Back to blog

The Office 365 Licensing Gap Part I

Mar 16, 2020 by Nigel Williams


Based on an analysis of over 3.4M Office 365 users, we know that, on average, 18% of purchased licenses are left unassigned.  For a 10,000-person company, this represents potential savings of approximately $150,000.  What’s more, just because licenses are assigned to a user does not mean that they are adopted and actively used – so the scope to increase license efficiency in the average organization is very significant.  The good news is that the tools to manage Office 365 licensing proactively are now becoming available. Before discussing how to fix the problem, it is important to understand the root cause of the license gap.  Just why is it that the number of licenses purchased, assigned, deployed and adopted are almost never the same?

It is the differing needs of the people involved in the buying and selling of Microsoft Office 365 licenses that create the conditions for the disparity between licenses purchased and assigned.  Procurement, IT, the business and Microsoft license sellers have very different needs and in many cases are also subject to specific incentives that affect their behavior.  Here are some of the top 4 most important factors that make the number of licenses purchased larger than the number of licenses assigned to users:

  1. Purchasing is typically subject to procurement cycles which naturally leads to up-front licensing to tide the organization over until the next cycle when the funding will become available again. In most organizations funding is cyclical or at least subject to a lengthy approval process.
  2. IT is well aware of both the cyclical nature of funding and the potential length of the approval process so has learned to rely on pools of available licenses to ensure that licenses can be delivered on-demand.
  3. Purchasing managers are often incentivized to reduce the total cost of a contract. This drives sellers to create offers that they can discount, which complicates the matching of business needs to license SKUs.
  4. Sellers will often offer bundled SKUs because they are more profitable, but the bundle meets the purchasing organizations needs less precisely than a la carte purchasing

Given these factors it is easy to see why what is purchased and what is assigned is likely to be different. Changing this situation requires orchestration of procurement, IT and the business.  This will enable these teams to work together more effectively and also to be better joined up in negotiating with Microsoft sellers. What is fundamental to that closer collaboration is a common understanding of the license lifecycle: from purchasing through to assignment and deployment to adoption.  That understanding needs to include tight definitions for each stage, clarity on how they can be measured and an understanding of how those measures can be increased.

The other significant licensing gap is between licenses assigned and licenses adopted and actively used. This is caused by the following factors:

  1. The business knowledge of user licensing requirements is often far from perfect. Gaining a clear understanding of this involves embracing User Experience (UX) techniques to build functional profiles for roles and matching workload functions to them.  This practice is growing but it is far from universal. The lack of a clear understanding of functional needs naturally results in unused functionality – users will be assigned licenses based on a loose understanding of what they need and so the fit is never going to be precise.
  2. Most organizations lack the tools to monitor active usage. Baselining workload adoption and active usage is fundamental to improving it.
  3. Few organizations are equipped to deliver users what they need to make use of the functionality they are assigned in their Office 365 licenses. The rise of the discipline known as either ‘adoption’ or ‘readiness’ to drive adoption is well underway, with Microsoft playing a very active part, but it is still relatively new.   Microsoft Service Adoption Specialists require a demanding combination of skills including knowledge of organizational development, Marketing & communications, business acumen, as well as technical competence and leadership.

These are the two most significant gaps in the license lifecycle. There are other considerations – licenses deployed may not match licenses assigned, and the adopted stage of the lifecycle is a spectrum that needs to be managed.  These, and the actions you can take to optimize your license lifecycle, will be the subject of part two of this blog.