MS-900 Practice Question: Describe Microsoft 365 pricing, licensing, and support
A global organization with 20,000 users is running Microsoft 365 E5 licenses. Due to budget cuts, the CIO wants to reduce licensing costs by 20% while ensuring that all users still have access to Exchange Online, SharePoint, Teams, and OneDrive. The organization also needs to maintain compliance with industry regulations that require eDiscovery and retention policies. The security team is willing to give up advanced threat protection features like Microsoft Defender for Office 365 P2 and Microsoft Purview Data Loss Prevention. Which licensing strategy should the organization adopt?
⚠ Common exam trap
Test-takers frequently assume E5 is required for compliance features, but Microsoft 365 E3 includes the necessary eDiscovery and retention policies, and the question explicitly states the security team is willing to give up advanced threat protection, making E3 the correct cost-saving choice.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Downgrade all users to Microsoft 365 E3
Microsoft 365 E3 includes Exchange Online, SharePoint, Teams, and OneDrive, and provides eDiscovery and retention policies via Microsoft Purview compliance features. Downgrading from E5 to E3 reduces licensing costs by approximately 20-30% per user while retaining the required core productivity and compliance capabilities, and removes advanced threat protection (Defender for Office 365 P2, DLP) that the security team is willing to give up.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Downgrade all users to Microsoft 365 E3
Why this is correct
Microsoft 365 E3 is the correct licensing tier for a 20,000-user organization that requires enterprise-grade compliance without the premium security features of E5. It includes Exchange Online, SharePoint Online, Teams, OneDrive, as well as eDiscovery (Content Search) and retention policy capabilities that meet standard regulatory requirements. While E5 adds advanced threat protection and analytics, E3 provides the necessary workloads and compliance tools at a lower per-user cost, making it the optimal cost-saving choice without sacrificing required functionality.
- ✗
Switch to Microsoft 365 F3 for all users
Why it's wrong here
Microsoft 365 F3 is explicitly tailored for firstline workers who need only basic productivity and communication tools. Critically, F3 lacks the advanced compliance capabilities required for this scenario, such as eDiscovery (legal holds and in-place searches) and comprehensive retention policies that are available only in E3 and E5. Although F3 has a lower per-user price, deploying it org-wide would leave the organization unable to satisfy its mandated eDiscovery and retention obligations, making F3 an invalid alternative despite its apparent budget appeal.
- ✗
Keep E5 but remove all add-on licenses
Why it's wrong here
E5 is a bundled suite, meaning that its features—including advanced security and compliance tools—are integral to the license itself rather than being optional add-ons that can be selectively removed. Removing add-on licenses, such as standalone Defender for Identity or extra storage, does not reduce the core E5 cost because the bulk of the functionality is packaged into the base E5 SKU. Consequently, keeping E5 while attempting to strip out features yields minimal cost savings and fails to achieve the cost reduction that switching to a lower tier like E3 would provide.
- ✗
Switch to Microsoft 365 Business Premium for all users
Why it's wrong here
Switching to Microsoft 365 Business Premium is unsuitable as it has a strict user limit of 300, making it incompatible with an organisation of 20,000 users. Furthermore, while it offers basic retention, it lacks the advanced eDiscovery and comprehensive retention policies mandated by industry regulations for larger enterprises. This option is tempting because it significantly reduces costs and provides core services like Exchange, SharePoint, Teams, and OneDrive, making it an excellent, cost-effective choice for small to medium-sized businesses requiring robust productivity and security features.
Go deeper
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Zero Trust Security Principles in Microsoft 365
Key term
User
A user is any person, system, or device that interacts with an IT service, resource, or identity system, typically authenticated through credentials and authorized to perform specific actions.
Key term
Microsoft Defender for Office 365
Microsoft Defender for Office 365 is a cloud-based email and collaboration security service that protects organizations against malicious threats like phishing, malware, and spam in email messages and Office 365 apps.
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Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
This MS-900 practice question is part of Courseiva's free Microsoft certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the MS-900 exam.