Enterprises aren't rushing to Microsoft 365 E7's AI promise

Microsoft 365 E7, the company's enterprise frontier suite, promises a comprehensive way to use AI capabilities, but companies are not keen on adopting the bundle yet.

The M365 E7 license packages Microsoft productivity, collaboration and Copilot AI capabilities into a single SKU with a simple per-user price structure. However, concerns about whether the bundle will provide return on the investment are prompting customers to be wary of adoption, according to industry experts.

What's in Microsoft 365 E7

Microsoft 365 E7 is the successor to the Microsoft 365 E5 enterprise suite. M365 E5 includes the full Office 365 E5 stack (Word, Excel, PowerPoint and OneNote), along with Microsoft Teams, advanced security tools, compliance and governance tools, analytics, and device management tools.

Available since May 1, M365 E7, also known as the Frontier Suite, includes everything in M365 E5 and adds a measure of AI. This includes the following:

• Microsoft 365 Copilot for integrating AI agents in the 365 productivity products, Word, PowerPoint and Outlook.
• Microsoft Entra Suite for extended identity and access management.
• Microsoft Agent 365 for a centralized AI control plane, security hub and governance of AI agents.

The M365 E7 package is listed at $99 per user annually. All AI products are available as separate licenses, which would cost a list price of about $120 per user if purchased separately.

The advantages of E7

Like most bundled software packages, Microsoft 365 E7 promises a comprehensive basket of goodies at a reasonable cost.

It's similar to 365 E5, which bundled in applications that customers of Microsoft 365 E3 were adding and paying for separately, according to Kush Patel, CTO at Tusker, a managed services provider and Microsoft partner based in Chicago.

"If you've got an E5 license now, and you've got the add-ons and other applications that do what an E7 does, you need to do a gap analysis to see where the cost savings are coming from and what's the ROI," Patel said. "So, if you move to E7, there's going to be a cost to move any third parties over, and you need to determine the ROI on that and how you're utilizing the E7 licensing efficiently."

Having AI pieces such as Copilot and Agent 365 included in a bundle are attractive for some customers, rather than buying them a la carte, he said.

Microsoft 365 E7 is likely to be most attractive to customers who are already all-in on Microsoft technologies, according to Max Goss, analyst at Gartner.

"If you're all-in with Microsoft, if you've done a big Copilot deployment, if you've got agents everywhere and they're mostly Microsoft agents, fine, E7 is a good deal, and you may want to think about it," Goss said.

Good discounts may also provide some early-mover advantages for customers willing to gamble that the price won't rise when the E7 license contract expires, he said.

M365 E7 reluctance

Despite the enticements of a low list price and the convenience of a bundled software suite that includes potentially valuable AI governance, it appears that few customers are jumping to adopt E7.

"We've definitely seen a few customers that are interested in going to E7, but not many," Goss said.

Gartner survey research of IT and AI leaders collected in May indicates that just 4% were "highly likely" to upgrade to E7 in the next year and 16% were "somewhat likely."

The reluctance to jump right in with Microsoft 365 E7 is similar to when E5 came out, Goss said. There wasn't a big rush for that, and organizations had to be convinced to move through significant discounts and evidence from reference customers that E5 had enough ROI to justify the price. Customers are also wary of signing on for long contracts -- which tend to be three or five years with Microsoft -- particularly when AI technologies are evolving so rapidly.

"In the industry in general, with the whole disruption AI that is bringing, people are a bit worried about long contracts, so the labs like OpenAI and Anthropic generally have one-year contracts," Goss said. "People are a little bit worried about commitment anyway."

Some customers are wary of signing on to E7 because they got great discounts to implement E5, but when they came to the end of the three- or five-year contract, they found that E5 hadn't changed the business in the ways that they had hoped, Goss said.

"This is probably largely because they haven't had time to learn the features, but then Microsoft comes back for renewal, and they want more money because the discounts have ended," he said.

Customers are reluctant to move to E7 because they're unsure how many products they will use, which could lead to wasted money, said Patel. A more sensible strategy is to try out some of the applications before committing to the bundle, so they can assess the value.

"You can add Copilot or Agent 365 and kick the tires without getting dinged on it," he said. "If it works out, great, now you can move to E7. Once you go to E7, you can't downgrade, and that's the big reluctance from clients," Patel said.

Getting Copilot in E7 provides a one-size-fits-all AI platform that might not fit many organizations, as they use different AI models for different tasks, Patel said. For example, many finance teams like the Copilot integrations in Excel, while developers use Claude Code and marketers use Gemini.

Consumption junction

While the initial upfront E7 license pricing is set, that's not the only potential cost associated with the package.

The Microsoft Security Copilot capabilities included in E7 use consumption-based pricing that falls outside of the standard E7 license price, said Adam Mansfield, leadership team member at UpperEdge, an enterprise IT advisory services firm in Boston.

Microsoft provides a certain amount of security compute units (SCUs) with Security Copilot, and a cost meter starts to run when the customer goes over those SCUs, Mansfield said.

"If you didn't negotiate it right, once that meter starts going, all of a sudden you get these bills and you start owing them more money," he said.

If you didn't negotiate it right, once that meter starts going, all of a sudden you get these bills and you start owing them more money.

Not only that, but Agent 365, which is included in E7, is an AI governance tool, but it doesn't provide the capabilities to build and run AI agents. Customers who want to do that with Microsoft tools will need to use consumption-based products such as Copilot Studio, WorkIQ API or Copilot Cowork, Mansfield said.

"Those three are 100% consumption-based, which means that you get credits that you draw down on, and once you draw down to whatever you've committed to, you owe them more money," he said.

CIO game plan for M365 E7

For the most part, CIOs should hold their fire on making a decision about moving on to a 365 E7 license, but there are some specific actions they can take:

Push Microsoft on details

Customers need to get in the same room as Microsoft representatives to get a full, granular understanding of what's in E7. But they also need to fully understand what's in E5, Copilot and other applications they might potentially add, like WorkIQ API, Copilot Studio and Copilot Cowork, Mansfield said.

Due diligence and transparency

Customers need to know what they're already using in E5, what they aren't using and what they will use in E7, Mansfield said. This projection may not be perfect, but it's important to have the discussion with Microsoft to put a marker down for future assessment of what was promised.

No upfront pricing

Customers could run into problems if they focus only on the upfront discounting, Mansfield said. They need to document what happens if you buy more E7, renewals and consumption components. They need to understand what a credit is, how the metering works and how that's reported.

"Make sure you have volume discounting on that and what pricing looks like once you go over a threshold. And have price protections on the consumption components at renewal, not just the per unit price," he said.

Get Microsoft's funding

Customers need to take advantage of Microsoft's End Customer Investment Funds (ECIF), funding that's intended to help customers bring in experts to help with roll-out and get value out of Microsoft's products, Mansfield said.

"You need [tell them] that you don't sign if you don't have that commitment and funding, and make sure that Microsoft commits to being a partner post-signature," he said.

Focus on the entire landscape

Customers at renewal should not let Microsoft focus solely on the new E7 package but should bring in all the components in the Microsoft landscape, such as unified support, Azure or LinkedIn, Mansfield said.

"Use this point in time where Microsoft is very hungry," he said. "If you're interested, make them earn it. And it's not just for E7. Bring the whole thing into the conversation, get ahead of it and tie it all together to be set in the other areas."

Understand the why

Customers need to break down and determine exactly what entices them to adopt E7, said Patel. Do they want Copilot or Agent 365? And how should they implement these in their environment? For example, is Copilot the right AI, and is it for the whole company or just for certain use cases?

"Because you want to make sure you're getting true return on your investment. And when's the return -- six months, a year or five years?" he said. "It's about what makes sense for you."

Do a Copilot readiness assessment

Along these lines, customers need to make sure their environment is ready for Copilot AI, said Patel. They need to have permissions and governance in place because AI will have access to everything the user has access to. So, it's important to crawl through to see if the engineer has access to HR or finance and put governance around that before enabling Copilot.

"It's not just a flip of a switch; it's also having an AI compliance policy in place and knowing if you have any shadow AI," Patel said. "There are pieces that need to be in place before you get to any of the new features."

Focus on the long term

Microsoft usually offers short-term incentives to move to E7, but customers must consider adoption in the context of their long-term AI strategy, Goss said. Customers will need to decide if their long-term AI strategy will be Microsoft-centric or more diversified. They will also need to determine if they want to deploy AI via Copilot to everyone right away or try different tools and decide which ones to scale.

"If you're not quite sure which to scale, and if your long-term AI strategy is not Microsoft-centric, then E7 is probably not the right investment right now," Goss said.

Jim O'Donnell is a news director for TechTarget, where he covers IT strategy and enterprise ESG.