← The Directions on Microsoft Briefing Podcast
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- [00:00]
A
Foreign. Just a couple of months ago, I was convinced that Microsoft wisely had decided against introducing a new high end licensing tier. I thought, why roll out a Microsoft 365 E7 when E5 was not even widely deployed. Plus, late last year E5 got a big new feature infusion by Microsoft. I just felt like E7 makes no sense. Well, I'm here to say I was wrong. Very wrong. Microsoft is Indeed readying an E7 bundle which will be available starting May 1st for $99 per user per month. In today's episode, we will be covering what we know and we don't still know at this point about Microsoft 365 E7. Welcome to the Directions on Microsoft Briefing podcast. I am Mary Jo Foley, the editor in Chief here at Directions. I'm your host for the series of podcasts for those interested in the Microsoft Enterprise IT ecosystem. And I have the perfect special guest to help walk through the E7 rumors and predictions today. Directions Lane Shelton Lane is the brand new Director of Product Development and Advisory Services lead here at Directions. Previously he was Vice President of Business Development with shi. He has been involved in the Microsoft ecosystem for more than 30 years. At directions, Lane advises enterprise organizations on Microsoft licensing strategy, complex contract negotiations and long term agreement design. Hi Lane. Thank you so much for coming on the podcast today and belatedly welcome to Directions on Microsoft.
- [02:02]
B
Thanks Mary Joe. I am super excited to be here. It's been a lifelong ambition and I finally got my seat on the All Star team. I'm really happy to be here.
- [02:11]
A
Nice. Well, we have the perfect topic for you today. Let's dig in on E7. Last week, just last week. It feels like so long ago you and I were both hearing about rumors around an E7 and guess what? Our sources are pretty good, right? I'm patting you virtually on the shoulder right now. Microsoft 365 E7 was announced this week and as part of that E7 announcement, Microsoft also announced plans to add something they're calling Copilot Cowork, which they developed with Anthropic to Microsoft 365 to help with multi step agentic activities. Okay, so we have this giant announcement, the, the co pilot cowork E7. Was there anything in this announcement on March 9th that surprised you?
- [03:02]
B
Yeah, honestly, the, the cowork thing did take me a little bit by surprise because there's such fierce competition in the model space between the, you know, Gemini and Claude and, and, and Copilot and Microsoft. You know, they've been, they've been holding, you know, Copilot up as the premier brand since, since day one of this. So I was a little surprised to see them because almost by admission, it's saying that there's probably other solutions out there that may do a better job than Microsoft can do themselves. And by opening up a little bit, it kind of says two things. One, they're not saying it out loud, but acknowledging that other models exist and they may be superior in some areas, but they're also acknowledging that they, and E7 in general kind of does this, that they have two ways to play in this game that their competitors really don't. Right. Because Microsoft controls the. They have the penetration into the enterprise infrastructure for operational security, information security, identity security. They've got that whole ecosystem that's landed throughout corporate, private sector, public sector. They're everywhere. And they have that layer to play with as well as the model itself. So they can afford to be a little bit generous in how they open that ecosystem up to their potential competitors.
- [04:24]
A
That's fair. Yep. All right, I'm going to just go right for the elephant in the room. We got to talk about the pricing on E7. Right. So E7, you get all the features in E5 plus you get Microsoft 365, Copilot Agent 365, the Entra suite of features. But as of July 1, E5 is going to be $60 per user per month on its own. So I. My question, I'm just going to be blunt here. Is there any way a $99 price tag for E7 is not delusional?
- [04:56]
B
I don't think so. I really thought. And I'm not. And we'll get to the part about consumption later in the, you know, in our, in our, in our broadcast. But on the surface, this almost looks like a textbook play out of Microsoft's playbook. The number seems really big. I haven't done the official research yet, but I did some back of the napkin calculations of, like, the difference between O365 and N365 when they originally released, and it was like about 85% higher in price, the, you know, the M365 platform than the old O365 platform back at the time. So if you look at the, what is it, like 74% increase between the, the, the $57 current price point of E5 up to the $99 price point of E7. You know, Microsoft's idea of taking stuff, bundling it into, you know, bundling it into a new base, throwing in some Things that nobody's ever heard of and new stuff like obviously like Agent 365, Claude cowork, you know, Entre ID the Entre Suite and then raising the price a big amount. Seems like that's a textbook move. Like I thought the number shocked me at first, but when I went back and did some historical grounding, the number wasn't as shocking. But I still think it's delusional because I think Microsoft really wasted an opportunity here. They could have done something groundbreaking. I mean, AI is groundbreaking technology. Why not do something groundbreaking with licensing and pricing to match the gravity of the moment? But I don't think they did that. E7 comes out $99. I mean, we've already been talking with customers about it and you know, it. That it's a tough, it's a tough number to swallow.
- [06:30]
A
It is, it is. Because even if you add up the prices of all those individual components, the $99 is just a little bit better than if you cobbled it together yourself. Right.
- [06:39]
B
Well, and that's only if you include the $15 of Agent365. And you know, that's the oldest trick in the book, right? You take something that's never been there before. I mean, they might as well put a price tag of $5,000 on 83. 65. Because if it's baked into the suite, you know, like that value is just arbitrarily made up. Yeah, like so, so I agree. It really just seemed like they could have done a lot more with this. Which makes me wonder too if there isn't somewhat of a throttling effect of this in that they're. They priced it, you know, high on purpose because they don't want this. Maybe they don't want everybody to adopt it all at once because the back end to support all of that would be massive. So, you know, maybe, maybe there's some throttling going on there. But yeah, I was not, I was not impressed with the 99.
- [07:23]
A
No. And I, my thought, my thinking was maybe they're just building it in knowing they're going to offer a discounts. Right? Like they're like, okay, it's a hundred dollars, but today you can get it for 85. Right?
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B
Yeah, but 85. Think about it, you know, after the price increase in July, E5 is 60 bucks. So 65, still a lot of money.
- [07:45]
A
Yeah, that's fair. Okay, so I want to talk about something we were talking about among ourselves this week where we were talking about E5. I saw in an interview this week that Judson Altoff, who runs the commercial business at Microsoft, said, well, you know, everybody, all our customers are already on E5, right? So E7 just makes sense. It's just the next step up. But that's not really what I have heard and I don't think you have either. Is Everybody really on E5 already? Or is Microsoft just offering customers a deal on E5 even if they are fine with being on E3? In other words, Microsoft is selling an increasing number of E5 licenses. We know that. But maybe customers aren't using much of E5. And if that's the case, what happens with E7 then?
- [08:37]
B
So I actually have a definitive, probably a better answer to this question than anybody else on planet Earth. And that's not a brag. I'm saying that because years ago I created a math system to measure the value over time at that time O365 to your organization and then later to M365. And I've gone through that discovery process with hundreds of clients over the years as I've iterated this math system that breaks down all the features and, and every feature has a value. And depending on the features that you're using, that determines how much of that full value of the suite you're actually getting. The highest I've ever seen, and I'm not lying, I've done this hundreds of times. The highest value I've ever seen was 92%. And that was a fluke. Most organizations are in the 50 to 70% range. And there are plenty of organizations that are below the 50% range when it comes to what they're actually utilizing inside of E5. That's not to say that the value of E5 is poor. It's just there's a lot of advanced stuff in there. There's also a lot of competition between, you know, like, look at like the sail points and the crowd strikes and the octaves of the world that are like world class at identity and world class at threat defense. And you know, and compare those to what's in the Microsoft suite. It's that whole best of suite versus best of breed. Every organization struggles with this and very few customers that I've ever encountered have gone all in with Microsoft. Again, I'm not denigrating the value of the technology. I'm just saying there's a lot in there and for an organization to use all of it, I have, I haven't seen it. So Judson's correct in that being on three, six, you know, E5 just means you're licensed for it. It does not mean that you are actually utilizing all of the features within. I mean, think about things like classification and retention. Like classification proper, proper regulated classification has been on every CIOs, you know, five year, you know, five year plan for the last 25 years. Like it's one of those things that, yeah, it's all in there, but man, the, the opportunity cost to actually roll it out is massive and huge. And so it just, you just never get around to it. But that's a huge part of the value. So you know, AI is kind of changing that equation a little bit now. But, but no, yes, you can be licensed for it, but very few organizations are maximizing the value of it. Does that make sense?
- [10:59]
A
It does. And so then what does that mean for E7 though? Because that's even more complex. Right?
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B
Yeah, it's a, you know, it's a, it's a hard one. Now the, the good news for Microsoft is I've never seen anything move, say the purview needle faster than AI. Right? Because if you're going to do any kind of AI at scale, you have to have data governance in place. You can't put off classification, you can't put off retention, you can't put off data governance anymore. It's prerequisite for AI. So that's working in Microsoft's favor. So I have a feeling that over time purview adoption will increase radically. That entre adoption will increase radically. Like those things are going to start to really work in Microsoft's favor. But again, that $99 price tag, I'm right in the process now of augmenting my math system to measure E7. And that's going to be a tough. That's going to be tough.
- [11:51]
A
It is, it is for sure. Okay, on that note, let's take a quick break so that I can talk about why you should make it a priority in 2026 to attend one of our directions on Microsoft Licensing boot camps as of November last year, Microsoft eliminated tiered volume discounts for online services in the Enterprise Agreement and the Microsoft Customer Agreement or mca. And unless you are prepared, 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's your best defense? You need to invest in Microsoft Licensing expertise. Our next in person directions on Microsoft Licensing bootcamp is happening in Washington D.C. from April 28th to 30th. Send your IT procurement and ITAM leaders to learn how to deal with the Microsoft licensing reality as it stands today. You'll learn at the bootcamp how to control your Azure consumption costs so that you can cut your largest Microsoft cloud spend component. We'll help you master the strict licensing rules for things like Copilot, Microsoft 365 and other products. And by doing this will help you ensure compliance and maximize your organization's ROI without over buying. And finally, we'll help you craft a tailored framework for your renewal strategy to secure concessions that offset those lost volume discounts. To secure your spot today for the boot camp, go to directions on Microsoft.com training. You'll get to talk to our direction like licensing experts there, including Lane. He'll be there. And if you can't make it to DC in April, we've got virtual boot camps coming up as well, including one in September in Chicago in person and other virtual ones as well. So now we're going to go back to all things E7 with Lane. Okay, now we're going to talk about consumption because both you and I had heard before the official announcement of E7 that E7 might not just be a per seat model when it came to licensing. We heard it could be some kind of a hybrid consumption and per seat model type deal. But then Microsoft announced E7 and there was almost no mention at all about anything around consumption pricing. So I'm curious, what do you make of this? Did they just get caught, not quite ready to talk about E7 and so they just gave us a couple pieces of it, or is there something more here? What do you think, Lee?
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B
Well, it makes me even more like if the $99 price tag makes you cautious, the lack of any consumption connection should make you even more cautious. Because in my mind because Satya himself said it. He said it at that the Morgan Stanley conference where he said, I think I'm paraphrasing here, but he basically said I think we'll end up somewhere in a hybrid model where we have used some user base and we have some consumption based because you're already seeing that around Purview. You're already seeing that around, you know, a bunch of services in M365 that connect and have consumption components that are metered inside of Azure. So you know, if Satya is saying that's the direction that they'll eventually end up, that worries me a little bit because that makes me think that there's another shoe to drop here. That $99 is just the entry point, right? Because down the line. So let's say you adopt it, let's say you go all in. Down the line, Microsoft may start rolling back or doing like what they did with Power Platform. It's like, okay, we get some of the power, we're going to introduce a whole bunch of new features now, none of which you get in the package. They're all done either in Azure meters or add ons, which is again, they've done that for years. Right after E5 there was a whole bunch of add ons and nothing new in the suite until they baked into suite back in in this latest round of changes. But that being said, I'm going to be heavily on the lookout for those kinds of changes. I think the $99 thing will stick around for a while. But again, you know, I think Satya meant what he said. So I do think that this will ultimately start, you know, weaving in consumption more and more and more. Which means the $99 price point is just the ante.
- [16:11]
A
Okay. Yeah. Because one of the, one of the linchpins of the E7 bundle is definitely Agent 365. Right. It's a control agent, control plane. It's all about helping customers manage and govern agents. It's not a new service, but it' more like a collection of things that'll be like a one stop shop for helping you get a handle on your agents. But then we didn't really see anything about. Okay, so you have all these agents you're managing with Agent365. They're in the agent registry. So how are you paying for them? Right, like you're building them, Some are custom, some are from Microsoft, some are from third parties. But like what's the licensing and pricing model? Right. So I wonder if that's where the consumption thing fits in. What do you think?
- [16:57]
B
I would hope, I mean I would hope so because that, that to me could be like the big bet that Microsoft made with Agent365. So at that $99 price point, Microsoft may be betting that the push to Agentic AI is going to be so strong in their customer base and the need and then the subsequent agent sprawl and the need to safely rein that in and contain that is going to be so strong that it's going to overcome, you know, overcome the gag reflex at the 99 price tag. Right. Like that could be the thing, you know, the thing that, the thing that pushes it to where a customer would say, okay, I, you know, I have to have Agentic, I have to have these workflows I have to, you know, manage and monitor all this and somehow control it. Now the value proposition makes a lot of sense. Maybe again that's all speculation here. Or it could also be the achilles heel of E7. And if say something like, okay, so you know, what's the first workflow you're going to create? Right, the first agent workflow I'd be creating, it's like how to get help, how to, how to do help desk, right. So that I can put it, I could just tell the AI hey, my laptop's broken and it's going to go do everything in ServiceNow or whatever, you know, to. And I don't have to lift a finger, I just have to tell it. And then it's going to talk to me in plain English and I'm going to talk back to it. That's the first thing I do. Second thing would probably be hr, you know, something related to all the, you know, the hr little things that, that could be automated. And so you know, those would be agents though that would touch every organization, you know, every employee in your organization, every single one of them, right. Could, could quote unquote benefit from the service. And we all know how Microsoft defines who needs a user license. Those benefiting from the Service. So if Agent365 is $15 at a user license, as soon as I create what my biggest question is, as soon as I create one of those workflows, if I'm managing it through Agent365, do I, does that mean I need at least a 15 license for every person in my organization? Because if that's the case, it's going to be a real barrier to adoption in the same way that customers are terrified of power platform because you do this little free thing and then you get something good and next thing you know you're paying 50 grand a month. Like that's terrifying. And so we really need to understand what is the licensing behind Agent365. I think that's a, that's a, that's the million dollar question. And it'll really either I think it's going to make or break the C7 model.
- [19:18]
A
Wow. I hadn't even thought about the idea where everybody might need a license. I had that hadn't even crossed my mind for age of 365. I'm like, oh boy, that can add up.
- [19:27]
B
Well, yeah, but it's inside of the E7 bundle, which is a user based license. Right. So that's why I want that clarification because yeah, that could be A real problem or it could be a nothing burger.
- [19:39]
A
True. All right, I'm going to say for our last question, is there any final point you want to make? I guess I wonder what you're saying to customers that they should be ready to ask Microsoft about when they come knocking because they're going to be knocking really soon, right, to find out about E7? Yeah, they already are. So what should they be ready with in their arsenal of questions and comments for Microsoft?
- [20:07]
B
I mean, I really have like two things. One thing is that big question of who exactly is the intended audience for E7. Is Microsoft expecting that every user will need E7? Is it a profile that, that is for, you know, your, your, your frontier workers, you know, like down the line where, you know, how do we, you know, how are digital, you know, digital workers going to be licensed? Like, those are the kinds of questions that I still have because those could have serious price ramifications. Like what is Microsoft's intent? Are they seeing this as customers are going to buy some of these, you know, assign them to certain types of users and gradually grow into it, or are they expecting that it's going to need to be an all at once, you know, investment? That's my biggest question. What do you, what do you, what are you expecting me to buy, Microsoft? Like, what is your vision for what, you know, for what this E7 thing is? That's my big question. The other thing I would say is if you've got any copilot deals, you know, offers in front of you right now, I would, you know, if you need the technology, because you need it, then you need it, that's fine. But if there's any shadow of a doubt, I would probably hold off for now because copilot's part of E7. Like, you know, how Microsoft, if they come, if they come, give you a great deal on Copilot, they tend to want to lock your quantities in, right? They'll be like, okay, we'll give you a great deal on 20,000 seats, but you can't drop below 20,000 for the next three years.
- [21:33]
A
All right?
- [21:34]
B
You know, until at least the release of May1. Because it might be that there's a step up, maybe that, you know, you buy co pilot, there's gonna be a step up from co pilot to E7, you know what I'm saying? Or a step up from E5 plus CO pilot to E7. And it's not going to be a problem. But we won't know until we see the actual terms. You know, when this thing releases. So I would say like the worst thing you'd want to do is get stuck with a bunch of co pilot licenses that you can't get rid of for three years when now there's this E7 thing out there too. Right now you're, you know, now you're paying for E5 plus copilot like that could. I would just wait if you can wait, I would just wait until we know exactly what the licensing mechanics of Copilot E7 Agent 365. These are big expensive questions. So caution is the order of the day and I would recommend, you know, waiting as long as you can.
- [22:24]
A
Yep, I think great advice. Even though there's pressure right now, right. Because they're getting close to the end of their fiscal year and the start of the new fiscal, which is July 1st. I'm sure the salespeople are like gotta sign now. Get a sign now. But it's better to wait and be more sure.
- [22:41]
B
Or you could ask Microsoft. You can be like, well, you know, you need to answer these questions. You know, how does, how do. If I buy this copilot, for example, how does that translate into this new world of E7 and Agent365, like how does all of that that square up? If I change my mind and I want to go deeper down the road, I just don't want to be stuck holding the bag. So just make sure that you know that you've got all your questions answered and you know, you know, you know what's going to happen if you change your mind.
- [23:08]
A
Yeah. Yep. Okay. On that note, I want to say thank you so much for the great insights and again, welcome to the Directions Family Lean.
- [23:17]
B
Thank you. Thank you.
- [23:19]
A
I would like to remind all our listeners that 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 via X or BlueSky. Directions on Microsoft also is on LinkedIn, so make sure you follow us there and give us a follow at DirectionsMSFT on X or directions on Microsoft on BlueSky for all of the latest Microsoft Enterprise product and licensing information. Thanks again.