Microsoft 365 Licensing E3 vs. E5: Which Plan Should You Choose?

If you’re already invested in Microsoft 365, you know the perks—centralized management, seamless integration, and predictable costs. But as cyber threats get more sophisticated and frequent, your security defenses need to evolve to keep up. That’s where Microsoft 365 E3 and Microsoft E5 come in.

On paper, E5 seems like the obvious winner—more advanced security, compliance, and analytics. But is it worth the upgrade or can you hack E3 with add-ons to get the protection you need? The decision isn’t just about security; it’s about efficiency, cost-effectiveness, and reducing complexity.

Let’s break it down.

Differences Between Microsoft 365 E3 and Microsoft 365 E5

If you’re trying to figure out whether E3 or E5 is right for your business, here’s the simple version:

• Microsoft E3 is great for foundational security. It covers the basics: email protection, identity management, and device security. Perfect for small and mid-sized businesses or those just starting out.
• Microsoft E5, however, goes beyond E3. It’s all about proactive protection, using AI-driven tools that identify threats in real time, respond automatically, and even stop things before they escalate.

And the good news is if you’re using Microsoft 365 E3 but need the advanced security features of E5, you don’t necessarily have to upgrade fully.

Microsoft offers the E5 Security add-on, which enhances E3 with E5’s security features—without requiring a complete licensing shift. (Note: The E5 Security add-on can only be applied to E3.) Compare the licensing options in detail using this Feature Matrix.

Now, let’s dive into the key advantages of E5 and why it might be worth the investment.

5 Key Features That Set Microsoft 365 E5 Apart from Microsoft E3

E5 gives you advanced features that go far beyond the basics. Here’s what sets it apart:

1. Defender for Office 365 P2: Stop Phishing Attacks

What’s the concern

Phishing attacks remain the easiest way for attackers to steal credentials or install malware. Fake login pages, malicious links, and social engineering tactics deceive employees daily.

How E5 Solves It
Uses AI to detect and block phishing attempts before they reach inboxes. Features like Safe Links and Safe Attachments neutralize malicious content, while Attack Simulation Training helps employees recognize threats—stopping breaches before they start.

2. Defender for Cloud Apps: Control Shadow IT

What’s the concern
Employees frequently use unapproved apps—file-sharing tools, personal emails, and collaboration platforms—putting sensitive data at risk.

How E5 Solves It
Monitors SaaS usage, detects risky applications, and prevents unauthorized access. By identifying and controlling unapproved apps, businesses can reduce data leaks and maintain compliance without restricting productivity.

3. Defender for Identity: Stop Internal Threats

What’s the concern
Once inside a network, attackers steal credentials, escalate privileges, and move laterally to access critical systems.

How E5 Solves It
Uses behavioral analytics to detect anomalies like impossible travel, unauthorized privilege escalation, and credential theft. By identifying unusual activity early, it prevents attackers from navigating deeper into the network.

4. Entra ID P2: Protect Admin & User Accounts

What’s the concern?

Excessive admin access increases risk. If one privileged account is compromised, attackers gain full control. Additionally, risky sign-ins can go undetected in standard security setups.

How E5 Solves It:

Entra ID P2 includes two critical security features:

• Privileged Identity Management (PIM): Limits admin access to only when it’s needed and revokes it after use.
• Risk-Based Conditional Access Policies: Applies adaptive authentication measures such as blocking risky sign-ins or enforcing Multi-Factor Authentication (MFA) when suspicious activity is detected.

5. Defender for Endpoint P2: Automate Threat Response

What’s the concern
Most breaches start at endpoints—laptops, desktops, and mobile devices—where malware spreads quickly.

How E5 Solves It
Detects and responds to threats in real-time, automating remediation to prevent malware from spreading. It also proactively manages vulnerabilities, reducing the risk of exploitation before an attack even begins.

Microsoft E3 vs. Microsoft E5: Which One is Right for You?

Security isn’t one-size-fits-all. Many companies start with E3 and upgrade key users to E5 for added protection where it matters most.

• Microsoft E3 = Strong security foundation.
• Microsoft E5 = Advanced threat protection, automation, and compliance.

ProArch’s Recommendation: Go with Microsoft 365 E5 for Proactive Security

We recommend Microsoft 365 E5 because security should be proactive, not reactive. With E5, you get built-in AI-driven threat protection, automated response, and risk-based access controls—all in one platform. No juggling third-party tools, no gaps in coverage—just seamless, enterprise-grade security that works.

That said, we get it—budgets matter. If E5 for everyone isn’t feasible, E3 is still a solid choice. You can always upgrade high-risk users to E5 security tools while keeping costs in check.

Let’s Find the Right Fit for Your Business

Still unsure whether Microsoft E3 or Microsoft E5 is the right move? That’s where we come in.

Our Managed Detection and Response (MDR) services are built to leverage the advanced security tools included in Microsoft E5. As a top Microsoft Partner, we can help you maximize your investment, ensure you're getting the most out of Microsoft’s security stack, and align your defenses with your organization’s needs.

Let’s build your security strategy together. Reach out to us here.