Key Management Service (KMS) is a client-server model used by Microsoft to activate software within a managed environment. Unlike traditional activation, where each computer connects to Microsoft over the internet, KMS allows a local server (the "KMS Host") to handle activation requests for all "KMS Clients" (the individual workstations) on the network. How Office 365 KMS Works The KMS Host : An administrator sets up a server and installs the Microsoft Office Volume License Pack