Microsoft 365 E3/E5 Optimization: Clean Up Before E7 Lands
Microsoft just announced the biggest licensing change to its enterprise stack since 2015. Microsoft 365 E7, the Frontier Suite, goes generally available on May 1, 2026, at $99 per user per month. It bundles M365 E5, Microsoft 365 Copilot, Agent 365, and the Microsoft Entra Suite into one SKU. And on July 1, 2026, E3 goes from $36 to $39 and E5 goes from $57 to $60.
Two price events. One new tier. And most organizations have no clean picture of what they’re actually using across their current estate.
That’s the problem. If you don’t know what you’re using today, you can’t make a rational decision about E7. You’ll either overpay by upgrading everyone, or underspend and leave AI-ready users without the tools to actually use the investment. The right move before any licensing conversation with Microsoft is to get your current deployment data in order.
What E3 and E5 Actually Include
Most organizations underuse a meaningful portion of their E3 and E5 entitlements. Not because they’re careless, but because the license bundles are wide and adoption is rarely uniform.
| Feature | E3 ($39/user/month from July 2026) | E5 ($60/user/month from July 2026) |
|---|---|---|
| Office apps (Word, Excel, PowerPoint, Outlook) | Yes | Yes |
| Exchange Online Plan 2 | Yes | Yes |
| SharePoint, Teams (optional), OneDrive | Yes | Yes |
| Windows 11 Enterprise | Yes | Yes |
| Microsoft Intune Plan 1 | Yes | Yes |
| Entra ID P1 | Yes | Yes |
| Defender for Office 365 Plan 1 (added 2026) | Yes | Yes |
| Entra ID P2 | No | Yes |
| Defender for Endpoint P2 | No | Yes |
| Defender for Office 365 Plan 2 | No | Yes |
| Microsoft Purview (advanced compliance) | No | Yes |
| Power BI Pro | No | Yes |
| Teams Phone System | No | Yes |
| Microsoft Sentinel integration rights | No | Yes |
The E5 premium over E3 is $21/user/month at current pricing, rising to $21/user/month after the July increases (E3 to $39, E5 to $60). At 1,000 users, that gap is $252,000 per year. The question to answer before evaluating E7 is whether those users are actually consuming the features that justify E5 over E3, or whether a meaningful portion of them could sit on E3 and free up budget.
The Six Most Common E3/E5 Optimization Findings
| Finding | What It Is | Typical Impact |
|---|---|---|
| E5 users who don’t need E5 | Frontline workers, contractors, and low-complexity roles licensed at E5 but not consuming Defender P2, Purview, or Entra ID P2 | 10-30% of E5 seats potentially downgradeable to E3 |
| Inactive users still provisioned | Leavers, role changes, and extended leave with no offboarding process removing M365 licenses | 5-15% of total seats in organizations with high turnover or slow offboarding |
| Duplicate add-ons | Standalone Defender for Office 365 Plan 1 still active after E3 included it in 2026; standalone Power BI Pro alongside E5, which already includes it | Direct 1:1 cost duplication, removable at renewal |
| Copilot seats without adoption | M365 Copilot seats purchased in bulk to hit volume thresholds, with 40-60% of provisioned seats at low or zero engagement | $30/user/month per idle seat |
| Power BI Pro double-counted | Standalone Power BI Pro licenses maintained alongside E5, which already includes it | Full duplication at $10/user/month list |
| Teams Phone misaligned to usage | Teams Calling Plans purchased in bulk without actual call volume data to validate the seat count | Typically 20-40% of provisioned calling seats unused |
The E7 Decision Framework
E7 makes financial sense when your users are already using, or have credible plans to use, most of the bundle’s components. Here is the component breakdown:
| Component | Standalone price | Included in E7 ($99/user/month) |
|---|---|---|
| M365 E5 | $60/user/month (from July 2026) | Yes |
| M365 Copilot | $30/user/month | Yes |
| Agent 365 | $15/user/month | Yes |
| Microsoft Entra Suite | $12/user/month | Yes |
| Total à la carte | $117/user/month | $99/user/month |
| Saving vs à la carte | $18/user/month |
At 1,000 users, $18/user/month is $216,000 per year. At 5,000 users, it’s $1.08M. But the saving is only real if you were going to buy all four components anyway.
| Scenario | When it makes sense |
|---|---|
| Full E7 for all users | You are on E5 today, Copilot adoption is broad and genuine, agent governance is a near-term requirement, and Entra Suite identity features are already on the roadmap |
| E5 plus selective Copilot | Copilot adoption is limited to specific user cohorts like power users, executives, or specific teams, and is not justified at 100% seat coverage |
| E3 plus targeted E5 upgrades | A significant portion of the workforce has no need for E5 security and compliance depth, and current E5 coverage was over-purchased from the start |
As Directions on Microsoft noted, E7 is the first new enterprise licensing tier since E5 launched in 2015, and Microsoft’s motivation is partly commercial: only about 3.3% of its 450 million M365 commercial subscribers have purchased Copilot seats. Bundling is a proven lever for driving adoption when standalone sales stall. That doesn’t make E7 the wrong choice, but it does mean the commercial framing should not be taken at face value.
What to Do Before Your Next Renewal
| Step | What It Involves |
|---|---|
| Pull your actual deployment data | Active vs assigned licenses, add-on duplicates, E5-feature consumption by user segment. This is the data Microsoft does not give you proactively. |
| Map Copilot adoption honestly | Daily active users and feature engagement across Teams meeting summaries, Outlook drafting, and Word generation, not just provisioned seat counts |
| Model E7 against your actual user segments | Build three cost scenarios: full E7, mixed E5/E7 by segment, and E3/E5 with targeted Copilot. Price each against the July 2026 increases. |
| Negotiate before price increases hit | Organizations on annual contracts renewing before July 1 can lock in current E5 pricing. That is not a reason to skip the E7 evaluation, but it is a reason not to let the renewal slide. |
How LICENSEWARE Helps
This kind of analysis requires current, accurate M365 deployment data. Licenseware now connects directly to the Microsoft Graph API, pulling live assignment data, usage signals, and license consumption across your entire M365 tenant. No manual exports, no stale spreadsheets: the data that feeds your license position comes directly from Microsoft’s own source of truth.
With Graph API data flowing into Licenseware, you can see exactly which E5 licenses are being actively consumed versus assigned but unused, which users have Copilot seats and are not engaging with the product, where duplicate add-ons sit alongside base license entitlements, and what E7 would cost against your actual user segments rather than a theoretical average.
It is the same analysis your Microsoft account team runs when they walk into your renewal meeting. You should have it first.
The Bottom Line
E7 is a real product with genuine bundle value for the right organizations. But the organizations that get the most from this decision are the ones that go into the E7 conversation knowing exactly what they are using today, where the waste is, and what the realistic adoption curve looks like for Copilot and agents across their specific workforce.
Do not let Microsoft frame the E7 question as “do you want more AI.” The right question is: what are we actually using, what is the real cost of E7 for our user mix, and what is the cost of not upgrading in two years when agents are standard practice. That is a data question, not a sales question.
Clean up your current estate first. The E7 decision gets a lot clearer when you are working from numbers, not assumptions.
💡LICENSEWARE connects to the Microsoft Graph API to pull live M365 deployment and usage data, giving you an accurate, current license position for your Microsoft estate. Our Microsoft Deployment Manager covers E3, E5, Copilot, and add-on analysis, updated in real time.
