From Microsoft Dynamics CRM to 365 On-Premises: How licensing will draw on-prem users to cloud model

With the arrival of the December 2016 service update, Microsoft Dynamics CRM 2016 on-premises has adopted its new identity as “Dynamics 365 (On-Premises)”. The update adds new capabilities and new licensing decisions for customers.

Partners who have started working with the the new licensing options say the transition to Dynamics 365 allows CRM on-premises customers to stay the course with their current deployment model, but that cloud licensing options now have some clear benefits that they can still buy into. Microsoft has provided a new licensing guide (PDF download) explaining the on-premises customer’s licensing options for the future.

The December 2016 update for Dynamics 365 applies to the suite’s enterprise-level sales, customer service, field service, and project service automation apps. The update offers a range of functional enhancements in areas including mobile tools, the Dynamics 365 App for Outlook, a preview of Relationship Insights, learning paths, relevance search, editable grids, and Office 365 Groups.

Real world experience with the first official Dynamics 365 (On-Premises) release seems to be limited at this point. At least one large Dynamics CRM partner with whom we spoke reported no experience so far with transitioning customers to Dynamics 365 (On-Premises) via the December 2016 Service Update, though other partners report having worked through some of the decisions with customers already.

“Dual use rights”, which give customers the ability to invest in a Dynamics 365 cloud-based plan but to retain the option run their solution in a private hosted or on-premises system, appears to be central to Microsoft’s plan in offering a transition to Dynamics 365 (On-Premises). As Microsoft explains in the licensing guide:

One of the advantages of Microsoft Dynamics 365 is the option to deploy either in Microsoft’s cloud or in a private on-premises or partner-hosted cloud. In some cases, customers may want to deploy both modes simultaneously, for migrating a Microsoft Dynamics on-premises deployment to Microsoft Dynamics 365.”

By contrast, the perpetual on-premises licenses, which still exist, do not offer access to plan-based pricing. A Microsoft spokesperson emphasized in an email that dual use rights is not a third option (emphasis theirs):

“[Dual use rights] is just an option/benefit of Dynamics 365 – so [on-premises customers are] not buying into a model that is like what cloud customers purchase, they are purchasing the exact same service as cloud customers.”

“Dynamics 365 (On-Premises) licensing is much more on the dual use side versus the [traditional perpetual on-premises side],” says Chuck Ingram, Dynamics practice director for Tribridge. “It’s been an interesting ride on that front. It certainly feels like perpetual on-premises will be an exception rather than the rule with so many other licenses and even services being consumed on a subscription basis.”

Both Dynamics CRM Professional and Basic users from earlier versions will transition to the full users of the sales or customer service apps in the Dynamics 365 model. “Essential” users in Dynamics CRM will typically map to the Team Member user level with its more limited read-only access.

Dynamics CRM on-premises customers who opt for on-premises licenses can purchase either perpetual or subscription based named user licenses for Dynamics 365 (On-Premises). In the cloud, customers may only purchase named user licenses on a subscription basis. There are a few other differences between on-premises and cloud purchases:

  1. Pricing options such as tiered pricing
  2. Features included in the licenses such as cloud only features, or those which require active SA such as Unified Service desk
  3. No plan model-On-premises is not cross product, there is no Plan including Operations, and the Team Member SKU does not include Operations light user rights

Dynamics CRM on-premises customers who want to stick with on-premises licenses can buy individual app named user licenses for Dynamics 365 (on-premises) but with some differences. While access to more than one app is a little more complicated, it can still be accomplished. A Microsoft spokesperson explained:

“Only one [Dynamics 365 (On-Premises) app] license can be assigned from a technical point of view. The customer can however provide rights to both on-premises apps to one user by ensuring that they purchase the appropriate license(s)/SA for that user. The other option is for On-Prem customers to purchase a Dynamics 365 plan license and leverage Dual Use rights to access.”

Without the plan license, there is no tiered pricing for on premise app licenses. And Software Assurance (SA) is required to gain access to the Unified Service Desk. SA also serves to allow customers to buy “Step-Up” licenses if they license “Team Members” for On-premises CALs who later want to become full Sales or Customer Service users. They also have this option online, the spokesperson notes, saying it is “pretty standard to need to step up from one license to the next.”

Multiple people with Microsoft licensing experience noted that SA appears to offer more limited benefits with Dynamics 365 (On-Premises) than in previous versions, like the fact that there is no longer a cost for CRM server licenses – they are included with the CALs.

“Based on the limited feature set [of SA] we are assuming the customers may see a little less value but still invest – in order to try to future proof their investments,” says Ingram. He added that, thus far, the perpetual on-premises licenses are being perceived as keeping the pure on-premises option alive in deals where it is absolutely needed.

On-premises customers can also buy a “Dynamics 365 Cloud Add-on”, which, Microsoft explains, “gives credit for your ongoing SA payments” and “are ideal for customers who are not ready to move entirely to the cloud, or who are in the middle of their agreement.” There is also a “Dynamics 365 From SA” offer which, Microsoft writes, is “ideal for customers who are ready and able to entirely drop SA and move licensing to the cloud.”

The license guide for Dynamics 365 (On-Premises) lays out a range of additional details that customers and their partners will need to review and consider when planning next steps. For example, on-premises customers will want to consider whether they want access to a growing number of cloud-only features, as well as pricing advantages. But, says Ingram, the organizations that choose to continue working outside of the public cloud – either on-premises or hosted – may not prioritize such features.

“Our experience with this so far are with pretty large customers with big IT departments that are using CRM more like a platform to build solutions on – so they aren’t as concerned with missing out on some of those features,” he says.

Originally published January 30, 2107 on

AUTHOR: Jason Gumpert