Microsoft Just Rejected AI’s Big Decision. That Could Be a Bad Sign.

The plans involved Microsoft’s Copilot tools. They are largely powered by OpenAI’s GPT AI models, and Wall Street has high expectations for the new offerings.

The goal was to finalize all changes before Microsoft’s sales teams returned from their summer slowdown in September. It’s now late September, and the decision has been made. Sort of.

The company, led by Chief Commercial Officer Judson Althoff, has decided to conduct a pilot test in select regions to find out what customers are willing to pay for, a person familiar with the plan said, adding that the tests will continue throughout the fiscal year.

Other changes Microsoft is considering for its 365 software suites include a new suite just for security features, the people said. They asked not to be identified because they discuss private matters.

A Microsoft spokesman declined to comment on bundled plans, but said many customers, including Vodafone, Amgen and Teladoc, are successfully using Copilot tools.

Big 365 changes are risky

The company is likely taking a cautious approach because 365’s products have been and continue to be an important source of revenue and growth, even without sophisticated new AI capabilities.

The software suite includes popular business applications such as Word, Excel and PowerPoint. It is part of Microsoft’s Productivity and Business Processes division, which generates about $20 billion in quarterly revenue.

Any major change to office software is risky because businesses depend on the products running smoothly every day.

Concerns about whether customers will pay

Still, Microsoft’s decision to hold off on deeper integration of Copilot AI features may be a signal that the company doesn’t believe these tools can drive license sales.

Indeed, people familiar with the decision say the decision to conduct a pilot test was made in part because of concerns about whether the AI ​​technology would generate enough value to convince customers to pay for it.

Options that Microsoft had already been considering earlier in the summer — such as putting AI features back into existing licenses or creating a more expensive bundle with Copilot capabilities — have been put on hold amid concerns about whether the new approach would actually be effective, these people said.

The pressure is rising

Microsoft currently spends more than $10 billion in capital expenditures each quarter, most of which goes to data centers, GPUs, and other AI projects. The company is trying to figure out how to recoup that massive investment.

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The pressure on the company to deliver tangible results here is growing. In recent months, some customers and investors have begun to question the value of generative AI technology, including Microsoft’s Copilot AI assistant tool.

The current Copilot AI tool costs $30 per user per month. That’s in addition to the monthly cost of Microsoft’s 365 software suites. For example, the E5 license is listed on Microsoft’s website for $54.75 per user per month.

Customer Complaints

Some customers have complained about the added cost of this additional software. They also don’t like the added complexity of managing multiple software licenses.

Microsoft has encountered customer complaints about the value of Copilot software relative to its significant cost.

For example, the CIO of a pharmaceutical company recently canceled a Copilot upgrade for 500 employees after six months because it was too expensive, some features didn’t work well, and the company had to disable a more useful meeting summary tool because its legal team didn’t want to save transcripts.

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