Microsoft faces uphill climb to win in AI chatbots with Copilot
Microsoft CEO Satya Nadella speaks at Microsoft Build AI Day on April 30, 2024 in Jakarta, Indonesia.
Adek Berry | AFP | Getty Images
Open Microsoft’s On last month’s earnings call, CEO Satya Nadella boasted about the company’s AI products, saying more than 150 million people use the Copilot assistant for productivity, cybersecurity, coding and other purposes.
But conversations with IT buyers at Microsoft’s Ignite conference in San Francisco this week highlighted some of the hurdles the company will have to overcome as it tries to sell its AI chatbot in the enterprise market.
“I know a lot of clients who say, ‘Yes, I want 300 to go to zero,'” said Adam Mansfield of consulting firm UpperEdge, referring to Copilot licenses. “I don’t even want this,” said Mansfield, who helps companies negotiate Microsoft deals.
Microsoft began selling a commercial version of 365 Copilot two years ago for $30 per person per month as an add-on to its broader productivity suite. The chatbot can answer user questions based on information stored in enterprise systems and work with Microsoft applications to summarize email threads, create formatted presentations, and capture key points in calls.
Microsoft is competing on many fronts in artificial intelligence, with its biggest investment coming from its Azure cloud infrastructure business. Besides the $13 billion bet on OpenAI, Microsoft is the primary cloud provider for the AI startup. In October, OpenAI announced a $250 billion commitment.
Microsoft said Azure revenue growth reached 40% in the latest quarter, marking the highest growth rate yet. Amazon Web Services and Google’s cloud business.
AI agents face a different challenge. Instead of paying for the infrastructure needed to run heavy workloads, customers are buying a new vehicle for their employees, and the return on that investment is not yet clear, according to some customers and consultants interviewed by CNBC.
AdobeGoogle, sales force, Working day and other vendors are trying to sell agents to companies, schools and governments, creating a crowded market for a nascent technology. OpenAI and Anthropic not only have popular AI models, but are also increasingly serving businesses with new services.
Eon, a Sequoia-backed cloud backup startup, runs its software on Azure. CEO Ofir Ehrlich said Microsoft is expanding Azure’s appeal to software developers and operations professionals. However, the company does not standardize Microsoft’s artificial intelligence software. Ehrlich, who previously sold CloudEndure to Amazon, said it is based on AI coding tools from startups Cognition and Cursor and multiple AI assistants.
Google’s Gemini is making rapid progress in the market. This week, the company launched its latest model, Gemini 3, which it says will provide better answers to more complex questions.
“A huge company with 16,000 employees moved all their mail back to Google so they could get more out of Gemini,” said Julian Hamood, founder of Microsoft partner TrustedTech.
Microsoft declined to comment.
More discounts?
Hamood said one thing Microsoft could do is provide incentives to help companies and partners pay for data cleansing projects that would make Copilot more valuable.
He said Microsoft is offering some customers a 50% discount off Copilot’s $30 list price. “But they are starting to move away from Copilot discounts,” Hamood said.
Tim Crawford, a former IT executive who now advises chief information officers, said many customers don’t get enough use out of Copilot to justify the cost.
“Am I getting $30 per user per month of value out of this?” he said. “The short answer is no, and that’s what’s holding back more adoptions.”
Starting in December, the Microsoft 365 Copilot Business tier will be available for $21 per person per month for organizations with up to 300 end users. announced at Ignite this week.
It’s not all bad for Copilot, as Microsoft still has an advantage with its large user base.
Nadella said in his last earnings call that “more than 90% of the Fortune 500 now uses Microsoft 365 Copilot,” but did not specify the average number of users at those companies. He named five companies and one UK government department that each bought more than 15,000 seats in the quarter, adding that most corporate customers kept coming back for more.
Land O’Lakes butter is displayed at a supermarket on February 15, 2017 in New York City.
Brendan McDermid | Reuters
This year, butter maker Land O’Lakes rolled out Microsoft 365 Copilot to all of its nearly 5,000 knowledge workers after initially granting access to about 20%. A small number of employees also have Gemini subscriptions.
Land O’Lakes has long relied on Microsoft software and now runs more than 70% of its infrastructure on Azure, the company’s chief technology officer, Teddy Bekele, said in an interview at Ignite.
Software engineers at Land O’Lakes use GitHub Copilot AI automated scheduling software to create custom project and portfolio management software, Bekele said, adding that the company ended up paying for an off-the-shelf product.
Now Land O’Lakes testing Ozassistant to retail agronomists who advise farmers. The company developed it with Microsoft Foundry software. Bekele said Oz could save Land O’Lakes money because it replaces legacy practices.
‘Natural selection’
Meanwhile, education publisher Pearson has enabled Microsoft 365 Copilot for all of its 18,000 employees. At the conference, chief technology officer Dave Treat said the company uses Amazon and Google cloud services as well as Windows, Office and Azure products.
At Ignite, Pearson announced Communication Coach, an agent that will provide personalized learning recommendations via Copilot based on Teams calls with the help of OpenAI’s GPT-4o mini model.
“Microsoft dominates the enterprise,” Treat said. “This was a natural choice if we were thinking about how to train people about communication in the workplace.”
Microsoft is also adding more models to the lineup. On Tuesday, Microsoft said Anthropic will bring Claude Haiku 4.5, Opus 4.1, and Sonnet 4.5 to Microsoft Foundry. Anthropic has committed to spending $30 billion on Azure.
“Before today, we didn’t have access to all of Anthropic’s models,” Treat said. “We’re doing this now. It’s a big improvement.”
Still, Mansfield said competition has intensified this year and some companies are more seriously considering alternatives to Microsoft’s AI products.
“Microsoft is trying to catch up, honestly,” Mansfield said. “This is generally not something a monopoly should do. They’re not comfortable. Sales reps need to learn how to sell now.”
According to Microsoft, the technology is gaining increasing traction within the company.
About 70% of commercial sales, support and partner services employees use Microsoft 365 Copilot on a daily basis, up from 20% a year ago, said Pam Maynard, the company’s chief AI transformation officer.
“We have 30% daily active usage,” Maynard said in an interview. “I believe we will get there, and it’s just part of managing change and helping people develop that habit.”
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