Microsoft faces uphill climb to win in AI chatbots with Copilot

on Microsoft Earnings call last month, C.E.O Satya Nadella He boasted about the company’s AI products and said that more than 150 million people use its Copilot assistant for productivity, cybersecurity, programming and other endeavors.

But conversations with IT buyers at the Microsoft Ignite conference in San Francisco this week highlighted some of the hurdles the company must overcome as it tries to sell its chatbot in the enterprise market.

“I know a lot of clients who say, ‘Yes, I want 300 to go to zero,'” Adam Mansfield of consulting firm UpperEdge said, referring to co-pilot licenses. These clients say, “I don’t even want that,” said Mansfield, who helps companies negotiate Microsoft deals.

Microsoft has started selling the commercial version of 365 Copilot 2 years ago For $30 per person per month, as an addition to our broader productivity suite. The chatbot can answer user questions based on information stored in company systems, can run alongside Microsoft applications, summarize email threads, create formatted presentations, and capture key points from calls.

Microsoft is competing in the AI ​​space on multiple fronts, with its largest investments coming from its Azure cloud infrastructure business. Along with a $13 billion bet on OpenAI, Microsoft is the main cloud provider for the AI ​​startup. In October, OpenAI announced A commitment of $250 billion.

Microsoft said revenue growth in Azure reached 40% in last quarterleading the growth rate at Amazon Web services and Google Cloud business.

AI agents present a different challenge. Instead of paying for the infrastructure needed to run massive workloads, clients are purchasing a new tool for their employees, and the return on that investment is not yet clear, according to a number of clients and consultants interviewed by CNBC.

Adobe,google, Sales force, Work day Other vendors are also trying to sell proxies to businesses, schools and governments, creating a crowded market for a still-nascent technology. Not only do OpenAI and Anthropic have popular AI models, but they are increasingly offering new services for businesses as well.

Eon, a cloud backup startup backed by Sequoia, runs its software in Azure. Microsoft has broadened Azure’s appeal to software developers and operations professionals, CEO Ofir Erlich said. But the company is not standardizing Microsoft’s AI software. Ehrlich, who previously sold startup CloudEndure to Amazon, said he relies on AI coding tools from startups Cognition and Cursor and several other AI assistants.

Google’s Gemini has made rapid progress in the market. This week, the company launched its latest model, Gemini 3which she says will provide better answers to more complex questions.

“We just had a huge company with 16,000 employees moving all their mail to Google so they could get more out of Gemini,” said Julian Hammoud, founder of Microsoft partner TrustedTech.

Microsoft declined to comment.

Starting in December, the Microsoft 365 Copilot Business layer will be available at $21 per person per month for organizations with up to 300 end users, the company said. Announce In Ignite this week.

It’s not all doom and gloom for Copilot, as Microsoft still has an advantage thanks to its expanded user base.

“More than 90% of Fortune 500 companies are now using Microsoft 365 Copilot,” Nadella said on a recent earnings call, though he did not provide the average number of users at those companies. He mentioned five companies and a UK government department that each purchased more than 15,000 seats in the quarter, adding that most enterprise customers kept coming back for more.

This year, butter maker Land O’Lakes rolled out Microsoft 365 Copilot to all of its roughly 5,000 knowledge workers, after initially granting access to about 20% of them. A small number of employees also have subscriptions to Gemini.

Land O’Lakes has long relied on Microsoft software and now runs more than 70% of its infrastructure in Azure, Teddy Bekele, the company’s chief technology officer, said in an interview with Ignite.

Land O’Lakes’ software engineers relied on GitHub’s automated programming software Copilot AI to create custom project and portfolio management software, Bekele said, adding that the company has stopped paying for an off-the-shelf product.

Now Land O’Lakes exists Oz testan assistant to retail agronomists who advise farmers. The company developed it using Microsoft Foundry software. Oz can save Land O’Lakes money because it replaces legacy applications, Bekele said.

In Ignite, Pearson Announce Communications Coach, an agent that will provide personalized learning recommendations through Copilot based on Teams calls, with the help of OpenAI’s GPT-4o micromodel.

“Microsoft is dominant in the enterprise,” Tritt said. “It was a natural choice if we were thinking about how to train people to communicate in the workplace.”

Microsoft is also adding more models to the fold. Anthropic will bring Claude Haiku 4.5, Opus 4.1, and Sonnet 4.5 to Microsoft Foundry, Microsoft said Tuesday. A committed anthropologist 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 huge improvement.”

However, Mansfield said competition had intensified this year, and some companies were more seriously evaluating alternatives to Microsoft’s AI products.

“Microsoft is playing catch-up, quite frankly,” Mansfield said. “This is not what a monopoly should normally do. They are not comfortable. Their salespeople now have to learn how to sell.”

According to Microsoft, the technology is getting more attention internally.

About 70% of workers in business sales, support and partner services now use Microsoft 365 Copilot daily, compared to 20% a year ago, said Pam Maynard, the company’s chief AI transformation officer.

“We have 30% daily active usage to achieve,” Maynard said in an interview. “I think we’ll get there, and it’s just part of managing change and helping people develop the habit.”

He watches: Microsoft CEO of Anthropic and Nvidia partnership business