Microsoft licence types fall into four main families: perpetual (one-time purchase), subscription (Microsoft 365, Azure), OEM (bundled with hardware) and volume licensing (Open, EA). Choosing the wrong family costs money in either over-licensing or compliance gaps.
Perpetual licences
A perpetual licence is a one-time purchase that gives the right to use a specific version of the software forever. Office 2021 and Windows Server 2022 are typical examples.
Perpetual licences do not include feature updates to newer versions. A business that bought Office 2019 licences will not automatically receive Office 2024 features — a new purchase or a subscription is required.
Subscription licences (Microsoft 365 and Azure)
Subscription licences are billed monthly or annually per user or per resource. They always include the latest version and are easier to scale up or down.
Microsoft 365 Business and Enterprise plans bundle Office apps, Exchange, Teams and SharePoint under a single per-user monthly fee. Azure follows a consumption model — you pay for what you use.
- Microsoft 365 Business Basic / Standard / Premium
- Microsoft 365 E3 / E5 (enterprise)
- Windows 365 (cloud PC)
- Azure (consumption-based)
OEM licences
OEM (Original Equipment Manufacturer) licences are tied to the device they are first installed on and cannot be transferred to another machine. They are typically the cheapest way to license Windows for a new PC.
For servers, OEM versions of Windows Server are common in small deployments. The limitation is that the licence moves with the physical hardware — virtualisation rights are restricted.
Volume licensing
Volume licensing programmes — Open Value, Open Value Subscription, and the Enterprise Agreement — are designed for organisations with ten or more licences. They offer simplified compliance tracking and often lower per-unit costs at scale.
An Enterprise Agreement (EA) is a three-year commitment covering all devices and users in the organisation. It makes sense for organisations with 500 or more users; below that, Open Value or Microsoft 365 subscriptions are usually more flexible.
The most common mistake
Using OEM licences in a virtualised environment is the most frequent compliance gap. An OEM Windows Server licence covers one physical instance; running it in multiple VMs requires a Datacenter edition or Software Assurance.
The second most common mistake is treating Microsoft 365 Business Premium as equivalent to E3. They overlap significantly but differ on device management, compliance and security features.
