Purpose of a License
A license is a purchased right that allows a user or group to use Microsoft cloud services or
features.
Types of Licenses
License Purpose Example
Microsoft Entra ID
P1 / P2 Unlocks premium identity features. P2
adds Privileged Identity Management
(PIM). PIM requires P2 for
admins who
assign/manage roles.
Microsoft 365 /
OƯice 365 /
Windows Licenses Grants access to productivity apps and
OS features. Every user needing Word
or Teams needs one
license.
Monthly Active User
(MAU) License Used for Entra External Identities (B2B /
B2C). Billing is based on the number of
external users active in a month. First 50 000 MAUs per
month are free with P1 /
P2.
Other Licensing Models
Predictable per-user pricing.
Helps track feature access and compliance.
Subscription vs. License
Term Definition Example
Subscription The overall agreement to use Microsoft cloud
platforms (Azure, M365, Dynamics). Billing
may be per-user or consumption-based. A company subscribes to
M365 E5.
License The specific right assigned to an individual
user or group under that subscription. Out of 100 E5 licenses, each
user receives one to access
Teams and SharePoint.
Analogy:
A subscription is like renting an entire gym; licenses are the membership cards given to
individual members.