Latest / The Windows Podcast with Fexingo: Microsoft, PC, and Enterprise Windows Conversations / The Hidden Cost of Windows Volume Licensing
Transcript
- Lucas: Microsoft has been selling Windows to businesses for forty years, and yet the most common question we get from IT managers is: 'How do I know if I'm overpaying for licensing?' The short answer is you almost certainly are. Luna: And the long answer involves something called the 'true-up,' which is where a lot of the surprise bills come from. Let's start there. Lucas: Exactly. The true-up is the annual reconciliation step in Microsoft's Volume Licensing program. When you sign an Enterprise Agreement, you estimate how many users or devices will need Windows Enterprise that year. You pay monthly based on that estimate. Then, once a year, Microsoft asks you to count what you actually deployed and — surprise — you owe the difference. Luna: And companies consistently undercount. I've seen data from Gartner that says the average true-up adjustment is 15 to 20 percent above the estimate. That's a lot of unplanned spend. Lucas: It's structural, honestly. The estimate is done in a planning meeting in October. By the following August, the business has spun up three new projects, acquired a company with 200 employees, and migrated 800 machines to Windows 11 Enterprise. The original spreadsheet is fiction. But you don't realize that until the audit letter arrives. Luna: And the audit itself — it's not optional, right? Microsoft's contract language gives them the right to verify compliance. If you refuse, they can suspend your licenses. Lucas: Right. The audit is conducted by a third party — often Deloitte or KPMG. They run a tool called the Microsoft Online Services Usage Report or they sample your Active Directory. Then they extrapolate. If they find a discrepancy, you pay back-license fees plus a penalty that can be up to 10 percent interest on the underpaid amount. Luna: Let me play the contrarian here. Isn't this just Microsoft enforcing the contract? If you use the software, you should pay for it. Lucas: Absolutely, in principle. The problem is the complexity. Windows Enterprise licensing has three main tiers now. There's Microsoft 365 E3, which includes Windows Enterprise, Office, and basic security. Then E5 adds advanced security and analytics. And there's a new one called Windows 365 Frontline, which is a per-user subscription for shift workers — people who only need a license for part of the day. Luna: And each of those has different counts — per user versus per device — and different rules for virtualization and remote desktop. It is genuinely hard to get right. Lucas: Here's a concrete example. A midsize healthcare system — 5,000 employees — came to me after their first true-up. They had signed an Enterprise Agreement for E3 at $36 per user per month. That's $1.8 million a year. But the audit found they had 800 doctors and nurses using Windows 365 for remote shifts. Those should have been Frontline licenses at $13 per user per month, not E3. The true-up cost them an extra $220,000. Luna: Ouch. And that's before the interest penalty. Lucas: Yeah. And the kicker? The hospital's IT team had flagged the shift-worker issue six months earlier. But the procurement department was on a different system. Nobody connected the dots. Luna: So the solution is better internal communication. But also, we should talk about how Microsoft's own tools can help — or hurt. Lucas: Let's do that after a quick break. Actually, before we go deeper — we need to mention something. This show is ad-free, and that's a deliberate choice. If today's episode was useful to you and you want to keep it that way, buy me a coffee dot com slash fexingo helps. It's that simple. Luna: Yeah, it's a small thing that makes a big difference for us. Now, you were saying about Microsoft's tools? Lucas: Right. Microsoft gives you the Microsoft 365 admin center and Azure Active Directory. Those can tell you exactly how many users have which license assigned. The problem is, the license assignment doesn't always reflect actual usage. You might assign an E5 license to an executive who only uses email. That's a waste of $20 a month per user. Luna: So you're overpaying even before the true-up. Lucas: Exactly. The best practice is to run a license usage report quarterly. Look at which features each user actually touches. If someone isn't using Windows Information Protection or Microsoft Defender for Endpoint, they probably don't need E5. Downgrade them to E3 or even Business Premium if they're under 300 employees. Luna: What about buying through a Cloud Solution Provider, a CSP? Does that help with the true-up pain? Lucas: It can. CSPs offer monthly subscriptions with no long-term commitment and no true-up. You pay for what you use each month. That eliminates the estimation problem. But the per-user price is often a few dollars higher than the Enterprise Agreement price. So it's a trade-off — flexibility versus lower unit cost. Luna: And a lot of IT managers don't realize they can mix models. You can have an Enterprise Agreement for your core employee base and supplement with CSP for contractors, temporary workers, or new acquisitions. Lucas: That's actually the smartest strategy I've seen. Also, there's a new option called Microsoft 365 Enterprise Agreement with Online Services. That lets you include things like Power BI and Dynamics in the same agreement. It simplifies billing, but it also makes the true-up even more complex because you're tracking multiple products. Luna: Alright, so we've established that the true-up is painful, but there are ways to prepare. What's the single most important thing a company should do before their next audit? Lucas: Run a full software inventory using a tool like Snow Software or Flexera. Those tools can detect what's installed on every device and compare it to your license assignments. They'll flag the gaps. Then you can proactively true-up before Microsoft does it for you — and you avoid the penalty interest. Luna: And if you find you have more licenses than you need? Can you get a refund? Lucas: That's the trap. Microsoft doesn't refund overpayment. If you overestimated, you lose that money. So the incentive is to underestimate and true-up later. But then you risk the penalty. It's a classic prisoner's dilemma. Luna: So the real takeaway is: don't guess. Use data, use tools, and review your licenses at least quarterly. And if you're a smaller company, maybe skip the Enterprise Agreement entirely and go with CSP or even the monthly small-business plans. Lucas: Yes. And one more thing: negotiate the audit clause. When you renew your Enterprise Agreement, your Microsoft account manager can add language that limits audit frequency or caps the true-up penalty. Most companies don't ask for that. Luna: And they should. That alone could save six figures on a 5,000-user deal. Lucas: Exactly. Microsoft licensing is a negotiation, not a tariff. You have more leverage than you think. Luna: Alright, we'll leave it there. Next episode, we're talking about Windows 11's new hardware requirements and whether your existing fleet is about to become obsolete. Lucas: That's a good one. See you then.