Microsoft faces uphill climb to win in AI chatbots with Copilot

On Microsoft’s earnings call last month, CEO Satya Nadella boasted about the company’s artificial intelligence products, and said over 150 million people are using its Copilot assistant for productivity, cybersecurity, coding and other endeavors.

But conversations with IT buyers at Microsoft’s Ignite conference in San Francisco this week highlighted some of the hurdles the company must overcome as it tries to sell its AI chatbot in the enterprise market.

“I know a lot of customers who are like, ‘Yeah, I want 300 to go to zero,'” said Adam Mansfield of consulting firm UpperEdge, referring to Copilot licenses. Mansfield, who helps companies negotiate Microsoft deals, said those clients are saying, “I don’t even want it.”

Microsoft started selling the commercial version of 365 Copilot two years ago for $30 per person per month, as an add-on to its broader productivity suite. The chatbot can answer a user’s questions based on information stored in corporate systems and can run alongside Microsoft apps, summarizing email threads, creating formatted presentations and capturing key points from calls.

Microsoft is competing in AI on multiple fronts, with its heftiest investment coming out of its Azure cloud infrastructure business. Alongside a $13 billion bet on OpenAI, Microsoft is the AI startup’s key cloud provider. In October OpenAI announced a $250 billion commitment.

Microsoft said revenue growth at Azure reached 40% in the latest quarter, topping the growth rate at Amazon Web Services and Google’s cloud business.

AI agents present a different challenge. Instead of paying for the infrastructure needed to run hefty workloads, customers are buying a new tool for their employees, and the return on that investment isn’t yet clear, according to a number of clients and consultants interviewed by CNBC.

Adobe, Google, Salesforce, Workday and other vendors are also trying to sell agents to corporations, schools and governments, creating a crowded market for a still nascent technology. OpenAI and Anthropic not only have popular AI models but are increasingly catering to businesses with new services as well.

Eon, a Sequoia-backed cloud backup startup, runs its software in Azure. CEO Ofir Ehrlich said MIcrosoft has broadened Azure’s appeal for software developers and operations specialists. But the company isn’t standardizing on Microsoft’s AI software. It relies on AI coding tools from startups Cognition and Cursor and multiple AI assistants, said Ehrlich, who previously sold startup CloudEndure to Amazon.

Google’s Gemini has been making rapid advancements in the market. This week, the company debuted its latest model, Gemini 3, which it says will deliver better answers to more complex questions.

“We just had a massive 16,000-employee company move all their mail to back to Google so they can leverage more Gemini,” said Julian…