E3 or E5 – for larger tenants, this single question can swing five- to six-figure annual sums. E5 costs noticeably more than E3, and the premium only pays off if the added capabilities actually get used. This comparison helps you make the call per user group instead of across the board.
The core in one sentence
E3 is the complete productivity and Office suite. E5 is E3 plus a bundle of advanced security, compliance, analytics, and telephony. If you don't actively use those add-on components, E5 means paying for features that sit idle.
What E5 adds on top of E3
| Area | Included in E3 | E5 adds |
|---|---|---|
| Office apps & services | ✓ Word, Excel, Outlook, Teams, SharePoint, OneDrive | – |
| Security | Baseline (e.g. standard protection) | Defender for Office 365, Defender for Endpoint, Identity Protection |
| Compliance | Basic retention | Advanced eDiscovery, Insider Risk, Communication Compliance |
| Analytics | – | Power BI Pro included |
| Telephony | – | Teams Phone (cloud phone system) |
| Identity | Azure AD basic | Advanced, risk-based access control |
Feature scope and plan details change over time; the current Microsoft product description is what counts. Microsoft maintains the official tier comparison in the Office 365 plan options (as of early 2026).
Who E5 pays off for
E5 makes financial sense when at least one of these points applies to a user group:
- You'd otherwise buy the security features separately. Defender for Office 365 and Defender for Endpoint plus advanced identity protection as standalone products often add up to more than the E5 premium. In that case, E5 is the cheaper bundle.
- You use Teams Phone. If you run the cloud phone system (Teams Phone) in production, it comes bundled with E5.
- You need Power BI Pro across the board. According to the Power BI service description, it's included in E5 – no separate purchase required.
- Compliance is a regulatory requirement (Advanced eDiscovery, Insider Risk Management).
For these users, E5 isn't a premium – it's a saving compared with buying the pieces individually.
When E3 is the smarter choice
For the bulk of "normal" office work, E3 is enough:
- Users who work with email, Office apps, Teams, and SharePoint – and nothing more.
- Users with no need for Power BI Pro, Teams Phone, or advanced compliance.
- Environments where security is already covered by other means (third-party vendors, separate tools).
The most expensive mistake is handing E5 to everyone by default because "security matters, after all." It does – but only when the features are configured and used. An E5 seat whose Defender features were never switched on is money burned.
The mixed strategy: by role, not across the board
In practice, a mixed model almost always wins:
- E5 for IT, security, management, and roles with high compliance requirements.
- E3 for the broad mass of standard office work.
- Cheaper plans (e.g. Business tiers or F plans for frontline workers) for everyone who only needs the basics.
This is exactly where the biggest, most overlooked savings potential lies: not in moving everyone to one plan, but in assigning the right plan per role.
How to find out what you actually need
The honest answer is in your usage data:
- Who has E5 but doesn't use a single E5 feature? Those are downgrade candidates for E3.
- Who buys E5 features separately even though they're already included in the plan? Redundancy.
- Which users are even active at all? An inactive E5 seat is twice as expensive.
License Lens overlays exactly these signals: it connects to your tenant in read-only mode, shows for each license assignment whether it's actually used, and reveals in seconds how much a right-sized assignment would save. No changes, no stored employee data.
Conclusion
E5 is no luxury and E3 no compromise – it comes down to the role. Weigh the E5 premium against buying the security and analytics features individually: where it carries its weight, E5 is right. Where it doesn't, every E5 seat is an E3 seat with an unnecessary surcharge.
Next step: find unused licenses and cross-check the most common cost traps.