Licensing Inactive User Mailboxes in Office365

For those keen eyed among you, may have noticed a single addition of “Exchange Online Inactive Mailbox” in the October Product Terms 2017.

This addition was a new licensing change impacting all Office365 customers using Exchange Online Plan 2 features, or Office365 Enterprise E3 – Litigation Hold and Retention Policies – from October 1st 2017.

On October 3rd 2017: The SKUs were launched on theOctober price file, and the “Exchange Online Inactive Mailbox” was included within the October Product Terms, but reportedly, Microsoft were assessing rolling back this change in an apparent u-turn.

Microsoft later postponed this licensing update for Inactive User Mailboxes in Office365. After publishing the Inactive User SKU to the October Product Terms and pricelists, with associated channel guidance, Microsoft are now suspending this planned licensing change.

The Inactive User Mailbox licensing change reportedly leaked in advance of general availability, and there was subsequent “negative feedback” at the MSignite conference. Redmond reportedly only made the decision on Thursday to postpone.

Updated October 4th 2017: Microsoft have posted this to the Partner Ecosystem, confirming prior direct comms:

“Inactive User SKU and Shared Mailboxes Policy changes POSTPONED

Microsoft will be postponing the previous announcement regarding new Inactive User and Groups/Shared Mailbox policy changes. Current policies remain unchanged (i.e. 90 day license reassignment for Inactive Mailboxes and EXOP2 required for Retention and Litigation Hold on Shared Mailboxes) and no changes have come into effect on October 1, 2017. Please note, the new Inactive User SKU has been published on the October 1, 2017 Pricelist with plans to remove it by the November 1, 2017 Pricelist. Do not purchase this SKU.

Once a launch date is determined for these policies another communication will be shared.”

Updated 22nd March 2018: Microsoft have posted this to the Partner Ecosystem, confirming prior direct comms:

“Office 365 has decided to indefinitely postpone the launch of the Inactive Mailbox SKU. The existing Inactive Mailbox licensing policies below will remain unchanged:

  • To make a mailbox Inactive, the mailbox first must be licensed with EXOP2 (standalone, or via Office 365 E3 or E5) and placed in Litigation Hold. Customers may reassign the Exchange Online Plan 2 license after 90 days.
  • To import data into an Office 365 mailbox and archive it requires an EXOP2 license. As an example, if your customer wants to import 4K inactive user mailboxes they would either 1) require 4K EXOP2 licenses to perform a bulk upload or 2) since they may reassign licenses every 90 days, require 1K EXOP2 licenses and import 1K mailboxes every 90 days (or 4K over the course of a year)”.

Ref: This was published to the partner licensing community on Yammer on 22nd March 2018.

The original licensing change (now rescinded) I have explained below:

Inactive User Mailboxes (Now Indefinitely Postponed)

Inactive users (for example, users who have left an organisation) with mailboxes under Litigation Hold, and Retention Policies, are now required to have an “Exchange Online Inactive User” license.

To make a user mailbox “inactive”:

  • It must be assigned an Exchange Online (Plan 2) so that a Litigation Hold, or an Office 365 retention policy, can be applied to the mailbox (before it’s deleted).
  • Exchange Online (Plan 2) licenses are usually sold as part of an Office 365 Enterprise E3 and E5 subscriptions, or the expansive Microsoft365 E3 and E5 licensing packages.
  • If a mailbox is assigned an Exchange Online (Plan 1) license (which is part of an Office 365 365 Enterprise E1 subscription), you would have to assign it a separate Exchange Online Archiving license so that a hold can be applied to the mailbox, before it’s deleted.
  • Ref:

Inactive User Mailbox Update (Now Indefinitely Postponed)

  1. Microsoft will now charge for inactive mailboxes (from a customer’s next renewal) after October 1st 2017
  2. For customers who may have  possibly “thousands” of inactive mailboxes, you could engage with Microsoft to assess eligibility for a “1 year free trial” that can added to this service to the tenant. This has not been clearly defined, and subject to approval by exception.

Shared Group Mailboxes

Microsoft have had thus far, an inconsistent approach to the licensing model for shared resources under Office365:-

  • Under the current  licensing policy, shared mailboxes are assigned per user licenses to put on Legal-Hold:
    • “Shared mailboxes don’t have login credentials, so they are only accessible by licensed users who have been granted delegate access (full mailbox permission, send as, or send on behalf of). Note that Exchange Online Kiosk users don’t have delegate access, so they cannot access shared mailboxes.

      Shared mailboxes do not include a personal archive or legal hold capabilities. If you need these features, then you can purchase either Exchange Online Plan 1 or Plan 2 and assign it to the shared mailbox.” Ref: Exchange Licensing FAQs, October 2nd 2017

    • You must assign the shared mailbox to either an Exchange Online Plan 1 plus Exchange Online Archiving subscription, or to an Exchange Online Plan 2 subscription in order to enable In-Place Archive. A shared mailbox can’t be used to archive email for an organization, except for those messages that are sent from the shared mailbox or received by the shared mailbox.

      An In-Place Archive can only be used to archive mail for a single user or entity for which a license has been applied. Using an In-Place Archive as a means to store mail from multiple users or entities is prohibited. For example, IT administrators cannot create shared mailboxes and have users copy (via CC or Transport rule) a shared mailbox for the explicit purpose of archiving. Ref: Exchange Licensing FAQs, October 2nd 2017

  • Team Sites & Shared Folders were included with per user subscriptions.
  • To enable a shared mailbox to be placed on In-Place Hold, the customer must assign an Exchange Online Plan 2 license to it.


Update March 22nd 2018: Please note, at this time Microsoft are maing no change to the current Shared Mailbox Policies which can be reviewed here.

Groups, Teams and Shared Mailboxes Update (Now Indefinitely Postponed)

  1. Shared Group Mailbox Update: Groups, Teams and Shared Mailboxes now include compliance and security functionality as long as 1 or more users are licensed for that functionality in the tenant.
  2. Microsoft still want all normal Users appropriately licensed. For example, if an admin wants to use Advanced eDiscovery across their organization.  All users required in the scope for the search should have E5 (or standalone equivalent) licenses, and the admin is also allowed to search all Groups, Teams, and Shared Mailboxes without additional E5/standalone licenses

The licensing requirements for ‘core’ compliance features are below:

Overview, inclusive of more advanced governance features:-


Microsoft aimed to update their Shared Mailbox and Inactive User policies to ‘simplify’ the licensing of these services and enable compliant usage of these services in Office365, however, there was a notable u-turn on this policy and the launched licensing changes have been rescineded and indefinitely postponed.

  • The NEW Inactive User SKU, was available on the 10/1/17 pricelist, and was available in EA, EAS, EES, Open, CSP and MPSA agreements (Ref: Product Terms, October 2017)
  • Existing customers were not  expected to begin purchasing this SKU until their next renewal, post October 1st 2017 (the original planned launch)
  • This new SKU was intended to cover the cost of storage for archived or “inactive user” mailboxes and, to be compliant, customers were  required to purchase one SKU for every one archived mailbox (for Education customers, this SKU was intended only for Archived Faculty/Staff Mailboxes).
  • Additionally, to lessen the complexity of licensing Shared Mailboxes, as of October 1st 2017, Group/Team/Shared Mailboxes would include  no additional cost the compliance and security functionalities of the users in the tenant. As an example, if a tenant contains at least one Exchange Online Plan 2 user, the Shared Mailboxes in the tenant would be eligible for EXOP2 functionalities. This was also rescinded.

Why was there a U-Turn?

  • Inactive User Mailboxes were presented as an indicative cost of $3 Per User, Per Month (Microsoft Retail Price). The cost for every employee under data retention regulation, (over 7 years of retention): is circa $252 per employee.
  • For an average employee turnover of 15% per annum.  An average 1,000 user organisation would have an annual cost of  c. $5,400, and a total licensing obligation of c. $37,800 for 150 leavers over a 7 year retention period, for only that year’s leavers.
  • Microsoft did not accept use of shared mailboxes and transport rules to circumvent licensing policies. Conversion of users to shared mailboxes for “genuine business purposes” is accepted.
  • Similarly, Microsoft did not accept merging of multiple user mailboxes, before creating an inactive mailbox.
  • Microsoft have a 90 day User Subscription License (USL) re-assignment restriction policy, and the end-customer is accountable for management of their licenses for joiners, leavers and movers.
  • If a customer only has F1 and /or E1 users, they do not have the ability to set mailboxes to inactive without deletion of the mailbox data. To retain user data in a mailbox after the user leaves the company would require an ongoing F1 or E1 subscription, or assignment of Exchange Online Archiving, to set that mailbox on hold and ‘inactive’. This would then enable re-assignment of the E1 or F1 license to another user.
  • If a customer only has F1 and /or E1 users, in order to place a mailbox on In-Place Hold, a customer must upgrade it to Exchange Online Plan 2 or purchase the Exchange Online Archiving for Exchange Online add-on.
  • If a customer only has F1 and/or E1 users they would need to purchase appropriate compliance feature licenses for those Groups/Shared mailboxes.

Working with MRP (Microsoft Retail Pricing), please see an estimated cost impact for a 1,000 user company. Please note, this is only using the Exchange Online Service Plan 2 MRP cost, and not optimimum pricing from CSP or EA programmes, but provides some insight for illustration purposes of how the costs of Inactive User Mailboxes on a per-user metric, over a 7 year retention policy:


  • I would still recommend to start reporting on Inactive User Mailboxes and go to the Security and Compliance Center> Data Governance for in-product inactive mailboxes reporting.
  • Evaluate complementary third-party solutions that remove the inactive mailbox provision.
  • Inactive Mailboxes could still enable and support GDPR, and remain discoverable, with data classifications and retention policies applied, providing a more complete data archiving solution.

The strategy did cause some considerable pushback from customers, Microsoft sought to leverage their market dominance in email services to create an email archiving and storage business. The user metric would be scalable and profitable, but may be more failrly based on only a storage metric. It is possible that within 7 years of service, based on staff turnover and 7 year retention periods, organisations could be paying 20-30% of their email service costs per annum on archiving. The u-turn is a welcome re-assessment, but licensing still needs to evolve to support shared mailbox scenarios and enable GDPR as a base-standard without cost prohibitive licensing policies or effectively mandating ‘premium’ feature sets and exposure to E5 level features to enable legal compliance.

Thanks All


This website is a way to give back to the licensing community and as an information resource for all customers that work with Microsoft software and licensing. I hope you find it of value.

Tony Mackelworth is Head of Microsoft Advisory Services at SoftwareONE

If you would like to reach out for a coffee or a meeting under NDA, Email or connect via Twitter or LinkedIn


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