We have managed packaged App in appexchange and we use 'Seats' field to assign licenses to our Clients in LMO. My question is what happens when someone is assigned 5 seats and they are using all 5 but we change it to 2. Can other 3 users in client's org still able to access the app? My assumption is they will be able to access it until Admin revoke their access manually or for given time period because LMO does not know which user should be disabled to access the app. But if it does disable those extra 3 licenses how it decides which user?
All currently assigned users retain access to the application until they are deactivated by the Administrator. No further licenses can be assigned to other users until the License Count reaches a positive value.
This is mentioned in the documentation:
What happens when I decrease the number of available licenses below the current number of licensed users?
Users in the customer’s org who already have access to your offering continue to have access. Their system administrator must manually revoke the extra licenses. Until the admin revokes access, the license count remains negative.