Microsoft faces steep road to AI chatbot victory with Copilot

above microsoft’s CEO Satya Nadella touted the company’s artificial intelligence products during an earnings call last month, saying more than 150 million people use the Copilot assistant for productivity, cybersecurity, coding and other initiatives.

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 when trying to sell AI chatbots in the enterprise market.

“I know a lot of customers who say, ‘Oh, I want to go from 300 to zero,'” Adam Mansfield of consulting firm Upper Edge said of the CoPilot license. Mansfield, who helps companies negotiate contracts with Microsoft, said those customers are saying, “We don’t want that.”

Two years ago, Microsoft began selling a commercial version of 365 Copilot as an add-on to its broader productivity suite for $30 per person per month. Chatbots can answer user questions based on information stored in corporate systems and can run alongside Microsoft apps to summarize email threads, create formatted presentations, and capture key takeaways from calls.

Microsoft is competing in AI on many fronts, with its most significant investments coming from its Azure cloud infrastructure business. Along with its $13 billion bet on OpenAI, Microsoft is the leading cloud provider for AI startups. In October, OpenAI announced a $250 billion commitment.

Microsoft announced that Azure revenue growth reached 40% in the latest quarter, outpacing the growth rate. Amazon Web services and Google cloud business.

AI agents present other challenges. Instead of paying for the infrastructure needed to run large workloads, customers are buying new tools for their employees, but the return on that investment is not yet clear, according to many customers and consultants interviewed by CNBC.

adobegoogle, sales force, working day Other vendors are also trying to sell their agents to businesses, schools, and governments, creating a crowded market for the technology, which is still in its infancy. OpenAI and Anthropic not only offer popular AI models, but also new services to meet enterprise demands.

Sequoia-backed cloud backup startup Eon runs its software on Azure. CEO Ofir Ehrlich said MICrosoft has expanded the appeal of Azure for software developers and operations specialists. However, the company has not standardized on Microsoft’s AI software. Ehrlich, who previously sold his startup CloudEndure to Amazon, said his company relies on AI coding tools and multiple AI assistants from startups Cognition and Cursor.

Google’s Gemini is making rapid progress in the market. This week, the company announced its latest model, Gemini 3, which it says provides better answers to more complex questions.

“A large company with 16,000 employees moved all email back to Google so they could get more out of Gemini,” said Julian Hamood, founder of Microsoft partner TrustedTech.

Microsoft declined to comment.

Hamood said one thing Microsoft can do is provide incentives to help companies and partners pay for data cleaning projects that increase the value of Copilot.

He said Microsoft offered some customers 50% off Copilot’s $30 list price. “But they are starting to move away from CoPilot discounts,” Hammoud said.

Tim Crawford, a former IT executive and current chief information officer advisor, said many customers aren’t getting enough service from Copilot to justify the cost.

“Are we getting $30 per user per month value out of it?” he said. “The short answer is no. That’s what’s holding us back from further adoption.”

The company announced at Ignite this week that starting in December, the Microsoft 365 Copilot Business tier will be available for organizations with up to 300 end users for $21 per person per month.

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

“More than 90% of Fortune 500 companies are currently using Microsoft 365 Copilot,” Nadella said during the latest earnings call, but he did not specify the average number of users among those companies. He named five companies and a British government sector that each bought more than 15,000 seats in the quarter, adding that most corporate customers are coming back for more seats.

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 more than 70% of its infrastructure on Azure, Teddy Bekele, the company’s head of technology, said in an interview at Ignite.

Land O’Lakes’ software engineers are building custom project and portfolio management software using GitHub Copilot AI automated programming software, Bekele said, adding that the company has stopped paying for off-the-shelf products.

Currently, Land O’Lakes is testing Oz, a retail agronomist’s assistant that advises farmers. The company developed it with Microsoft Foundry software. Because Oz replaces older applications, Bekele says it will save Land O’Lakes money.

Meanwhile, education publisher Pearson rolled out Microsoft 365 Copilot for all 18,000 employees. Technology director Dave Treat said at the conference that the company uses Windows, Office and Azure products, as well as cloud services from Amazon and Google.

At Ignite, Pearson announced Communication Coach, an agent that delivers personalized learning recommendations through Copilot based on Teams calls with the help of OpenAI’s GPT-4o mini model.

“Microsoft is dominant in the enterprise,” Treat said. “If you were thinking about how to improve your communication skills in the workplace, this was the obvious choice.”

Microsoft is adding more models. Microsoft announced Tuesday that Anthropic will be bringing Claude Haiku 4.5, Opus 4.1, and Sonnet 4.5 to Microsoft Foundry. Anthropic has committed to spending $30 billion on Azure.

“Until today, we didn’t have access to all of Anthropic’s models,” Treat says. “Now we do. This is a big step forward.”

Still, Mansfield said competition has increased this year, with some companies evaluating alternatives to Microsoft’s AI products more seriously.

“Microsoft is honestly trying to catch up,” Mansfield said. “That’s not something monopolies usually have to do. They’re not comfortable. In fact, their salespeople have to learn to sell now.”

Microsoft says the technology is receiving more attention internally.

About 70% of commercial sales, support and partner services employees now use Microsoft 365 Copilot every day, up from 20% a year ago, according to Pam Maynard, the company’s chief AI transformation officer.

“We need to achieve 30% daily active usage,” Maynard said in an interview. “I believe we’ll get there. It’s just part of change management and helping people get into that habit.”

Spotlight: Microsoft’s Commercial Business CEO on Anthropic and Nvidia partnership