Microsoft Rethinks AI Upgrades for 365 Software, Opts for Pilot Testing Instead

Microsoft had been considering a significant update to its widely used 365 software suite, one that included incorporating advanced AI features. This summer, Copilot, Microsoft's AI tool powered by OpenAI's GPT models, was at the heart of these discussions. However, plans have taken a different turn.

According to insiders, Microsoft has decided to hit the brakes on a sweeping AI revamp for its 365 products. The company’s leadership, including CEO Satya Nadella, spent the summer weighing options like bundling new AI tools with existing software packages or creating a premium, higher-priced version of the software.

The changes would have largely revolved around Copilot, a tool that has caught Wall Street's eye for its potential. The goal was to finalize decisions before the end of summer so that the sales teams would be ready once September rolled in. However, it’s now late September, and Microsoft has yet to make a final call—though they have moved forward with a different approach.

Led by Chief Commercial Officer Judson Althoff, the company has opted to run a pilot test in select regions to better understand how much customers are willing to pay for these AI features. According to an insider, these tests will continue throughout the fiscal year to gather feedback.

There are also whispers of Microsoft considering an entirely new 365 bundle focused solely on security features. However, as the details are still being ironed out, those close to the matter have remained tight-lipped.

A Microsoft spokesperson, when asked, declined to provide specifics about the AI bundle plans but did mention that companies like Vodafone, Amgen, and Teladoc are already effectively using the Copilot tools.

Why Microsoft Is Taking Its Time

It seems Microsoft is being cautious—and understandably so. The 365 software suite is a massive revenue driver, bringing in about $20 billion each quarter through popular apps like Word, Excel, and PowerPoint. Any major change could disrupt this critical stream of income, especially since companies worldwide rely on these tools to function smoothly day-to-day.

Still, Microsoft’s decision to pause on fully integrating Copilot may suggest the company isn’t convinced that these AI tools are compelling enough to boost sales. Insiders say the pilot tests are meant to gauge whether Copilot’s features truly offer enough value to justify the added cost for customers.

Earlier in the summer, Microsoft had considered bundling the AI tools with existing licenses or creating a premium package. But these ideas were shelved, largely due to doubts about whether they would succeed in the market.

Rising Pressure on Microsoft

Microsoft is under growing pressure to make its hefty investments in AI—over $10 billion each quarter—pay off. Most of this spending has gone towards building data centers, securing GPUs, and advancing AI technology. But with such a massive financial commitment, the company is feeling the heat to deliver results.

In recent months, some customers and investors have started questioning the value of generative AI technology like Copilot. At present, Microsoft charges $30 per user each month for Copilot, in addition to the existing cost of 365 software licenses, which can already be pricey. For example, an E5 license currently costs $54.75 per user per month.

Frustrated Customers

Not all customers are thrilled with the added expense and complexity. Some have found Copilot to be too costly or lacking in functionality. A chief information officer at a pharmaceutical company, for example, canceled Copilot subscriptions for 500 employees after just six months. They cited high costs, poor feature performance, and legal concerns about saving meeting transcripts as reasons for the move.

Microsoft faces the challenge of proving that these advanced AI tools offer enough value to justify their price tag. The company’s careful approach, testing the waters before making any big moves, reflects the weight of these high stakes.