Microsoft is actively incorporating both internal and third-party artificial intelligence (AI) models into its flagship product, Microsoft 365 Copilot, as part of an effort to diversify beyond its reliance on OpenAI's technology. This move aims to lower costs and improve efficiency, according to sources familiar with the matter.
Since its March 2023 launch, 365 Copilot has heavily relied on OpenAI’s GPT-4 model, a major selling point at the time. However, Microsoft is now seeking alternatives to address concerns over operational costs and processing speed for enterprise users.
A Microsoft spokesperson affirmed that OpenAI remains a key partner for "frontier models," referring to the most advanced AI technologies. Microsoft’s existing agreement with OpenAI allows for model customization to suit specific needs. "We incorporate various models from OpenAI and Microsoft depending on the product and experience," the company stated. OpenAI declined to comment.
Expanding Beyond OpenAI
Microsoft is reportedly developing its own smaller AI models, including the latest Phi-4, and customizing open-weight models to enhance 365 Copilot's performance. These adjustments are designed to make the product faster, more efficient, and less expensive to operate, potentially translating into cost savings for customers, sources said.
The company's leadership, including CEO Satya Nadella, is closely monitoring these initiatives. Microsoft’s strategy mirrors changes in other areas of its business, such as GitHub, which began incorporating models from Anthropic and Google in October alongside OpenAI's GPT-4. Similarly, Microsoft’s consumer chatbot Copilot now uses a mix of in-house and OpenAI models.
Challenges and Adoption Rates
Microsoft 365 Copilot, which integrates AI into software like Word and PowerPoint, faces scrutiny regarding its return on investment for enterprise users. Concerns have been raised about pricing and utility, with research from Gartner indicating that most IT companies have not advanced beyond the pilot stage for 365 Copilot initiatives.
Despite these hurdles, analysts at BNP Paribas Exane report growing adoption, predicting that Microsoft will exceed 10 million paid users for 365 Copilot this year. The company also highlighted in a November blog post that 70% of Fortune 500 companies are using the product.
Microsoft has not disclosed specific sales figures for 365 Copilot licenses but continues to position the AI assistant as a transformative tool for businesses.
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