Last Updated on June 8, 2026 by Arnav Sharma
Microsoft 365 E3 costs $39 per user per month from July 2026. Microsoft 365 E5 costs $60. That $21 difference sounds simple until you realise it represents $252,000 per year across 1,000 users, or the equivalent cost of buying Microsoft Defender for Endpoint Plan 2, Defender for Cloud Apps, Insider Risk Management, Communication Compliance, Customer Lockbox, and Microsoft Purview Audit Premium as separate add-ons. For organisations making procurement decisions ahead of renewal cycles, the Microsoft 365 E3 vs E5 licence comparison is not a feature checklist exercise. It is a security architecture decision with direct financial consequences.
This guide is written for security architects, cloud engineers, and CISOs who need to understand exactly what separates these two plans across Microsoft Defender, Microsoft Entra ID, Microsoft Purview, and analytics, and how to build a defensible licensing recommendation that accounts for user roles, compliance obligations, and the total cost of ownership.
What This Comparison Actually Covers
Understanding the differences between Microsoft 365 E3 and E5 requires going beyond a feature checklist. Most E3 licence vs E5 licence comparisons miss two critical points. First, they do not account for the July 2026 Microsoft 365 licensing changes that shifted the cost calculus for both plans. Second, they treat the choice as binary when most enterprises above 500 users benefit from a mixed licensing strategy.
This guide covers:
- Exact pricing for E3 and E5 before and after the July 2026 increase
- A complete breakdown of the Microsoft Defender stack differences between plans
- Microsoft Entra ID P1 vs P2 in practical terms for conditional access and identity governance
- Microsoft Purview compliance capabilities at each tier
- The “three feature rule” for determining whether E5 is cheaper than E3 plus add-ons
- A role-based mixed licensing framework for enterprise deployments
Microsoft 365 E3 vs E5 Licence Pricing in 2026
Microsoft announced price increases effective July 1, 2026, affecting most commercial and enterprise licence tiers. The changes are material:
| Licence | Pre-July 2026 (per user/month) | Post-July 2026 (per user/month) | Change |
|---|---|---|---|
| Microsoft 365 E3 | $36.00 USD | $39.00 USD | +8.3% |
| Microsoft 365 E5 | $57.00 USD | $60.00 USD | +5.3% |
| Office 365 E3 | $23.00 USD | $26.00 USD | +13.0% |
| Office 365 E1 | $10.00 USD | $10.00 USD | No change |
One important observation: E5 absorbed a smaller percentage increase than E3. This slightly narrows the relative premium, which matters when evaluating whether to move users to E5 at renewal.
These are Microsoft list prices. Enterprise Agreement (EA) and Cloud Solution Provider (CSP) partner pricing typically discounts 15 to 20 percent below list, so validate current figures against your active agreement before running cost models.
July 2026 Additions to Each Tier
The price increases are accompanied by capability additions. For Microsoft 365 E3, Microsoft is adding Intune Remote Help, Intune Advanced Analytics, and Intune Plan 2 to the base licence. For Microsoft 365 E5, additional capabilities include Security Copilot agents for AI-driven security analysis and automation, Intune Endpoint Privilege Management for granular admin rights control, Enterprise Application Management, Microsoft Cloud PKI, and Copilot Chat access within core productivity applications.
These additions are relevant when evaluating whether to lock in pricing ahead of renewal or wait for the July 2026 packaging refresh.
E3 Plus Add-ons vs E5: The Real Cost Math
The $21 per user per month premium for E5 (pre-July pricing) is commonly compared against the cost of buying E5-only capabilities as individual add-ons on top of E3:
| Capability (as standalone add-on to E3) | Approximate cost (per user/month) |
|---|---|
| Defender for Endpoint Plan 2 | ~$5.20 |
| Microsoft Defender for Cloud Apps | ~$3.50 |
| Microsoft Purview Insider Risk Management | ~$4.00 |
| Communication Compliance | ~$3.00 |
| Customer Lockbox | ~$1.00 |
| Purview Audit Premium | ~$2.50 |
| Microsoft Entra ID P2 (upgrade from P1) | ~$6.00 |
| Power BI Pro | ~$10.00 |
| Total standalone add-on cost | ~$35.20 |
This means that for any organisation needing three or more of these capabilities, E5 is cheaper than an equivalent E3 plus add-ons stack. The integrated E5 experience also delivers cross-product signal correlation across the Defender suite that point solutions cannot replicate.
The practical rule: if a user group requires two or fewer E5-exclusive features, targeted add-ons may be more cost-effective. If three or more features are required, E5 wins on both price and operational efficiency.
What E3 and E5 Both Include: The Shared Foundation
Before detailing the differences, it is worth establishing what both licences provide, because the productivity and baseline security foundation is identical.
Productivity suite: Both licences include the full Microsoft 365 application set (Word, Excel, PowerPoint, Outlook, OneNote), Microsoft Teams, OneDrive for Business with 1 TB storage, SharePoint Online, and Exchange Online.
Windows 11 Enterprise: Both plans include Windows 10/11 Enterprise, with the management, provisioning, and security controls that distinguish Enterprise from Windows Pro editions.
Baseline security: Both licences include Microsoft Defender Antivirus, BitLocker device encryption, multi-factor authentication, Conditional Access with standard policies, and Microsoft Intune for mobile device management and mobile application management.
Enterprise Mobility and Security E3 (EMS E3): Both plans bundle EMS E3, which includes Microsoft Entra ID Premium P1 (see the Entra section below for what this covers), Intune, Azure Information Protection P1, and Microsoft Defender for Cloud (Foundational CSPM).
Core compliance capabilities: Both licences include data loss prevention policies, litigation hold, retention labels, basic audit logging, and basic eDiscovery (Content Search).
For the majority of knowledge workers in finance, sales, HR, and operations, the day-to-day Microsoft 365 experience is functionally identical between E3 and E5. The differences emerge when security operations, compliance teams, or regulated data workflows are introduced.
Microsoft Defender: The Biggest Security Gap Between E3 and E5
The differences between Microsoft 365 E3 and E5 in terms of advanced security capabilities are most visible in the Defender stack. This is where E3’s reactive prevention posture diverges sharply from E5’s proactive, AI-driven detection and response model.
The Defender stack is where the E3 vs E5 security difference is most pronounced. E5 includes the complete Microsoft Defender XDR (extended detection and response) suite, while E3 provides only the Plan 1 tier of endpoint and email protection.
Defender for Endpoint: Plan 1 vs Plan 2
| Capability | E3 (Plan 1) | E5 (Plan 2) |
|---|---|---|
| Next-generation antivirus | Yes | Yes |
| Attack surface reduction rules | Yes | Yes |
| Controlled folder access | Yes | Yes |
| Network protection | Yes | Yes |
| Device-based Conditional Access | Yes | Yes |
| Endpoint detection and response (EDR) | No | Yes |
| Automated investigation and remediation | No | Yes |
| Advanced threat hunting (KQL queries) | No | Yes |
| Threat and vulnerability management | No | Yes |
| Endpoint Attack Notifications | No | Yes |
| Microsoft Threat Experts (managed hunting) | No | Yes (add-on) |
| Device discovery and network assessments | No | Yes |
The gap is substantial. Defender for Endpoint Plan 1 provides prevention-focused controls. Plan 2 adds the detection, investigation, and response layer that a security operations centre requires. Without Plan 2, organisations running E3 cannot perform endpoint threat hunting, automated investigation, or vulnerability management natively within the Microsoft stack.
For organisations that already run CrowdStrike Falcon, Palo Alto Cortex XDR, or SentinelOne Singularity as their endpoint detection and response platform, the Defender for Endpoint Plan 2 included in E5 may represent duplication rather than uplift. This is a material consideration when evaluating E5 ROI.
Defender for Identity, Cloud Apps, and XDR
E5 includes three additional Defender products not available in E3:
Microsoft Defender for Identity monitors Active Directory and Entra ID signals to detect lateral movement, pass-the-hash attacks, Kerberoasting, and identity-based threats. It is particularly important for organisations with on-premises Active Directory integrated into hybrid environments.
Microsoft Defender for Cloud Apps is Microsoft’s Cloud Access Security Broker (CASB) capability. It provides shadow IT discovery across the SaaS application landscape, session controls for risky applications, information protection policies applied to cloud apps, and anomaly detection across user and application behaviour. For organisations using Salesforce, ServiceNow, Workday, Box, or Dropbox alongside Microsoft 365, Defender for Cloud Apps provides centralised policy enforcement and audit logging.
Microsoft Defender XDR is the unified incident correlation layer that combines signals from Defender for Endpoint, Defender for Identity, Defender for Office 365, and Defender for Cloud Apps into a single incident queue. The cross-product correlation is the key differentiator: an attack chain that spans a phishing email, credential compromise, lateral movement, and data exfiltration is surfaced as a single correlated incident rather than four separate alerts across different products.
Defender for Office 365: Plan 1 vs Plan 2
Starting July 2026, Microsoft is including Defender for Office 365 Plan 1 (Safe Links and Safe Attachments) in the Microsoft 365 E3 licence. Previously this was an E5-only component, so this change narrows the email security gap between the two tiers.
E5 retains Defender for Office 365 Plan 2, which adds:
- Attack Simulation Training for security awareness programmes
- Automated investigation and response for email threats
- Threat explorer and real-time detections for hunting across email telemetry
- Threat trackers for monitoring emerging campaigns
- Priority account protection for executives and high-risk users
Microsoft Entra ID: P1 vs P2 and What That Means for Zero Trust
Both E3 and E5 include Microsoft Entra ID Premium P1 as part of the EMS bundle. E5 upgrades this to Entra ID Premium P2, which adds capabilities that are central to a mature Zero Trust identity architecture.
What Entra ID P1 Covers (E3)
Entra ID P1 provides the foundation for enterprise identity and access management:
- Conditional Access with location, device compliance, and risk signal-based policies
- Group-based access management and dynamic groups
- Self-service password reset and combined registration
- Entra ID Application Proxy for hybrid app publishing
- Microsoft Entra ID Governance (basic lifecycle workflows)
- Single sign-on across cloud and on-premises applications
- Multi-factor authentication with per-user and Conditional Access controls
P1 is sufficient for most organisations at early to mid Zero Trust maturity. It covers the identity perimeter controls that prevent most credential-based attacks.
What Entra ID P2 Adds (E5)
Entra ID P2 adds two critical capabilities for organisations operating at higher risk levels:
Microsoft Entra ID Protection provides real-time risk detection for sign-in risk (atypical sign-in behaviour, impossible travel, leaked credentials, token anomalies) and user risk (compromised accounts, behaviour indicators). It feeds risk signals into Conditional Access policies so that risky sign-ins trigger additional authentication requirements or are blocked automatically. This is distinct from static Conditional Access rules in P1: P2 enables dynamic, risk-adaptive access control.
Microsoft Entra Privileged Identity Management (PIM) provides just-in-time privileged access for Azure AD roles, Azure resource roles, and Microsoft 365 roles. PIM requires explicit activation with justification and approval workflows, time-bounds elevated access, and generates audit trails for privileged actions. For organisations subject to ISO 27001, SOC 2 Type II, or APRA CPS 234 compliance obligations, PIM is frequently listed in audit findings as a required control for privileged access governance.
Entra ID P2 also includes Entra ID Governance with full lifecycle management, access reviews, and entitlement management capabilities beyond what P1 provides.
The practical threshold: if your organisation manages privileged access manually or uses a third-party PAM solution, evaluate whether Entra PIM meets your requirements before paying for E5 solely for this feature.
Microsoft Purview: Compliance and Data Governance
Microsoft Purview consolidates eight compliance and data governance products under a single brand. The capabilities are split across E3 and E5, with advanced capabilities reserved for E5.
Core Compliance in E3
E3 includes the foundational Purview compliance capabilities:
- Data Loss Prevention (DLP): Policy-based controls for email, files, and Teams messages based on sensitivity labels and content inspection. E3 DLP covers Microsoft 365 workloads but does not extend to endpoints or third-party cloud services.
- Retention labels and policies: Lifecycle management for data in Exchange, SharePoint, and OneDrive.
- Sensitivity labels: Classification and protection of documents and emails using Azure Information Protection P1.
- Basic eDiscovery (Content Search): Search across Exchange, SharePoint, OneDrive, and Teams for litigation and investigation purposes.
- Litigation hold: Preservation of mailbox content for legal proceedings.
- Basic audit logging: 90-day audit log retention for user and admin activity.
This baseline meets the compliance requirements for organisations with moderate regulatory obligations and no advanced investigation or insider risk programmes.
Advanced Compliance in E5
E5 adds the following Purview capabilities that are absent from E3:
Insider Risk Management correlates signals across endpoints, communications, and HR data to identify users exhibiting behaviours associated with data exfiltration, intellectual property theft, or policy violations before or after departure. Policies can be tuned to detect large file uploads to personal cloud storage, unusual printing activity, or sensitive data access patterns that deviate from a user’s baseline.
Communication Compliance monitors Teams, Exchange, and Viva Engage communications for policy violations including inappropriate content, conflicts of interest, and regulatory requirements around financial advice or trading restrictions. It is a mandatory control in many financial services compliance frameworks.
Purview eDiscovery Premium (Advanced eDiscovery) provides custodian management, intelligent review sets, predictive coding for relevance filtering, and export capabilities required for complex litigation and regulatory investigations. It reduces review costs substantially compared to manual review workflows.
Purview Audit Premium extends audit log retention from 90 days to 1 year by default, with optional 10-year retention via add-on. It also adds high-value audit events including mail access by non-owners, sensitivity label changes, and administrative actions that standard audit does not capture.
Customer Lockbox requires explicit approval from a named organisational administrator before Microsoft support engineers can access tenant content. This is a relevant control for organisations with strict data residency or sovereignty requirements.
Information Barriers restricts communication and collaboration between defined user segments within an organisation, addressing Chinese Wall requirements in financial services and regulated industries.
Purview is frequently cited as the most underutilised component of E5. Many organisations purchase E5 for the eDiscovery and DLP capabilities and never deploy Insider Risk Management or Communication Compliance. If your organisation’s primary compliance driver is eDiscovery or advanced DLP, evaluate whether the Microsoft 365 E5 Compliance add-on (approximately $12 per user per month on top of E3) delivers better value than the full E5 licence.
Analytics, Voice, and Additional E5 Inclusions
Beyond security and compliance, E5 includes two components that matter for specific user populations:
Power BI Pro is included with every E5 licence at a standalone value of approximately $10 per user per month. E3 users receive Power BI Free, which permits viewing reports published from Power BI Premium capacity but does not allow creating or sharing reports independently. For finance, operations, and analytics teams that require self-service reporting, this inclusion alone can partially offset the E5 premium.
Teams Phone System and Audio Conferencing are included in E5, enabling PSTN calling capabilities without a separate Teams Phone add-on licence. For organisations replacing legacy PBX infrastructure or consolidating voice and collaboration onto the Microsoft platform, this inclusion reduces the effective cost of the E5 upgrade.
Complete Feature Comparison: Microsoft 365 E3 vs E5
| Feature Category | Microsoft 365 E3 | Microsoft 365 E5 |
|---|---|---|
| Pricing (post-July 2026) | $39/user/month | $60/user/month |
| Microsoft 365 apps (desktop + web) | Yes | Yes |
| Windows 11 Enterprise | Yes | Yes |
| Microsoft Teams | Yes | Yes |
| Exchange Online (100 GB mailbox) | Yes | Yes |
| OneDrive for Business (1 TB+) | Yes | Yes |
| Microsoft Intune (MDM/MAM) | Yes (Intune Plan 1) | Yes (Intune Plan 2) |
| Microsoft Entra ID Premium | P1 | P2 |
| Privileged Identity Management | No | Yes |
| Identity Protection (risk-based Conditional Access) | No | Yes |
| Defender for Endpoint | Plan 1 | Plan 2 (full EDR, threat hunting) |
| Defender for Office 365 | Plan 1 (from July 2026) | Plan 2 |
| Defender for Identity | No | Yes |
| Defender for Cloud Apps (CASB) | No | Yes |
| Microsoft Defender XDR (unified incidents) | No | Yes |
| Automated investigation and response | No | Yes |
| Azure Information Protection | P1 | P2 |
| Data Loss Prevention | Core (M365 workloads) | Advanced (endpoints + cloud apps) |
| eDiscovery | Basic (Content Search) | Premium (Advanced eDiscovery) |
| Audit log retention | 90 days | 1 year (standard) |
| Insider Risk Management | No | Yes |
| Communication Compliance | No | Yes |
| Customer Lockbox | No | Yes |
| Information Barriers | No | Yes |
| Power BI | Free (view only) | Pro (create and share) |
| Teams Phone System | No (add-on required) | Yes |
| Audio Conferencing | No (add-on required) | Yes |
| Security Copilot agents (July 2026) | No | Yes |
| Intune Endpoint Privilege Management (July 2026) | No | Yes |
| Microsoft Cloud PKI (July 2026) | No | Yes |
Who Should Use E3, E5, or a Mixed Licence Strategy?
E3 is Right When
Microsoft 365 E3 is the appropriate baseline for organisations that meet the following profile:
- Compliance requirements are moderate: no mandatory insider risk programme, no advanced eDiscovery workflow, no communication monitoring obligations
- Endpoint detection and response is covered by a third-party solution (CrowdStrike, SentinelOne, or similar)
- Privileged access governance is handled by a separate PAM solution or is not yet implemented
- The organisation has fewer than 500 users, limiting the absolute cost differential
- IT and security teams lack the operational maturity to deploy and configure advanced E5 capabilities (Insider Risk Management, Communication Compliance, and PIM all require significant configuration investment)
The E3 licence is not a security-deficient option. It is a fully functional enterprise productivity and security platform. The risk profile it addresses covers most organisations that are not in highly regulated sectors.
E5 is Right When
Microsoft 365 E5 becomes the appropriate choice, or a clear financial win, when an organisation requires three or more of the following:
- Full endpoint detection and response with threat hunting (Defender for Endpoint Plan 2)
- Cloud access security broker capabilities and SaaS visibility (Defender for Cloud Apps)
- Active Directory and identity threat detection (Defender for Identity)
- Risk-adaptive identity controls (Entra ID P2 with Identity Protection)
- Just-in-time privileged access management (Entra PIM)
- Insider risk programme management (Purview Insider Risk Management)
- Advanced eDiscovery for complex litigation or regulatory investigation (Purview eDiscovery Premium)
- Communication monitoring for financial services or other regulated sectors (Communication Compliance)
- Self-service business intelligence for non-technical users (Power BI Pro)
Regulated industries including financial services, healthcare, legal, and government almost always justify E5 on compliance alone. The mandatory controls required under frameworks such as APRA CPS 234, SOCI Act obligations, ASIC regulatory guidance, and ISO 27001:2022 Annex A align directly with E5-exclusive capabilities.
Mixed Licensing by User Role
For enterprises above 300 users, a mixed licensing strategy typically delivers better cost efficiency than full E5 deployment. The most defensible segmentation framework by user role is:
| Role | Recommended Licence | Rationale |
|---|---|---|
| Security operations (SOC analysts, incident responders) | E5 | Require Defender XDR, threat hunting, automated investigation |
| Compliance officers and legal | E5 | Require advanced eDiscovery, audit premium, communication compliance |
| Finance and treasury | E5 | Require communication compliance (MiFID II, ASIC), Insider Risk Management |
| Executives and board | E5 | Require priority account protection, PIM for privileged access |
| IT administrators | E5 | Require PIM, advanced audit, Customer Lockbox for privileged operations |
| General knowledge workers | E3 | Core productivity and baseline security is sufficient |
| Frontline and operational staff | F3 | Limited desktop usage; dedicated frontline licence is more cost-effective |
A 1,000-user organisation running 10% E5 (100 users at $60), 80% E3 (800 users at $39), and 10% F3 (100 users at approximately $10) achieves approximately $40,200 per month. Full E5 deployment for the same population costs $60,000 per month. The mixed model saves approximately $237,600 per year while placing advanced security capabilities precisely where the risk profile demands them.
Large organisations commonly negotiate 10 to 25 percent below list price through Enterprise Agreement volume discounts or multi-year commitments. Apply this discount consistently across all tiers when modelling.
Common Mistakes When Evaluating E3 vs E5 Licences
Over-purchasing based on marketing collateral. Microsoft’s published comparison tables are designed to make E3 appear incomplete. The E3 licence is a fully functional enterprise platform that includes advanced security controls for most threat scenarios. The question is not whether E5 is “better” but whether your organisation can operationalise the additional controls responsibly.
Under-purchasing because E5 capabilities are not yet configured. Organisations that purchase E3 to save cost and then face an Insider Risk event without the tooling to investigate it pay a different price. If your compliance obligations include insider risk monitoring, the cost of a single incident response engagement typically exceeds years of E5 licensing differential.
Ignoring third-party tool overlap. Organisations running CrowdStrike, Okta, Proofpoint, or Netskope may be paying for capabilities that overlap with E5 inclusions. A rationalisation exercise before renewal, comparing E5 inclusions against existing tool contracts, frequently identifies $5 to $15 per user per month in savings that partially or fully offset the E5 premium.
Failing to scope licence by user type. Applying a single licence tier to an entire organisation is the most common source of Microsoft 365 overspend. Role-based segmentation is the standard approach for organisations above 300 users.
Not locking in pricing before July 2026. If your renewal falls after July 1, 2026, you will pay the new pricing. Renewing before that date locks in the current rate for the term of your agreement.
I help organisations secure their cloud infrastructure and stay ahead of evolving cyber threats. Microsoft MVP and Certified Trainer, author of Mastering Azure Security, and founder of arnav.au — a platform for practical Cloud, Cybersecurity, DevOps and AI content.