MS-900 Practice Question: Describe Microsoft 365 pricing, licensing, and support
A multinational organization has a Microsoft 365 E5 subscription for 10,000 users. Some users in a subsidiary require only email and basic office apps. The IT department wants to reduce costs by reassigning licenses without losing any existing functionality for those users. What is the most cost-effective licensing strategy?
⚠ Common exam trap
Candidates often assume E1 is sufficient because it includes Exchange Online and web apps, but they overlook the explicit requirement for 'basic office apps'—which in Microsoft's licensing context means the desktop Office suite, available only in E3/E5 or Business versions, not in E1.
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 those users to Microsoft 365 E3 licenses
Microsoft 365 E3 provides the same core functionality as E5—Exchange Online, SharePoint, Teams, and desktop Office apps—but lacks E5's advanced security and analytics features (e.g., Microsoft Defender for Office 365 Plan 2, Microsoft Purview, Power BI Pro). Downgrading users who need only email and basic Office apps to E3 reduces per-user licensing cost while preserving all required functionality, making it the most cost-effective strategy.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Keep all users on E5 but reduce the number of licenses
Why it's wrong here
Reducing the total number of E5 licenses would remove those users from the subscription entirely, not lower the per-user cost. The users in question still need Exchange Online and the Office desktop apps, so eliminating their seats would violate the requirement. Retaining E5 for them also continues paying for advanced capabilities (Defender for Office 365, eDiscovery, Customer Lockbox) that they are unlikely to consume, leaving the per-user spend unchanged.
- ✓
Downgrade those users to Microsoft 365 E3 licenses
Why this is correct
Microsoft 365 E3 provides the same core productivity tools as E5—Exchange Online, Teams, SharePoint, and the fully installed Office desktop apps (Word, Excel, PowerPoint)—but omits E5-only advanced security, compliance, and analytics features. Downgrading the specified users to E3 replaces an expensive SKU with a lower-cost enterprise SKU that still meets the stated requirement for email and Office apps. This is the correct cost-optimization action because it reduces per-user licensing expense without sacrificing any required functionality.
- ✗
Switch to Microsoft 365 E1 licenses for those users
Why it's wrong here
Microsoft 365 E1 is an enterprise-level, cloud-only subscription that includes Exchange Online, SharePoint, Teams, and web versions of Office, but it does not include the installable desktop Office applications. The requirement explicitly calls for Office desktop apps, so moving users to E1 would force them onto the web clients or require an additional Office ProPlus license, largely canceling the intended savings. While E1 also lacks E5’s security compliance tools, the disqualifying limitation here is the missing Office client.
- ✗
Assign Microsoft 365 Business Basic licenses to those users
Why it's wrong here
Microsoft 365 Business Basic is designed for small and medium businesses (up to 300 users) and includes Exchange Online and Teams but only web and mobile Office apps—no desktop Word, Excel, or PowerPoint. For a multinational enterprise with an E5 subscription, this SKU is not a valid substitute because users need desktop Office apps and the organization's scale and agreement type are beyond what Business Basic supports. Even if Office desktop apps could be added separately, mixing Business Basic into an enterprise tenancy creates licensing and management inconsistencies.
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Related to this question
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External Sharing in SharePoint and OneDrive
Key term
Office 365
Office 365 is a cloud-based subscription service from Microsoft that provides access to productivity applications like Word, Excel, and Outlook, along with other cloud services, for a monthly or annual fee.
Key term
Exchange Online
Exchange Online is Microsoft's cloud-based email, calendar, and contact hosting service that is part of the Microsoft 365 suite, allowing organizations to manage corporate messaging without maintaining their own mail servers.
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