Summary
Microsoft's May 2026 Product Terms update, effective 1 May 2026, marks the official launch of Microsoft 365 E7 at $99 per user per month, introduces a new product entry for Agent 365, broadens the multiplexing definition to cover AI agents and automation, and adds new restrictions on how customers may use Microsoft's AI services.
Microsoft 365 E7 ($99/user/month) and Agent 365 ($15/user/month) appear in the Product Terms for the first time, with CSP launch promotions of 10–15% off
Multiplexing definition broadened to cover AI agents and automation; new Acceptable Use Policy prohibition against replicating product functionality; Microsoft discloses automated AI monitoring
Microsoft 365 Applications and Office Applications gain new restrictions on using Robotic Process Automation (RPA) or bot outputs to train AI models
Azure Capacity Blocks introduce prepaid capacity reservations of one day to six months
Windows 365 with Windows Hybrid Benefit removed (end of life); list prices reduced 20%
Multiplexing Definition Broadened to Cover Automation
Multiplexing is a licensing concept that has been part of Microsoft's terms for years. In plain language, it means that if you put a layer of technology between your users and a Microsoft product, you still need a licence for every user or device that benefits from the product. The classic example is a web portal that connects to SQL Server on behalf of hundreds of users: each user still needs a licence, even though the portal is the only thing connecting directly to the database.
Until now, the Universal Terms for Online Services defined multiplexing as "hardware or software" that pools connections or reduces the number of users that directly or indirectly access a product. The May update replaces "hardware or software" with "any method (for example, hardware, software, or automation)".
By replacing a closed list with an open-ended phrase, Microsoft removes any argument that AI agents, robotic process automation bots, orchestration layers, or other automation technologies fall outside the multiplexing rule. If an automation tool connects to Microsoft 365 on behalf of ten employees, all ten employees still need licences, even though only the bot is making the connection.
The broadened definition affects you if you deploy AI agents, attended or unattended bots, or any workflow automation that interacts with Microsoft Online Services or Microsoft software. The licensing obligation follows the end user or device the automation serves, regardless of the technology sitting between the user and the product.
New Acceptable Use Policy Prohibition
The Acceptable Use Policy in the Universal Terms has a new bullet point. Customers may not use an Online Service "to replicate product functionality".
The Acceptable Use Policy (AUP) already prohibits activities such as unauthorised access, spamming, cryptocurrency mining, and causing harm. The new prohibition sits alongside the existing list, meaning that using a Microsoft Online Service to build a competing product that replicates the functionality of that service, or any other Microsoft service, is now an explicit AUP violation that could result in suspension.
The wording is broad enough to cover a range of scenarios. An independent software vendor that builds an AI assistant on top of Azure OpenAI and sells it in competition with Microsoft 365 Copilot could fall within scope. So could a managed service provider that uses Exchange Online infrastructure to offer a competing email service to its own customers. The Product Terms do not define "replicate" or set a threshold for how similar the competing product would need to be, which leaves the boundary open to Microsoft's interpretation.
Microsoft now both prohibits using its services to replicate product functionality (this section) and discloses automated classifiers that monitor AI usage for policy violations (next section). Detection and prohibition cover the same activity.
The new prohibition is distinct from the existing Competitive Benchmarking clause, which governs disclosure of benchmark results. The new clause goes further: it prohibits using the service itself as a tool to replicate what the service does. Read alongside the existing restriction on using Microsoft Generative AI Services to generate synthetic training data for substantially similar AI services, the Product Terms now contain multiple overlapping prohibitions against using Microsoft's platforms to create competing products.
Automated Classifiers for AI Policy Enforcement
The Responsible Use of Microsoft AI Services section of the Universal Terms has been updated to include a new disclosure. Microsoft now states:
"As part of providing the Microsoft AI Services, Microsoft may run automated classifiers and other automated evaluation systems to detect violations of the Acceptable Use Policy and Code of Conduct".
The automated classifiers disclosure is the first time the Product Terms have explicitly stated that Microsoft uses automated systems to monitor customer use of its AI Services for policy compliance. Previously, the terms described what customers may and may not do with AI Services, but did not describe how Microsoft enforces those rules.
Organisations using Azure OpenAI, Copilot, or any other Microsoft AI Service should be aware that their usage is being evaluated by automated systems against the Microsoft Enterprise AI Services Code of Conduct and the Acceptable Use Policy.
RPA and Bot Outputs Prohibited from AI Training
Microsoft 365 Applications and Office Desktop Applications both gained a new section titled "Use for Training and AI Models" in their Service Specific Terms:
"Customer may not use and may not permit any third party to use data, logs, recordings, or other outputs from Robotic Process Automation, bots, or other similar technologies to develop, train, improve, replicate product functionality, or fine tune machine learning or artificial intelligence algorithms or models".
The new section is broader than the existing prohibition in the Product Terms. The Microsoft 365 Unattended Licence is a special licence type for bots that run Office applications without a human present, such as automated report generation or data extraction workflows. That licence already prohibited using bot outputs for AI training, but the restriction applied only to organisations using that specific licence. The new "Use for Training and AI Models" section extends the same prohibition to all customers of Microsoft 365 Applications and Office Applications, regardless of which licence type they hold.
Microsoft's own change description states the update "clarifies existing intent and does not change permitted use". That characterisation is worth scrutinising. The previous prohibition applied only to organisations holding the Unattended Licence. The new section applies to every Microsoft 365 Applications and Office Applications customer, which is a substantially larger population. Whether the intent was always there or not, the enforceable scope has expanded.
The Microsoft 365 Unattended Licence Use Limitation was also updated to add "replicate product functionality" to its existing prohibition, aligning it with the new Acceptable Use Policy bullet point.
Microsoft 365 E7 Enters the Product Terms
Today, 1 May 2026, is the official general availability date for Microsoft 365 E7, and the Product Terms now formally define what the licence includes. The Components section lists:
"For Microsoft 365 E7 the components include Office 365 E5, Enterprise Mobility + Security E5, Windows 11 Enterprise E5 Per User, Microsoft 365 Copilot, Microsoft Agent 365, and Microsoft Entra Suite".
E7, which Microsoft brands "The Frontier Suite", is the first new enterprise edition in the Microsoft 365 lineup since E5 launched in 2015. It bundles Microsoft 365 Copilot ($30 per user per month), Agent 365 ($15), and Microsoft Entra Suite ($12) on top of E5 ($60 from July 2026). Purchasing these separately would cost $117 per user per month ($60 + $30 + $15 + $12). The E7 bundle price is $99 per user per month, which Microsoft describes as a 15% saving.
What E7 means for budgets
The budget impact depends on where you start. All figures below use the July 2026 prices that take effect two months after E7's launch.
If you are already on E5 with Copilot, your July baseline is $60 + $30 = $90 per user per month. E7 at $99 adds Entra Suite and Agent 365 for an incremental $9, compared to $12 + $15 = $27 if you purchased those two products separately. The step up from E5-plus-Copilot to E7 is modest, and the bundle arithmetic works in your favour.
If you are on E5 without Copilot, your July baseline is $60 per user per month, and E7 at $99 represents a $39 increase, or 65% per seat. The question is whether Copilot, Agent 365, and Entra Suite together justify that increase, which depends heavily on whether you have found a return on your Copilot investment.
If you are on E3, your July baseline is $39 per user per month, and the jump to E7 at $99 more than doubles your per-seat cost. If you are considering AI capabilities, E5 plus standalone Copilot is a more likely intermediate step.
The $99 per-user-per-month fee is not the full cost of running AI agents. Building and running agents requires separate consumption spending through Copilot Studio or Microsoft Foundry, billed through Azure meters on top of the E7 subscription. We have covered the full cost structure, including consumption levels and pre-purchase plans, in our E7 licensing guide.
Launch promotions
Microsoft is offering significant discounts through the Cloud Solution Provider (CSP) channel, available through 31 December 2026:
10% off annual subscriptions at 10 to 9,999 seats
15% off annual subscriptions for 100 to 9,999 seats
15% off triennial subscriptions at 300 to 9,999 seats
At the 15% discount level, E7 drops from $99 to approximately $84 per user per month. For comparison, E5 plus Copilot at current list prices costs $87 ($57 + $30), rising to $90 ($60 + $30) from July 2026. At the promotional rate, E7 at $84 is $6 cheaper than E5 plus Copilot at July prices ($90), and adds Entra Suite and Agent 365 on top. The promotions expire on 31 December 2026, so the pricing advantage is time-limited.
Microsoft 365 Copilot itself is also under heavy promotional discounting through CSP, with discounts ranging from 15% to 40% off, depending on seat count. Until recently, the deepest Copilot discounts (30% and 40%) required that at least 80% of an organisation's users hold qualifying Microsoft 365 licences, which excluded you if you only wanted Copilot for a subset of your workforce. That requirement has been removed, dramatically expanding eligibility. If you are evaluating E7, compare the discounted E7 price against the discounted Copilot-plus-E5 combination, because both are available at promotional rates through the same period.
Timing context: July 2026 price increase
E7's launch comes two months before the Microsoft 365 price increase on 1 July 2026, which raises E3 from $36 to $39 and E5 from $57 to $60. If you are negotiating a renewal between now and July, factor in whether your renewal locks in current pricing or catches the July increase, as renewals completed before 1 July lock in current pricing until the first renewal that falls after 1 July.
What changed in the Product Terms
The E7 addition cascades through the entire Microsoft 365 Product Terms entry. Many Microsoft 365 add-ons and advanced features require a specific base licence before they can be purchased. For example, Security Copilot previously required Microsoft 365 E5. Every such requirement table has been updated to accept E7 wherever E5 was previously listed. The practical effect is that E7 customers can purchase the same add-ons and features that were previously available only to E5 customers, including Defender for IoT, Priva, Entra ID Governance, Insider Risk Management, eDiscovery and Audit, Microsoft 365 Copilot, and more than a dozen others.
Beyond the prerequisite tables, E7 has also been added to the Azure Virtual Desktop qualifying licences list and to the Covered Suites definition in the Glossary, which now reads "Microsoft 365 E3, E5, E7".
All E7 changes apply to both MCA and EA/EAS.
Agent 365: New Product Entry
Agent 365 is a new product in the Microsoft 365 family, generally available from today at $15 per user per month as a standalone purchase, or included in E7.
Despite the name, Agent 365 does not build or run AI agents. It is a governance and security layer, not an agent platform. In our E7 licensing guide, we described it as "the control plane, not the engine". Agent 365 extends Entra, Purview, and Defender to cover AI agents alongside human users, giving IT administrators visibility and control over agents through identity management, compliance monitoring, and threat detection. The actual agent building and execution require separate products such as Copilot Studio or Microsoft Foundry, with their own consumption-based costs.
The Product Terms entry does not provide a plain-language description of Agent 365's function. The entry focuses entirely on data handling and consumption metering.
Data Privacy Notices
The entry's primary section addresses data flows. Agent 365 integrates data between Microsoft Defender, Entra, Purview, and other Online Services such as Microsoft 365, Copilot Studio, or Foundry. The Product Terms state:
"Customer Data and Personal Data may be copied to, or processed and stored by, various Agent 365 Integrated Services. Once data is transferred between and to the Agent 365 Integrated Services, such data is governed by the Product Terms, including the applicable compliance, data handling, privacy, and security commitments, of the Microsoft Product where the data is processed or stored".
Customers are explicitly made "responsible for evaluating whether data flows between Microsoft Products are appropriate for their organisation's usage and compliance requirements". The contractual effect is to place the compliance burden on the customer, not Microsoft, when data moves between products via Agent 365.
Windows 365 for Agents
When a customer enables Windows 365 for Agents, usage is metered as a First-Party Consumption Service. First-Party Consumption Services are Microsoft Online Services billed through Azure meters on a pay-as-you-go basis, rather than through fixed per-user or per-device subscription fees. The Glossary has been updated to include "W365 for Agents" in the First-Party Consumption Services definition.
If you are on an Enterprise Agreement, Agent 365 follows the standard EA purchasing rules. Licences can be ordered through the annual true-up process rather than monthly, counts can be reduced at renewal, and the subscription can continue beyond the initial enrolment term. All Agent 365 terms apply to both MCA and EA/EAS.
Azure Capacity Blocks
Microsoft Azure now offers a new purchasing mechanism called Azure Capacity Blocks. These allow customers to purchase a fixed-duration block of capacity for a specific Azure resource in a specified region, with a scheduled start date in the future. The Product Terms do not describe the intended use cases. The commercial structure guarantees capacity for a specific resource in a specific region with a future start date, which distinguishes Capacity Blocks from existing purchasing options that guarantee pricing but not capacity availability.
The key commercial terms for Capacity Blocks are as follows.
Duration: One day to six months, as determined by Microsoft
Payment: Full amount upfront at the time the purchase request is accepted
Cancellation: Non-cancellable and non-refundable
Expiry: Customer is evicted from the capacity at the end of the term, and Microsoft stops the customer's use of the applicable Azure Services
Azure prepayment: Unless otherwise stated by Microsoft, Azure prepayment may not be applied to Capacity Block purchases
The Product Terms describe the acceptance trigger: "A purchase request is accepted when Microsoft confirms the order (including by sending an order confirmation or otherwise making the Azure Capacity Block available in the applicable purchasing experience)".
The Payment and Fees table has been updated with a new item 8 for Azure Capacity Blocks. The Glossary adds the definition: "Azure Capacity Blocks means an advance purchase of a fix-duration block of capacity for a specified Microsoft Azure resource in a specified region, with a scheduled future start date". (The Glossary text reads "fix-duration"; elsewhere in the Product Terms, the same concept is written as "fixed-duration".)
Azure Capacity Blocks differ from existing Azure reservations in their commercial terms. Reservations guarantee pricing for up to three years and can be exchanged or cancelled (with a 12% early termination fee). Capacity Blocks guarantee capacity availability for a specific resource in a specific region, but are non-cancellable, non-refundable, and last no more than six months. The Capacity Blocks terms apply to both MCA and EA/EAS.
Windows 365 with Windows Hybrid Benefit Removed
Microsoft has removed the Windows 365 Business with Windows Hybrid Benefit section from the Windows 365 Product Terms. Microsoft's own description states the product "has reached end of life and is no longer supported".
Windows Hybrid Benefit was a discounted Windows 365 Business SKU for users who already had a device licensed with Windows 10/11 Pro. The discount recognised that the customer had already paid for a Windows licence on a physical device and was adding a cloud PC on top. The removed section required the user to be the Primary User of a Pro-licensed device, to use that device as their primary work device, and to connect at least once per subscription term to maintain eligibility.
On the same date, Microsoft has also reduced Windows 365 Business list prices by 20%, paired with a new on-demand start experience where cloud PCs hibernate after one hour of inactivity. The 20% across-the-board decrease applies to all Windows 365 Business customers, not just those who previously qualified for the WHB discount through owning a Pro-licensed device.
Hybrid Benefit gave customers a discount in exchange for proof they owned a Windows Pro device. The new model — 20% list cut plus on-demand hibernate — shifts the saving from licence proof to runtime usage.
The maximum licence quantity cap has been simplified from "300 Windows 365 Business/Windows 365 Business with Windows Hybrid Benefit" to "300 Windows 365 Business".
Separately, Microsoft 365 E7 has been added to all Windows 365 eligibility lists. Windows 365 Enterprise licence assignment now lists "Microsoft 365 F3/E3/G3/E5/G5/E7/A3/A5/Business Premium/Student Use Benefit" as qualifying licences. The same E7 addition appears in Windows 365 Frontline and Windows 365 Reserve. Both MCA and EA/EAS.
Power Platform: Windows 365 for Agents and E7 Updates
The Microsoft Power Platform Product Terms received two types of changes.
First, the Service Specific Terms for Microsoft Copilot Studio now include terms for the Windows 365 for Agents add-on. Copilot Studio is Microsoft's platform for building custom AI agents, and the new add-on allows those agents to run on dedicated Windows 365 cloud PCs rather than in the browser or on shared infrastructure.
Second, the Power BI Premium Add-On prerequisite has been updated to include Microsoft 365 E7 alongside E5, making the full qualifying-licence string "Power BI Pro, or Microsoft 365 E5/A5/E7, or Office 365 E5/A5". The Power Platform Requests add-on prerequisite text was also clarified from "O/M365" to "Office365/Microsoft 365".
All Power Platform changes apply to both MCA and EA/EAS.
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