Microsoft CEO Satya Nadella speaks at the company’s Ignite Spotlight event in Seoul, Nov. 15, 2022.
SeongJoon Cho | Bloomberg | Getty Images
Microsoft is poised to enter its next phase of growth with the introduction of Microsoft 365 Copilot, an artificial intelligence add-on for its Office app subscriptions targeted at businesses. This feature, available in Word, Excel, and other Office programs, is expected to generate over $10 billion in annual revenue by 2026, according to analysts from Piper Sandler.
Piper Sandler analysts Brent Bracelin and Hannah Rudoff believe that the $30 per person per month cost of the Copilot add-on can contribute significantly to Microsoft’s revenue. They also note that while Google is working on its Duet AI enhancement for Workspace tools, Microsoft aims to leverage its dominant position in the productivity software market.
It is expected that 18% of eligible users will adopt Copilot, according to Piper Sandler’s model. While this may be an ambitious estimate, analysts believe that the fear of missing out (FOMO) will drive adoption. Businesses may feel at a disadvantage if they do not have Copilot when competing with others in their industry who do.
Piper Sandler has given Microsoft shares the equivalent of a buy rating, citing the company’s commanding lead in the market. Microsoft CEO Satya Nadella has expressed confidence in Copilot, stating that once users experience it, they cannot imagine work without it.
In May, Microsoft announced its plans to launch Copilot, initially targeting the largest companies. As of the latest conference call, 40% of the Fortune 100 companies, including Bayer, KPMG, Mayo Clinic, Suncorp, and Visa, were already using Copilot in an invitation-only paid early-access program.
As Copilot is a relatively new tool, there is limited data on its impact on performance. Gartner analyst Jason Wong suggests that organizations experiment with generative AI, which can create images and text with minimal human input. He predicts that by targeting early adopters, Microsoft can achieve a 20% adoption rate within two to three years.
While it may be tempting to distribute Copilot to top executives first, it could also create challenges for tech support. Wong suggests starting with technically savvy employees who have experience with generative AI to mitigate potential issues. Microsoft acknowledges the limitations of generative AI and its potential to produce inaccurate information.
Despite these concerns, the popularity of ChatGPT, the chatbot developed by Microsoft-backed OpenAI, indicates a positive response to generative AI features. Microsoft assures users that the privacy of their prompts and responses in Copilot is protected and not used to train language models.
In addition to the revenue from Copilot subscriptions, Microsoft may benefit from increased usage of its Azure cloud services during the setup process. Companies may find value in utilizing additional services such as Purview for data management.
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