Avoiding Over-Licensing and Shelfware in Microsoft Agreements: A Guide for IT Sourcing Leaders

Avoiding Over-Licensing and Shelfware in Microsoft Agreements: A Guide for IT Sourcing Leaders

Many organizations are overspending on Microsoft licenses due to over-licensing and “shelfware” – paying for more licenses or higher-tier products than they use.

This report, in a Gartner-style advisory format, examines how over-licensing occurs in Microsoft’s major licensing programs (Enterprise Agreement, Cloud Solution Provider, MPSA, and Microsoft Customer Agreement) and how IT leaders can optimize costs and eliminate shelfware.

Key highlights include:

• The Over-Licensing Problem: Studies show anywhere from 20% to over 50% of Microsoft licenses in large enterprises go unused or underutilized, translating to millions in wasted IT spending. Common culprits are inflexible contract commitments, “one-size-fits-all” licensing approaches, and a lack of visibility into usage.
• Risks and Impact: Paying for unused licenses drains the budget and delivers no ROI. It also introduces operational risks – for example, unused accounts can pose security risks if not managed. The financial impact is significant and often hidden, affecting organizations of all sizes and industries.
• Root Causes in Microsoft Agreements: Rigid Enterprise Agreements (EA) lock organizations into 3-year commitments that often overshoot actual needs. CSP and MCA offer more flexibility but require active management to avoid accumulating idle subscriptions or cloud resources. Bundled suites (like Microsoft 365 E5) can lead to shelfware if advanced features aren’t adopted.
• Strategies for Optimization: To combat shelfware, organizations should conduct regular license audits, right-size licenses to user needs, and reclaim or reassign unused licenses promptly. Equally important is contract negotiation discipline – always align contract terms with actual usage and plans rather than vendor-driven forecasts.
• Independent Expertise Matters: Working with an independent licensing expert (such as Redress Compliance) is emphasized as a best practice. Unlike vendors or resellers with sales incentives, independent advisors provide unbiased analysis to identify over-licensing and support the negotiation of more favourable terms.
• Recommendations: IT sourcing and procurement leaders are advised to establish ongoing license governance, thoroughly review needs before every renewal or new contract, choose the right licensing program for their situation, and push for terms that prevent over-commitment. A dedicated section of this report provides detailed, actionable recommendations to reduce waste and maximize the value of Microsoft agreements.

By taking these steps, CIOs and sourcing professionals can significantly cut costs, prevent future shelfware, and ensure their Microsoft investments are fully aligned with business needs.

In summary, a proactive and informed approach to Microsoft licensing—supported by data and independent guidance—can turn a bloated software portfolio into a lean, cost-effective one.

Over-Licensing and Shelfware

Over-licensing and shelfware are closely related symptoms of suboptimal software license management. Over-licensing refers to purchasing more licenses than needed or buying higher-cost editions that exceed usage requirements.

Shelfware is the result: software licenses (or subscriptions) that sit unused, providing no business value, essentially gathering dust on the “shelf.” In the context of Microsoft agreements, shelfware often takes the form of Office 365 seats, which are never assigned to a user or premium products enabled but not adopted by the organization.

This issue is pervasive. Industry research indicates that a significant portion of enterprise software spend is wasted on unused or underused licenses.

In many companies, 20–30% of purchased licenses go completely unused, and when considering underutilized licenses (for example, users on an E5 plan only using E3-level features), the waste can exceed 50% of total licenses.

In practical terms, organizations may pay for features and capacities far beyond what their employees use daily. For instance, if a firm buys 1,000 Microsoft 365 E5 licenses but only 600 users actively use the advanced E5-only features, the remaining 400 licenses (or at least the E5 premium features within them) are effectively shelfware.

This overspend isn’t always obvious without detailed usage data because the licenses are often bought in bulk as a strategic bundle or commitment.

It’s important to note that shelfware can occur with both perpetual licenses and cloud subscriptions. In the past, companies frequently purchased more on-premises software licenses than they ended up deploying – those unused installations were classic shelfware.

Today, with cloud-based subscriptions (like Microsoft 365 or Azure services), the dynamic is slightly different: organizations might over-subscribe resources or not scale down no longer needed subscriptions.

The result, however, is the same: paying for capacity that isn’t being utilized. Shelfware may also arise from well-intentioned planning – for example, buying extra licenses “just in case” of growth or opting for a higher-tier product because it promises future-ready capabilities. Without active management, these surplus licenses linger and accrue costs over time.

Common Triggers in Microsoft Agreements

Multiple factors within Microsoft’s licensing programs can unintentionally encourage over-licensing or create shelfware if not managed carefully.

Below, we outline common triggers by agreement type and scenario:

• Enterprise Agreement (EA) Overcommitment: Microsoft’s EA is a 3-year contract that often requires an organization-wide commitment to certain products. A key trigger for over-licensing under EAs is the upfront purchase of licenses based on projected growth or usage that never fully materializes. Any overestimation at the start becomes locked-in shelfware because you must true-up increases annually, but generally cannot reduce licenses until the EA term ends. For example, a company forecasting 10% staff growth might purchase 1,100 licenses instead of 1,000. If that growth falls short, they’re stuck paying for the extra 100 unused licenses for the duration of the EA.Additionally, EAs have minimum seat counts (typically 500+ users) and volume discount thresholds (Level A, B, C, and D pricing tiers). Companies sometimes buy more licenses than needed to reach a higher discount tier – ironically, purchasing shelfware in pursuit of a better unit price. If you bought an extra 5% license to hit the next discount level, those could remain unused if they weren’t truly necessary. Lastly, the EA often bundles products (Office, Windows, EMS, etc., in a Microsoft 365 suite)If
  you adopt a bundle like Microsoft 365 E3/E5 enterprise-wide, some included components might not be used by all employees (for instance, not everyone will use advanced security or Power Platform features), effectively creating shelfware within the bundle.
• CSP (Cloud Solution Provider) Program Mismanagement: The CSP program is a month-to-month or annual subscription licensing typically sold via a partner. Its flexibility (adding or removing licenses on relatively short notice) is a double-edged sword. The common trigger for shelfware here is technical limitations and a lack of operational oversight. Because CSP allows easy scaling, some organizations fall into a false sense of security and add subscriptions liberally, but then fail to promptly remove or reduce licenses when people leave, or projects end. For example, if 50 contractors finish a project and IT forgets to downgrade or cancel their Microsoft 365 licenses, those subscriptions keep renewing and billing the company monthly. Over-licensing in CSP often comes from “set and forget” behaviour – treating cloud subscriptions as fixed entitlements rather than actively managed costs. Another potential trigger is annual CSP commitments: some CSP partners offer better pricing if you commit to a one-year term for a set number of licenses. If you opt for annual subscriptions in CSP and overestimate need, you’re locked into paying for that quantity until the year is up (similar to an EA, though on a shorter cycle). In summary, CSP’s flexibility prevents long-term lock-in, but you must actively govern it to avoid accumulating unnoticed shelfware.
• MPSA (Microsoft Products and Services Agreement) Purchases: MPSA is a transactional volume licensing program without an organization-wide commitment. It’s often used for à la carte purchases of software and cloud services on an as-needed basis. While more flexible than an EA, shelfware can still occur under MPSA due to bulk purchasing habits. Organizations might buy a block of perpetual licenses (say 100 Visio licenses), anticipating demand that turns out to be lower, leaving a portion unused. Similarly, one might subscribe to a cloud service through MPSA for a year and then not deploy it fully. There is no automatic true-up or true-down mechanism in MPSA – you buy what you need when needed. The trigger for over-licensing here is usually human factors: overestimation or miscommunication about department needs. The lack of an expiration (for perpetual licenses) can also lead to shelfware lingering – for instance, if a team decommissions a software tool, the licenses remain purchased (shelfware) unless repurposed elsewhere. On the positive side, MPSA does not force extra purchases, so avoiding shelfware is about restraint and careful demand planning.
• Microsoft Customer Agreement (MCA) Elasticity: The MCA (a newer agreement primarily for cloud services like Azure and Microsoft 365 in Microsoft’s “new commerce” platform) is designed to be evergreen and consumption-based. Under an MCA, you pay for what you use, typically with no fixed-term commitment (though you might have optional Azure spend commitments or reserved instances). This usage-based model should theoretically minimize shelfware, but there are still triggers to watch. One is Azure consumption commitments: if you agree to spend a certain amount on Azure or buy Azure credits up front (perhaps to get a discount), any unused portion of that commitment becomes shelfware (wasted budget). Another trigger is simply the complexity of cloud services – it’s easy to “over-provision” resources (like leaving virtual machines running or assigning all users an expensive service plan) and then forget to scale down. Without the fixed renewal cycle of an EA, organizations on MCA must impose their discipline to periodically review usage. Otherwise, you might find you have orphaned cloud resources or unused licenses enabled that continue to incur costs indefinitely. Additionally, because the MCA is direct with Microsoft, you might lack a partner’s help monitoring usage, putting the onus on your internal team to catch over-licensing in real-time.
• “One-Size-Fits-All” License Allocation: Across all agreement types, a common trigger for over-licensing is giving every user the same high-level license by default. For example, some companies purchase all employees Microsoft 365 E5 or Office 365 E3 suites for simplicity, even if many users never utilize the suite’s advanced features. Often driven by a desire to “cover all bases,” this blanket approach results in many users being over-licensed. A frontline worker who only needs email and SharePoint might be just as productive on an F3 or E1 license, which costs far less than an E3/E5 – so assigning them an E3 is money wasted. The larger the organization, the more this misalignment adds up. Enterprises often find that only a subset of users (sometimes 40–50%) truly need top-tier capabilities, and the rest could be on more economical plans. Failing to tailor licenses to actual user roles and needs is a primary cause of shelfware (unused capabilities) within otherwise “used” licenses.
• Bundled Features and Redundant Tools: Microsoft’s bundles (like Microsoft 365, which includes Office apps, Teams, OneDrive, security tools, etc.) are comprehensive. However, if you already have third-party solutions or if users don’t adopt certain applications, those parts of the bundle become shelfware. A common scenario is an organization that owns Microsoft 365 E5 (which includes Microsoft Teams and a phone system for telephony) yet continues paying for a separate Zoom or Cisco WebEx subscription for meetings or keeps a legacy PBX system. Here, the overlap means either the Microsoft E5’s collaboration features are shelfware, or the third-party tool is an unnecessary spend – in either case, money is wasted on duplicate capabilities. These situations often arise from different departments making purchasing decisions in silos or hesitance to fully transition to the Microsoft toolset. Without rationalizing overlapping software, companies might inadvertently over-license functionality. In Microsoft agreements, this can be addressed by carefully selecting bundle components (or using add-on licenses instead of full suites) if you know certain features won’t be used or will be provided by another product.
• Automatic Renewals and Inertia: Simply renewing contracts or subscriptions “as is” is another trigger that perpetuates shelfware. Microsoft agreements, especially Enterprise Agreements, have renewal cycles (every 3 years for EA) that should be an opportunity to reset and right-size your license portfolio. However, if the renewal process is rushed or treated as a rubber stamp, organizations might renew the same quantities and products regardless of usage changes. This complacency can extend shelfware into the next term. For instance, if 15% of your licenses went unused in the last term and you renew the same numbers, you’ve instantly committed to another cycle of that 15% waste. Similarly, many cloud subscriptions under CSP or MCA auto-renew month-to-month. If IT doesn’t actively curate which subscriptions should be discontinued, they’ll keep rolling over. Vendor sales teams count on a degree of inertia – they often pre-populate renewal quotes to mirror your current state. Those quotes can bake in your over-licensing for another period without a proactive review. In short, failing to challenge or adjust the status quo is a major contributor to ongoing shelfware.

Risks and Financial Impact

Over-licensing and shelfware carry tangible financial and operational risks. The most obvious is direct financial waste: money spent on unused software is money that could have been saved or invested elsewhere.

This impact is far from trivial—industry estimates suggest that large enterprises waste millions of dollars annually on unneeded software.

In the Microsoft licensing context, an Office 365 E3 license might cost roughly $20 per monthly user. One thousand unassigned or unused licenses would burn $20,000 every month for no benefit – that’s $240,000 in a year on shelfware just for one product SKU. Now multiply this across multiple products or higher-cost licenses like E5, and the waste can easily climb into the seven figures.

For example, 40% of a company’s 5,000 E5 licenses are underutilized or unassigned, and an E5 is perhaps $57/user/month; that’s over $1.3 million per year in wasted spend on those idle licenses alone.

This inefficiency directly impacts IT budgets and the company’s bottom line. Over time, the opportunity cost of such waste is huge—those funds could have been used for strategic projects, new hires, or innovation. Still, they’re sunk into an oversupply of licenses.

Beyond the wasted spend, there’s a governance and accountability risk. CFOs and finance teams are increasingly scrutinizing IT expenditures; discovering a large proportion of shelfware can erode confidence in the IT department’s financial management. It may raise tough questions about why oversight was lacking.

In some cases, if budget cuts become necessary, shelfware spending is wasted money that provides an obvious target. Still, organizations often don’t realize its extent until an audit or crisis forces a deep look. Additionally, shelfware can mask true usage needs, leading to distorted decision-making.

For instance, an IT leader might overestimate how well-adopted a platform is (because “we have 1000 licenses, surely many people use it”) when, in reality, only half are using it. That misunderstanding could lead to mis-prioritizing support or further investment in that platform.

Over-licensing also has compliance and security implications. While having too many licenses generally means you’re safe from license compliance audits (the risk is higher with under-licensing), shelfware can contribute to complacency, which is dangerous.

If you think you have many licenses, you might neglect to track whether those licenses are properly assigned or some systems are unlicensed. More concretely, unused accounts associated with shelfware licenses pose a security risk: an unmonitored, inactive Office 365 account that still has a license could potentially be a forgotten backdoor – if not de-provisioned, it might still be accessible to a former employee or could be targeted by hackers.

Paying for an ex-employee’s account license that was never shut off is problematic: it wastes money and creates a security oversight. Shelfware also might include unused cloud resources (like an Azure VM running with no business purpose), which not only cost money but could contain data or access that isn’t properly managed because no one is actively using that resource.

In sum, eliminating shelfware can also tighten your security and compliance posture by maintaining only accounts and systems in use and under management.

Another risk is vendor leverage and lock-in. Over-licensing can sometimes make organizations less nimble because they feel “we’ve already invested in Microsoft product X, so we should keep it even if it’s not the best fit; otherwise, that spend is a write-off.”

This sunk-cost mindset can impede considering alternative solutions where they might be beneficial.

It can also give Microsoft excessive leverage in negotiations; if Microsoft sees you consistently overbuying, they have less incentive to offer discounts or flexible terms – they know you’ll likely renew the excess.

From a negotiating standpoint, a customer with a tight ship (minimal shelfware) can more credibly say, “We only pay for what we need, and we’re willing to walk away from surplus.” In contrast, an over-licensed customer may appear less savvy.

Finally, consider the macro impact on IT effectiveness. IT departments might face resource constraints elsewhere when budgets are tied up in shelfware.

For example, funds wasted on unused licenses could have been reallocated to improving infrastructure, funding cybersecurity enhancements, or modernizing applications.

Aligning spending with actual needs is a mark of IT maturity in organizations of all sizes. Over-licensing indicates process gaps in procurement and asset management.

It risks the credibility of IT and sourcing teams when they go to leadership for budget approvals—it’s hard to ask for more funding for new initiatives if existing investments aren’t fully utilized.

In sectors with tight margins or economic downturns, the financial impact of shelfware can even lead to layoffs or cuts in other services as companies seek to trim costs. In short, the cost of over-licensing is the wasted spend itself and the downstream effects of misallocated resources and lost opportunities.

Strategies to Detect and Eliminate Shelfware

Eliminating shelfware in Microsoft environments requires a combination of better visibility, process discipline, and proactive management.

Below are key strategies and best practices to detect unused licenses and drive them out of your environment:

• Regular Usage Audits: Establish a cadence (e.g., quarterly or biannually) to review license utilization across all Microsoft products in your organization. This involves pulling reports from admin portals and/or software asset management (SAM) tools. For Microsoft 365, use the Office 365 admin centre or Azure Active Directory reports to see active users, last login times, and product usage metrics (such as mailbox activity, Teams usage, OneDrive storage consumed, etc.). For Azure, leverage Azure Cost Management and Resource Graph to find underutilized VMs, databases, or other services. By comparing these usage reports to the licenses you’re paying for, you can spot clear instances of shelfware – e.g., users with a license who haven’t logged in for 90 days or a Dynamics 365 module enabled with zero active users. Document the findings and quantify the cost of each set of unused licenses to prioritize remediation.
• Implement Strong IT Asset Management (ITAM) Practices: Integrate Microsoft license oversight into your ITAM or SAM processes. Maintain an up-to-date inventory of all licenses owned against actual deployment/assignment. Tools specifically designed for license management (like License Dashboard, Flexera, Snow, or even Microsoft’s own Advanced M365 Usage Analytics and Power BI reports) can automate the detection of inactive licenses or underused subscriptions. For instance, some tools can highlight that you have 200 Visio licenses assigned, but only 50 people launched Visio in the last 3 months. With such data, you can decide to reclaim 150 licenses. Consider tagging licenses in your inventory that are “unassigned” or allocated to placeholders – these are prime suspects for shelfware if they remain unallocated for long.
• Cross-Functional License Reviews: Create a governance mechanism where IT, finance, and business unit representatives periodically review licensing needs together. For example, a quarterly license review meeting can be held to discuss any surplus or shortfall. Involving business units is crucial – sometimes shelfware persists because IT provisioned licenses expecting a project to use them, but the project was delayed or cancelled, and nobody informed IT. In a review meeting, you might discover, for example, that the Marketing department has 20 Power BI Pro licenses they aren’t using or that a certain development team bought 100 Azure DevOps users, but only 10 developers were hired. By having an accountable forum, you ensure such discrepancies come to light and get addressed (licenses removed or reassigned) promptly.
• Orphaned and Duplicate Account Cleanup: A common source of shelfware is accounts that should have been removed. Work closely with HR on joiner/mover/leaver processes. Whenever an employee leaves the company or a role changes, there should be a workflow to evaluate and remove their licenses if no longer needed. Using automation can help: for instance, if Active Directory or your HR system flags a user as departed, automatically disable or queue their Office 365 license for removal. Also, watch for duplicate accounts or over-allocation: in some cases, one person might accidentally end up with two licenses (perhaps an alias account or test account with a license). Mergers and acquisitions often cause duplicate licensing – two companies merge, and both have E3 licenses for the same user, now in a unified system. A thorough audit after M&A integration can find these overlaps so you can eliminate the redundant licenses. Cleaning up orphaned and duplicate licenses saves cost and is a quick win for tightening security (fewer active accounts to manage).
• Usage-Based Reassignment and Downgrade: For each major product, set criteria for what constitutes “underutilization” and have a policy to address it. For example, you might decide that any Office 365 E5 user who hasn’t used any E5-specific features (like Advanced Threat Protection, Power BI Pro, or Phone System) in 6 months could be a candidate for downgrade to E3. Use usage logs to identify those users and confirm with their managers if the premium license is unnecessary. Then, reassign or downgrade licenses at the next opportunity. Similarly, if you have heavy and light users of certain products, consider a license tier mix strategy: not everyone needs the full suite. You eliminate the hidden shelfware from over-licensing users by tailoring license levels to actual usage patterns. This strategy often involves creating user profiles or personas (e.g., power user vs. basic user) and assigning licenses accordingly. It’s an ongoing effort – as roles change or new features emerge, revisit who needs what. Microsoft provides flexibility in mixing license types within the same agreement, so take advantage of that instead of overspending on uniform, high-end licenses.
• Monitor and Optimize Cloud Consumption: For Azure and other consumption-based services under MCA or even EA Azure commits, invest time in FinOps (Finance + DevOps) practices. This means actively monitoring cloud resource usage and turning off or scaling down anything that does not deliver value. To trim costs, use Azure’s built-in recommendations (like identifying idle VMs or overprovisioned SQL databases). Set budgets or alerts for each subscription so you can investigate why if usage deviates from expectations. Sometimes shelfware in Azure looks like dozens of unused development VMs left running 24/7 or purchasing more storage or throughput capacity than is used. By rightsizing these resources (through resizing, removing, or suspending resources), you directly cut out that waste. Consider also the licensing aspect in Azure: for instance, if you’ve purchased Software Assurance, you might have Azure Hybrid Benefit rights – failing to apply those to eligible VMs is like having shelfware (you have a benefit you paid for but are not using it). So, ensure you utilize any such entitlements.
• Leverage Reporting & Analytics Tools: Don’t rely on guesswork – use data analytics to drive decisions. Microsoft 365 Admin Center now offers granular usage reports, and for more advanced needs, you can export data into Power BI templates that Microsoft provides for license utilization. Third-party analytics (e.g., CoreView, Quadrotech, etc.) can provide dashboards that highlight anomalies like “licenses assigned but never used” or “last login over 90 days ago.” Set up key performance indicators (KPIs) for your license management, such as “percentage of O365 licenses active in the last 30 days” or “number of unassigned licenses.” Track these over time; the goal is to see the unused license count trending down, not up. If it spikes, that’s an immediate flag to investigate. Treating license usage data with the same rigour as other IT operational metrics makes it far easier to catch shelfware before it persists.
• Develop a “Use It or Lose It” Policy: Encourage a culture where business units know that licenses are not simply an entitlement to hoard. For instance, if a department requested 100 licenses for a new app rollout, but a few months in, they’ve only used 50, have a policy (and executive buy-in) that IT will reclaim the surplus 50 unless there’s a concrete near-term plan for them. This policy, communicated in advance, sets expectations that unused licenses will be optimized. It prevents the common scenario of buying for peak or future usage and forgetting about the excess. Tying this to chargeback or showback can also help. If departments see the cost of their allocated licenses on internal reports, they have an incentive to release what they don’t truly need.
• Shelfware Action Plans at Renewal: If you find substantial shelfware that can’t immediately be eliminated (for example, you’re mid-term in an EA and stuck with certain licenses for now), prepare an action plan for the next renewal. This means forecasting how you will reduce those licenses or shift to lower-cost alternatives when the contract is up. Document these intentions and, if possible, communicate to Microsoft or your reseller ahead of renewal that you plan to drop X licenses or swap out certain products. Not only does this avoid complacency, it also strengthens your negotiation position (they might offer incentives to keep those licenses, or at least you won’t forget to execute the reduction at renewal time). In the interim, see if you can redeploy shelfware licenses to other uses – for example, if you have paid for 100 Power BI Pro and only 50 are used, could the other 50 be given to users who currently don’t have it but might benefit? At least then, you drive adoption and value out of what you’ve paid for. The ideal, of course, is to not buy them in the first place, but once purchased, you either use them or plan to lose them at term’s end.

Contract Negotiation Best Practices

Negotiating new Microsoft agreements or renewals is a prime opportunity to prevent over-licensing.

By being strategic in negotiations, IT and sourcing leaders can ensure contracts align with actual needs and have built-in safeguards against shelfware. Here are the best practices to consider:

• Thoroughly Assess Needs Before Negotiation: Preparation is everything. Start the renewal or new contract planning 6–12 months before the decision date. Conduct a full inventory of what you have and how it’s being used (as detailed in the strategies above). Go into negotiations with a clear picture: How many of each license type are truly required based on current usage? What can be eliminated or downgraded? Where are there gaps that need new licenses? This data-driven approach lets you push back on the vendor’s assumptions. For example, if Microsoft’s initial quote assumes you’ll renew 1,000 Office 365 E5 licenses, but your analysis shows only 600 are needed and 400 users can use E3, you can counter with confidence. Having usage data and maybe even screenshots or reports to back it up can turn the negotiation in your favour, forcing the discussion to be about your real environment rather than Microsoft’s sales target.
• Don’t Simply “Roll Over” Contracts: Vendors often present a renewal quote that mirrors your existing agreement’s quantities and products, perhaps with a slight price uplift. Resist the temptation to accept the status quo. Treat every renewal as a new deal – question everything you’re paying for. Challenge the need for each line item. Consider whether a different mix (or removing certain components) would serve you better if you had bundles. For instance, maybe you licensed the full Microsoft 365 E5 last term but only used E3 + a couple of E5 add-ons; in the renewal, you could switch to E3 licenses plus separate Power BI or Security add-ons for a smaller group rather than E5 for all. Microsoft won’t voluntarily suggest you drop products or licenses – that’s up to you in the negotiation. Use the renewal event to eliminate known shelfware: explicitly state you will not renew unused licenses. By formally doing this in the negotiation, you avoid forgetting to cancel something and being stuck for another term.
• Leverage the Right Licensing Program: One of the biggest decisions is choosing the appropriate Microsoft program (EA, CSP, MPSA, MCA) for your needs. Each program has its trade-offs in flexibility versus discounts. If your organization is large and stable, an EA can yield good discounts, but ensure those discounts don’t lure you into overcommitting. If you’re smaller or expect fluctuations, a CSP or MCA might save money by allowing true pay-as-you-go scaling – you won’t over-license because you can adjust downward as needed. In negotiations, ask Microsoft or your reseller for multiple quote scenarios (e.g., “What if we moved these workloads to CSP?” or “What if we only commit to 12 months instead of 36 for this product?”). Sometimes, splitting your licensing approach can make sense: for example, keep core user licenses in an EA but buy certain volatile or project-based licenses via CSP to avoid long commitments on those. Microsoft’s newer MCA (Microsoft Customer Agreement) is increasingly being pushed to replace EA for mid-sized customers because of its flexibility. If you’re offered to transition to MCA, negotiate for price protections (since MCA is evergreen, ensure you get some fixed pricing for key services for some time) and be prepared to actively manage usage. The negotiation point here is to align the contract type with your business reality – don’t let Microsoft shoehorn you into a 3-year EA if a more elastic model suits you, and vice versa.
• Negotiate Flexibility Clauses: While Microsoft’s standard agreements have rigid rules, large or savvy customers can sometimes negotiate custom terms. Areas to explore: cancellation or reduction rights, swapping rights, and extended true-up windows. For example, try to negotiate the ability to reduce a certain percentage of licenses at a mid-point in the term without penalty – Microsoft might not always allow it. Still, even a one-time rebalancing clause could be valuable if you anticipate downsizing or efficiency gains. Another idea is a swap right – if you realize product A is shelfware, you could swap those licenses for an equivalent value of product B. This is not standard, but some customers have negotiated the right to transfer unused license investment into other Microsoft products (particularly if moving from on-prem to cloud services). Additionally, ensure a clear clause about cancellation of online services at renewal – in an EA, you have the right to drop anything at the 3-year mark. However, for CSP/MCA, ensure any 12-month subscriptions don’t auto-renew without your written consent.
• Use Competitive Pressure (Where Possible): While Microsoft doesn’t have direct alternatives for many of its products (if you need Office 365, you’re negotiating mostly with Microsoft’s ecosystem), you can still introduce competitive tension. Get quotes from multiple Microsoft resellers or Cloud Solution Providers if applicable – even though Microsoft sets the pricing, partners can offer incentives or services (like credits or free migration help) that effectively lower your cost. If negotiating an EA, the Large Account Reseller may have some flexibility on their margin or the timing of billing, etc. Also, consider referencing industry benchmarks: for example, if you know peers got a certain discount percentage, mention that and push for matching. Microsoft sales teams have some discretion, especially if they believe you might delay or opt for a smaller deal. If you’re truly considering a move (say from EA to CSP or even from Microsoft to an alternative product for certain workloads), let Microsoft know – but only if that alternative is credible. The aim is to make Microsoft work to earn your full commitment, which often results in better pricing or concessions that help avoid paying for things you don’t need.
• Focus on Total Cost of Ownership, Not Just Unit Price: A trap in negotiations is to fixate on getting the deepest discount on a license unit while forgetting about the bigger picture of shelfware. A 20% discount on a product you don’t use is 0% effective. It’s better to buy 100 licenses at full price that you truly use than 150 licenses at 20% off where 50 sit idle. Make this point clear in negotiations – you might say to the vendor, “We’re not interested in oversizing our order just to hit a discount tier; we need a deal that reflects our actual usage.” Sometimes, Microsoft will respond by offering a tiered discount or flat percentage that applies even at a lower quantity, especially if they understand you are serious about not overbuying.
  Additionally, look at bundle vs. a la carte costs: If E5 is too much, what if you take E3 plus security and compliance add-ons? Carving out unneeded components can often save money. Microsoft might bundle for simplicity, but you can break it apart. Calculate the 3-year TCO for various scenarios (with shelfware eliminated) and use those numbers in your negotiation conversations.
• Align Contract Terms with Business Plans: Consider your company’s roadmap for the next few years. Are you planning a divestiture, acquisition, or major change in headcount? Are you moving workloads to the cloud, which could render some on-prem licenses unnecessary (or vice versa)? These factors should shape your licensing strategy. Ensure you’re not locking into things that clash with those plans during negotiation. For example, if a division might be sold off, avoid a contractual clause that forces you to maintain a certain number of licenses enterprise-wide. Or if you anticipate moving entirely to Teams for telephony in 18 months, maybe avoid concurrently signing a 3-year contract for another telephony solution. It can be useful to ask Microsoft for shorter-term or ramped commitments for areas of uncertainty. Sometimes, they can structure deals with phased quantities – e.g., 1,000 licenses for year 1, increasing to 1,200 in year 2, etc., which is better than overcommitting to 1,200 from day one. The goal is to match the contract to realistic adoption curves so you pay in alignment with when the value is realized.
• Demand Value-Added Services to Drive Adoption: One way to mitigate the risk of shelfware is to ensure you have the means to use what you’re buying. In negotiations, consider asking for training credits, planning services, or dedicated customer success support from Microsoft or the partner, especially if you are signing up for new products or a larger suite. For instance, if you purchase Microsoft 365 E5 for its advanced security and compliance features, negotiate for Microsoft to include some advisory hours or workshops to help your team deploy things like Azure AD Premium or Advanced Threat Protection. Microsoft often has programs or funds (like FastTrack assistance, deployment funding offers, etc.) for customers adopting new tech. By securing those, you improve the likelihood that the licenses won’t sit unused because your staff didn’t know how to use them. Additionally, clarify any Software Assurance or cloud service benefits you’re entitled to (e.g., training days, support incidents) and ensure you plan to use them. You’re paying for these benefits in the license cost, so not using them is another form of shelfware.
• Engage an Independent Licensing Expert: As emphasized, consider bringing in an independent third-party licensing advisor to help with your negotiation strategy. Microsoft’s licensing rules and programs are complex and ever-changing. An independent expert (like Redress Compliance or similar advisory firms) can provide insights into what other customers are getting, where common pitfalls are, and how to structure a deal to avoid hidden costs. They can perform a licensing posture assessment to find any silent shelfware or compliance issues ahead of negotiations, so you’re fully prepared. Crucially, they represent your interests only – unlike resellers or Microsoft, who have sales quotas, an independent consultant’s goal is to optimize your outcome. They might help model different scenarios (EA vs CSP costs, ROI on E5 vs E3+add-ons, etc.) and even participate in negotiations behind the scenes to suggest when to push on certain terms. Many organizations find that the savings gained by avoiding unnecessary spending far exceed the fees for such expert help. Think of it as hiring a seasoned guide for a complex journey – the Microsoft agreement landscape has many traps that lead to over-licensing, and an experienced guide will know how to avoid them.
• Document and Communicate Agreements: Once you have negotiated terms that allow for flexibility or special considerations, document them clearly and make sure your team is aware. For example, if you negotiated the ability to reduce 10% of licenses at the anniversary, mark that date and condition in your calendar and internal procedures. If Microsoft granted a concession such as being able to transition some licenses to a different product mid-term, ensure that’s captured in writing in the contract or an addendum. Often, over-licensing issues recur because institutional knowledge gets lost – a new procurement manager might not know that you have the right to do X, or an IT admin might not realize they could be using an available benefit. Keeping a “contract briefing” document internally, summarizing all key terms, helps your organization use the flexibility you fought for. This way, the contract is a tool to prevent shelfware, rather than just legalese filed away and forgotten.

Recommendations

In light of the above analysis, here is a consolidated set of recommendations for CIOs, IT procurement managers, and sourcing professionals to avoid over-licensing and shelfware in Microsoft agreements:

1. Establish Ongoing License Governance: Create a formal process or team responsible for continuous software license management. This team should track Microsoft license allocations and usage throughout the year, not just at renewal time. Regularly review license utilization reports and maintain an up-to-date inventory of all entitlements. By treating license management as an ongoing discipline, you’ll catch and correct over-licensing before it snowballs.
2. Perform Regular Usage Audits and Cleanup: Schedule periodic audits (quarterly is ideal) of all Microsoft subscriptions and licenses. Identify inactive or underused licenses and reclaim them. For subscriptions that can be adjusted (CSP or Azure MCA), reduce the license count immediately upon finding shelfware. For enterprise agreements, mark those licenses for non-renewal or reallocation. Immediately address issues like unassigned licenses or users who haven’t logged in for an extended period, yielding quick cost savings.
3. Right-Size and Optimize License Assignments: Align each user’s license to their needs. Avoid the one-size-fits-all approach. Develop user profiles (e.g., basic user, power user, external collaborator) and assign licenses accordingly—leveraging lower-cost plans for users who don’t need full suites. Similarly, optimize your mix of products: If only a subset of users needs a premium product (Power BI Pro, Visio, etc.), license those users instead of buying enterprise-wide by default. This targeted allocation significantly cuts down on overspending.
4. Increase Visibility and Communication: Improve the organization’s license usage and cost transparency. Provide department heads with reports of their teams’ license consumption and associated costs; this often encourages them to give up licenses they don’t need. Communicate the concept of shelfware to stakeholders – when managers understand that unused licenses equate to a wasted budget that could fund their other priorities, they become allies in the optimization effort. Foster a culture where it’s normal to question, “Do we need all these licenses?” rather than automatically renewing them.
5. Plan Meticulously for New Contracts: When entering a new Microsoft agreement (or adding new products to an existing one), base the decision on hard data and incremental rollout plans. Avoid overbuying on day one “for future growth” – instead, purchase what you need for the initial phase and know you can always scale up later. If you are unsure about adopting a new product, consider piloting it with fewer licenses (perhaps via CSP or a short-term arrangement) before committing enterprise-wide. Phasing your commitments reduces the risk of large shelfware if the anticipated usage doesn’t pan out.
6. Conduct Thorough Pre-Renewal Reviews: Treat contract renewals as a must-do checkpoint for optimization. Start well ahead of renewal dates to assess what you’re using and what you’re not. Compile a list of licenses to eliminate or downgrade at renewal. Review contract options – is your current program (EA, CSP, etc.) still the best fit? Consider alternatives if they offer more flexibility or cost savings. Engage stakeholders to confirm future needs. When you renew, you should have a clear plan that eliminates any shelfware from the next term. Never renew licenses blindly; use it as a chance to reset and realign with reality.
7. Choose the Right Licensing Program for Your Needs: Match your Microsoft agreement type to your organization’s size and consumption pattern. For instance, if you’re a mid-sized firm with fluctuating needs, a Cloud Solution Provider arrangement or Microsoft Customer Agreement (MCA) might provide flexibility and help avoid over-licensing. In contrast, a static Enterprise Agreement might lock you into excess. Conversely, if you’re a large enterprise with stable growth, an EA with volume discounts can work well, but ensure you’re not grossly over-projecting growth. Re-evaluate this choice at each major contract decision point (don’t just assume you must stick with the same program forever). Microsoft’s licensing landscape evolves, and so does your business – align the two to minimize waste.
8. Negotiate Contracts with Flexibility in Mind: When negotiating with Microsoft or resellers, prioritize terms that help prevent shelfware. Push for the ability to make adjustments – for example, negotiate annual reductions or the option to swap certain license types as needs change. If outright reduction rights are hard to get, negotiate shorter commitment periods for volatile parts of your usage (even if it means a portion of your environment on a one-year term while the rest is a three-year term). Ensure pricing is locked so you don’t feel compelled to overbuy upfront (e.g., ask for price protection on additional licenses added later). Remember, the goal is not to end up with “great discounts on waste” but to only pay for what you truly use. Make that philosophy clear during talks.
9. Leverage Independent Licensing Expertise: Engage an independent Microsoft licensing expert (such as Redress Compliance or similar consultants) to support your sourcing efforts. Independent advisors can provide an unbiased assessment of your license usage, identify hidden inefficiencies, and advise on optimal contract terms. They can also serve as your negotiation advocate, armed with benchmarks and deep knowledge of Microsoft’s tactics. Because they are not financially tied to Microsoft’s sales, their recommendations focus solely on your benefit – for example, they might find that you could save by switching programs or dropping a certain bundle, even if Microsoft’s team didn’t mention it. In new contracts and renewals, this expert guidance can differentiate between a status-quo deal and a truly optimized agreement that cuts out shelfware.
10. Drive User Adoption or Cut the License: Take a proactive stance on high-value licenses – either ensure they are being fully used or plan to discontinue them. For every major Microsoft service you’ve invested in (SharePoint, Teams Phone, Power Platform, etc.), have an adoption and training plan so end users can leverage the tools. If certain tools aren’t gaining traction in your organization after reasonable effort, consider removing those licenses to save costs. It’s better to scale back an underutilized software deployment than to keep funding it, hoping usage will magically improve. Put another way: maximize the ROI on what you buy by pairing the purchase with the necessary enablement (training, awareness, support). And if the ROI isn’t there, stop buying it. This disciplined approach ensures shelfware has little room to survive.
11. Maintain Continuous Monitoring and Improvement: Finally, recognize that avoiding over-licensing is ongoing. Microsoft’s product offerings and your business needs will continue to change. Set up periodic checkpoints (for example, an annual “license strategy review” in addition to the operational quarterly audits) to consider questions like: Are we in the right licensing program as we grow? Could a new Microsoft bundle simplify things and reduce cost (conversely, are we paying for a bundle where a la carte would be cheaper)? What new features are coming, and do we plan to use them, or should we opt out of that upgrade? By continuously monitoring and adjusting, you prevent the gradual creep of shelfware and keep your software licensing tightly aligned with actual usage and business value.

Implementing these recommendations will help IT leaders cut wasteful spending and maximize the value of their Microsoft investments.

The result is not just cost savings but also a leaner IT environment with fully utilized software aligned to the organization’s needs. This improves IT’s credibility and agility—resources are spent on innovation and growth, not on shelfware.