Transitioning from On-Premises to Microsoft Cloud Licensing: Key Considerations for CIOs and IT Leaders

Transitioning from On-Premises to Microsoft Cloud Licensing: Key Considerations for CIOs and IT Leaders

Modern enterprises increasingly shift from traditional on-premises Microsoft licensing towards cloud-based subscription models. This transition impacts budgeting, contract strategy, and compliance management

Below, we provide a comprehensive, Gartner-style advisory on navigating this change. It covers licensing model differences, EA vs. CSP options, hybrid use rights, cost implications, and governance. Each section concludes with What You Should Do recommendations to guide decision-makers.

On-Premises vs. Cloud Licensing Models

Migrating from on-premises software to Microsoft’s cloud services (e.g., Microsoft 365 and Azure) means moving from a perpetual ownership model to a subscription-based model. On-premises licensing typically involves purchasing perpetual licenses (often via volume agreements) and optionally adding Software Assurance for upgrades.

You own the software version indefinitely and run it in your environment, but you shoulder infrastructure and maintenance responsibilities. In contrast, cloud licensing (such as Microsoft 365 or Azure services) is subscription-based – you pay for ongoing access, and Microsoft manages the infrastructure and updates. This shift fundamentally changes how you budget and deliver IT services.

Key structural differences emerge between on-prem and cloud models. On-premises licenses are often tied to specific devices/servers or require the purchase of a server plus client access licenses (CALs) for users. Cloud services simplify this by bundling access rights into a user-based subscription (for example, an Office 365 E3 subscription covers Exchange server rights and user access without separate CALs).

Perpetual on-prem licenses (with Software Assurance) grant rights that persist even after a contract ends, whereas cloud subscriptions grant rights only while the subscription is active. The table below summarizes a few core differences:

Migrating to cloud licensing also consolidates certain costs. For instance, Microsoft 365 Enterprise plans include the rights to install on-premises server software (Exchange, SharePoint, Skype for Business) for hybrid use, allowing unlimited on-prem installations for those services while you subscribe.

This means organizations can transition gradually without double-paying for equivalent on-prem capabilities during the move. However, complimentary on-prem rights end once a cloud subscription ends – there is no perpetual fallback.

CIOs should weigh how much of their existing environment can be covered by cloud subscriptions versus what might remain on-premises for specific needs (e.g., legacy systems or data residency requirements).

What You Should Do:

• Inventory Current Assets: Document your existing on-prem Microsoft licenses (and their Software Assurance status) alongside cloud services. Identify which on-prem components have direct cloud service equivalents.
• Map Out Workloads: Determine which workloads can feasibly move to cloud services (e.g. email to Exchange Online, VMs to Azure) and which may need to stay on-premises. This will guide a hybrid licensing strategy if needed.
• Understand Entitlements: Review the use rights of your cloud subscriptions—for example, Microsoft 365 plans that include on-prem server access rights—to ensure you can leverage them fully during the transition. Ensure you’re not purchasing redundant licenses.
• Plan for Skills and Support: Shifting to cloud services changes operational responsibilities. Plan to retrain IT staff for cloud service management and update support processes (e.g., escalating issues to Microsoft or partners instead of internal fixes).

Enterprise Agreement vs. Cloud Solution Provider (CSP)

Many enterprises transitioning to the cloud will face a choice at their Microsoft agreement renewal: stick with a traditional Enterprise Agreement (EA) or switch to a Cloud Solution Provider (CSP) model.

The EA has been the classic option for large organizations, while CSP is Microsoft’s partner-led, subscription-centric program. Each has distinct implications for flexibility, cost, and vendor relationships.

Microsoft Enterprise Agreement (EA) –

This is a multi-year volume licensing contract directly with Microsoft. A standard EA runs 3 years with a fixed commitment: you agree to license a set of Microsoft products for all “qualified” users or devices enterprise-wide. In return, you get volume discounts (pricing levels improve at 2,400+, 6,000+, 15,000+ seats, etc.) and benefits like bundled Software Assurance, 24/7 support, training vouchers, and locked-in pricing for the term.

The EA can cover both on-premises software and cloud subscriptions in one agreement. However, it’s inflexible mid-term – you can add licenses (via annual “true-up”) if you grow, but generally cannot reduce license counts until the 3-year renewal point.

This often leads to over-provisioning if your needs shrink or you want to drop a product. EA suits organizations with stable, predictable IT needs and a willingness to pre-commit to a broad bundle of Microsoft technology.

Cloud Solution Provider (CSP) –

CSP is a purchasing program through Microsoft partners that offers far more flexibility. There is no organization-wide coverage requirement or minimum seat count – you can buy exactly the licenses you need (even just one).

Subscriptions are typically month-to-month or annual, allowing you to scale up or down more readily than an EA. CSP’s month-to-month option lets you decrease licenses anytime, whereas an EA locks quantities until renewal. Billing under CSP is pay-as-you-go: you’re billed monthly for what you’ve consumed or subscribed, aligning expenses to actual usage.

Almost all Microsoft cloud offerings (Azure, Microsoft 365, Dynamics 365, etc.) are available through CSP, and even some on-premises licenses can be procured via CSP either as a subscription (e.g., Windows Server subscription) or perpetual purchases. The trade-off is that pricing is set by the reseller partner and generally based on Microsoft’s MSRP – you don’t automatically get the volume discounts that an EA provides.

If you opt for true month-to-month subscriptions under Microsoft’s “New Commerce Experience” policies, you pay roughly 20% more for that flexibility than an annual term.

CSP partners may offer some discounts or bundle value-added services, but the financial incentives differ from EA’s. Support also shifts – instead of Microsoft Premier support directly, your first line of support is the CSP partner (who can escalate to Microsoft as needed).

For many mid-sized organizations and those with fluctuating needs, CSP’s agility and the ability to avoid long commitments are compelling despite potentially higher unit costs.

Comparison – EA vs. CSP: The following table highlights key differences:

In summary, EA offers price stability and enterprise-wide coverage but requires a long-term commitment and an all-in strategy. CSP offers agility and a pay-for-what-you-use approach, with the ability to start small or make continual adjustments.

Strategically, many larger enterprises are now considering Microsoft’s newer Microsoft Customer Agreement for Enterprise (MCA-E) – a direct-to-Microsoft buying program that replaces EA for some customers – or adopting a mix of EA and CSP.

For example, an organization might keep an EA for core strategic products (to leverage volume pricing on Microsoft 365 for all employees) and use CSP for more variable needs (like ad-hoc Azure projects or smaller subsidiaries).

It’s important to note that moving from an EA to a CSP should be timed carefully. If your EA expires, you can switch to CSP with minimal overlap. If you still have time left on an EA but want to pilot CSP, beware of duplicative costs.

Microsoft sometimes provides “from SA” transition SKUs or credits to ease the move, e.g., discounted Microsoft 365 subscription pricing if you already paid for on-prem licenses with Software Assurance. Leverage these offers so you’re not paying twice for the same capability.

What You Should Do:

• Assess Your Renewal Timeline: Review your EA expiration date and renewal terms. If it’s within 12-18 months, start evaluating CSP options now. Plan any transition to coincide with the end of the EA term to avoid penalties or overlap payments.
• Compare Cost Scenarios: Model a 3-year total cost under an EA (including projected true-ups) versus under CSP’s month-to-month or annual subscriptions. Include factors like EA discounts and CSP’s potential 20% monthly premium. This analysis will clarify which model is more cost-effective for your situation.
• Engage with a Trusted Partner: If considering CSP, involve a reputable Microsoft CSP partner early. They can provide pricing quotes, flexible licensing bundles, and value-added services (migration support, cloud management) beyond what Microsoft directly offers. Evaluate at least a couple of CSP resellers for the best fit and negotiate value – partners may offer service credits or slight discounts.
• Retain Negotiation Leverage: Don’t assume you must abandon the EA outright. Use CSP quotes as leverage in negotiations with Microsoft – for example, Microsoft might improve an EA renewal offer if they know you are willing to go CSP. Conversely, be ready to mix models (EA + CSP) if that optimizes cost and flexibility. Ensure any new agreement (EA, CSP, or MCA-E) aligns with your cloud adoption roadmap and includes terms protecting your interests (e.g., price caps, flexibility to add new services).

Hybrid Licensing: Software Assurance, License Mobility, and Dual Use Rights

Many enterprises run a hybrid environment during a transition period – some workloads on-premises and some in the cloud. Microsoft’s licensing provides several mechanisms to facilitate hybrid use and avoid double-paying for licenses during migration. Key concepts include Software Assurance benefits, License Mobility, and Dual Use Rights.

Software Assurance (SA) is the linchpin of hybrid flexibility for on-premises licenses. When you have active SA on a Microsoft product, you gain rights such as new version upgrades, training vouchers, and the ability to redeploy licenses to the cloud (known as License Mobility).

For example, if you have Windows Server or SQL Server covered by SA, you can use the Azure Hybrid Benefit to assign those licenses to equivalent Azure services and not pay for a new license in Azure. This BYOL (bring-your-own-license) approach can yield significant savings – e.g., applying existing SQL Server licenses to Azure SQL Managed Instance or using Windows Server Datacenter licenses to cover Azure VMs at base compute rates, saving 30-50% on those cloud VMs.

Microsoft allows concurrent use of the license on-prem and Azure for a short period (typically up to 180 days) when you activate Azure Hybrid Benefit to facilitate a smooth migration without downtime. After 180 days, you’re expected to have completed the move and use the license in only one location. These dual-use rights during migration ensure you don’t need to buy extra licenses to cover an overlap period.

Beyond Azure, SA’s License Mobility benefit permits moving certain server application licenses (e.g. SQL Server, Exchange, SharePoint) to third-party clouds like AWS or Google, provided those providers are “Authorized Outsourcers” and you follow the rules. However, in recent years, Microsoft has tightened some of these rules for competitor clouds.

Generally, Microsoft is most generous with hybrid rights on Azure (its cloud). As a CIO, ensure your team understands the specific Product Terms: which licenses can be reassigned and under what conditions.

For instance, Windows Server standard licenses without SA cannot be moved to other clouds’ shared infrastructure at all – you’d have to either use Azure (where some exceptions apply) or run on dedicated hardware in AWS/Google. With SA (or subscription licenses), you can move or dual-use licenses in the cloud more freely.

In a broader sense, dual-use rights refer to the scenario where cloud subscription licenses give you the right to use equivalent on-prem software. Microsoft 365 and Dynamics 365 subscriptions exemplify this. If you license a user for a cloud service, that user often doesn’t need a separate CAL to access the on-prem version of that service.

For example, a Dynamics 365 user subscription includes the rights for that user to access a Dynamics 365 on-premises server instance. Similarly, Office 365 E3/E5 or Microsoft 365 E3/E5 user licenses include rights to run Office client applications locally and access on-prem Exchange/SharePoint servers without additional CALs.

Microsoft allows customers to download the on-prem software (Exchange, SharePoint, Skype for Business Server) under their cloud subscription rights to facilitate hybrid deployments. The catch: these rights are not permanent. They exist only while you maintain the subscription.

If you later decide to drop the cloud subscription, you’d have to license any remaining on-prem servers via traditional means again. Dual-use rights are meant to support temporary coexistence or ongoing hybrid scenarios, not to provide a free, perpetual license.

Another relevant SA benefit is the ability to “step up” or transition licenses. Microsoft often provides discounted transition SKUs when moving from on-prem to the cloud. For example, if you own an SA license for Office and Windows, you can subscribe to Microsoft 365 at a reduced “From SA” price, effectively crediting your prior investment.

These transition licenses let you temporarily maintain on-prem usage while fully shifting to cloud services without paying full price for both. Work with your Microsoft reseller or independent licensing advisor to uncover any available transition promotions—these can significantly reduce costs during the changeover.

Consider duration and end-state in planning a hybrid licensing strategy: Will certain systems remain on-premises long-term (requiring perpetual licenses or subscription equivalents like Windows Server subscriptions via CSP)? Or is the goal to fully cloudify within a year or two?

Your licensing strategy might involve retaining some SA on critical on-prem assets until they are decommissioned to keep upgrade and mobility rights. Also, keep track of license assignments during the move.

For instance, when leveraging Azure Hybrid Benefit, you must indicate in Azure which VMs are using your existing licenses (e.g., by ticking a checkbox for AHB); ensure you don’t exceed the number of licenses you own. Good internal tracking will prevent compliance issues, as Microsoft can ask for evidence of your license entitlements if you use BYOL in Azure.

What You Should Do:

• Leverage SA Benefits: If you have Software Assurance on existing licenses, use it to your advantage. Apply Azure Hybrid Benefit for eligible Azure workloads (Windows Server, SQL Server, etc.) to cut cloud costs. Use License Mobility to bring other server licenses to the cloud, where permitted, instead of repurchasing licenses.
• Use Dual-Use Periods for Migrations: Plan migrations with the 180-day dual-use window in mind. Spin up cloud instances parallel to on-prem systems and cut over within the allowed period. This avoids rushing the project or paying for extra licenses. Document the start of dual-use periods for compliance.
• Exploit Cloud Subscriptions’ On-Prem Rights: If you’ve moved users to Microsoft 365 or Dynamics 365, utilize the included on-prem server rights. For example, you might run an Exchange hybrid server or a SharePoint farm for specific needs without buying new server licenses as long as all users have the corresponding cloud licenses. This can support legacy integration or data residency requirements during the transition.
• Avoid Double-Paying: Coordinate license retirement with cloud adoption. For any product you fully transition to SaaS, consider ending its Software Assurance at renewal or using Microsoft’s transition SKUs so you’re not maintaining full SA and a cloud subscription for the same capability longer than necessary. Conversely, don’t drop SA too early on critical products if you need those hybrid rights – time your SA renewal decisions to your migration schedule.
• Consult Experts for Complex Scenarios: Hybrid licensing rules can be arcane. Engage an independent licensing expert (such as Redress Compliance) to validate your plan for using existing licenses in the cloud. They can ensure you meet Microsoft’s requirements (e.g., naming the proper licenses and staying within terms) and help you optimize the usage of transitional licenses or promotions.

Pricing and Cost Modeling: CAPEX to OPEX Shift

Transitioning to cloud licensing entails a fundamental shift in IT finance, from upfront capital expenditure to recurring operational expenditure. CIOs and CFOs must jointly revisit how software and infrastructure spending is budgeted and monitored.

On-premises licensing and infrastructure typically involve large upfront investments (servers, perpetual licenses) that are depreciated over time, with periodic spikes for hardware refreshes or major version upgrades. In the cloud model, costs become more linear and ongoing: subscriptions and cloud resource charges hit the OPEX budget

monthly or annually. This offers predictability in one sense but also lessens the “sunk cost” inertia – if you need more resources or users, you spend more in the next billing cycle. Conversely, stopping services can reduce costs quickly (something not possible after buying perpetual licenses outright).

When building a cost model, consider the total cost of ownership (TCO) over a multi-year period. It’s often not as simple as “cloud is cheaper” or “perpetual is cheaper” – it depends on usage patterns. For example, if you bought Office 2019 licenses and kept them for 5-7 years without upgrading, that might have been cheaper than subscribing to Office 365 for those years.

However, you would have missed out on newer Office features and would have borne support costs for aging software. Cloud subscriptions bundle continuous upgrades and new capabilities (e.g., Teams and cloud-only AI features), which might deliver business value beyond a strict cost comparison. It’s crucial to quantify these benefits when justifying the subscription costs.

Also, factor in the infrastructure cost shift: running workloads in Azure means avoiding data centre hardware, power, cooling, and some IT administration costs – those savings help offset the subscription fees.

In short, cloud costs may be higher on paper over a long horizon, but they buy you agility, up-to-date technology, and offloaded management. Each enterprise should model scenarios: for instance, compare the 5-year cost of running a workload in your data centre (hardware + Windows/SQL licenses + labour) versus in Azure (VM subscription + bandwidth + support).

Often, the cloud is competitive when all factors are included, but the analysis might reveal that certain stable, heavy-use systems are cheaper to keep on-premises. This exercise also helps identify opportunities to optimize, such as rightsizing cloud resources or using reserved instances.

CAPEX to OPEX impact –

Moving to subscription OPEX can affect corporate financial metrics. Some CFOs of publicly traded companies resist large OPEX growth because it hits EBITDA, whereas CAPEX can be capitalized. There may be internal preferences for one model over the other. As an IT leader, you should collaborate with finance on this transition.

The good news is that many organizations now accept the cloud model as the new normal, especially since it provides flexibility. But be prepared to address concerns like “Are we locking ourselves into higher lifetime costs?” and “How do we avoid cost overruns?” Indeed, cloud spending can creep above budget if not actively governed – Gartner and other analysts often cite instances of 20-30% cloud overspending due to a lack of monitoring.

Microsoft 365 and Azure costs can scale faster than anticipated as business units add services or consume more resources. To mitigate this, implement cloud cost management (FinOps) discipline: set budgets, use Azure cost alerts, and regularly report on cloud spend versus projections.

Subscription vs. perpetual licensing economics: With perpetual licenses, the longer you use them without major upgrades, the lower the annualized cost. With subscriptions, if you plan to use a product for a very long time in a mostly static manner, the subscription could cost more cumulatively.

Microsoft has implicitly acknowledged this by slightly raising prices for certain cloud subscriptions over time – they bank on customers valuing continuous innovation. It’s worth noting that Microsoft periodically raises subscription rates (for example, the 2022 price increases on Office 365 E5, etc.).

In contrast, a perpetual license purchase locks your cost (but you might face upgrade costs later). Subscriptions also bundle features that might replace third-party tools (e.g., security or compliance add-ons in M365 E5), so factor the retirement of other software into the value equation.

Another angle is timing and negotiation: An EA offers price protection for 3 years, whereas CSP pricing can change with market rates or currency fluctuations annually. If you expect Microsoft licensing costs to increase (and history suggests they will), locking in multi-year commitments can hedge against those rises.

Azure offers 1-year or 3-year Reserved Instance pricing for VMs and databases at a discount, analogous to upfront CAPEX commitments. Microsoft 365 and Dynamics 365 also offer 1-year or even 3-year term options (in EA or MCA-E agreements) that can come with discounted pricing compared to month-to-month. Deciding between month-to-month flexibility and longer-term savings is key to cost optimization.

Renewal and true-up timing are critical in modelling costs. If your organization’s headcount fluctuates seasonally or due to economic cycles, the old EA model (true-up once per year) might cause you to overpay for many months.

CSP’s ability to reduce licenses quickly could yield savings if you anticipate downsizing or if a project ends. On the other hand, if you expect growth, an EA’s fixed pricing might allow you to add users at a known cost that could be lower than future CSP prices.

Also, plan for contract renewal events: Microsoft often uses EA renewal time to push new cloud products or bundle changes. If you transition to a pure subscription model, you will effectively ” renew” portions of your estate annually. Ensure you align major contract dates with your fiscal planning and avoid getting stuck where multiple large cloud agreements co-terminate and strain the budget simultaneously.

What You Should Do:

• Model Multi-Year TCO: Perform a detailed cost analysis comparing your current on-premises and projected cloud costs over 3–5 years. Include everything: license/subscription fees, hardware, support, personnel, energy, etc. This will illuminate the true cost difference and help defend the business case for the cloud (or identify areas where on-prem might remain cheaper).
• Engage Finance Early: Work with your CFO’s team to manage the CAPEX-to-OPEX shift. Explain how cloud subscriptions will be accounted for and adjust budgeting processes to accommodate ongoing spending rather than big lump sums. Explore options like pre-paying for longer terms (to capitalize costs) or using cloud consumption commitments (Azure commits) to optimize spend.
• Use Cost Management Tools: Implement Azure Cost Management + Billing and Microsoft 365 admin reports to track usage and costs in real time. Set up governance policies (e.g., require approval for spinning up expensive Azure resources, or auto-remove licenses of departed users). Early detection of overruns is key to avoiding budget shocks.
• Optimize Subscription Mix: Right-size your cloud commitments. For predictable base workloads and user counts, take advantage of longer-term or volume pricing (e.g., Azure reservations, 1-year Microsoft 365 subscriptions via CSP or EA) for better rates. For areas of uncertainty, maintain flexibility with monthly terms or pay-as-you-go. Periodically re-evaluate this mix as your confidence in certain usage patterns grows.
• Align with Renewal Cycles: Time cloud onboarding with the retirement of legacy investments. For example, if a data centre hardware refresh is due in 2026, factor this into your cloud migration plan – moving those workloads to Azure might avoid new CAPEX. Similarly, if an EA is up for renewal in 2025, plan cloud migrations to kick off before that so you can potentially downsize the EA or switch to CSP. Avoid unnecessary renewal of on-prem licenses for systems you intend to decommission or move to SaaS.

Governance, Compliance, and Audit Considerations

Transitioning to cloud licensing does not eliminate the need for diligent software asset management and compliance – it transforms it. In an on-premises world, compliance risk often meant software installed more than the licenses, potentially leading to Microsoft audit findings.

In the cloud world, usage is metered and tied to active subscriptions, so you’re less likely to accidentally use more than you bought. However, governance and oversight are just as important to control costs and ensure proper use of hybrid benefits.

Compliance during transition:

Moving to the cloud may involve straddling two licensing models. This is when you should be most cautious. As things “bounce between on-premises and the cloud, the risk of non-compliance increases” during a transition.

For example, if you move workloads to Azure under Azure Hybrid Benefit, be sure you have enough licenses with SA to cover those VMs and that you’re not also counting them for on-prem use beyond the allowed period. Keep records of what licenses were reassigned to cloud use and when.

If you’re maintaining some perpetual licenses after letting an EA lapse, document those entitlements (perhaps by obtaining a final “proof of license” statement from Microsoft or your LSP). Should Microsoft initiate a licensing review, you must show that you are properly licensed for any on-premises installations not covered by subscriptions.

Microsoft’s audit approach has evolved. In recent years, Microsoft has preferred “friendly” compliance reviews over surprise audits, especially for customers deeply invested in cloud services. Don’t be lulled into complacency by this friendly posture – treat any license review seriously and be prepared with data.

Post-transition, Microsoft might review your usage of on-prem licenses via License Mobility or ask for a self-attestation of compliance. Additionally, Microsoft has introduced controls like limiting the activation of volume license keys and requiring you to declare license use in Azure.

It’s wise to conduct an internal audit before and after the transition. Before, you caught shortfalls while you still had an EA true-up or other means to resolve them.

After, to ensure all retired systems were removed or are covered by new subscriptions. While formal external audits have reportedly decreased frequently, internal compliance scrutiny and license optimization efforts should ramp up.

Many organizations establish a cloud governance board that, among other duties, keeps an eye on licensing and spending.

Governance of cloud subscriptions

Involves diligently managing identities and access. Unlike on-prem software that could be deployed quietly, cloud services usually require assigning licenses to user accounts, giving IT a clearer view of who has what.

Leverage this by instituting joiner-mover-leaver processes so that when an employee leaves, their Microsoft 365 license is removed promptly to avoid paying for unused seats. Similarly, implement periodic access reviews for Azure resources – Sometimes, VMs or services are left running and incurring charges even when not needed.

Tag cloud resources with owners/cost centres to drive accountability. Role-based access control should limit who can procure new cloud services or assign licenses; uncontrolled self-service can lead to sprawl in large enterprises.

Policy and training:

Update your IT policies to reflect cloud usage. For example, define policies on Azure resource deployment (maybe requiring certain sizing or using pre-approved PaaS services) to prevent costly misuse.

Train your software asset management (SAM) or IT asset teams on interpreting cloud licensing metrics – they will need to track different indicators (e.g., Azure consumption units, Microsoft 365 active users) rather than just installation counts. Traditional SAM tools are evolving to cover the cloud, but no single tool may give a 360° view.

You may need a combination of Microsoft’s portals and third-party tools to get full visibility. Ensure someone is tasked with watching Microsoft announcements for changes in licensing terms or new audit policies—for example, changes in outsourcing rights or new bundles that could impact compliance if not adopted.

Security & compliance synergy:

Cloud licensing governance also ties into security and regulatory compliance. Using cloud services means data is in Microsoft’s environment, so be mindful of compliance with data handling rules (GDPR, etc.) and use the included compliance features of your subscriptions.

Also, watch out for Shadow IT. If business units adopt unauthorized cloud services outside your purview, that’s both a security risk and a potential licensing cost leakage. Strong governance frameworks (possibly modelled on Azure’s Cloud Adoption Framework governance pillar) can help set guardrails.

Lastly, consider involving an independent licensing specialist or auditor, not just for negotiation but also for periodic compliance health checks. An external expert can simulate a Microsoft audit or a license position assessment in the new hybrid scenario, identifying compliance gaps or opportunities to optimize licenses.

Crucially, they work for you (unlike Microsoft’s audit partners) and can advise you on rectifying issues without bias. And since you should avoid inviting Microsoft in for an audit, these internal check-ups are your best defense.

What You Should Do:

• Establish a Cloud Governance Team: Form a cross-functional team (IT, finance, SAM, security) to oversee cloud usage and licensing. This team should set policies for license assignment, resource deployment, and cost management, and meet regularly to review compliance and spending.
• Track License Usage and Entitlements: Maintain an up-to-date license inventory. Use Microsoft 365 Admin Center and Azure Portal reports to monitor active subscriptions and keep records of any perpetual licenses you retain. For hybrid use, document which licenses are assigned to cloud workloads (e.g., a list of servers using Azure Hybrid Benefit and the corresponding license IDs).
• Implement Proactive Compliance Checks: Don’t wait for Microsoft’s “friendly” review. Schedule internal audits – e.g,. Quarterly reviews of Azure Hybrid Benefit usage compliance and semi-annual true-ups of Microsoft 365 accounts vs. HR rosters. Verify that no users can access services they’re not licensed for and that no on-prem systems are running unlicensed.
• Train and Inform Staff: Ensure your procurement and IT asset management staff understand the new licensing terms. They should be aware that, for example, installing a SQL Server in AWS without Software Assurance violates Microsoft’s rules post-2019 changes. Keep everyone informed on evolving Microsoft licensing (e.g., changes to outsourcing or dual-use rights). This reduces accidental non-compliance.
• Use Independent Advisors: Engage independent licensing experts (like Redress Compliance or similar firms) to periodically review your Microsoft licensing posture. They can provide an objective assessment of your compliance and cost efficiency. Crucially, they can also guide you in communications with Microsoft – for instance, how to respond to a license compliance verification request or negotiate concessions if an audit finds issues. An expert ally helps ensure you’re not relying solely on Microsoft’s guidance, which may be sales-driven.

Conclusion

Transitioning from on-premises Microsoft licensing to cloud-based licensing is a technical migration and a strategic realignment of your software asset management and vendor relationship.

By understanding the nuances of licensing models, carefully planning your EA vs. CSP choices, leveraging hybrid use rights, and instilling disciplined governance, you can unlock the cloud’s benefits while controlling risks and costs.

The journey requires collaboration across IT, finance, and procurement, and a willingness to adapt established practices to a new paradigm. With informed decision-making and possibly the guidance of independent licensing experts, CIOs and IT leaders can turn this transition into an opportunity to modernize the IT portfolio, negotiate more favourable terms, and ultimately deliver greater agility and value to the enterprise.