Microsoft Diversifies AI Models for 365 Copilot

By Anna Tong and Krystal Hu

Microsoft (NASDAQ: MSFT) is working on integrating internal and third-party AI models into its flagship product, Microsoft 365 Copilot, in a move to reduce dependency on OpenAI’s technology and cut costs.

This strategy marks a shift for Microsoft, a significant investor in OpenAI, which previously emphasized early access to OpenAI's models. When Microsoft announced 365 Copilot in March 2023, it prominently featured OpenAI’s GPT-4 model as a key selling point.

Sources indicate that Microsoft aims to lessen 365 Copilot's reliance on OpenAI due to enterprise concerns about cost and speed.

A spokesperson from Microsoft confirmed that OpenAI remains a partner, particularly for advanced AI models. Microsoft can customize OpenAI’s models under their original agreement.

"We incorporate various models from OpenAI and Microsoft depending on the product and experience," Microsoft stated. OpenAI did not comment on the matter.

In addition to developing its own smaller models like the latest Phi-4, Microsoft is customizing other open-weight models to enhance 365 Copilot's speed and efficiency.

The intention is to reduce operating costs for 365 Copilot and potentially lower prices for customers.

Microsoft’s top executives, including CEO Satya Nadella, are closely monitoring these initiatives.

This approach is consistent with changes in other Microsoft units. GitHub, acquired by Microsoft in 2018, integrated models from Anthropic and Google as alternatives to OpenAI’s GPT-4o in October. Its consumer chatbot Copilot now leverages in-house models alongside OpenAI's.

While Microsoft 365 Copilot, integrated into applications like Word and PowerPoint, continues to seek a demonstrable ROI for enterprises, specific sales data remains undisclosed. Concerns about pricing and functionality persist, with a Gartner survey indicating that most IT companies have not moved beyond pilot tests for 365 Copilot.

Nevertheless, analysts from BNP Paribas Exane report an acceleration in adoption, predicting Microsoft will convert over 10 million paid users for 365 Copilot this year. Additionally, a November blog post revealed that 70% of Fortune 500 companies are utilizing 365 Copilot.