Introduction to Microsoft Enterprise Licensing

Microsoft Enterprise Licensing

Introduction – Why Enterprise Licensing Matters

Microsoft’s software powers countless enterprises, and how you license that software can make or break IT budgets. Choosing the right enterprise licensing agreement is a high-stakes decision. These contracts often span multiple years and involve millions in spend, so that a misstep can lock you into costs or compliance risks.

In short, enterprise licensing matters because it directly impacts your organization’s financial health and IT flexibility. A clear understanding of Microsoft’s licensing programs can help CIOs and CFOs avoid surprises, maintain compliance, and get the most value from Microsoft’s products.

Microsoft’s dominance in enterprise IT means nearly every large organization must engage with its licensing. The complexity of Microsoft’s licensing models – with various programs, terms, and product bundles – adds to the challenge.

Decisions around enterprise agreements aren’t just procurement choices; they are strategic moves that affect your ability to adopt new technologies, control costs, and negotiate with a powerful vendor.

A solid grasp on licensing options empowers you to align Microsoft’s offerings with your business needs while mitigating financial and operational risks.

Overview of Microsoft Licensing Programs

Microsoft offers several enterprise licensing programs, each suited to different needs.

The main models are the Enterprise Agreement (EA), the Cloud Solution Provider program (CSP), and the Microsoft Products and Services Agreement (MPSA).

Understanding their differences is key to picking the right fit for your organization:

• Enterprise Agreement (EA): A traditional three-year volume licensing contract, designed for organizations with 500 or more users/devices. An EA covers a broad range of Microsoft products (from Windows and Office to cloud services like Microsoft 365 and Azure) under one agreement. It typically involves committing to certain product suites enterprise-wide. In exchange for this commitment, enterprises get volume discount pricing, Software Assurance benefits, and price protection over the term. EA is a direct agreement with Microsoft (often via a Microsoft reseller partner). It is ideal for large companies that want predictable costs and a standardized set of Microsoft technologies across the organization.
• Cloud Solution Provider (CSP): A modern, subscription-based licensing model sold through Microsoft partners. CSP lets organizations purchase Microsoft cloud services (and some on-premises licenses) with monthly or annual subscriptions instead of a multi-year contract. There is no minimum seat requirement – even smaller businesses can use CSP. This model emphasizes flexibility: you can scale user counts up or down (month-to-month adjustments are possible for many subscriptions) and pay as you go. CSP is well-suited for companies that value agility and ongoing cost optimization. Small and mid-sized enterprises commonly use it, but larger organizations are also now considering CSP for certain needs due to its flexibility.
• Microsoft Products and Services Agreement (MPSA): A transactional volume licensing agreement with no preset term. MPSA is essentially a pay-as-you-go purchasing program for organizations (typically those with around 250+ users, but no strict minimum) that want to buy Microsoft software licenses and cloud services as needed, without an enterprise-wide commitment. It consolidates purchases under a single agreement with the flexibility to acquire licenses at your own pace. MPSA is often used for on-premises software or specific one-time license purchases. However, its popularity has waned as cloud subscriptions (via CSP or other programs) have risen. For purely transactional needs – say you need to buy a few server licenses or add Software Assurance to existing licenses – MPSA can still be useful. But many enterprises now find CSP or other subscription models more convenient for most needs.

Each program fits different scenarios. EA works best when you have a large, stable user base and want the best pricing and comprehensive coverage of Microsoft products.

CSP is optimal when flexibility and low commitment are priorities – for example, rapidly growing or changing organizations, or those who prefer operating expense (OpEx) spending.

MPSA serves niche cases where you simply want to purchase licenses without tying yourself into a contract, or if you maintain some perpetual licenses and only need occasional additions.

Enterprises sometimes even use a combination: for instance, an EA for core licenses and CSP for experimental projects or smaller subsidiaries. The key is to align the model with your IT strategy and organizational size.

How the Enterprise Agreement Works

The Microsoft Enterprise Agreement is structured to offer predictability and simplicity for large-scale licensing, at the cost of some flexibility.

Here’s how it works:

• Eligibility and Scope: An EA is generally available to organizations with 500 or more users or devices (in some sectors, Microsoft may allow exceptions). When you sign an EA, you typically agree to cover certain products for all qualified users/devices in your organization. For example, you might license Microsoft 365 Enterprise for every user. This “enterprise-wide” coverage is a core principle of the EA, ensuring standardization.
• Three-Year Commitment: The EA is a three-year commitment. You lock in your initial license quantities at the start. Microsoft guarantees fixed pricing for the entire term, which protects you from price increases. You can choose to pay the total cost in one upfront sum or in three annual installments. Many opt for annual payments to spread the expense over time. During the term, you are committed to at least the number of licenses you started with (you can’t reduce your license count if your workforce shrinks). Microsoft does offer an option to extend an EA for an additional term; however, it is typically more effective to renegotiate a new agreement at renewal to adjust for any changes and seek updated discounts.
• Annual True-Ups: Because businesses aren’t static, Microsoft includes a mechanism for growth called the true-up. Each year on the anniversary of the EA, you assess if your usage has increased. Suppose you’ve added users, devices, or deployed more software than you initially licensed. In that case, you must report those additions in a true-up order and pay for the new licenses to cover that growth (usually at the same unit price as your initial order). This allows you to stay compliant as you expand. However, true-ups only let you add licenses, not remove. If your usage decreases, you generally have to wait until the EA term ends to adjust downward.
• Software Assurance Included: A big benefit of EA is that Software Assurance (SA) is bundled into all licenses. SA is Microsoft’s maintenance program, which provides access to product upgrades, technical support, training vouchers, and other perks. With an EA, any perpetual software licenses you get come with upgrade rights for the term, and many cloud services include support benefits. SA also allows flexible use rights (like the ability to deploy newer versions or use cloud and on-prem interchangeably in some cases). This adds value to an EA, ensuring you’re always entitled to the latest versions and support. The flip side is you pay for SA as part of the deal – you cannot opt out of it in an EA, even if you don’t need certain SA benefits.
• Cost Predictability vs. Inflexibility: The EA’s strength is predictable budgeting. You know your baseline software costs for three years, which is helpful for financial planning. Volume discounts in an EA can be significant, especially at higher tiers (organizations are categorized into discount levels like A, B, C, D based on the number of users/devices; the more you have, the bigger the discount). This can make the EA very cost-effective per license for large enterprises. On the downside, the EA is relatively inflexible. You’re locked into a contract – if your company downsizes or if you want to drop a product, you still pay for the original agreement until the term ends. Changes in mid-stream (other than adding more) aren’t allowed without penalties. In a fast-changing tech landscape, that rigidity can be a limitation. Enterprises entering an EA must be confident about their 3-year outlook or build in some buffer to avoid overcommitting.

In summary, the Enterprise Agreement is a great tool for stability. It simplifies management (one agreement covers all, with centralized tracking via Microsoft’s portals and a dedicated Microsoft account team).

But it requires you to forecast needs and accept a “lock-in” for the term. It’s most effective when you plan to fully use the licenses you’re committing to and value stable pricing over maximum flexibility.

CSP vs EA – Shifting Dynamics

In recent years, the balance between Enterprise Agreements and Cloud Solution Provider licensing has been shifting. Microsoft’s own strategic priorities and customers’ changing needs have led to CSP growing in prominence and some evolution in how EAs are offered:

Traditionally, large enterprises defaulted to an EA, while smaller companies or those with less predictable needs went with CSP. The EA’s discounts made it the obvious choice if you were big enough. However, as more workloads move to the cloud, Microsoft is pushing SaaS growth via CSP and its New Commerce Experience (NCE) model.

Under NCE (Microsoft’s modern commerce platform for subscriptions), CSP agreements now require an annual commitment for best pricing, but still allow month-to-month terms if ultimate flexibility is needed (at a premium cost). Microsoft is incentivizing customers to use cloud subscription models (often sold through partners) rather than stick solely to large, long-term EAs.

In fact, recently, some enterprises with a few hundred or low thousands of seats have found Microsoft less eager to renew their EA, instead suggesting a move to CSP or a newer Microsoft Customer Agreement.

This reflects Microsoft’s strategy to rely on partners for mid-market sales and to streamline its licensing programs.

From a customer perspective, CSP offers agility that an EA cannot. If you need to add 50 new users this month and remove 30 next month, CSP makes that easy – you scale licenses up or down and the billing adjusts.

In an EA, you’d add 50 at the annual true-up but never get credit for removing 30 until renewal (and you might pay for those unused licenses in the meantime). CSP also allows you to start new services or trials without a big agreement change.

This agility is highly attractive to organizations experiencing rapid growth, seasonal workforce changes, or uncertain futures.

However, CSP has its trade-offs. Pricing in CSP is typically pay-as-you-go – you might not get the same deep volume discounts as an EA. Microsoft can also change subscription pricing over time.

For instance, if Microsoft raises the price of Microsoft 365 plans, EA customers are shielded until their term ends, whereas CSP customers might see the increase sooner (especially if on month-to-month terms).

That said, CSP customers can decide not to renew a certain subscription or to downgrade at the next monthly cycle, which is a power that EA customers lack mid-term.

Another dynamic is the role of the partner in CSP. With an EA, you negotiate largely directly with Microsoft (even if a reseller is involved, the deal is primarily driven by Microsoft). In CSP, you work with a Microsoft partner who can provide value-added services like support, migration help, or cloud optimization.

A good partner can enhance your experience and help manage costs, but it also means your licensing relationship is indirect.

For some enterprises accustomed to direct Microsoft support, this is a change; however, many partners offer excellent support and sometimes more personalized attention.

In summary, we’re seeing a shift where Enterprise Agreements remain crucial for the largest enterprises (especially those over a few thousand seats that can command the best discounts). Still, CSP is increasingly popular for mid-sized enterprises and even as a complement for large ones.

Microsoft’s new licensing schemes (like NCE) have made CSP a bit more like a mini-EA (requiring annual commitments for discounts), yet it retains more flexibility overall.

Enterprises should re-evaluate the “EA vs CSP” question at each renewal – the answer may evolve as Microsoft’s incentives and your own needs change. The key is to weigh the scale of discounts versus flexibility and partner support.

Financial Implications

Enterprise licensing models differ not just in how you buy, but also in how they impact budgets and financial planning.

Here’s a look at the cost and accounting side of EA, CSP, and MPSA:

• Enterprise Agreement (EA) – CapEx-like Commitment: An EA often behaves like a capital expenditure (though technically it can be treated as an operating expense spread over years). You’re committing to a multi-year contract that represents a significant financial obligation. The positive side is cost predictability: you lock in pricing for three years, which insulates you from annual price hikes and currency fluctuations. This makes budgeting straightforward – you know the annual bill upfront. Additionally, volume discounts can result in a lower per-license cost compared to purchasing ad hoc. Many CFOs appreciate that an EA sets a firm software budget for the term. On the downside, if your company needs a change (for example, you downsize or move to a non-Microsoft solution for some services), the EA cost is largely sunk until renewal. There’s also typically an upfront paperwork to true-up any overuse annually, but no mechanism to get money back for underuse. Financially, an EA rewards full utilization – the more consistently you use what you paid for, the better the value.
• Cloud Solution Provider (CSP) – OpEx Flexibility: CSP licensing is usually treated as an operational expense. You pay monthly or annually for subscriptions and can adjust those as needed. This provides excellent cost flexibility – you’re only paying for the licenses you actively need. If a project ends or you have layoffs, you can reduce your subscription counts and immediately lower costs (or at worst, wait until an annual term is up if you chose an annual plan). There’s no long-term obligation beyond the subscription period, which appeals to financial managers who want to avoid long commitments on the books. The trade-off is potentially higher costs over the long run if your user count remains consistently high. CSP per-user prices might be slightly higher than an EA’s equivalent due to less volume discount, and month-to-month plans are about 20% more expensive than annual ones. Also, prices in CSP can change with market conditions – for instance, Microsoft might raise rates, and those can flow through after your current subscription term. In essence, CSP shifts more cost control to you in the short term, but you forego the long-term price lock and possibly some discounts. It’s akin to renting month-by-month versus signing a lease – more flexibility, potentially a bit more cost if you rent indefinitely.
• MPSA – Transactional Spending: Under an MPSA, you buy licenses as needed, which means costs occur on demand. This can be financially prudent if your needs are sporadic – you’re not paying for unused licenses at all. For example, if you need 50 new Office licenses, you purchase exactly 50 and that’s it, often with a volume price applicable at that quantity. This model can align well with project-based purchasing or capital budgeting (each purchase can be a discrete investment). However, predictability is low – spend can spike whenever new licenses are required. Unlike an EA’s steady payments or CSP’s regular subscriptions, MPSA might have quarters with big expenses and others with none. There’s also the risk of missing out on bundled savings; buying à la carte can be more expensive per unit than committing to a larger bundle in an EA.
  Additionally, since MPSA often involves purchasing perpetual licenses, you need to plan for upgrades or support separately (or pay extra for Software Assurance on those purchases). Financially, MPSA is pay-as-you-go. It gives maximum control over what and when you spend, but budgeting for it requires anticipating your organization’s license needs, and you might need a contingency for unexpected purchases (or audits).

In summary, the EA is about predictable, locked-in investment – great for stability but inflexible if you need to trim costs. CSP is about continuous operational spending aligned to actual usage – great for flexibility, though potentially with a premium and exposure to price changes.

MPSA is about on-demand purchases – you spend only when necessary, but without the safety net of fixed pricing or broad discounts.

Enterprises should consider not just sticker prices, but how each model aligns with their accounting preferences (CapEx vs OpEx), financial risk tolerance, and the likelihood of usage fluctuations.

Key Licensing Shifts Enterprises Must Track

The world of Microsoft licensing is not static. In the past few years, several shifts have occurred that enterprises should keep an eye on, as they can impact your strategy:

• Shift from Perpetual to Subscription: Microsoft is steadily moving away from selling one-time perpetual licenses toward subscription-based services. Many organizations that once bought Office or Windows licenses to “own” forever are now subscribing to Microsoft 365 plans. The allure for Microsoft is recurring revenue, and for customers, it’s always having the latest version. However, this shift means enterprises need to adjust to continuous payments and the fact that if you stop subscribing, you lose access (unlike a perpetual license, you could keep using). Products like Office 2021 may be one of the last of their kind, as Microsoft wants customers on cloud-linked subscriptions. Enterprise Agreements now often cover Microsoft 365 (which includes Office, Windows,and EMS) instead of just Office Pro or Windows upgrades. For any remaining on-premises software, Microsoft has even discontinued older licensing programs (for example, the Open License program ended, funneling even perpetual license purchases into newer portals). Bottom line: plan for a subscription-centric future and scrutinize if perpetual licenses are truly needed or if moving to subscriptions offers more value.
• New Commerce Experience (NCE) and Reduced Flexibility in CSP: Microsoft’s New Commerce Experience has changed CSP purchasing. Under NCE, if you commit to an annual subscription for a better rate, you cannot reduce the seat count until the term is over (there’s only a brief 7-day cancellation window after purchase). This is a notable change: previously, CSP was extremely flexible with changes at any time. Now, Microsoft has introduced some EA-like rigidity for annual-term CSP subscriptions to discourage mid-term churn. You can still choose month-to-month plans for full flexibility, but you’ll pay more for that privilege. Enterprises must track these rules to avoid unpleasant surprises (e.g., thinking you can drop 100 licenses mid-year and finding out you’re locked in). This shift indicates that Microsoft is balancing flexibility with its own revenue stability, and customers should adjust their CSP strategies accordingly – possibly staggering renewal dates or retaining a portion of licenses every month if fluctuations are anticipated.
• Bundling and Suite Emphasis (E3/E5 and more): Microsoft is increasingly bundling products into suites like Microsoft 365 E3/E5, Security & Compliance packages, and other all-in-one offerings. Buying individual component licenses (like separate Skype for Business, SharePoint, Exchange, etc. in the old days) is largely gone – they come as part of a package. Similarly, many advanced features (especially security, analytics, voice, and compliance features) are only in the top-tier bundles (M365 E5 or add-ons to E3). This bundling strategy means enterprises often have to evaluate larger bundles versus smaller ones and add-ons. The upside is simpler licensing (one suite covers many needs) and sometimes a better total price than buying each capability separately. The downside is potential shelfware – paying for a suite where you might not use 30% of the components. It’s a shift to be mindful of: Microsoft’s sales approach is to demonstrate value across the suite, but you should internally assess how much of that suite your users will actually use. Additionally, bundling can make it harder to drop a single component – you end up either keeping the whole thing or removing everything.
• Price Increases and Regional Adjustments: Microsoft periodically announces price uplifts that can affect enterprise customers. In recent years, there have been notable price increases for popular products (for instance, a Microsoft 365 E5 price increase, or adjustments to Office 365 E1/E3/E5 pricing that took effect globally). Additionally, Microsoft has been implementing regional price harmonization, adjusting prices up or down in specific countries to align with US dollar levels and exchange rates. Enterprises should track these announcements because they can significantly impact renewal costs. An EA customer might be shielded from an increase until renewal, but needs to budget for a jump at that time. CSP customers might see price changes as early as their next billing cycle after an announcement.Additionally, new products (like emerging AI offerings or advanced security features) often come with premium pricing. The key is not to assume flat pricing forever. Always engage in renewal discussions with an eye on any publicized upcoming changes, and try to negotiate price caps or phased discounts if you are facing a known price increase.
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In short, the licensing landscape is evolving towards subscriptions, with Microsoft tweaking program rules (such as NCE) to its advantage and bundling more value (or cost, depending on usage) into suites.

Staying informed about these shifts ensures you can adapt your strategy – whether it means renewing early to beat a price increase or carefully choosing between an E3 and E5 plan by analyzing feature usage.

Negotiation Strategies for Enterprise Licensing

Entering or renewing a Microsoft enterprise agreement is as much a negotiation as it is a procurement exercise.

Here are some strategies to help you get the best outcome and avoid common pitfalls:

• Benchmark EA vs. CSP Costs: Before you commit, compare the numbers for sticking with an EA versus moving to CSP (or vice versa). Request quotes for your licensing needs under both models. For example, what would 1,000 Microsoft 365 E3 licenses cost per year in an EA (with your discount level) versus through a CSP partner? This gives you leverage. Suppose CSP comes out cheaper or is offering promotional discounts. In that case, you can present that to Microsoft during EA negotiations to push for a better EA price (and Microsoft would prefer to keep you on an EA if you’re a larger customer). Conversely, if EA is clearly more cost-effective, you can use that to negotiate better terms or services from a CSP partner if you lean that way. The goal is transparency on pricing – don’t negotiate in the dark. Microsoft sales reps respond when they know you have done your homework.
• Negotiate Price Caps and Renewal Protections: One risk in any multi-year deal is what happens at renewal. You should attempt to negotiate protections such as a cap on price increases for when your term ends and you’re signing the next one. For instance, try to include a clause that renewal pricing for core products will not increase by more than X% from your current rates. Microsoft might not always agree, but even a commitment like “discount level will remain at least the same” or special transition pricing for new products can save money later. If you’re moving from on-premises to cloud subscriptions in an EA, negotiate things like “transition SKUs” that credit your unused time on old licenses towards new subscriptions. Also, consider negotiating the ability to reduce quantities at renewal without penalty if you anticipate potential downsizing (even if mid-term reductions aren’t allowed, setting the stage for a smooth scale-down at renewal helps). The key is to address the end of the term at the beginning of the deal, when you have the most leverage.
• Demand True-Up Transparency: True-ups can be a source of unexpected cost if not monitored. Internally, establish a process to track your license deployment closely throughout the year. When negotiating, ask Microsoft (or your LSP) for clarity on how true-up costs will be calculated and if any grace can be given. Sometimes, enterprises negotiate provisions like a baseline allowance for growth (e.g., no charge for up to X new users until renewal) or at least avoid retroactive charges beyond the current year. While Microsoft’s standard is to charge pro-rata for new licenses added, make sure there are no ambiguities. Also, push for regular reports or tools from Microsoft to help you visualize usage vs. licenses – this helps avoid “surprises” at true-up time. Microsoft offers a Licensing Statement and other tools; ensure you receive them annually.
• Right-Size Your License Mix: One of the most effective strategies to control cost is to avoid over-licensing certain tiers or products. Microsoft’s catalog is full of bundles and add-ons; not every user needs the top-tier SKU. Analyze your usage to identify if a mix of licenses can meet requirements more economically. For example, you might license 70% of users with Microsoft 365 E3 and 30% with E5, instead of 100% E5, if only some need the advanced features. Or if you have a bunch of Windows Server licenses with Software Assurance that you aren’t heavily using, perhaps you don’t renew SA on all of them. Microsoft will often propose bundles (like security bundles or high-end suites) – carefully evaluate which users or departments truly benefit. In negotiations, you can commit to a core volume on a lower-cost plan and only add premium licenses for those who need them. This avoids paying for shelfware – licenses that sit unused. It’s also wise to consider third-party alternatives in specific areas (for instance, if you use a third-party backup solution, maybe you don’t need to buy Microsoft’s equivalent feature for everyone). By tailoring the license mix, you not only save money but also send Microsoft a message that you won’t blindly buy the most expensive package for all, which can actually lead them to sharpen discounts on the portion you do need broadly.
• Leverage Timing and Fiscal Year-End: Microsoft, like many vendors, has sales targets and quarterly goals. One well-known strategy is to time your agreement discussions around Microsoft’s fiscal year-end (June 30) or sometimes the end of a quarter. If your renewal is naturally around that time, great – you might find reps more flexible to discount or add incentives to close the deal before the deadline. If not, and if you have any flexibility on start dates, consider aligning a new agreement to end around June so that renewals coincide with a time Microsoft is keen to book revenue. Additionally, be mindful of any major product launches or transitions (for example, if a new version of Windows or an innovative product like Microsoft’s AI “Copilot” is coming out). Sometimes, committing to new technology adoption during negotiation can get you extra concessions (like free trial licenses or locking in pre-launch pricing). Always ask: “Is there a better deal if we sign this quarter versus next?” – you may be surprised how pricing or terms can improve when Microsoft wants to hit a quota.

In negotiations, knowledge and preparation are your allies. Know your usage, know the market alternatives, and understand Microsoft’s pressure points.

It’s not just about haggling on price – it’s about structuring the deal smartly (right products, right quantities, and protective terms) to serve your organization’s interests over the long term.

Risks and Opportunities

Signing onto a Microsoft enterprise license agreement brings certain risks to manage, but also opportunities to seize:

Risks: The primary risk is vendor lock-in. Once you commit to an EA or a large subscription, you are essentially tied to Microsoft’s ecosystem for the duration. This can make it harder to pivot to alternative solutions (e.g., Google Workspace or another cloud vendor) because you’ve sunk costs into Microsoft already. There’s also the risk of oversizing – if you overestimate your needs, you could pay for a lot of unused licenses (shelfware) and only realize it later.

With the recent licensing changes, another risk is reduced flexibility: for instance, under CSP’s new rules, you might be stuck with certain subscriptions for the year, even if your needs drop. Cost escalation is a risk at renewal; if you’re locked in now, Microsoft might push for a significant price uplift later, knowing it’s hard for you to switch away.

And don’t forget compliance risk – while an EA gives you broad use rights for included products, if you deploy things outside the agreement or misunderstand the terms (like using a product in a way not covered), you could face an audit and unbudgeted costs.

Opportunities: On the flip side, committing to an enterprise agreement can give you leverage to access benefits and incentives. Microsoft often provides funding or free services to EA customers to drive adoption of new technologies (for example, free Azure credits, deployment planning services, or training workshops via Software Assurance). If you know Microsoft is keen on a particular product (say, Power Platform or Azure consumption), you can use your commitment there to negotiate extras. Additionally,

Microsoft’s current push for cloud adoption means they are more willing than ever to help customers transition – that could mean an opportunity to modernize your IT (move off legacy systems into Azure or M365) with Microsoft’s help, possibly at a lower cost.

Another opportunity is consolidation of vendors: by using the full Microsoft 365 suite, some enterprises can retire third-party systems (for example, security or telephony tools) and save money overall – essentially leveraging the Microsoft bundle to replace other expenses. While this increases reliance on Microsoft, it can improve integration and ROI if done smartly.

Lastly, the competitive landscape (AWS, Google, etc.) gives you an opportunity: even if you don’t intend to switch, having credible alternatives on the table can spur Microsoft to offer concessions.

Microsoft would rather keep you as a cloud customer (even at a discount) than lose you to a competitor, so highlighting those opportunities (like “we are considering shifting workload X to AWS”) can sometimes bring creative solutions from Microsoft to add value in your agreement.

In essence, be aware of the risks of entrenchment and inflexibility, and counter them with careful planning (don’t overbuy, keep some options open).

At the same time, take advantage of Microsoft’s desire to grow your account – you can often negotiate perks or support that not only reduce cost but help your organization innovate using Microsoft’s platform.

EA vs CSP vs MPSA Compared

(Table: Comparison of Microsoft Enterprise Agreement, CSP, and MPSA models.)

FAQs

What is a Microsoft Enterprise Agreement?

It’s a three-year volume licensing contract with Microsoft for organizations typically with over 500 users. An Enterprise Agreement (EA) lets you license a broad set of Microsoft products (desktop software, servers, cloud services like Microsoft 365, etc.) under one agreement with discounted pricing.

You commit to a certain number of licenses enterprise-wide and can add more via annual true-ups. The EA includes Software Assurance benefits and provides price protection for the term. In essence, it’s Microsoft’s traditional “all-in” contract for large enterprises to ensure they’re licensed consistently and cost-effectively across the board.

Is CSP cheaper than an EA?

The cost difference between CSP and EA depends on your situation. For a smaller or highly variable organization, CSP can be cheaper because you pay only for what you need each month and can dial subscriptions down during lulls. You avoid paying for unused licenses.

However, for a large enterprise with steady usage, an EA often yields a lower effective per-user cost due to volume discounts and locked-in pricing. CSP prices per license can be a bit higher, and if you stick with the same high user count over three years, you might end up paying more via CSP than you would have with an EA.

Can enterprises still buy perpetual licenses from Microsoft?

Yes, enterprises can still buy perpetual licenses (where you pay once and own the software version indefinitely), but Microsoft is making this less prominent. Perpetual licenses for many products (Windows, Office, server software like SQL Server, etc.) are available through programs like the MPSA or via specialized partner channels. For example, if you want to buy Office Professional Plus 2021 as a one-time purchase for some PCs, you could do so through MPSA or a partner.

However, Microsoft has ended some older programs (like the Open License program for small businesses) and shifted focus to subscriptions. Also, keep in mind that buying a perpetual license often means you’ll need to purchase Software Assurance if you want upgrade rights or support, otherwise you’re stuck on that version. In the enterprise space, most new deals are for subscription licenses (e.g., Microsoft 365 instead of Office 2021, or Azure instead of buying new server licenses outright).

Still, if you have a specific need – say a standalone copy of Visio or a Windows Server license for a machine that can’t be cloud-connected – you can buy those perpetually. Enterprises should evaluate if the one-time purchase plus ongoing maintenance is more cost-effective than a subscription; in some cases, it is, especially for infrastructure that doesn’t change much. But overall, expect Microsoft to continue nudging you towards subscription models.

How do true-ups work in an Enterprise Agreement?

A true-up is the annual reconciliation process in an Enterprise Agreement. Since an EA fixes your license count at the start, the true-up is how you handle growth.

Each year (usually 60 days before your EA anniversary date), you review your usage of Microsoft products covered by the EA. If, for example, you initially licensed 1,000 users of Office 365 but now you have 1,100 users, you need to purchase the additional 100 licenses at the agreed EA price.

You report these additions in a true-up order to Microsoft. You’ll then be billed (often for the upcoming year’s worth of those 100 extra licenses, or pro-rated from when they were first used, depending on the agreement). Importantly, true-ups are one-way – they only account for increases in use. If your user count decreases from 1,000 to 900, you unfortunately won’t receive a refund during the term; you’d simply renew with 900 users at the next renewal.

True-ups also apply to things like server licenses or CALs if you deployed more than you owned. The process ensures you stay compliant with licensing while giving you some leeway to add users or software deployments during the year without needing immediate purchases each time.

The key for enterprises is to actively track growth and anticipate the budget impact of the true-up each year, thereby avoiding any surprises when the bill comes due.

When should an organization choose CSP over an EA?

An organization should consider CSP (Cloud Solution Provider) instead of an EA when flexibility and scalability are top priorities, or when it doesn’t meet the size threshold for an EA.

Suppose you are a mid-market company (for example, 200, 500, or even a couple thousand seats) and expect frequent changes in headcount or service usage. In that case, CSP’s month-to-month adaptability is very attractive.

It’s also a good choice if you prefer to treat all software costs as operational expenses and avoid long commitments. Newer or fast-growing companies often like CSP because they can start small and expand their subscriptions as they go, without negotiating a huge contract upfront.

On the other hand, if you’re a very large enterprise with stable needs, an EA might serve you better through cost savings and direct Microsoft engagement. Some organizations also choose CSP if they desire a higher-touch support model from a partner who can bundle in services (for example, a CSP partner might include cloud management or consulting hours along with the licenses).

Additionally, Microsoft has been steering some customers toward CSP if they are on the lower end of the traditional EA size – in such cases, even if you wanted an EA, you might get a better offer via CSP.

In practice, a growing trend is for organizations to use a mix: you might keep an EA for your core large-user-base products, but use CSP for certain cloud projects, pilot programs, or smaller subsidiaries, where you want that flexibility.

When deciding, weigh the discount and fixed nature of an EA against the agility and service of CSP. If you foresee stable or expanding use of Microsoft across the board and can commit for 3 years, EA is compelling. If you value the ability to pivot quickly, or you’re not quite at the scale to maximize EA discounts, CSP is likely the better route.

Five Expert Recommendations

To wrap up, here are five expert tips for enterprises navigating Microsoft licensing:

1. Audit Your Usage Before Renewal: Before negotiating any new agreement or renewal, do a thorough internal audit of your current license usage. Identify unused licenses, under-utilized products, and actual needs. This data will help you avoid overbuying and give you evidence to negotiate a smaller, more efficient contract. For example, if only 60% of your E5 licenses are actively used, you might downgrade some users to E3 in the new deal. Know what you have and who’s using it.
2. Evaluate EA and CSP Side by Side: Don’t assume that sticking with the same model is always best. When approaching a renewal, price out your environment under both an EA and a CSP scenario. Consider doing a pilot with a CSP for a subset of users to gauge the pros/cons. By comparing options in parallel, you might discover cost savings or process benefits. Even if you ultimately stay with an EA, having a CSP quote or experience gives you leverage and insight during negotiations.
3. Push for Price Protections and Transparency: When you negotiate, ask for things like fixed pricing or caps not just for the current term but even into renewals. Also, request transparent breakdowns of costs – know how much each component (Office 365, Windows, Azure, etc.) is contributing. If Microsoft proposes a bundle, have them show the cost of each piece; this helps you see where you might trim fat later. Clarity on pricing and a cap on future increases (even if just for years 4 and 5, should you extend, for instance) can significantly reduce long-term risk.
4. Avoid Overbuying Bundled Suites: Microsoft will often pitch the top-tier bundles (like Microsoft 365 E5, or the full Security stack) for “everyone” in your organization. Be cautious about these one-size-fits-all approaches. It’s usually more cost-effective to buy a base level (like M365 E3 for all) and then selectively upgrade the users or departments that truly need the extra features. Overbuying an expensive suite for all users leads to paying for many features that some users won’t use. Tailor your purchases to actual roles and requirements. You can often negotiate a mix of licenses in an agreement (Microsoft knows not everyone needs the deluxe package) – use that flexibility.
5. Leverage Competition as Bargaining Power: While you may be a Microsoft-centric shop, don’t shy away from mentioning competitors during negotiations. If Google Workspace or Amazon Web Services (AWS) could potentially replace certain Microsoft functionalities, bring that up. Microsoft reps have flexibility, and they’re especially motivated to beat competitive threats. Get quotes from competitors or highlight a willingness to move a workload (like considering Google for collaboration or AWS for some cloud projects). This isn’t about making idle threats, but about giving Microsoft reason to give you their best offer. Even exploring a third-party could reveal cost or feature advantages that you can use as a negotiation chip to get discounts or added value from Microsoft.

By following these recommendations – auditing, comparing options, securing protections, being strategic in what you buy, and using competitive pressure – you can approach Microsoft enterprise licensing in a savvy way.

The result should be a licensing arrangement that meets your needs without unnecessary spending, and with enough flexibility to adjust as your business evolves.

Fredrik Filipsson

Fredrik Filipsson brings two decades of Oracle license management experience, including a nine-year tenure at Oracle and 11 years in Oracle license consulting. His expertise extends across leading IT corporations like IBM, enriching his profile with a broad spectrum of software and cloud projects. Filipsson's proficiency encompasses IBM, SAP, Microsoft, and Salesforce platforms, alongside significant involvement in Microsoft Copilot and AI initiatives, improving organizational efficiency.

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