Microsoft’s Copilot Faces AI Chatbot Uphill Battle

On Microsoft’s earnings call last month, CEO Satya Nadella touted the company’s advancements in artificial intelligence, claiming over 150 million users are leveraging its Copilot assistant across various sectors, including productivity, cybersecurity, and software development.

However, discussions with IT decision-makers at Microsoft’s recent Ignite conference in San Francisco revealed significant challenges that Microsoft must address to solidify Copilot’s position within the enterprise market.

“I know a lot of customers who are like, ‘Yeah, I want 300 to go to zero,'” stated Adam Mansfield, a consultant at UpperEdge, a firm specializing in negotiating Microsoft contracts. Mansfield elaborated that these clients are expressing a complete lack of interest, stating, “I don’t even want it.” This sentiment highlights a critical problem: generating demonstrable value to justify the ongoing costs for enterprise clients.

Microsoft launched the commercial version of 365 Copilot two years ago, pricing it at $30 per user per month as an add-on to its Microsoft 365 suite. Its core functionalities include answering user queries based on internal corporate data, summarizing email threads, generating formatted presentations, and extracting key insights from meetings.

Microsoft’s AI strategy extends well beyond Copilot, with substantial investments funneled through its Azure cloud infrastructure division. This includes a multi-billion dollar commitment to OpenAI, cementing Microsoft as its primary cloud provider. While impressive, this heavy investment also raises questions about the long-term ROI and the potential for over-reliance on OpenAI’s technology.

The latest quarterly reports indicate a 40% revenue surge in Azure, surpassing the growth rates of both Amazon Web Services and Google’s cloud offerings. This demonstrates the increasing demand for cloud infrastructure to handle the compute-intensive needs for AI development and deployment.

However, the calculus changes when evaluating AI agents like Copilot. Unlike infrastructure investments, which are perceived as enabling broader tech capabilities, Copilot represents a direct expenditure on employee tools. This necessitates a clear and demonstrable return on investment, a factor many CNBC clients and consultants find lacking.

Microsoft faces stiff competition from Adobe, Google, Salesforce, Workday, and numerous other vendors vying for corporate clients. Moreover, OpenAI and Anthropic are actively targeting business users with their own models and services, potentially undermining Microsoft’s Copilot ambitions.

Eon, a cloud backup startup backed by Sequoia Capital, leverages Azure for its operations, with CEO Ofir Ehrlich acknowledging Azure’s appeal to developers and operations teams. However, Eon does not exclusively rely on Microsoft’s AI software. Instead, the company integrates AI coding tools from startups Cognition and Cursor, alongside a range of AI assistants. This multi-vendor approach demonstrates the growing trend of companies choosing specialized solutions that best fit their needs, rather than being locked into a single ecosystem.

Google’s Gemini platform has made significant market inroads. The company’s recent unveiling of Gemini 3 promises enhanced performance in addressing complex queries, further intensifying the competition.

“We just had a massive 16,000-employee company move all their mail to back to Google so they can leverage more Gemini,” according to Julian Hamood, founder of Microsoft partner TrustedTech, highlighting a concrete example of companies shifting platforms to leverage competing AI capabilities.

Microsoft declined to comment.

Hamood suggested that Microsoft could foster increased adoption by offering incentives to offset data cleaning costs, which are necessary to maximize Copilot’s effectiveness.

Microsoft has reportedly offered discounts, sometimes up to 50% off the $30 list price. “But they’re starting to lean away from the Copilot discounts,” Hamood revealed. This pullback on discounts could further impede adoption if customers remain unconvinced of the product’s inherent value.

Tim Crawford, an IT advisor, observed that many customers are not reaping sufficient benefits from Copilot to justify the monthly per-user price.

“Am I getting $30 of value per user per month out of it?” questioned Crawford. “The short answer is no, and that’s what’s been holding further adoption back.” This is a critical question that Microsoft must address to persuade budget-conscious businesses.

In a move to broaden accessibility, Microsoft is launching a Microsoft 365 Copilot Business tier for organizations with fewer than 300 users, priced at $21 per person per month. This could attract smaller businesses hesitant to commit to the enterprise pricing model.

Despite the headwinds, Microsoft retains a significant advantage due to its extensive user base.

Nadella stated in the latest earnings call that “more than 90% of the Fortune 500 now use Microsoft 365 Copilot.” This reach provides a solid foundation for expanding Copilot’s adoption and refining its capabilities, while cautioning that this percentage doesn’t illustrate number of licenses purchased.

This year, Land O’Lakes deployed Microsoft 365 Copilot to its entire workforce of nearly 5,000 professionals, having initially provided access to only 20% of employees. Some employees are also trialing Gemini showing the company isn’t reliant on only one platform.

With over of 70% of its infrastructure hosted on Azure, Land O’Lakes has a deep reliance on Microsoft software.

Software engineers at Land O’Lakes have also utilized GitHub Copilot to develop custom project and portfolio management software, replacing a previously purchased off-the-shelf solution. This signals the potential for AI coding tools to streamline development processes and save costs.

Land O’Lakes is also testing Oz, an AI assistant for retail agronomists advising farmers, developed with Microsoft Foundry. The company hopes that Oz will replace older applications and significantly reduce costs.

Global education publisher Pearson has adopted Microsoft 365 Copilot for all 18,000 employees. According to Chief Technology Officer Dave Treat, Pearson uses various cloud services, which include Amazon, Google and Microsoft’s Azure, Windows and Office products.

At Ignite, Pearson announced Communication Coach, an application that allows for personalized recommendations through Copilot based on Teams calls, with support fromOpenAI’s GPT-4o mini model.

“Microsoft is dominant in the enterprise,” Treat stated. “It was a natural choice if we’re thinking about how to train people in communication in the workplace.” This illustrates how tightly Microsoft is integrated into common workplaces, which can make its products an attractive choice.

Microsoft continues to diversify its AI offerings by incorporating additional models. Anthropic is bringing its Claude Haiku 4.5, Opus 4.1 and Sonnet 4.5 to Microsoft Foundry after committing to $30 billion worth of Azure services.

“Before today, we didn’t have access to all the models from Anthropic,” Treat noted. “Now we do. That’s a big improvement.” He highlighted the benefit of this increased accessibility.

Regardless, Mansfield noted that competition is intensifying year by year, and companies are taking alternatives to Microsoft’s AI products much more seriously.

“Microsoft is trying to catch up, quite honestly,” said Mansfield. “That’s not what a monopoly typically has to do. They’re not comfortable. Their sales reps actually now have to learn to sell.” These products have been challenging for non-technical clients to understand and that has put additional challenges on the sales teams to better understand the customer needs, and align them with products that have a positive impact.

Microsoft also shared reports that the technology has been seeing increased usage internally.

Pam Maynard, the company’s chief AI transformation officer, noted that approximately 70% of commercial sales, support, and partner services staff are now using Microsoft 365 Copilot daily. This grew an impressive 50% from the company’s reports of the previous year. She also noted that daily usage is still the goal from the other 30% of the staff.

“We’ve got the 30% daily active usage to get after,” Maynard stated 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.”