Declarative agents run on Microsoft's orchestrator and require a Microsoft 365 Copilot license for every user — but cost nothing to host. Custom engine agents require you to supply the orchestration layer and pay for hosting — but your users need no Copilot license at all. This post explains the architectural split behind that licensing inversion, shows how to read either agent type from the app manifest, resolves the Copilot Studio taxonomy confusion (Agent Builder always produces declarative agents; the full platform can produce either), and provides a verified decision framework — including three binary differentiators and an eight-question pre-commit checklist — sourced from the official Microsoft 365 extensibility documentation updated August 2026.