Microsoft (MSFT) says more customers are signing up to and using its generative AI-based Copilot software, in a sign that its AI investments are starting to pay off.
The tech giant is pouring billions of dollars into its AI efforts, aiming to spread the technology across its Azure-based cloud services, suite of productivity products and Windows operating system.
According to Jared Spataro, Microsoft's corporate vice president of AI, the company has seen significant growth in usage of Copilot for Microsoft 365.
“Last quarter, the number of Copilot for (Microsoft 365) customers grew by over 60%, which is great because we had already started to make that journey,” Spataro told Yahoo Finance.
“The number of daily users has more than doubled, and we're pleased with this trend. When we start seeing a doubling in usage like this, it really means we're heading in the right direction,” Spataro added.
In its latest earnings report, Microsoft announced that its Intelligent Cloud division, which includes its Azure services, reported revenue of $28.5 billion, slightly below Wall Street expectations of $28.7 billion. This represented a 19% increase in revenue over the previous year, but investors reacted negatively to the news, with the company's stock price falling after the earnings release.
Jared Spataro, Microsoft corporate vice president and head of AI at Work, speaks at The Wall Street Journal's Future of Everything festival in New York City on May 22, 2024. (Reuters/Andrew Kelly) (Reuters/Reuters)
While Microsoft shares have recovered, they're still up about 1.5% over the past six months, compared with rival Google (GOOG, GOOGL), which is up more than 20%.
Microsoft's close call shows how hyperscalers and software vendors must walk a fine line between investing in AI and showing that those investments are paying off.
Spataro said the number of 1,000-seat subscriptions for Copilot for Microsoft 365 has doubled for major organizations such as Capital Group, Disney, Dow and Novartis, though Microsoft did not provide precise information on the number of daily or monthly active users or how many Copilot for Microsoft 365 licenses it has sold.
The key to Copilot's success is that it has proven to save enterprise users time on tasks such as shortening the length of meetings, reducing the time it takes to sort through emails, and helping people brainstorm ideas.
So far, Microsoft says customers are seeing results: Employees at network and cybersecurity company Lumen are saving four hours a week by using Copilot, which is expected to translate into annual savings of $50 million, while Cognizant has seen a 10% decrease in time spent on email and a 27% increase in employees leaving meetings early, Spataro explained.
But it's not all good news for Microsoft: In February, The Wall Street Journal reported on customer reaction to Copilot, with some users complaining that the software was prone to making mistakes when scheduling and summarizing meetings.
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According to a Morgan Stanley research memo reviewed by Business Insider, pharmaceutical executives who were using Copilot canceled upgrade orders for the software because the price didn't justify the value they were getting from it.
But Spataro said Microsoft conducted its own six-month study of 60 companies and found that they saw a 50% drop in email usage thanks to Copilot. Microsoft also conducted a study of 1,300 Copilot users and found that it typically took companies 11 weeks and at least 11 minutes of time savings per day to make Copilot a long-term habit.
“This is a moment to reprogram the way we work,” Spataro says. “It's not just an incremental change.”
In a separate research note from Morgan Stanley, analysts said 94% of chief information officers surveyed said they plan to use Microsoft's generative AI services in the next 12 months, up from just 47% in the second quarter of 2023.
Microsoft isn't alone in the race to bring generative AI-powered software to enterprise customers: Google also offers Gemini for Workspace to its customers, and Salesforce is also pushing its own generative AI software.
Microsoft is also rolling out a Copilot-based update for its Windows operating systems, which includes the Recall feature that was pulled from the original release due to security concerns.
Microsoft needs to continue building its Copilot user base to gain market share in this space and maintain its leadership position in enterprise software, but the generative AI revolution is still in its early stages and Microsoft's rivals have no chance of catching up.
Investors are keeping a close eye on Microsoft's AI efforts, and the company needs to hit its AI goals hard to succeed in this new era of computing.
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