Only 3% of customers are paying for Copilot
Microsoft has spent tens of billions of dollars building out its AI ambitions, but only a small fraction of users are paying for one of its flagship AI products.
Just 3.3% of Microsoft 365 and Office 365 users who have tried Copilot Chat – the company’s digital assistant – have gone on to pay for it, a conversion rate revealed alongside the company’s latest earnings.
Microsoft reported spending $37.5 billion on AI-related capex in the most recent quarter.
Speaking on the company’s second-quarter earnings call, CEO Satya Nadella repeatedly pointed to what he described as “record” AI momentum.
Microsoft now has 15 million paid Microsoft 365 Copilot seats, he said, representing year-on-year growth of more than 160%.
Nadella also claimed Copilot was “becoming a true daily habit”, with daily active users up tenfold compared with a year earlier and the average number of conversations per user doubling.
However, analysts say those headline growth figures mask how small the paid user base remains compared with Microsoft’s vast customer footprint.
The company has around 450 million commercial Microsoft 365 users, many of whom can now access Copilot Chat at no additional cost.
Once bundled deals and discounts are stripped out, the number of customers paying the full price for Copilot is thin compared to the scale of Microsoft’s AI spending.
Microsoft launched its 365 Copilot product in 2023 as a $30-per-user, per-month add-on, marketed as an AI-powered productivity assistant built directly into Word, Outlook, Teams, Excel and PowerPoint.
Since then, the company has sought to differentiate it from rival chatbots, describing Copilot as an “agent” capable of searching internal documents, analysing meetings and emails and acting on a user’s behalf.
Microsoft CFO Amy Hood pushed back against concerns that the investment was not yet paying off.
She told investors that judging Microsoft’s AI spend purely through the lens of Azure cloud growth was “the wrong yardstick.”
“I think many investors are doing a very direct correlation between the capex spend and seeing an Azure revenue number,” she said.
Hood argued that a significant share of Microsoft’s AI capacity was being deployed internally first, powering products such as Microsoft 365 Copilot and GitHub Copilot, before being opened up to external Azure customers.
Nadella echoed that view, urging investors to take a longer-term perspective.
“We don’t want to maximise just one business of ours,” he said.
Even so, some analysts say adoption is lagging behind expectations, given how central Copilot has become to Microsoft’s AI strategy.
“Microsoft’s disclosure of 15 million Microsoft 365 Copilot paid users represents disappointing uptake of the tool – just 3.3% of the 450 million-strong Microsoft 365 user base,” said J.P. Gownder, VP and principal analyst at Forrester.
He added that this was despite Microsoft reorganising its Microsoft 365 product and sales strategy around Copilot.
Others argue that hesitation among businesses is unsurprising at this stage.
“My take is that businesses are still trying to figure out the best way to use Microsoft 365 Copilot and are hesitant to take on another expense without knowing how it will help their worker productivity,” said Jack Gold, principal analyst at J. Gold Associates.
He expects adoption to rise over the next couple of years, but believes it will be driven largely by contract renewals rather than rapid add-ons.
He compared the situation to the early days of enterprise migration to Microsoft 365 itself.
In the medium term, Gownder said Microsoft was repositioning Copilot’s value beyond that of a personal assistant, presenting it instead as a way to control costs in an era of increasingly autonomous AI systems.
Still, he warned that the company must do more to demonstrate tangible value.
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