Microsoft License Types Explained: OEM, Retail, Volume, Subscription and More

OEM licences are pre-installed on new computers by hardware manufacturers (Dell, HP, Lenovo, and others) or bundled with new devices by system builders. Windows OEM licences are the most common type — they activate automatically when you first power on a new PC. The defining characteristic of an OEM licence is that it is permanently tied to the device it was first installed on. When that device is decommissioned, the OEM licence goes with it. It cannot be transferred to a replacement machine.

• Transferability: None. OEM licences are non-transferable and cannot be moved between devices.
• Cost: Lower unit cost than retail, because the device purchase and licence are bundled together.
• Support: OEM Windows support is provided by the hardware manufacturer, not directly by Microsoft.
• Audit position: OEM licences are typically the weakest in an audit context — if you cannot produce the original device with the certificate of authenticity (COA) sticker or digital product key record, entitlement is difficult to establish.
• Downgrade rights: OEM licences generally do not carry the same downgrade rights as volume licences. Users cannot typically downgrade Windows OEM to an older Windows version.

Retail licences — also called Full Packaged Product (FPP) licences — are purchased directly from Microsoft or authorised retailers as standalone products. Unlike OEM licences, retail licences are transferable: you can uninstall the software from one machine, deactivate the licence, and reinstall it on a new device. This makes them the preferred choice for individual professionals who upgrade hardware regularly, but they are rarely cost-effective at scale.

• Transferability: Full. The licence can be moved from one device to another upon uninstall from the original.
• Cost: Highest unit price among all licence types. Not appropriate for bulk enterprise procurement.
• Support: Direct Microsoft support included.
• Audit position: Strong — retail licences come with product keys and clear purchase records, which are straightforward to verify in an audit.
• Enterprise relevance: Minimal at scale. Enterprise buyers rarely use retail licences for broad deployment; they appear most often as one-off purchases for specific users or projects outside the main EA.

Volume licences allow organisations to purchase Microsoft software at scale under a single agreement, rather than buying individual retail copies. Minimum thresholds apply: most volume programmes require at least 5 licences. Volume licences bring significant advantages over retail and OEM — specifically, downgrade rights (the right to run an older software version on a newer licence), limited transfer rights, and reimaging rights for standardised deployment.

The main volume licence programmes below the Enterprise Agreement include Open Value (for small and medium organisations, typically 5–250 seats), Open Value Subscription (annual subscription version of Open), and the Microsoft Products and Services Agreement (MPSA — a flexible transactional programme for organisations that want volume pricing without a long-term commitment). As of 2026, Microsoft has been actively steering customers away from legacy Open and MPSA programmes and towards NCE-based models.

• Downgrade rights: Volume licences typically include the right to run older product versions under a current licence. This is a critical advantage for organisations with mixed Windows Server or SQL Server version estates.
• Licence mobility: Volume licences with active Software Assurance (SA) carry licence mobility rights — allowing deployment in shared or outsourced data centre environments and qualifying for Azure Hybrid Benefit.
• Audit position: Requires maintenance of the Microsoft Volume Licensing Service Centre (VLSC) records, order history, and SA tracking. Common audit failure point for organisations that do not maintain their VLSC records systematically.

The Enterprise Agreement is Microsoft's flagship volume licensing programme for organisations with at least 500 users or devices. EA licences deliver the best unit pricing available through traditional Microsoft commercial channels and are structured around a three-year commitment with an annual True-Up mechanism. The True-Up requires the customer to report all licence additions (new users, new products, expanded deployments) in the prior 12-month period and pay for them at the EA unit rate.

EA licences typically include Software Assurance, giving customers upgrade rights, home use rights, Training Vouchers, and — critically — Azure Hybrid Benefit eligibility for qualifying server workloads. As of 2025, Microsoft began rejecting new EA enrolments from some segments in favour of MCA-E (see below), but the EA remains active for existing customers and for large EMEA and enterprise accounts.

• Discounts: Standard EA discounts currently run 10–20% off list price. Historical discounts of 15–25% are no longer typical — the discount range has compressed as Microsoft has tightened NCE pricing floors.
• True-Up window: Runs 60 to 30 days before the anniversary date. The True-Up is a negotiating event, not just an administrative obligation — scope disputes and right-sizing conversations belong here.
• Q4 leverage: Microsoft's fiscal year ends June 30. EA renewals and True-Ups timed to land before June 30 benefit from maximum Microsoft field rep incentive to close, which improves buyer leverage.
• Audit position: The EA's True-Up mechanism provides a degree of built-in compliance protection for the M365 seats and products covered under it. However, products outside the EA scope (legacy perpetual licences, non-covered products) remain separate audit exposures.

Subscription licences are the dominant commercial model in Microsoft's 2026 portfolio. All Microsoft 365, Dynamics 365, Power Platform, and Azure seat-based products are sold as subscriptions — typically monthly or annual commitments with no perpetual ownership rights. When a subscription lapses, access to the software ends.

The M365 enterprise subscription stack runs E1 → E3 → E5 → E7, with E7 being the new highest-tier SKU above E5 (GA May 2026 at $99/user/month). Microsoft's field teams are actively pushing E5 customers toward E7 at renewal, positioning it as a cost consolidation play across AI, security, and compliance capabilities. E5 is no longer the top or most comprehensive M365 SKU — E7 sits above it.

Subscription licences are delivered through three main commercial channels:

• Cloud Solution Provider (CSP): Purchased through a Microsoft partner, with delegated management, advisory support, and consolidated billing. CSP monthly commit = list price with no discount. CSP annual commit = up to 5% discount.
• Microsoft Customer Agreement (MCA): Microsoft's preferred direct commercial model. MCA is a flexible, evergreen agreement that replaces EAs for some customer segments. Under MCA, there are no True-Ups — you add seats when needed and pay in the next billing cycle. MCA gives Microsoft more pricing control than EA.
• New Commerce Experience (NCE): The underlying transactional framework for both CSP and MCA. NCE standardises subscription terms, introduces monthly and annual commit options, and eliminates legacy volume tier pricing for M365 and Dynamics 365 products.