Microsoft’s plan for genAI profits: Squeeze customers

Microsoft has ridden its multibillion-dollar investments in generative AI (genAI) to become the world’s second-most valuable company, with a valuation of roughly $3 trillion, depending on the day’s stock price. This year, it plans to invest $80 billion on data center costs alone, and that doesn’t count how much it’s spending to build its in-house AI team.

At some point, though, Microsoft needs to start getting serious revenue from its genAI investments. It’s been almost three years since Microsoft-funded OpenAI released ChatGPT, on which Microsoft’s Copilot AI line is based, and more than 14 months since Microsoft 365 Copilot made its debut.  

The time for getting serious is now.

That’s easier said than done. Enterprises that use Microsoft 365 have been balking at paying $30 a month per seat  for Copilot in addition to the basic Microsoft 365 fee — the $30 add-on can double the price companies pay for the office suite. 

A research note from Morgan Stanley, reported by Business Insider, gives one example of why they’re reluctant. It details why the CIO of a pharmaceutical company canceled his enterprise’s use of Microsoft 365 Copilot after only six months. He complained presentations created in PowerPoint by Copilot were like “middle school presentations,” called Copilot’s Word features “marginally useful at best,” and said it wasn’t particularly useful for Excel.

“The price is double” the cost of Microsoft 365, he told Morgan Stanley. “And we really just do not see the value we’re getting out of those tools worth double.”

Microsoft has been at work trying to beef up Copilot so that enterprises and consumers will see real value and be willing to pay for it. That’s all to the good. But the company is doing something else: squeezing its customers to get them to subscribe, but not adding any additional value. 

Here’s how Microsoft is doing it.

Disabling useful Microsoft 365 app features to get businesses to buy Copilot

In January, Microsoft quietly killed two very useful features in its Microsoft 365 apps. One is a Word feature called Researcher, which performs powerful, targeted searches of scientific and academic journals, and embeds properly formatted citations directly into documents. The second is Smart Lookup, which lets you easily do highly targeted online searches from within Word, PowerPoint, and Excel; just highlight a phrase or a word, and it does the searching for you.

In the past I’ve highlighted both features as among the best in Word in Computerworld’s “Word for Microsoft 365 cheat sheet.” But as I was updating the article recently, I couldn’t find either feature. So I did a little digging and found out that Microsoft killed them, because the company claims Copilot duplicates those capabilities and they’re no longer needed.

That’s not true. First off, if you’re a business or educational customer, you have to pay $30 per user per month for Copilot for researching capabilities that used to be baked into Microsoft 365. Beyond that, Copilot is inferior to both Smart Lookup and Researcher. Copilot doesn’t confine itself to using the vetted, high-quality journals Researcher uses; instead, it does a garden-variety web search. It also won’t embed properly formatted citations into Word. As for Smart Lookup, it’s more difficult to perform a search with Copilot than with the original tool. With Copilot you can’t highlight words or phrases in a document and have a web search automatically done. 

There’s also a much bigger problem: Copilot still has a tendency to “hallucinate,” which is a fancy way of saying it makes things up that simply aren’t true. Researcher and Smart Lookup use vetted, reliable sources — and don’t hallucinate. Since you can’t trust Copilot not to hallucinate, you’ve got to do extra work checking its facts — and even then you might not be able to spot its hallucinations.

Forcing customers to buy Copilot when they buy Microsoft 365

Microsoft has taken an even more direct way of getting people to buy Microsoft 365 Copilot — bundling the genAI tech into the suite and charging an additional fee for it, whether people want Copilot or not. In January, Microsoft bundled Copilot into the consumer version of Microsoft 365 and increased prices by $3 per month or $30 per year. It was the first time Microsoft had increased prices on the consumer line since it introduced the subscription versions of Office 12 years ago. 

The company hyped the inclusion of Copilot into the consumer line in a blog post. However, the post neglected to mention that consumers were going to have to pay for it.

The move will bring the company significant new revenue. Microsoft said it had 84.4 million subscribers to the consumer version of Microsoft 365 as of the quarter ending in September 2024. That means the move could bring in more than $2.5 billion in additional revenue a year. 

Microsoft isn’t bundling Copilot with the enterprise version and increasing the price of it, at least not yet. But don’t be surprised if the company eventually takes that tack.

The upshot

Treating your customers this way might be good for short-term revenue boost. But in the long term, it’s not the right way to run a business. Taking away useful features to get people to buy an add-in they don’t want and that isn’t as good as the old features won’t endear Microsoft to its customers. Neither will charging an additional bundling fee for a product they don’t want to buy.

Far better would be to create a powerful genAI tool that people would be willing to pay extra for. I’m hoping that’s what Microsoft will eventually do.