Navigating Microsoft 365 Licensing - Comparing Agreements Types

Microsoft’s licensing landscape for Microsoft 365 is evolving rapidly, with new agreements like the Microsoft Customer Agreement Enterprise (MCA-E) and a shift toward cloud-based, direct models. For IT and procurement professionals, these changes present opportunities to optimize costs but also risks of overspending or non-compliance.According to a 2024 Gartner report, 60% of enterprises overspend on cloud subscriptions due to poor license management. In our recent webinar, licensing experts Ben Marshall and Steve Paradis explored the differences between Enterprise Agreements (EAs), Microsoft Customer Agreements (MCAs), and MCA-E, providing a step-by-step guide to navigating these changes. This blog summarizes their insights, compares different agreement types, and provides actionable strategies to help your organization maximize value from Microsoft 365 licensing.

Evolution of Microsoft 365 Licensing

Microsoft’s licensing model has undergone significant transformation over the decades. Starting with perpetual licenses, Microsoft then shifted to subscription-based models with the introduction of Office 365 and, more recently, to cloud-based agreements under the New Commerce Experience (NCE). Today, Microsoft appears to be shifting toward direct sales, reducing its reliance on intermediaries such as Licensing Solution Providers (LSPs) and emphasizing Cloud Solution Providers (CSPs). This shift aims to simplify licensing and enhance flexibility, but it requires enterprises to reassess their support and cost management strategies.

Understanding the Enterprise Agreement (EA)

The Enterprise Agreement (EA) is a legacy volume licensing model that remains relevant for organizations still locked into existing contracts or those requiring perpetual licenses. Key features include:

• Volume Discounts: Based on user count and Software Assurance (SA) commitments.

• Software Assurance: Provides upgrade rights and support, but adds costs.

• Annual True-Up/True-Down: This feature enables license adjustments; however, many organizations are unaware of the true-down option, as Ben noted.

• Limited User Profiles: Less flexible for dynamic workforces.

In the EA model, contracts are directly between Microsoft and the customer, with LSPs managing paperwork and renewals. In these scenarios, Microsoft would pay the LSPs a fee to manage the contracts on behalf of the customer. LSPs were intended to be the first line of defense for Microsoft, addressing customer questions. However, Microsoft did not seem to get a good return on its investment and has phased out LSPs in favor of CSPs, reducing its role in recent years. Ben recommends using tools like ENow’s M365 License Optimization to analyze usage and identify true-down opportunities and savings during the Enterprise Agreement renewal period.

Understanding the Microsoft Customer Agreement (MCA)

The Microsoft Customer Agreement (MCA) is a cloud-based model introduced under the New Commerce Experience (NCE). It shifts licensing to CSPs, who manage contracts, billing, and support. Key features include:

• Unlimited User Profiles: Ideal for dynamic or growing organizations.

• No Annual True-Up/True-Down: This option offers flexibility but requires proactive monitoring.

• Partner-Led Support: CSPs provide advisory, fulfillment, and support, with escalation paths to Microsoft’s premier engineers.

With MCAs, CSPs purchase licenses from Microsoft and resell them to customers, often with a markup. Procurement teams should negotiate transparent pricing to avoid excessive costs. The Microsoft NCE overview highlights NCE’s simplified SKUs, but Steve warns that overprovisioning can lead to overspending. ENow’s tool helps by flagging unused licenses, ensuring compliance and cost efficiency.

Understanding the Microsoft Customer Agreement Enterprise (MCA-E)

The Microsoft Customer Agreement Enterprise (MCA-E) is still being released, so the information provided is evolving. So far, we know that it has a direct, Microsoft-led agreement designed for large enterprises. Key features include:

• Direct Contract: Eliminates CSP intermediaries, giving Microsoft control over client relationships.

• Flexible Licensing: Supports fluctuating user counts, ideal for mergers or seasonal hiring.

• Support Options: Pay-as-you-go or premium support, with costs varying according to your needs.

• Microsoft-Led Support: Streamlines operations but may increase costs for premium services.

As per a Microsoft announcement, MCA-E enhances scalability but requires enterprises to budget for support separately. Steve advises evaluating support needs carefully, as premium support ensures faster resolution for critical outages but can be costly.

Comparing EA, MCA, and MCA-E

Choosing the right agreement depends on your organization’s size, growth, and support needs. The table below compares key factors:

Figure 1: Comparison of EA, MCA, and MCA-E Licensing Features

Ben emphasizes that EAs offer deep discounts for high-volume, stable user bases but are less suited for cloud adoption. MCAs offer flexibility for growing firms, while MCA-Es cater to enterprises requiring direct Microsoft support. Procurement teams should calculate the total cost of ownership (TCO), including support, markups, and compliance risks, before making a decision.

Pros & Cons of Microsoft Licensing Agreement Types

Each agreement has distinct advantages and drawbacks:

• EA:

  • Pro: Deeper volume discounts; predictable costs with SA.

  • Con: Inflexible for cloud or dynamic workforces.

• MCA:

  • Pro: Scalable and flexible licensing; CSP support and partner-led.

  • Con: Potential CSP markups; variable support quality/quality of CSP services.

• MCA-E:

  • Pro: Direct Microsoft support; flexibility and scalability, no minimum commitment.

  • Con: Higher support costs; less partner advocacy, discounts tied to Microsoft OKRs.

ENow’s License Optimization tool helps quantify these trade-offs by analyzing usage data, ensuring you select the agreement that aligns with your needs.

Planning Your Microsoft Licensing Strategy

Microsoft’s shift to cloud-based, direct agreements prioritizes flexibility but demands proactive management of Microsoft 365 licenses. A 2023 Forrester study found that enterprises that optimized their cloud licenses saved between 20% and 30% annually. Follow these steps to plan your strategy:

1. Audit License Usage: Understand what you have and what is used. Microsoft provides some basic built-in reporting. Use ENow’s License Optimization to easily identify underutilized licenses and compliance risks.

2. Compare Agreements: Evaluate EA, MCA, and MCA-E based on user profiles, support requirements, and total cost of ownership (TCO).

3. Negotiate CSP Terms: For MCAs, ensure transparent pricing and robust support agreements, with a clear understanding of Service Level Agreements (SLAs).

4. Review Contracts: Check for hidden clauses, especially in MCA-E’s support terms. Ensure that requests and changes have been incorporated into the final agreement as expected, as we've seen administrative errors in the past.

5. Plan for Compliance: Monitor usage to avoid audit penalties, particularly with MCA’s unlimited profiles.

The NCE’s simplified SKUs reduce complexity but may limit customization options; therefore, align your agreement with Microsoft 365 workloads, such as Teams, Exchange, or Azure.

FAQs

• Can I mix EA and MCA licenses? Yes, but it requires careful management to avoid overlap. Consult a licensing specialist to optimize hybrid setups.

• How can we optimize our Microsoft licensing spending? Organizations should "pay for what they can use," meaning they should:

  • Shift spending to match actual usage patterns

  • Avoid carrying extra licenses that aren't being used

  • Not maintain unused workloads that still require administration and security

  • Extend user profile accounts

• What should I do if my EA is being renewed or is set to expire this year? You’ll likely need to transition to MCA or MCA-E if your agreement is coming to an end. The more time you give yourself to review your options, the better. Start planning 9-12 months before to avoid rushed decisions. Utilize license optimization tools, such as ENow's LO for Microsoft 365, and consider collaborating with a dedicated Licensing Specialist for contract negotiations, particularly if you have complex or unique licensing requirements.

• Why is it risky to overbuy licenses? Overbuying licenses creates several risks, including paying for unused licenses, maintaining workloads that aren't being utilized, administering systems unnecessarily, creating security vulnerabilities in unused systems, and increasing overall costs without corresponding benefits.

Take Action Today

With Microsoft’s licensing changes accelerating, giving your organization a longer runway to prepare for negotiations and the license purchasing process can prevent overspending and compliance risks. Watch our on-demand webinar for deeper insights on choosing the right Microsoft licensing agreement type for cost-saving opportunities. Don’t let licensing complexity hold your organization back—optimize your Microsoft 365 strategy today.

Request a demo of ENow's License Optimization tool for Microsoft 365 license management.