

Typical features within Office 365 Business and Enterprise licenses

Microsoft 365 Business and Enterprise licenses are similar but do not contain the same features. The business licenses target small businesses, whereas the enterprise licenses are for larger organizations. Most organizations choose these licenses because they include vital components, such as Exchange Online, SharePoint Online, OneDrive for Business and basic security capabilities. However, any organization can purchase any license type as needed.

Microsoft 365 Business licensing comes in four tiers: Microsoft 365 Business Basic, Microsoft 365 Apps for business, Microsoft 365 Business Standard and Microsoft 365 Business Premium. As can be expected, the more expensive the license, the more services and features are included. The maximum number of users supported on these licenses is 300.

Microsoft 365 Business Basic Microsoft 365 Apps for business Microsoft 365 Business Standard Microsoft 365 Business Premium

Cost per user per month

$6.00

$8.25

$12.50

$22.00

Teamwork and communication

O

X

X

Office apps — web and mobile versions

X

X

X

X

Email and calendaring

O

O

X

File storage and sharing

X

X

X

X

Security and compliance

O

O

X

O

Support and deployment

X

X

X

X

Tools to build and manage your business

X

O

X

X

Desktop Office apps for PC and Mac

X

X

X

Advanced threat protection

X

PC and mobile device management

X

O = partially included

X = included

The core set of components within Microsoft 365 Enterprise licensing is displayed below. Some of these, however, are fully or partially included depending on the chosen license:

Microsoft 365 E3 Microsoft 365 E5

Cost per user per month

$36.00

$57.00

Microsoft 365 Apps

X

X

Email and calendar

X

X

Meetings and voice

O

X

Device and app management

X

X

Social and intranet

X

X

Files and content

X

X

Work management

X

X

Advanced analytics

O

X

Identity and access management

O

X

Threat protection

O

O

Information protection

O

X

Security management

X

X

Compliance management

O

X

O = partially included

X = included

Microsoft provides a PDF with a detailed breakdown of Office 365/Microsoft 365 enterprise licensing here.

Many organizations choose the Microsoft 365 Business licenses because they are less expensive than enterprise licenses. The standard cost of a Microsoft 365 Business Basic, Standard and Premium license ranges from $6 to $22 per user per month. In contrast, an Office 365 Enterprise license ranges from $23 to $38 for E3 and E5 per user per month. Microsoft 365 Enterprise licenses range from $36 to $57 for E3 and E5 per user per month.

The price difference reflects the enhanced security capabilities of the Office 365/Microsoft 365 enterprise licensing. The difference between the enterprise licenses, such as E3 to E5, is the advanced security capabilities and automation of tools, such as sensitivity labeling.

Common misconceptions about Microsoft licensing

Unfortunately, due to limited documentation on exact capabilities within each license, many organizations purchase their chosen base license and quickly realize the capabilities required are either a limited subset or nonexistent. This is true for many of the security and compliance capabilities.

For example, a Microsoft 365 Business Premium license, though the most expensive, does not include Microsoft Defender for Identity, Microsoft Defender for Endpoint or Microsoft Defender for Cloud Apps. If you want these capabilities, you need an add-on or an upgrade to an enterprise license. The same is true with Microsoft 365 Enterprise licensing. For example, if you require sensitivity labels to auto-apply to content within Microsoft 365, then you have to add Azure Information Protection Plan 2 or upgrade to the Office 365 E5 license.

There is confusion around adding guest users to the tenant to work within Microsoft Teams, and a SharePoint site is also confusing. These external users do not require licenses to work with an organization. However, guests do not have full capabilities and will require a license if their ability to work in the tenant is limited. Most guest users fit into the monthly active users count, which allows up to 50,000 users per month if employee users have either an Azure Active Directory (AD) Premium Plan 1 or Plan 2 assigned license.

How to choose the correct Microsoft licensing

Understanding each license’s capabilities is vital to ensure you choose the correct one. How do you choose the correct licenses to start? When moving to Microsoft 365, it comes down to the feature set you need and what you plan to use.

For an organization that is new to Microsoft’s cloud offerings and is not familiar with the monthly fee for each user license, this process can be confounding. The license costs are easy to understand, but the difficulties lie in what comes with each license. There are different locations within the Microsoft documentation and other websites that try to give you a breakdown of what to expect with each license. The easiest way is to get a trial of the needed license, assign it to a user within Azure AD and then review the list of applications associated with the license.

Selecting an Office 365 add-on license

Microsoft 365 provides multiple add-on licenses for organizations that want specific services but don’t want to move to a more expensive tier. The logic to choosing an add-on license is a conversation about spending versus features. The base license might dictate the add-ons you can purchase. For example, if your base license is not Office 365 or Microsoft 365 E3 or E5, but a Business Premium license, then you may need to purchase multiple add-ons or upgrade to an enterprise license to get the required features.

The most common add-on license many organizations purchase is Enterprise Mobility + Security (EMS). The license provides advanced security and mobility tools beyond the base license of Office 365 E3 and E5, as well as Microsoft E3 and E5.

For many organizations, the add-on license list is extensive and confusing regarding what may or may not be needed. The list below outlines some of the available add-on licenses:

  • Audio Conferencing
  • Azure AD Premium
  • Azure Information Protection Premium
  • Common Area Phone
  • Compliance Manager Premium Assessments
  • Exchange Online Archiving
  • Exchange Online Protection
  • Microsoft 365 Apps
  • Microsoft 365 E5 eDiscovery and Audit
  • Microsoft 365 E5 Information Protection and Governance
  • Microsoft 365 E5 Insider Risk Management
  • Microsoft 365 Defender
  • Microsoft Defender for Cloud Apps
  • Microsoft Defender for Endpoint
  • Microsoft Defender for Identity
  • Microsoft Defender for Office 365
  • Microsoft Intune
  • Microsoft Intune Device
  • Microsoft Stream
  • Microsoft Teams Premium
  • Microsoft Teams Rooms Pro
  • Microsoft Viva
  • Office 365 Advanced Compliance
  • Phone Calling Plans (domestic and international)
  • Phone System
  • Power Automate
  • Power BI
  • Power Platform
  • Project
  • Visio
  • Windows 365

The list is substantial, which makes finding the best combination of licensing challenging but worth it from a cost perspective. The recommended approach is to review the cost of the enterprise licensing, combined with the EMS license and then either select some necessary Office 365 add-ons or upgrade to the E5 license.

The same is valid for government or education facilities users, except the licenses have different names. For example, the equivalent of Office 365 E5 is called Office 365 G5 for government and Office 365 A5 for education.

How to choose Microsoft Teams license add-ons

Implementing Microsoft Teams is an excellent example of licensing add-ons versus the base license. All licenses, whether Microsoft 365 Business or Enterprise, include Microsoft Teams capabilities. The base features include individual chat, team chat, video calling and content collaboration. However, the Microsoft 365 licenses do not include the phone system and audio conferencing capabilities you may require. The only license that includes these capabilities is the Microsoft 365 E5 license.

You can also utilize a free or Microsoft Team Essentials license if you are not using any Office 365 or Microsoft 365 licensing.

The most common add-on licenses for Microsoft Teams are the following:

  • Teams Phone with Calling Plan bundle ($15 per user per month);
  • Teams Phone Standard ($8 per user per month);
  • Microsoft Teams Calling Plan Domestic ($12 per user per month);
  • Microsoft Teams Calling Plan Domestic/International ($24 per user per month);
  • Communication Credits (minimum amount of $50);
  • Audio Conferencing ($0);
  • Microsoft Teams Rooms Basic ($0); and
  • Microsoft Teams Rooms Pro ($40 per device).

You should add these licenses if you require making calls to public switched telephone network, or PSTN, numbers or want to use a cloud-based private branch exchange, or PBX, phone system. Using these capabilities adds calling plans to your organization, which provide minutes for domestic and international phone calls.

For example, let’s compare three different licensing types and determine the most cost-effective one. We require essential Office 365 capabilities, voicemail, Microsoft Teams phone calling and audio conferencing. We do not need any of the more expensive Microsoft 365 licensing.

Option 1: Microsoft 365 Business Premium License ($22)

  • Add Exchange Online Plan 2 ($8)
  • Add Microsoft Teams Phone with Calling Plan bundle ($15)
  • Add Audio Conferencing ($0)

Total: approximately $45

Option 2: Office 365 E3 License ($23)

  • Included Exchange Online Plan 2 ($0)
  • Add Microsoft Teams Phone with Calling Plan bundle ($15)
  • Add Audio Conferencing ($0)

Total: approximately $38

Option 3: Office 365 E5 License ($38)

  • Add Exchange Online Plan 2 ($0)
  • Add Microsoft Teams Phone with Calling Plan bundle ($15)
  • Add audio conferencing ($0)

Total: approximately $53

When we check costs combined with the base licensing, we see that the prices aren’t as different as we might expect. In the previous examples, I would choose option two, which uses the Office 365 E3 base license with an additional calling plan. It’s cheaper than option one, which uses the Business Premium license.

If I had more budget, I could upgrade to option three or add the Enterprise Mobility + Security E3 license to option two for the added security and compliance capabilities. The total combined cost for option two is still less expensive — approximately $48.60 — than option three, which does not include the EMS license.

Recommended security add-ons for enterprises

Regarding the security of your Microsoft 365 tenant, I often find organizations don’t get licenses with the better security features because they don’t want to spend so much money.

I understand how the costs can add up with more users, especially when you factor in the expense of an Office 365 E5 license combined with the EMS E5 license is approximately $54 per user per month. If your organization has 300 employees, then you’re looking at a cost of more than $16,000 a month. It’s worth the time to choose the right combination of licenses to add the security features and keep the spending on licenses as low as possible.

There are two options that offer some excellent base capabilities and provide advanced security and compliance capabilities.

Option 1: Office 365 E3 ($23)

Purchase add-on licenses:

  • Enterprise Mobility + Security E3 ($10.60)
  • Microsoft Defender for Cloud Apps ($3.50)
  • Microsoft Defender for Endpoint (Plan 1 $3.00; Plan 2 $5.20)
  • Microsoft Defender for Identity ($6.00)

Included add-on licenses:

  • Azure Active Directory Premium Plan 1
  • Azure Information Protection Premium Plan 1
  • Microsoft Intune

Total: approximately $46.10-$48.30

Option 2: Office 365 E5 ($38)

Purchase add-on licenses:

  • Enterprise Mobility + Security E5 ($16.40)
  • Microsoft Defender for Endpoint (Plan 1 $3.00; Plan 2 $5.20)

Included add-on licenses:

  • Azure Active Directory Premium Plan 1 and Plan 2
  • Azure Information Protection Premium Plan 1 and Plan 2
  • Microsoft Defender for Cloud Apps
  • Microsoft Defender for Identity
  • Microsoft Intune

Total: Approximately $57.40-$59.60

We could also swap out the Office 365 licenses for Microsoft 365 licenses and utilize any of the new Microsoft 365 E5 licenses, including separate ones for security, compliance, information protection, insider risk management, eDiscovery and auditing. This approximate cost could be $57 as the Microsoft 365 E5 license includes these additional features:

  • Microsoft 365 E5 Security
  • Microsoft 365 E5 Compliance
  • Microsoft 365 E5 Info Protection and Governance
  • Microsoft 365 E5 Insider Risk Management
  • Microsoft 365 E5 eDiscovery and Audit
  • Microsoft Defender for Identity
  • Microsoft Defender for Office 365 Plan 1
  • Microsoft Defender for Office 365 Plan 2
  • Microsoft Defender for Cloud Apps
  • Microsoft Defender for Endpoint Plan 1 and Plan 2
  • Microsoft Purview Data Loss Prevention (for email and files)
  • Exchange Archiving
  • Azure Active Directory Premium Plan 1 and Plan 2
  • Microsoft Intune

What does the future hold?

The process to purchase and assign the correct licensing becomes even more critical as your organization grows into Office 365 and its supporting services. Microsoft steadily enhances and expands the licenses as more features roll out within its popular cloud collaboration platform. It requires diligence to review Microsoft’s licensing regularly to keep costs low, while providing the organization with the services it requires.

In an ideal world, you would create a roadmap of features to implement in the organization and then map those to the required core licensing and add-on licenses — a simple yet effective approach to manage a deployment of components, associated costs and timelines.

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