Two tiers, one platform
Microsoft offers two enterprise AI experiences within the M365 ecosystem. Understanding the boundary between them is the starting point for any Copilot adoption decision.
Microsoft 365 Copilot Chat
AI chat grounded in the public web, with enterprise data protection. Automatically available to any M365 business subscriber. No Microsoft Graph access — it cannot see your organisation's emails, documents, or Teams conversations unless you paste them in manually.
Included with eligible M365 subscriptionMicrosoft 365 Copilot
Full AI integration embedded across Word, Excel, PowerPoint, Outlook, and Teams. Grounded in Microsoft GraphiMicrosoft Graph is the unified data layer connecting all M365 services — emails, SharePoint docs, Teams chats, calendars, and more. Copilot uses it to reason across your actual work data. — it understands your org's emails, documents, meetings, and calendar. Paid add-on on top of your existing M365 plan.
$30 / user / month · Enterprise and qualifying Business plansWhat each tier includes
A full breakdown across cost, AI capabilities, in-app integration, security, and governance.
Key concept
What is Microsoft Graph?
Microsoft Graph is the unified data layer that connects all Microsoft 365 services. Think of it as the nervous system behind your Microsoft tenant — it provides a single API endpoint that gives authorised applications access to data across Outlook emails, SharePoint documents, OneDrive files, Teams conversations, calendar events, meetings, and user profiles.
When M365 Copilot is described as “grounded in Microsoft Graph,” it means Copilot can read and reason across your actual work data — not just the public internet. It knows that Sarah sent you a document last Tuesday, that you have a budget review meeting tomorrow, and that the Q2 report is stored on SharePoint. Crucially, it only surfaces data the signed-in user already has permission to access — it does not override your existing security policies.
Key concept
What is the Microsoft 365 Frontier Program?
The Frontier Program is Microsoft's early-access tier for M365 Copilot, available to organisations with a standard M365 Copilot licence. It gives access to the latest capabilities before they roll out broadly — including new model options (like Claude), advanced agentic features, and preview integrations.
Features in the Frontier program are production-ready but not yet generally available. They are rolling out progressively and may have regional or admin prerequisites. Examples currently behind the Frontier gate include: Claude model switching in Copilot Chat, the Researcher agent, Agent Mode in Excel, and Copilot Cowork. Admins can enrol their organisation through the M365 Admin Center.
| Feature | Copilot Chat | M365 Copilot |
|---|---|---|
| 💰 Cost & Licensing | ||
| Monthly cost per user | Free (included) | $30/mo — Enterprise & Business plans |
| Required base planMinimum eligibility | Any M365 Business / Enterprise (E1+) | E3, E5, Business Std/Premium, Office 365 E1/E3/E5 |
| Works with E3 | ✓ | ✓ |
| Works with E5Enhanced Purview compliance inherited | ✓ | ✓ + E5 Purview features |
| Minimum seat requirement | None | None (removed 2024) |
| 🤖 AI Capabilities | ||
| Web-grounded AI chat | ✓ | ✓ |
| Work mode — Microsoft GraphiMicrosoft Graph is Microsoft's unified API connecting all M365 data — emails, docs, meetings, Teams. Copilot uses it to answer questions about your actual org data. accessReads emails, docs, meetings, Teams | ✗ | ✓ |
| Work IQMemory & org-context awareness | ✗ | ✓ |
| Researcher & Analyst agentsDeep reasoning via OpenAI o3 or Claude | ✗ | ✓ |
| Model choice (OpenAI / Claude) | ✗ | ✓ Frontier program |
| Copilot TuningOrg-specific fine-tuning | ✗ | ✓ |
| Image generation (Designer) | ✓ | ✓ |
| Copilot Pages | ✓ | ✓ |
| 📱 In-App Integration | ||
| Copilot in Word | ✗ | ✓ |
| Copilot in ExcelData analysis, Python, Agent Mode | ✗ | ✓ |
| Copilot in PowerPoint | ✗ | ✓ |
| Copilot in Outlook | ✗ | ✓ |
| Copilot in TeamsMeeting summaries, 30-day chat recall | ✗ | ✓ |
| Copilot SearchCross-M365 + 3rd-party semantic search | ✗ | ✓ |
| 🔒 Security & Compliance | ||
| Enterprise Data Protection (EDP) | ✓ | ✓ |
| Data stays within tenant | ✓ | ✓ |
| No training on your data | ✓ | ✓ |
| Purview / sensitivity label enforcement | ✗ | ✓ (full on E5) |
| SharePoint Advanced Management | ✗ | ✓ (included since 2025) |
| ⚙️ Admin & Governance | ||
| IT admin controls | Basic | ✓ Full controls |
| Copilot Dashboard (Viva Insights) | ✗ | ✓ |
| Copilot Analytics | ✗ | ✓ |
| Copilot Studio — custom agents | Lite agents only | ✓ Full, included at no extra cost |
| Agent 365 — agent governance consoleGA May 1, 2026 · $15/user/month add-on · Included in E7 | ✗ | Add-on ($15/mo) |
| Pay-as-you-go agents | ✓ (limited) | ✓ Full Copilot Studio |
What E3 vs E5 changes about Copilot
This is the most commonly misunderstood aspect. The Copilot add-on costs the same on E3 and E5 — it's the compliance posture that changes.
Base plan determines compliance scope — not AI features
Full Copilot feature set — standard security posture
All M365 Copilot capabilities: Work IQ, Graph grounding, in-app integration, Researcher, Copilot Studio, model choice. Purview features at E3 tier: basic retention policies, standard eDiscovery, sensitivity labels. SharePoint Advanced Management included.
Same Copilot features + elevated compliance coverage
Identical Copilot AI capabilities as E3. Additionally, Copilot inherits E5's Purview capabilities: Insider Risk Management, Advanced eDiscovery (Premium), Information Barriers, Communication Compliance, and full sensitivity label enforcement within Copilot responses. Copilot still costs $30/user/month add-on.
Key principle: Copilot inherits the compliance posture of the base plan
The Copilot license does not change your compliance posture — your base M365 plan does. Upgrading from E3 to E5 for better governance is a separate budget decision from purchasing the Copilot add-on. Both decisions are independent.
Common Misconception #1
"We have E5 so we already have Copilot"
Incorrect. E5 includes advanced security and compliance tools, but M365 Copilot is always a separate paid add-on regardless of base plan tier. You must purchase the $30/user/month add-on explicitly.
Common Misconception #2
"Copilot Chat has weaker privacy"
Incorrect. Copilot Chat has full Enterprise Data Protection — it is not the consumer Copilot. Your prompts do not train models and data stays in your tenant. The limitation is functionality, not security.
Common Misconception #3
"You need 300+ seats to buy Copilot"
No longer true. Microsoft removed the minimum seat requirement in 2024. You can license a single user. Business plan SKUs are available for organisations under 300 users.
Important: True Cost
The $30 is never the total number
The Copilot add-on sits on top of your base plan. E3 (~$36) + Copilot = ~$66/user/month. E5 (~$57) + Copilot = ~$87/user/month. Add Agent 365 and you reach ~$102 — at which point E7 ($99) is cheaper and includes Entra Suite. Build the full stack before presenting a budget number.
Full cost stack — approximate monthly list price per user
| Scenario | Base plan | + Copilot | + Agent 365 | Total |
|---|---|---|---|---|
| E3 + Copilot | ~$36 | $30 | — | ~$66/user/mo |
| E5 + Copilot | ~$57 | $30 | — | ~$87/user/mo |
| E5 + Copilot + Agent 365 | ~$57 | $30 | $15 | ~$102/user/mo ⚠ |
| M365 E7 — all-in bundle | E5 + Copilot + Agent 365 + Entra Suite | $99/user/mo ✓ | ||
Approximate USD list prices. EA, volume, and regional discounts apply — verify against your agreement. The key data point: if you are on E5 and planning to add both Copilot and Agent 365, E7 is cheaper and adds Entra Suite on top.
Two new SKUs — GA May 1, 2026
Microsoft Wave 3 (March 9, 2026) introduced Agent 365 and M365 E7. Both are designed to remove the main blockers to broad Copilot and agent deployment at scale.
Agent 365 and M365 E7 — what they are and who they're for
M365 E7 — $99/user/month · All-in bundle
A new top-tier SKU that bundles M365 E5 + M365 Copilot + Agent 365 + Microsoft Entra Suite into a single licence. Designed for organisations that want enterprise AI, advanced security, identity governance, and agent management without managing separate add-ons. For large orgs already on E5 who were adding Copilot separately ($36 + $30 = $66), E7 at $99 adds Agent 365 and Entra Suite for $33 more.
Agent 365 — $15/user/month · Standalone or included in E7
A dedicated control plane for managing AI agents across the organisation — deployment visibility, usage policies, approval workflows, audit trails, and spend controls for all deployed Copilot Studio agents. Addresses the governance gap that has been the primary objection to broad agent deployment. Available as a $15/user/month standalone add-on on top of M365 Copilot, or included in the E7 bundle.
Today only ~3% of 450M M365 users have a Copilot licence
E7 removes the "Copilot is a separate procurement decision" friction for large enterprises on E5. Agent 365 directly addresses the IT governance concern that has kept many pilot programmes from scaling. Both are positioned to accelerate the remaining 97%.
Which tier fits which situation
Three practical tests. The right answer depends on your permissions posture, user mix, and current licensing. The E7 card is the one most people miss.
Copilot Chat — start here when…
- →SharePoint permissions haven't been audited — Graph access exposes every overshared file, not just the ones you intend
- →The use case is drafting or research from pasted or public content, not querying internal org data
- →You need to build the internal ROI case with a named pilot cohort before a per-seat budget is visible to finance
- →Fewer than a third of target users are daily Outlook + Teams + Word users — the rest won't recover the $30/month
M365 Copilot — buy it when…
- →Users are in Outlook for 2+ hours/day — meeting summaries and email drafting alone typically recover 30–45 min/week per person
- →There are recurring reporting cycles (monthly reports, board packs, project status) that justify Word and Excel integration
- →You need to deploy persistent @mention agents via Copilot Studio — this requires the paid licence
- →SharePoint permissions are clean and you are ready to give AI access to internal documents, emails, and meeting history
E7 or Agent 365 — the maths forces the decision
- →You are on E5 and planning to add Copilot + Agent 365: ~$102/user/month. E7 is $99 and adds Entra Suite — the decision is arithmetic
- →IT has blocked broad agent rollout because there is no central visibility into which agents are deployed and what data they access
- →You need per-agent policy controls — data access scope, approval workflows, spend limits — before sign-off beyond a pilot
- →Microsoft Entra Suite (identity lifecycle, verified ID, governance) is already in your identity and access roadmap
How Claude models appear within M365 Copilot
Anthropic's Claude is not a separate product to Copilot — it is now integrated as a model option within Copilot itself, available across several features from September 2025 onwards.
September 24, 2025
Microsoft–Anthropic partnership — Claude arrives in Researcher & Copilot Studio
Claude Sonnet 4 and Opus 4 become available inside M365 Copilot. Initially opt-in only under Anthropic's own commercial terms. Available in the Researcher agent and as model options in Copilot Studio.
December 8, 2025
Admin toggle released — Anthropic moves to Microsoft subprocessor model
New toggle appears in M365 Admin Center. For most commercial cloud tenants: ON by default. EU / EFTA / UK: OFF by default, admin opt-in required. Government clouds (GCC, GCC High, DoD): not available, no FedRAMP certification.
January 7, 2026
Anthropic becomes active Microsoft subprocessor — Agent Mode in Excel enabled
Claude models now covered under Microsoft's Product Terms and DPA. No separate Anthropic agreement needed. Enterprise Data Protection applies. Claude Opus 4.5 becomes available in Agent Mode for Excel on the web. Model switcher appears in Copilot pane.
March 9, 2026 · Wave 3
Claude in mainline Copilot Chat & Copilot Cowork launches
Claude available in everyday Copilot Chat via the Frontier programiThe Frontier Program is Microsoft's early-access tier for M365 Copilot — production-ready features rolling out progressively to opted-in tenants.. Copilot Cowork launches — a cloud-based multi-step agentic layer built on Anthropic's Claude, running inside M365's security and governance framework.
Model switcher — OpenAI or Claude
Via the Frontier programiThe Frontier Program gives M365 Copilot licensees early access to new AI capabilities before general availability. Requires opt-in via M365 Admin Center., M365 Copilot licensed users can switch the underlying model in everyday Copilot Chat between OpenAI and Anthropic models. A UI indicator shows which model is active.
Available models: Claude Sonnet 4.6 (general queries) · Claude Opus 4.6 (structured reasoning).
Requires: M365 Copilot license + admin enabling Anthropic as subprocessor.
Agent Mode — Claude for spreadsheets
Agent Mode in Excel supports a model picker between OpenAI and Claude. Available for the web version — formula generation, data analysis, error debugging, and direct edits with cell-level citations.
Copilot reads the live workbook including nested formulas and multi-tab dependencies. Makes edits while preserving formula logic, highlights every change with comments.
Requires: M365 Copilot or M365 Premium + Anthropic enabled by admin.
Claude for deep research and analysis
The Researcher agent — M365 Copilot's deep reasoning, multi-document analysis tool — can be powered by Claude Opus 4 as an alternative to OpenAI's reasoning models.
Best for: go-to-market strategy, quarterly reports, competitive analysis, multi-document synthesis.
Access: Frontier programiThe Frontier Program is Microsoft's early-access tier for progressive rollout of new M365 Copilot features. Requires M365 Copilot licence and admin enrolment., M365 Copilot licensed customers.
Build agents on Claude — model dropdown
Copilot Studio offers Claude Sonnet 4 and Opus 4 via a model dropdown in the agent builder. Mix models per step — Claude for reasoning, GPT for other tasks — within the same multi-agent system.
Fallback: If Anthropic is disabled, Claude-powered agents automatically revert to GPT-4o.
Available by default in most geographies from January 6, 2026.
Copilot Cowork — multi-step agentic execution
Copilot Cowork is Microsoft's cloud agentic layer built on Anthropic's Claude technology. Runs inside your M365 tenant — not locally — with full enterprise governance and access to the complete M365 data graph (Outlook, Teams, SharePoint, Excel, calendar).
Breaks complex tasks into multi-step plans executing over time. Progress is visible and steerable.
Status: Research Preview, March 2026. GA pricing not yet confirmed.
What admins need to configure
Enable path: M365 Admin Center → Copilot → Settings → Data access → AI providers operating as Microsoft subprocessors → Anthropic.
Data routing: Covered by Microsoft's DPA and EDP — however, Claude processing runs on Anthropic's servers (AWS/GCP, US), not in Azure. Excluded from Microsoft's EU Data Boundary.
EU / EFTA / UK: OFF by default, must opt in.
GCC / DoD: Not available.
Key takeaways
⚠️ Regional compliance note
Sources
- Microsoft Learn · Microsoft 365 Copilot documentation
- Microsoft 365 Blog · microsoft.com/microsoft-365/blog
- Anthropic · anthropic.com/news
Mathieu Kessler · kesslernity.com