Microsoft 365 Add-ons: Security & Compliance Licensing
Introduction: Microsoft 365 E5 offers the most advanced security and compliance features, but not every organization needs – or can afford – the full E5 suite for all users. To bridge the gap, Microsoft provides E5 Security and E5 Compliance add-ons.
These add-ons allow companies on Microsoft 365 E3 (or other plans) to unlock top-tier security or compliance capabilities without upgrading every user to a full E5 license.
In essence, they deliver critical advanced features in a more tailored and cost-effective way for those who need extra protection or governance, but aren’t ready to go all-in with E5 for everyone.
What Are Microsoft 365 E5 Security and E5 Compliance Add-ons?
E5 Security Add-on: This add-on provides the advanced security components of Microsoft 365 E5 as a package that can be added to Microsoft 365 E3 (and other plans).
It includes Microsoft’s top-tier security tools, such as:
- Entra ID Premium P2 (Azure AD P2): Advanced identity and access management, offering features like risk-based Conditional Access and Privileged Identity Management for tighter control over user access.
- Microsoft Defender Suite: Comprehensive threat protection across attack vectors. The add-on includes Defender for Office 365 (email and collaboration protection), Defender for Endpoint (endpoint detection and response), Defender for Identity (detecting on-premises identity threats), and Defender for Cloud Apps (CASB for SaaS app security). These provide XDR (Extended Detection & Response) capabilities across email, devices, identities, and cloud apps.
- Unified Security Management: The E5 Security add-on bundles these tools to enable a Zero Trust security posture with integrated signals. It allows organizations to replace disparate third-party security products with a well-integrated Microsoft stack, benefiting from Microsoft’s massive threat intelligence (analyzing trillions of signals daily).
E5 Compliance Add-on: This add-on unlocks the advanced compliance and information protection features of the E5 suite. Key components include:
- Advanced Data Governance & Protection: Tools like Microsoft Purview Information Protection for classifying and encrypting sensitive data, and Records Management for automated retention and deletion policies. These help safeguard data and meet regulatory data retention requirements.
- Insider Risk Management & Compliance Monitoring: Capabilities to detect and remediate risky insider actions, and monitor compliance with policies (for example, flagging unusual data downloads or transfers that might indicate insider threats).
- Data Loss Prevention (DLP): Enhanced DLP across emails, SharePoint/OneDrive, Teams, and devices to prevent sensitive information (SSNs, credit card numbers, health data, etc.) from leaking, with the ability to automatically block or warn on policy violations.
- Advanced Audit & eDiscovery: E5 Compliance provides advanced auditing (longer retention of audit logs and more detailed activities captured) and Advanced eDiscovery tools for legal investigations. This includes performing deep content searches across mailboxes and chats, applying legal holds, and reviewing data with machine learning to find relevant information during litigation or compliance audits.
- Compliance Management & Reporting: Solutions like Purview Compliance Manager are included, which offer pre-built assessments for standards (GDPR, HIPAA, etc.) and a compliance score dashboard to track your organization’s compliance posture.
In short, the E5 Compliance add-on brings a suite of information protection, governance, and legal compliance tools that go far beyond the basics in E3. Organizations can mix and match these add-ons as needed – for example, adding just the Security add-on, just the Compliance add-on, or both.
Read about Negotiating Microsoft 365 E3 vs E5 Licensing Agreements.
Why Use Add-ons Instead of Full E5?
The add-on approach lets you target specific needs and avoid paying for features you won’t use:
- Cost Efficiency: The E5 Security and Compliance add-ons are significantly cheaper than upgrading to full E5 licenses. Microsoft prices them as cost-effective bundles—roughly 20–30% of the cost of a full E5, giving you advanced capabilities at a fraction of the price. Microsoft noted that buying the E5 Security bundle yields about 57% savings compared to purchasing all its components standalone. This hits the “sweet spot” of improved security/compliance without the E5 sticker shock for many.
- Avoiding Unneeded Features: Full E5 includes security and compliance, voice/telephony (Teams Phone System), and analytics (Power BI Pro). Those add considerable cost. If those features aren’t needed, why pay for them? Historically, to get E5’s security benefits, organizations had to buy the entire E5 suite and swallow the cost of unused extras, or try a complex mix of separate licenses. The Security add-on, for example, solves this by stripping out the voice and analytics parts and delivering only the security tools. This means you’re not funding features “most companies simply didn’t need” (as one report noted about E5’s phone and BI component).
- Gradual Upgrade Path: Add-ons allow a gradual, needs-based adoption. You can enhance your Microsoft 365 environment in urgently needed areas of security or compliance without a massive licensing upheaval. It’s an easier internal sell and deployment than an all-at-once E5 upgrade. You maintain the familiar E3 foundation for users and layer new capabilities where required.
- Flexibility in Assignment: Not every user may need the advanced features. With add-ons, you can choose which users get them. For example, you might assign the E5 Compliance add-on only to your legal and HR teams who handle eDiscovery, or give E5 Security add-ons only to users in high-risk roles or departments handling sensitive data. This selective licensing optimizes costs – you’re not forced into a one-size-fits-all upgrade.
Practical Scenarios and Tips
Consider these real-world scenarios to illustrate usage:
- Scenario 1 – Security-Focused Upgrade: A mid-size financial firm with 500 employees is on M365 E3. After experiencing some sophisticated phishing attacks, they need better threat protection. Rather than upgrading all 500 users to E5, they add the E5 Security add-on for all users. This immediately provides advanced phishing and ransomware defenses (Defender for Office 365, Defender for Endpoint, etc.) across the company, dramatically improving security. They did not purchase the E5 Compliance add-on because their compliance needs are basic, sticking with E3’s built-in features and avoiding extra cost. Using the security add-on, the firm saved roughly 40% compared to moving everyone to E5 while closing their security gaps.
- Scenario 2 – Compliance for a Subset: To meet HIPAA regulations, a healthcare organization must enhance data protection and audit trails. They enable the E5 Compliance add-on only for their 50 compliance officers and legal team members performing audits and eDiscovery. Those users now have advanced content search and auditing capabilities to handle investigations and regulatory inquiries, which E3 alone didn’t provide. The remaining 1,000 staff stay on E3 since they don’t directly deal with compliance operations. This targeted approach ensures the organization meets regulatory requirements efficiently, paying for a small number of premium licenses instead of upgrading all 1,050 employees to E5.
- Mixing Add-ons: Some companies deploy both add-ons instead of a full E5. For example, a research lab might use the E3 + Security add-on for all users (to protect against cyber threats) and the E3 + Compliance add-on for the data governance team (to manage sensitive research data and legal holds). This mix maximizes security organization-wide, but limits the cost of compliance features to the small team that needs them.
Deployment Tip: When using add-ons, be mindful of coverage. Security functions like threat protection work best if broadly applied; leaving a subset of users without the E5 Security add-on could create weak links (e.g., an unprotected mailbox could be a breach entry point).
For compliance, ensure any user or data location that might fall under a legal hold or DLP policy has the necessary licensing, or you may not be fully covered. It’s wise to review your usage scenarios with a licensing specialist to decide if an add-on should be enterprise-wide or targeted.
Avoiding Common Pitfalls
While E5 add-ons are powerful tools, watch out for these pitfalls:
- Licensing Overlap: Check your current licenses to avoid double-paying. For instance, Microsoft 365 E3 already includes security features via EMS E3 (like Azure AD P1). The E5 Security add-on upgrades those to P2 and adds Defenders. Don’t separately buy individual components that are part of the add-on. Similarly, evaluate the cost if you’re considering combining multiple add-ons plus other extras (Power BI, Teams Phone, etc.). Getting the full E5 license for those users might be more economical at some point.
- All-or-Nothing Thinking: Don’t assume you must either stick to E3 or move everyone to E5. The add-ons offer a middle road; use them. Conversely, don’t automatically buy both add-ons for everyone without analysis—many organizations find that either the security or the compliance piece (or neither) is what they truly need. Assess each area independently.
- Forgetting Prerequisites: The Security and Compliance add-ons require a base eligible license (typically Microsoft 365 E3 or Office 365 E3). Ensure you assign add-ons only to users with the prerequisite license; an add-on alone isn’t a standalone SKU. Also, remember that E5 add-ons inherit the same usage rights as E5 for those aspects – for example, an E5 Security user has rights to the full Defender and Azure AD P2 feature set, so plan your user training and tool rollouts accordingly.
- Not Using New Capabilities: Use them fully once you’ve paid for these advanced tools. A common issue is enabling, say, the E5 Compliance add-on but not configuring any DLP policies or not leveraging the Analytics in Compliance Manager. Treat an add-on deployment like any tech implementation: invest in configuring the features, training your staff, and operationalizing the new capabilities to get your money’s worth.
Read Optimizing Microsoft 365 Licensing for Hybrid Workforces.
Why Independent Licensing Expertise Matters
Deciding between E5 add-ons and full E5 – and figuring out the right mix – can be challenging. This is where independent licensing experts (like Redress Compliance) prove invaluable:
- Needs Assessment: An impartial expert can analyze your environment and highlight which advanced features you need (for example, do you need Insider Risk Management or will basic audit logs suffice?). This prevents overspending on add-ons that don’t deliver value or identify areas where an add-on could mitigate a serious risk.
- Cost Modeling: Licensing consultants often model scenarios (E3 + add-ons vs. E5, partial deployment vs. full) to show 3-year cost projections. This helps you make an informed decision grounded in numbers, especially for CFO approval. They will also factor in any available promotions or bundle discounts Microsoft might offer.
- Deployment Planning: These experts also ensure you execute the licensing correctly, advising on which users should get which add-on, how to stagger rollouts, and checking compliance requirements (so you don’t accidentally violate license terms by, say, using an E5 feature for an unlicensed user).
- Staying Current: Microsoft’s product line-up and rules evolve frequently. Independent advisors stay on top of changes (for example, new add-ons or shifting features between E3/E5). They can alert you if a new option (like an “E5 Archive add-on” or similar) could better suit your needs or if Microsoft’s packaging changes at renewal time.
In summary, Microsoft 365’s Security and Compliance add-ons allow organizations to upgrade their defense and compliance capabilities without fully upgrading their licensing tier. They exemplify the “pay for what you need” approach: you bolster the areas that matter most to your business.
By combining E3 with the right add-ons, companies can achieve “E5-level” outcomes in security and compliance at a lower total cost while avoiding unnecessary complexity. As always, careful planning and perhaps expert guidance will ensure you strike the perfect balance between coverage, simplicity, and cost-effectiveness.
Read about our Microsoft Negotiation Services.
