Microsoft 365 licensing, explained
A plain-language primer for IT managers who don't live and breathe Microsoft licensing. No prior knowledge assumed — by the end you'll know how the pieces fit and how to pick a plan without over-buying.
The big picture
Microsoft doesn't sell features one by one. It sells subscriptions (Microsoft calls them SKUs) — bundles like Office 365 E3 or Microsoft 365 Business Premium. Each subscription contains dozens of services (a mailbox, a SharePoint site, Teams, a security tool, and so on). You buy one subscription per person, per month, and they get everything inside it.
The catch: there are hundreds of subscriptions with heavily overlapping contents, and the services have cryptic internal names. That's the confusion LicenseLens is built to remove — it maps those raw services to plain capabilities so you can shop by what people actually need.
Three words worth knowing
Office 365 vs Microsoft 365
These names trip everyone up. In short:
- Office 365 = the productivity apps and cloud services: email (Exchange), SharePoint & OneDrive, Teams, and the Office apps.
- Microsoft 365 = Office 365 plus Windows Enterprise plus the security and management stack (Microsoft Entra for identity, Intune for devices, and Microsoft Defender / Purview for security and compliance).
So Microsoft 365 is the bigger bundle. If you only need email and documents, an Office 365 plan may be enough; if you also manage company devices and identities, Microsoft 365 usually pays off.
The editions, decoded
Most subscriptions follow a small number of letter/number tiers. Higher numbers add more, at a higher price.
| Family | Tiers | Who it's for | Rough rule of thumb |
|---|---|---|---|
| Enterprise (E) | E1 · E3 · E5 | Larger organisations | E1 = web/mobile apps + services · E3 adds the desktop Office apps and core security/compliance · E5 adds advanced Defender security, compliance, Power BI Pro and Teams voice. |
| Business | Basic · Standard · Premium | Up to 300 employees | Basic = web/mobile + services · Standard adds desktop Office · Premium adds security & device management (Defender, Intune, Entra ID P1). |
| Frontline (F) | F1 · F3 | Shift / deskless staff | Lower-cost, web/mobile focused, with smaller mailbox and storage limits. |
| Education (A) | A1 · A3 · A5 | Schools & universities | The E1/E3/E5 equivalents for education, with academic pricing. |
| Government | GCC · GCC High · DoD | US public sector | Same plans in a separate compliance boundary. Marked as Government in the audience filter here. |
In LicenseLens the Browse page lets you filter by exactly these — Family, Audience (Commercial / Government / Education / Frontline) and Type (Suite / Add-on / Trial).
How to choose — a sane order
- List what your people actually doEmail, files, meetings, run company devices, handle sensitive data? Tick those in the Plan finder.
- Start from the leanest plan that covers itThe finder ranks matches so the plan with the least "extra" comes first — you're not paying for services nobody uses.
- Compare the shortlist side by sideUse Compare and switch on "only differences" to see exactly what a higher tier buys you.
- Fill gaps with add-ons, not a whole tierIf only some staff need one extra capability, an add-on for those users is usually cheaper than upgrading everyone.
Common ways money gets wasted
Using LicenseLens
- Plan finder — tick capabilities, get the subscriptions that cover them.
- Compare — up to four plans side by side; toggle "only differences".
- Open any plan to see its capabilities in plain language (raw service plans are one click away), or open a capability to see every plan that includes it.
Reference only — LicenseLens shows what's in a plan, not prices (those vary by region, currency and agreement). Always confirm entitlements in the Microsoft 365 admin center before you buy. See About & methodology for the data source.