Microsoft 365 investments guarantee centralised management, seamless integration, and predictable costs. But as cyber threats evolve, your security defences need to keep up with advanced features, compliance and analytics. That’s where Microsoft 365 E3 and Microsoft E5 come in. E5 offers advanced security, compliance, and analytics, but will the option to stay with E3 with add-ons also suffice? Remember that this decision isn’t just about security; it’s about efficiency, cost-effectiveness, and reducing complexity. Let’s break down E3 Vs E5 and find out the right fit for your business.
Microsoft 365 E3: The Foundation
Microsoft E3 suits SMBs that want to provide an element of identity protection and control over their data. Since it is just a little beyond an entry-level business licence, it serves as a solid foundation for most smaller businesses. If the objective is to equip the team with the tools for secure collaboration without complexity, E3 serves the purpose.
This licence includes:
- Core productivity apps such as Word, Excel, Outlook, PowerPoint, Teams, SharePoint, and OneDrive.
- Identity protection and control are the crucial first layers of safeguarding logins and user accounts.
- Device and access management: Mobile Device Management and baseline conditional controls to secure data without heavy admin demands.
- Basic data protection from loss and compliance features that go beyond Business Premium.
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E3 is much more budget-friendly, as it includes the features needed to cover the basics. This also makes it much simpler to manage, as there is less complexity in policies and configuration than in E5. Do note that Microsoft’s flexible licensing model allows businesses to add extra security packs for additional protection without committing to E5. The drawbacks of E3 are depth and visibility, as well as the absence of advanced analytics, automated compliance, and rich threat intelligence that E5 delivers.
Now, this means that businesses in high-risk industries or those that handle sensitive data daily could leave a gaping hole in their security. If the requirement is only reliable productivity tools and sensible baseline security, E3 is more than enough.
Microsoft 365 E5: Say Hello to Advanced Security and Control
E5 is a different proposition for businesses that need to go deeper on security, compliance, and control. Microsoft E5 also removes the need for third-party tools. Microsoft E5 is all about proactive protection, using AI-driven tools that identify threats in real time, respond automatically, and stop issues before they escalate.
The Microsoft E5 security add-on delivers four key features: Microsoft Defender for Identity, Microsoft Defender for Endpoint Plan 2, Azure Sentinel integration and the Microsoft 365 E5 management dashboard. These tools work together to strengthen identity and endpoint protection, enabling proactive threat hunting, simplifying compliance and providing a unified view of security posture. Businesses thus can benefit from an enterprise-grade security package.
Let us make this easier to understand:
| Defender | Concern | E5 Solution |
| Defender for Office 365 P2 | Phishing attacks, stealing credentials or installing malware | AI-driven detection and blocking of phishing attempts, Safe Links and Safe Attachments neutralise threats, and Attack Simulation Training for employee awareness. |
| Defender for Cloud Apps | Use of unapproved or risky apps (Shadow IT) | Monitors SaaS usage, detects risky apps, prevents unauthorised access, and reduces data leakage without lowering productivity. |
| Defender for Identity | Internal threats through credential theft and lateral movement | Behavioural analytics detects anomalies such as impossible travel and privilege escalation to stop attackers early. |
| Entra ID P2 | Excessive admin access and risky sign-ins | Privileged Identity Management limits admin access timing; risk-based conditional access applies adaptive authentication and blocks suspicious activities. |
| Defender for Endpoint P2 | Breaches starting at endpoint devices (laptops, mobiles) | Real-time threat detection and automated remediation prevent malware spread; proactive vulnerability management reduces attack risks |
Standout Features such as:
| Feature | Concerns | E5 Solution |
| Advanced Threat Protection | Most cyber threats arrive via email and exploit user mistakes, such as clicking phishing links. | Defender for Office 365 P2 scans links and attachments, blocking malicious content early, and trains users to recognise phishing attempts. |
| Endpoint and Identity Controls | Unauthorised or suspicious logins, or threats of credential misuse. | Defender for Endpoint and Entra ID Premium use conditional access and behavioural analytics to block anomalous sign-ins. |
| Compliance and Governance | Data protection, regulatory compliance, and legal discovery challenges. | Advanced sensitivity labelling, automated data loss prevention, and richer eDiscovery tools to reduce compliance risks and time. |
| Security Visibility and Data | Difficulty tracking emerging threats and abnormal activity. | Proactive monitoring of threat movement; even small IT teams gain deep visibility to act before risks escalate. |
| Integrated Security Ecosystem | Challenges with integrating multiple third-party security tools. | All security features are natively integrated within Microsoft’s environment for seamless coordination and management |
Now to the downside:
- High monthly fee per user.
- Unused features such as Teams phone system, etc.
- Complex to manage and demands ongoing tuning of policies/admin time/risk assessments
Is Hybrid Licensing an Option at all?
For existing Microsoft 365 E3 users and those who require the advanced security features of E5, there is no need to upgrade to E5. Microsoft offers the E5 Security add-on, which enhances E3 with E5’s security features without a complete licensing shift. However, answer the following questions:
- What does the business growth stand? Where are the risks?
- Can business risks be tackled with E3’s baseline, or does it need E5’s advanced coverage?
- What matters most? Is it about cost savings, compliance, or risk reduction?
- Where will the business be a decade later? Is it growth/acquisition with more sensitive data in play? Plan now.
- Bear in mind that Microsoft updates its Stock Keeping Units (SKUs) regularly, and the business will change too. Do not discard consulting a trusted advisor every year before renewal to ensure licences still fit and meet needs.
Talk to Kloudify Experts:
Understanding Microsoft 365 E3 Vs E5 to weigh options becomes much less daunting when the price tag takes a back seat to the business’s needs. Such decisions are almost always about balancing cost, risk, and value. Stick with E3 for collaboration tools and baseline security. Move to E5 if the business is a regulated industry or handles sensitive data. A hybrid model can still work if added complexities can be managed. For anything and everything you would like more guidance on- Talk to our team.
