According to the Microsoft SC-300: Microsoft Identity and Access Administrator Study Guide and Microsoft Learn module "Manage licenses in Azure Active Directory", the most efficient way to manage or remove product licenses from a large group of users is by using group-based licensing through the Licenses blade in the Azure Active Directory admin center.
In this scenario:
* 2,500 users were individually assigned Office 365 E3 licenses.
* The same users are now assigned Microsoft 365 E5 licenses via group assignment (using group-based licensing).
When a user is assigned a license directly and later receives another license through a group, Azure AD continues to track both - the direct and inherited assignments. To remove the E3 licenses efficiently, you can use the Licenses blade to remove all direct assignments in bulk rather than editing each user individually.
* In the Azure AD admin center, navigate to: Azure Active Directory # Licenses # All products # Office
365 E3.
* Select Licensed users.
* Select all users (or filter based on the direct assignment type).
* Click Remove license assignment to remove the E3 licenses.
Step-by-Step (as per Microsoft documentation): This method removes the E3 licenses for all directly assigned users in a single operation-achieving the goal with the least administrative effort.
* A. Identity Governance blade: Used for access reviews, entitlement management, and lifecycle workflows-not license management.
* B. Set-AzureADUser cmdlet: Manages user properties but does not directly manage license assignments (you would need Set-AzureADUserLicense or Set-MgUserLicense , which is more manual).
* D. Set-WindowsProductKey cmdlet: Used for activating Windows OS, not Microsoft 365 licensing.
Why the other options are incorrect: