Microsoft 365 Copilot Licensing: Five Things You Need to Know

Summary

---

Podcast Summary: Microsoft 365 Copilot Licensing – Five Things You Need to Know

Podcast: The Directions on Microsoft Briefing Podcast
Episode: Microsoft 365 Copilot Licensing: Five Things You Need to Know
Date: February 19, 2026
Host: Mary Jo Foley
Guest: Rob Horowitz, Directions Analyst

---

Overview of the Episode

This episode dives deep into the complex and rapidly evolving world of Microsoft 365 Copilot licensing, offering clear explanations and practical advice for enterprises. Mary Jo Foley and Rob Horowitz break down the major licensing “need-to-knows”—from understanding Copilot Chat’s free features to the realities of the $30/user/month Copilot add-on, hidden costs, agent-based AI, and tips for negotiating better deals. Whether you’re about to deploy Copilot or just exploring options, this episode aims to make Microsoft’s licensing maze more understandable—and actionable—for IT and procurement professionals.

---

Key Discussion Points and Insights

1. Copilot Chat: What’s Free and What’s Not

[02:08–09:02]

• Copilot Chat:

  • Available at no additional charge to many Microsoft 365 business plans since early 2025.
  • “It’s pretty much just an entry level GPT—like, take your pick—ChatGPT, Claude, Grok, Perplexity, whatever.”
    —Rob Horowitz [03:08]
  • Key use cases: research, summarizing/uploading documents, writing assistance.

• Enterprise Value:

  • Main value for IT: privacy and governance features and omnipresence in the 365 suite.
  • Privacy: “Microsoft promises that all the prompts…none of this stuff is used [to train the] AI models. …I do [trust Microsoft]. …The reputational risk…is just too great.”
    —Rob Horowitz [05:14]
  • Governance: Full audit logs and compliance, especially for E5 tenants (with enhanced Microsoft Purview/Defender features).
  • Omnipresence: “You can get at it from the browser, you can get at it from Microsoft 365 apps for enterprises, … also from the freestanding thick client Copilot app.”
    —Rob Horowitz [07:39]
  • IT’s Dilemma: Rather than block AI, offer Copilot Chat as the “safe” alternative and minimize “shadow AI.”
    —“Your employees are inevitably going to exploit AI for their jobs. Saying no just isn’t effective…so you might as well redirect them to a safer option.”
    —Rob Horowitz [08:36]

---

2. Understanding Copilot ‘Russian Doll’ Licensing: The Four Layers

[09:09–13:30]

• Rob introduces the concept of “Copilotness” in four nested layers (like Russian dolls):

  1. Innermost: Free Copilot Chat.
  2. Layer 2: AI features licensed à la carte via consumption/pay-as-you-go.
     • “You don’t have to buy the full Microsoft Copilot user subscription to benefit from the small number of features.” —Rob Horowitz [10:28]
  3. Layer 3: $30/user/month Microsoft 365 Copilot “full” license.
  4. Layer 4: High-end/agent-based AI features not included with standard Copilot, including external agent access, multi-modal agents, workflow AI, etc.
     • “This comes as a surprise to some people. …It’s not the end, it’s not even the beginning yet, but it is perhaps the end of the beginning of your Microsoft AI-related fees.”
       —Rob Horowitz paraphrasing Churchill [12:03]

• Key Takeaway:

  • The $30 Copilot add-on is not “all-inclusive”; advanced agent features and certain automation may require additional/other licenses.

---

3. Can You “Pay As You Go” Instead of Buying Full Copilot?

[13:30–15:49]

• The Short Answer: “Not much beyond some SharePoint-related things.”
  • Layer 2 lets you license some specific agents for targeted SharePoint sites (e.g., HR info agents); not a replacement for full Copilot.
  • Major limitation: “Agents can’t look at users’ personal data such as email. …That capability is reserved for the next layer up.”
    —Rob Horowitz [14:54]

---

4. Who Actually Needs the Full Copilot License?

[15:49–23:29]

• Justifying the $30/user/month spend:

  • Rob: “A lot harder sell for general purpose across the enterprise…at least in its current form.”
  • Only 3% of Microsoft 365 business users have adopted Copilot so far.
    —[16:41]

• Niche Use Cases That May Justify Full License:

  • Researcher Agent: Deep, multi-step research; competes with OpenAI third-party offerings.
    • “If you’re going to spend $30/month for one of those other AIs…you could justify possibly 'okay, Researcher Agent, that’s good enough.'” —Rob Horowitz [18:41]
  • Microsoft 365 Copilot for Sales, Service, and Finance: Especially valuable for orgs using Dynamics 365 and advanced CRM/ERP workloads.
  • General Purpose Use: “For organizations whose enterprise search is catastrophically bad…these [copilot] AIs are…very adept at locating relevant internal content.” —Rob Horowitz [19:53]
    • New Copilot search agent is notably better than traditional search for internal data.

• Still Lacking:

  • Most Office app integrations are “yet to reach their full potential,” except for some Excel cases where structured data and integration make the Copilot experience more mature.
    —[21:29]
  • “That’s what you really want to do with Office applications. But it doesn’t do that yet.” —Rob Horowitz [22:22]

---

5. Hidden and Additional Costs for Copilot Rollouts

[25:59–31:18]

• “Other costs that you’re going to have to factor in”:

  • Content Security “Manpower” Costs:

    • “The IT manpower cost of securing content prior to your Copilot deployment.”
      —Rob Horowitz [26:09]
    • Pre-AI security-by-obscurity doesn’t work: “In the new world of AI…if it’s in your house, they’re going to find it.” [26:53]

  • Uplifting to E5:

    • E3 tenants may need to move to E5 for advanced Purview/Defender features (compliance, security, monitoring unwanted Copilot actions).
    • “E5 is not an absolute requirement…but it arguably provides features that make it a lot safer and practical to deploy Microsoft 365 Copilot.” —Rob Horowitz [28:17]

  • SharePoint Advanced Management Licenses:

    • Included for users with Copilot, but others benefiting from the permission structure improvements (even indirectly) might require extra licenses at $3/user/month.
    • “You might see the end up having to buy SharePoint Advanced Management user subscriptions for all the other people in your tenancy who don’t have Copilot.” —Rob Horowitz [29:25]

---

6. Negotiating Discounts: Realities and Strategies for 2026

[31:18–35:47]

• Microsoft’s obsession is your leverage:

  • “High on these people’s scorecards right now is Microsoft 365 Copilot purchase and especially deployment.” —Rob Horowitz [32:10]

• But big changes in discount programs:

  • As of late 2025, all built-in, automatic (programmatic) discount levels for online services in Volume Licensing (Enterprise Agreement) are gone.
  • Price increases: “Microsoft recently announced plans to increase Microsoft 365 suite prices by about 10% starting in July this year, 2026.” —[33:13]
  • You can still negotiate, but “those percentages are going to be applied to a higher base price next time around.”

• Best-positioned for deals:

  • Customers on E3, not yet with Copilot, especially if they also tease a move to E5 and are willing to bring at least 10-20% of their users on Copilot.
  • “We have seen people getting some pretty good deals for Microsoft 365 Copilot—as much as half-price.” —Rob Horowitz [34:20]
  • Don't expect huge discounts if you’re a mature E5/Copilot org already.

---

Notable Quotes & Memorable Moments

• On Microsoft’s naming:
  “Don’t blame me for Microsoft’s money naming but that’s the way it is.”
  —Rob Horowitz [02:56]

• On AI Security:
  “Security through obscurity doesn’t work anymore.” —Rob Horowitz [26:47]

• On administrative overhead:
  “You might see the end up having to buy SharePoint Advanced Management user subscriptions for all the other people in your tenancy who don’t have Copilot…” —Rob Horowitz [29:25]

• On the moving licensing target:
  “Microsoft 365 Copilot is not the end. It’s not even the beginning yet. But it is perhaps the end of the beginning of your Microsoft AI related fees.”
  —Rob Horowitz [12:03]

• On discounts and price hikes:
  “Just to set expectations… it’s going to still translate into paying [more] in nominal terms.” —Rob Horowitz [33:40]

---

Timestamps for Key Segments

• [02:08] – Copilot Chat: Free features and enterprise value
• [09:09] – The “Russian doll” Copilot licensing model (four layers explained)
• [13:30] – Can “Pay As You Go” work instead of a full license?
• [15:49] – Deciding who actually needs a license
• [25:59] – Unseen costs: IT, security, and SharePoint Advanced Management
• [31:18] – How to negotiate Copilot pricing and what’s changed
• [34:20] – Who can get the deepest discounts

---

Conclusion

Mary Jo Foley and Rob Horowitz deliver a candid, detailed look at Microsoft 365 Copilot’s licensing realities as of early 2026. Organizations must weigh not just the headline $30/user/month cost, but also the nuances of feature layers, admin overhead, security dependencies (E5 uplift), and pressures from evolving Microsoft sales tactics. Strategic negotiation is possible—especially for E3/M365 tenants still on the fence—but across the board, there’s no set-and-forget answer.

Best advice:
Educate your team, stay current with licensing changes, assess actual Copilot value by use case, and negotiate every contract. As Microsoft’s roadmap (and AI feature set) is still in flux, adaptability is crucial.

---

Transcript

[Rob Horowitz]

Foreign.

[Mary Jo Foley]

Microsoft 365 copilot is one of the most important products to Microsoft these days, and selling it is job number one at the company. Because the offering is in its early stages, Microsoft is still working to determine how to make it ubiquitous, to increase customer reliance or stickiness, and to manage its own downside risk, especially around fulfillment costs. As a result, customers should not be surprised to see packaging and licensing changes in the near and longer terms. That said, we've taken a stab at coming up with a list of five things that we think you definitely need to know About Microsoft Microsoft 365 copilot licensing whether you're still on the fence about trying it and buying it, or even if you've already started rolling it out to your org in some fashion, our podcast today has a lofty goal to try to make Microsoft 365 copilot licensing more understandable welcome to the Directions on Microsoft Briefing podcast. I'm Mary Jo Foley, the editor and chief here at Directions. I'm your host for the series of podcasts for those interested in the Microsoft Enterprise IT ecosystem. My guest today to help us try to navigate the Microsoft 365 copilot licensing maze is Directions Analyst Rob Horowitz. Rob analyzes and writes about Microsoft licensing programs and product licensing rules. He also trains organizations on best Microsoft licensing practices. Before co founding Directions on Microsoft in 1992, Rob spent eight years at Microsoft in a variety of software development and technical marketing roles. Welcome back to the podcast, Rob. It's been a while.

[Rob Horowitz]

Thank you Mary Jo. It is always a pleasure talking with you.

[Mary Jo Foley]

Good, thanks. Let's dig right in. First up on our list of things to know about Microsoft 365 copilot licensing is the version of Copilot that is available for no additional charge with many Microsoft 365 business plans called Copilot Chat. I am curious if you think the free Copilot Chat might obviate the need for customers to buy a full service subscription to Microsoft 365 copilot. Or maybe it's just good enough only for a subset of customers. What do you say, Rob?

[Rob Horowitz]

Okay, Mary Jo, this is a great place to start with the Copilot Chat. So first, what is it? Like you said, it's free Copilot Chat. It's a free capability that was added to all the Microsoft 365 suites early in 2025. And you could think of Copilot Chat sort of like the premium edition of what we call the $30 per month subscription what we call Microsoft 365 copilot, which of course we'll get to later. Just to be clear, when we say Copilot alone it costs you extra money. When we say Copilot Chat, that's the thing that's free. So don't blame me for Microsoft's money naming but that's the way it is. Okay now when you ask me whether Copilot Chat is good enough for a subset of customers, Mary Jo, you always you know the answer. A long running joke at whenever we do a Microsoft bootcamp is the short answer to almost any licensing related question is it depends. Yes, so it depends. So okay, I'll give you a more thoughtful answer start and we'll start with a description just to understand stand when it might be good enough. Copilot Chat might be good enough. We have to explore well what is the thing that Microsoft calls Copilot Chat? And it's pretty much just an entry level GPT like take your pick ChatGPT, Claude Grok, Perplexity, whatever. Is it better than these others? Everyone has their own opinion but regardless of the GPT they all do a pretty good job at helping people with basic things like using natural language to do research and finding stuff on the Internet for example. Or you upload your business documents for comparison or summarization or querying. Maybe you have an 80 page long contract for your office tenancy your your where you're renting and you just want to ask specific questions. It's great for that sort of stuff rather than reading this 80 page thing that you probably don't understand. Or maybe you submit text for writing assistance so you've written something you know it's not. It says what you want it to say, but not in a great way. Well Jack, any GPTs will clean it up pretty well. So those are the. But those are benefits from the personal at the personal level, at the user level. What's probably far more important for our audience is the enterprise IT perspective. For enterprise it what is potentially special about Copilot Chat? I'll boil it down to two things. First is the privacy and governance related features and the second is the Copilot Chats omnipresence in the Microsoft 365 suite ecosystem. It's everywhere. Yeah, so I'll go one after the other. So the first thing Microsoft privacy assurances and governance features. Microsoft promises that all the prompts, all this your interactions with Copilot Chat, including the file uploads, the responses, none of this stuff is used AI models. So why is that important? Because organizations obviously don't want to introduce any possibility sort of data is going to pop up on the Internet in some unexpected way. Do I trust Microsoft to honor this stated commitment? Yeah, I do. And I'm not particularly generally a very trusty person, but I do in this case because the reputational risk of not living up to that, it's just, it's too great. It's just not worth the risk to Microsoft. And then so that's a privacy angle. So what about the governance angle? And what do I mean by governance? Things like regulatory compliance and legal discovery. All the Microsoft Copilot Chat sessions, they're going to generate two things. They're going to generate an augit log entry and they're going to generate a full record of the interaction that happens to be stored embedded somewhere in, in the Users Exchange online mailbox. So all that stuff is there should you need it for legal or regulatory compliance. And on top of this, if you do have an E5, a Microsoft 365 E5 level tenancy, then you also benefit from some of the Microsoft E5 level purview branded compliance features. And, and then there's the E5 level security features as Microsoft branded as Defender. We won't go down that rabbit hole, but you have some extra stuff there. And moving on earlier I said that the second potential thing that's special or could be considered special about Copilot Chat is that ever present feeling in the Microsoft 365 ecosystem. You can get at it from the browser, you can get at it from Microsoft 3065 apps for enterprises, Word, Excel, PowerPoint, the other Office applications. You can get access to Copilot Chat from the freestanding thick client Copilot application. So in summary, what does this all mean? What's Microsoft's pitch for Copilot Chat? I like analogies. I'd say it's essentially an adaptation to the age old parenting wisdom that it's far more effective to redirect a toddler than to yell don't do that. Doesn't work. So your employees are inevitably going to exploit AI for their jobs. Saying no just isn't effective and not practical, so you might as well redirect them to a safer option. And that by the way, Microsoft gives you some tools to do just that.

[Mary Jo Foley]

So avoiding shadow AI in other words. Right.

[Rob Horowitz]

Or mitigating the pot, mitigating the risk of it.

[Mary Jo Foley]

Right, Right. Yeah. To your point about the ubiquity of Copilot, I think some people would wish it didn't pop up everywhere. Sometimes it's a little annoying when you're trying to write something and it's trying to help. So. Yeah. But anyway, to your point, I understand. Okay, now let's switch gears and talk about Copilot Chat's big brother, the $30 per user per month thing that's called Microsoft 365 copilot. But before we go there, I know when we were talking before this podcast that you mentioned something that you call copilotness within the Microsoft 365 ecosystem. And you said it has four levels. Microsoft 365 copilot sits one level down from the top. So I know you've got this mental picture, Rob, about this, but could you explain more what you mean? Because I think this could help structure where we go with this conversation.

[Rob Horowitz]

Microsoft in general loves to package technology in a Russian doll fashion. And what do I mean by that? It's a little doll that's in the same the bigger doll and the bigger. And so anything bigger contains everything else that was in the smaller things.

[Mary Jo Foley]

Okay.

[Rob Horowitz]

Okay.

[Mary Jo Foley]

So

[Rob Horowitz]

we already discussed the smallest dial, which is the free quote, free, unquote, Microsoft 365 copilot chat. The second dial up consists of a small number of AI related capabilities that customers can can license via consumption based fees. So in other words, you don't have to buy the full Microsoft Copilot user subscription to benefit from the small number of features. And by the way, if you happen to have the Copilot user subscription at $30 per month, all the stuff in the second layer is included. Essentially it's free if you already have a Copilot user subscription. And then the next bigger, the next bigger doll on the cake is just what you were talking about, the $30 per user per month Microsoft 365 copilot license. And it adds a whole suite of AI related goodies on top of your regular Microsoft 365 E3, E5, F1, F3, whatever you want to cook, all the different ones, it has these AI goodies on top of it. And I'm sure we'll dive into this in a little bit more detail, but I want to get to the fourth layer, which involves the use of agents that do certain types of things. They either incorporate high end AI or workflow capabilities, they're autonomous, as in they're operating on their own, or they're made available to external users. Why is this important? Because These forms of AI are not included with your $30 per month. Microsoft 365 copilot license this layer 4 It comes as a surprise to some people. It reminds me a little bit of the I'm a history nerd of the November 1942 Winston Churchill. I left Churchill. He said something if I remember correctly. Now this is not the end, it's not the beginning of the end but it's perhaps the end of the beginning. It sounds a lot to me like your AI related spend with respect to Microsoft 365. Oh by the way, that Churchill quote came after the allied victory of El Alamein in Egypt. But I digress so I'll just readjust the quote here for our own purposes. Microsoft 365 Copilot is not the end. It's not even the beginning yet. But it is perhaps the end of the beginning of your Microsoft AI related fees. There's a lot that's not included. There's a lot of things that organizations will maybe not at the start but will eventually want to do with AI that's not covered by that $30 per month Microsoft 365 copilot license okay, I

[Mary Jo Foley]

like your history lesson Rob, but let's get back to the present here. Okay, what about that second layer? I'm curious about that one. Can you use Pay G or pay as you go as a way to get around this $30 user per month copilot licensing subscription? Is that actually a viable way to do this? I know some purpose built agents are sold via page, but what about the second layer?

[Rob Horowitz]

Well, the short answer is it depends on. Okay, sorry. So what can organizations do by layering this pay as you go consumption licensing on top of the copilot chat? Yeah, not much beyond some SharePoint not much that's useful beyond some SharePoint online related things. So you can license these agents that will process over a small number of SharePoint online sites. So for example, if you have a SharePoint online site related to human resources, it has all sorts of HR related information. You could create some form of HR agent to answer employee questions based on the information that's stored within this hr. It's a human resources site, but it's not a solution that checks all your SharePoint sites throughout your organization. It's just very focused. So that's the primary thing that you could do with the pay as you go. The biggest or at least a big stumbling block of this layer two of things that you could do on top of Copilot chat with some consumption based licensing. The biggest stumbling block is agents can't look at users personal data such as email. So all the things that involve solving or solving tasks or querying information that has to deal with you, like your email mailbox, your OneDrive, things like that, that capability is reserved for the next layer up, which is Microsoft 365 Copilot, which you're probably going to ask me about next. But anyway, I'll give it over to you.

[Mary Jo Foley]

Okay, so it's sounding from your description here that the full user subscription license is probably the option for people who need the full suite of capabilities. But if you're an admin, say, how do you think about who gets a full license and who doesn't? Like, do you have any guidelines for people trying to figure out who who at the org gets the $30 per user per month license?

[Rob Horowitz]

Well, the short answer, if you want to have a truly justifiable business case.

[Mary Jo Foley]

Yeah.

[Rob Horowitz]

Is I think Microsoft 365 Copilot. You can justify it in a few niche use scenarios, but it's a lot harder sell for general purpose across the enterprise, at least in its current form. It's my opinion, but it's a supported opinion based on Microsoft's own numbers. So just in the last earnings call, I think it was in January, they revealed that just 3% of their Microsoft 365 suite business users are also signed on for a Microsoft 365 copilot license. So that's not a lot because they've been at this for over two, two and a half years right now. Copilot's expanded a lot since then. So anyway, it's not their best effort historically. This could change so. Well, I don't. Because they're always adding new things to the Microsoft 365 Copilot. It sort of reminds me of those old late night TV information commercial infomercials. Is that what they call them? That they used to be selling something you didn't know you didn't need. And then they go but wait, there's more order now. And you get this free ginseng knife or something like that.

[Mary Jo Foley]

Exactly.

[Rob Horowitz]

In addition to the original thing. And I don't know why, but the copilot situation today reminds me a lot of those infomercials because they're always adding stuff in the hope that something sticks.

[Mary Jo Foley]

It's true.

[Rob Horowitz]

Okay, I'll get back on test. There are a few examples of Microsoft 365 components that could conceivably on their own cost effectively cover some niche use scenarios. So for the sake of time, I'll just give you a few examples. One is Researcher Agent and another is the Microsoft 365 copilot for sales, service and finance which has had four different names over the past year which is scram. It's just mind boggling. But I digress. So Researcher Agent, what's that for? It's for the deep multi step research stuff that is generally you consider it as a possible substitute for third party offerings from OpenAI and the like. Those kind of queries that get generated up at the AI level they chop it into multiple queries go out it it takes you 10 minutes to get the answer and it's this long thought out. Whatever. Yeah, Researcher Agent could justify if you're going to spend $30 a month for one of those other AIs or something with 2030 you could justify possibly okay, Researcher Agent, that's good enough. At least I've covered that one use case. So everything else my mind is free with Copilot because I'm avoiding that third party fee. The next thing, the Copilot for Sales, Service and finance that layers what does that do? That's going to layer a bunch of capabilities on top of Dynamics365 and other third party customer relations, management and enterprise resource planning. So CRM and ERP systems. So the Copilot for sales, service and finance that used to be sold separately at a higher cost than Copilot license itself. Now it's all embedded as part of the Microsoft 365 copilot offering and so it could justify copilot Microsoft 365 copilot purchases on their own. So that's some examples of a few Copilot features that could possibly justify purchase of the whole suite for a few niche scenarios. As far as a general purpose use of Microsoft 365 copilot, that's going to be a little harder sell. But I'll put forward one possible exception and that is for organizations whose enterprise search is catastrophically bad. Why do I say that? And that's not uncommon by the way. Why do I say that? It's because the Microsoft 365 copilot as AI, most all the AIs are they're very adept at locating relevant internal content. At least that's been my experience. So if you can't find something through a search that's looking at keywords, you could do a Vibe esque search through Copilot and they even have a special agent Copilot search or whatever the latest name for the thing is Search Agent that will Find stuff pretty effectively.

[Mary Jo Foley]

Maybe too effectively, some people say. Right, yeah.

[Rob Horowitz]

But it's a lot better than regular search. But currently, with the possible exception of Excel, the Copilot related features built within Office applications. I don't know how to say this nicely, but it's yet to reach its full potential. So for example, users must still navigate the Office UI to get things done. Things that they wish that AI would just do on their behalf. I don't know if you remember the old. I think it was the first Star Trek movie and they get the crew. I don't remember. They time traveled something. They were on Earth in the, in the 1980s. And Scotty tries to talk to the Mac. He reaches. He picks up the mouse that he gets a microphone and he talks to the computer to do something. That's what you really want to do with Office applications. But it doesn't do that yet. Maybe it will, but that would be one of those things that would make this more of a general purpose.

[Mary Jo Foley]

Yeah, that's definitely the way they're going. At least the way they've implied they're going. And I'm, I'm super surprised to hear you think Excel is the exception because a lot of people I talk to say I want Excel to be so much better than it is. But I think it depends how much of a power user you are. Of Excel, perhaps.

[Rob Horowitz]

Yeah, it would be a power user. And also Excel has the advantage from the AI perspective that it's very well organized data that you don't have. And I think also it has some APIs and points of integration. Because what's making it difficult for Microsoft to integrate AI into the Office applications is they weren't built with that intent. And bolting on these things and getting at the data inside Doc, whatever, it could be quite difficult.

[Mary Jo Foley]

Agree.

[Rob Horowitz]

Okay.

[Mary Jo Foley]

All right. On that happy note about Excel, my least favorite application in Office. Let's take a quick break so I can tell you why I think you should make it a priority in 2026 to go to one of our directions on Microsoft licensing boot camps. As of last November, Microsoft eliminated volume discounts for online services in the Enterprise Agreement and Microsoft Customer Agreement or mca. And unless you're prepar, this change could mean you're facing a potential 6 to 12% price increase on your core Microsoft Cloud services like Microsoft 365, Azure and Dynamics 365. So what can you do? Your best defense is to invest in your Microsoft licensing expertise. Our next in person directions on Microsoft Licensing boot camp is happening in Washington D.C. from April 28th to 30th, 2026. You should send your IT procurement and ITAM so they can learn how to deal with the new Microsoft licensing realities. At the bootcamp you'll learn things like how to control your Azure consumption costs so you can cut your largest Microsoft cloud spend component. We'll help you master the strict licensing rules for high cost products like Microsoft 365 copilot, which we're talking about today, and add ons. And we'll do that so you can ensure compliance and maximize your organization's ROI without overbuying. And and we'll even help you craft a tailored framework for your renewal strategy to secure concessions that'll help offset those lost volume discounts. If you want to secure your spot today, go to directions on Microsoft.com training. You'll get to talk to people like Rob there and our other directions licensing experts. And if you cannot make it to DC in April, we have virtual boot camps coming up as well as another in person bootcamp in September in Chicago this year too. Okay, back to Rob and deciphering Microsoft 365 copilot licensing. All right, Rob, let's say you've decided there's this group of people in your company who do need the full Microsoft 365 copilot license. Can't you just figure this is going to be $30 per user per month? Like, okay, that's what you know it's going to cost you? Or are there other things you need to factor in when you're planning costs of your Microsoft 365 copilot rollout?

[Rob Horowitz]

So Mary Jo, I'm sure you'll be shocked. Shocked I tell you that there are other costs that you're going to have to factor in.

[Mary Jo Foley]

Kind of figured that, but let's go.

[Rob Horowitz]

So I'll start with the extra cost that hits your bottom line, but not in the form of a check to Microsoft. And I'm referring specifically to the IT manpower cost of securing content prior to your copilot deployment. So let me give you an analogy of why this is necessary and I'll use the as an example. Your house. So in the old world before AI example here the homeowner could potentially you could potentially secure valuables from an intruder by just hiding them in an odd or unlikely place.

[Mary Jo Foley]

Right?

[Rob Horowitz]

The new world of AI that doesn't work anymore. It's like having a large team of police with the search warrant and high tech equipment come into your house and if it's in your house, they're going to find it. So the whole security through obscurity doesn't work anymore. So this is the same that this is true now for Copilot, Microsoft 365 Copilot, you better make sure information is available to permissions only to those with the need to actually access it. Otherwise it's going to find it.

[Mary Jo Foley]

Right.

[Rob Horowitz]

And use it and surface it in all sorts of unexpected ways. So that's a summary of some of the non Microsoft related costs. Well, what about the additional Microsoft related fees? Well I'll go for two here. First is for customers with E3 Microsoft 365 E3 level tenancies. And what do I mean that means the E3 is the highest level suite within your tenancy. There's a couple of techie reasons, specifically things that have Purview and Defender in their names that are unique to Microsoft 360. That's the most expensive suite.

[Mary Jo Foley]

Right.

[Rob Horowitz]

And these E5 level features help you to better get a handle on the oversh of oversharing sensitive information and to detect and respond to weird stuff. Weird Copilot related activity. Because remember if someone has Microsoft 365 Copilot, their account gets compromised. Copilot has great tools for the intruder to start gathering things within your organization. So while E5 is not an absolute requirement and Microsoft 365 E5 level subscriptions, it arguably provides features that make it a lot safer and practical to deploy. Microsoft 365 copilot so that's your first potential increase in cost if you're an E3 moving up to E5 maybe your other potential Microsoft related fee which will be related to SharePoint Advanced Management. And what is that? That's a tool that Microsoft has and it's positioned as helping you to prepare and secure content prior to your Microsoft 365 deployment. So it's helping you get those permission structure under control. Now the good news is that a license to use this SharePoint Advanced Management it's included in every Microsoft 365 Copilot license because SharePoint Advanced Management is licensed per user. Microsoft 365 Copilot is licensed per user. Copilot user subscription license includes use of SharePoint Advanced Management. You're covered. So what's Rob, what's the problem? Well the problem is that only, only the users who have a Microsoft 365 copilot license are going to have rights to benefit from SharePoint Advanced Management. And you might up. You might see the end up having to buy Sharepoint Advanced Management user subscriptions for all the other people in your tenancy who don't have Copilot. Because in Microsoft's mind, they'll be, quote, benefiting from the increased security permissions that you were able to roll out by your use of SharePoint Advanced Management. I know that sounds wacky, but SharePoint Advanced Management does not have any way to control which users benefit from the tool. And in Microsoft's wacky world of licensing, they can come to you and say, no, you benefit from. These people benefit from and therefore need these special SharePoint advanced management licenses which happen to cost $3 per user per month. And that could sure add up quickly on its own.

[Mary Jo Foley]

Yeah, true. Okay. The other thing we didn't talk about when trying to calculate the cost to your org is whether or not you can get a discount. Because we were hearing that Microsoft at the beginning when it was selling Microsoft 365 copilot did not offer discounts to anybody, but now they are doing so. And so that brings us to our last point. Our point five. I want you to discuss a little bit about what org should be thinking about when it comes to using Microsoft's obsession about Microsoft 365 copilot to their advantage, especially when they're negotiating their contracts with Microsoft. Get any tips and tricks

[Rob Horowitz]

at our licensing boot camps, we talk quite a bit about how the Microsoft sales teams and their executives gets compensated. And not surprisingly, high on these people's scorecards right now is Microsoft 365 copilot purchase and especially deployment. Right. So first I just want to, before getting into your answering your question, I just want to set a little bit of expectations, especially for enterprise customers, on what's actually possible with respect to this great deals and discounting. So late last year, Microsoft abolished their whole programmatic discount levels in the EA for online services. And what do I mean by programmatic? I mean the discounts and were built into Microsoft's licensing systems. You automatically got the discount based on your volume. And they used to be four levels, A through D. D was the highest and that was an automatic 12% discount. That's all gone. There's no programmatic discounts anymore. And to make matters worse, Microsoft recently announced plans to increase Microsoft 365 suite prices by about 10% starting in July this year, 2026. So yes, as in prior contracts, customers can still negotiate price discount percentages on top of whatever Microsoft proposes as a price, but those percentages are going to be applied to a higher base price next time around. So even if you're able to get the same overall discount percentages as in your last contract, that's going to still translate into paying in nominal terms. So I don't want to get anyone too excited here. Okay, so in other words, you may be able to dangle Microsoft 365 copilot to blunt but not eliminate the pain of price increases for the your Microsoft 365 suites and related licenses. Okay, so what have we seen? We have seen from our EA negotiate from a contract negotiation practice, we have seen people getting some pretty good deals for Microsoft 365 Copilot as much as half price. The folks who are best positioned to dangle Copilot in front of Microsoft sales folks are going to be customers with the E3 level tenancy who don't already have Microsoft 365 copilot, especially if they're willing to tease Microsoft with the prospect of moving to E5 as well as purchasing Microsoft 365 Copilot for a minimum of 10% of their user base. I just want to set the expectation it's not going to be just a few and 10% slow. It's probably going to be 20 or more percent, which even if you get a quote good deal on Copilot, it's a lot of extra money. So this none of this means that you shouldn't try to negotiate even if you're already an E5 customer with copilot. But we just want to set some expectations of people in the best position are probably those with E3 without any copilot today who can dangle multiple things in front of Microsoft at the same time. Does that answer your question at least a little bit?

[Mary Jo Foley]

Yes it does. You're a Debbie Downer, but it's a good answer, so thanks Rob.

[Rob Horowitz]

No one's ever keys out of me.

[Mary Jo Foley]

Anyway, that's all we got for now, so thank you so much. Rob. Those are all great tips on a really timely topic, so thank you so much.

[Rob Horowitz]

Thank you.

[Mary Jo Foley]

Mary Jo and I would like to remind our listeners they can find lots more coverage of all things Microsoft related on directions on Microsoft.com thank you so much for listening. If you have questions, comments or any topics you would like to hear the Directions analysts cover in one of these podcasts, please do not hesitate to contact me on X or Blue Sky. Directions on Microsoft is also on LinkedIn, so make sure you follow us there and give us a follow at DirectionsMSFT on X or Directions on Microsoft on Blue sky for all of the latest product licensing and Enterprise Information. Thanks again.