Microsoft CEO Satya Nadella speaks at Microsoft Build AI Day in Jakarta, Indonesia, on April 30, 2024.
Adek Berry | AFP | Getty Images
On Microsoft’s earnings call last month, CEO Satya Nadella boasted about the company’s artificial intelligence products, and said over 150 million people are using its Copilot assistant for productivity, cybersecurity, coding and other endeavors.
But conversations with IT buyers at Microsoft’s Ignite conference in San Francisco this week highlighted some of the hurdles the company must overcome as it tries to sell its AI chatbot in the enterprise market.
“I know a lot of customers who are like, ‘Yeah, I want 300 to go to zero,'” said Adam Mansfield of consulting firm UpperEdge, referring to Copilot licenses. Mansfield, who helps companies negotiate Microsoft deals, said those clients are saying, “I don’t even want it.”
Microsoft started selling the 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 a user’s questions based on information stored in corporate systems and can run alongside Microsoft apps, summarizing email threads, creating formatted presentations and capturing key points from calls.
Microsoft is competing in AI on multiple fronts, with its heftiest investment coming out of its Azure cloud infrastructure business. Alongside a $13 billion bet on OpenAI, Microsoft is the AI startup’s key cloud provider. In October OpenAI announced a $250 billion commitment.
Microsoft said revenue growth at Azure reached 40% in the latest quarter, topping the growth rate at Amazon Web Services and Google’s cloud business.
AI agents present a different challenge. Instead of paying for the infrastructure needed to run hefty workloads, customers are buying a new tool for their employees, and the return on that investment isn’t yet clear, according to a number of clients and consultants interviewed by CNBC.
Adobe, Google, Salesforce, Workday and other vendors are also trying to sell agents to corporations, schools and governments, creating a crowded market for a still nascent technology. OpenAI and Anthropic not only have popular AI models but are increasingly catering to businesses with new services as well.
Eon, a Sequoia-backed cloud backup startup, runs its software in Azure. CEO Ofir Ehrlich said Microsoft has broadened Azure’s appeal for software developers and operations specialists. But the company isn’t standardizing on Microsoft’s AI software. It relies on AI coding tools from startups Cognition and Cursor and multiple AI assistants, said Ehrlich, who previously sold startup CloudEndure to Amazon.
Google’s Gemini has been making rapid advancements in the market. This week, the company debuted its latest model, Gemini 3, which it says will deliver better answers to more complex questions.
“We just had a massive 16,000-employee company move all their mail back to Google so they can leverage more 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-cleaning projects that would make Copilot more valuable.
Microsoft has offered some clients 50% off of the $30 list price for Copilot, he said. “But they’re starting to lean away from the Copilot discounts,” Hamood said.
Tim Crawford, a former IT executive who now advises chief information officers, said many customers aren’t getting enough from Copilot to justify the cost.
“Am I getting $30 of value per user per month out of it?” he said. “The short answer is no, and that’s what’s been holding further adoption back.”
Starting in December, a Microsoft 365 Copilot Business tier will become available at $21 per person per month for organizations with up to 300 end users, the company announced at Ignite this week.
It’s not all doom and gloom for Copilot, as Microsoft still has an advantage with its expansive user base.
Nadella said on the latest earnings call that “more than 90% of the Fortune 500 now use Microsoft 365 Copilot,” though he didn’t provide an average number of users at those companies. He named five companies and a U.K. government department that each bought over 15,000 seats in the quarter, adding that most enterprise clients continued to come back for more.
Land O’Lakes butter is displayed in a supermarket in New York on Feb. 15, 2017.
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% of them. A small number of employees also have Gemini subscriptions.
Land O’Lakes has long relied on Microsoft software and now runs over 70% of its infrastructure in Azure, said Teddy Bekele, the company’s technology chief, in an interview at Ignite.
Software engineers at Land O’Lakes used the GitHub Copilot AI automated programming software to build custom project and portfolio management software, Bekele said, adding that the company stopped paying for an off-the-shelf product.
Now Land O’Lakes is testing Oz, an assistant for retail agronomists who advise farmers. The company developed it with Microsoft Foundry software. Oz can save Land O’Lakes money as it replaces older applications, Bekele said.
‘Natural choice’
Education publisher Pearson, meanwhile, has turned on Microsoft 365 Copilot for all of its 18,000 employees. The company uses Windows, Office and Azure products, as well as Amazon and Google cloud services, technology chief Dave Treat said at the conference.
At Ignite, Pearson announced Communication Coach, an agent that will provide personalized learning recommendations through Copilot based on Teams calls, with help from OpenAI’s GPT-4o mini model.
“Microsoft is dominant in the enterprise,” Treat said. “It was a natural choice if we’re thinking about how to train people in communication in the workplace.”
Microsoft is also adding more models into the fold. On Tuesday, Microsoft said Anthropic is bringing its Claude Haiku 4.5, Opus 4.1 and Sonnet 4.5 to Microsoft Foundry. Anthropic committed to spend $30 billion on Azure.
“Before today, we didn’t have access to all the models from Anthropic,” Treat said. “Now we do. That’s a big improvement.”
Still, Mansfield said competition has intensified this year, and some companies have been more seriously evaluating alternatives to Microsoft’s AI products.
“Microsoft is trying to catch up, quite honestly,” Mansfield said. “That’s not what a monopoly typically has to do. They’re not comfortable. Their sales reps actually now have to learn to sell.”
According to Microsoft, the technology is getting more traction internally.
Around 70% of commercial sales, support and partner services workers now use Microsoft 365 Copilot daily, up from 20% a year ago, said Pam Maynard, the company’s chief AI transformation officer.
“We’ve got the 30% daily active usage to get after,” Maynard said in an interview. “I do believe we’ll get there, and it’s just part of change management and helping people to develop that habit.”
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