Microsoft expands AI models for 365 Copilot to reduce costs

• Published On: 24 December 2024 at 21:40

Microsoft Corporation is broadening the range of artificial intelligence models that power Microsoft 365 Copilot in order to diversify its reliance on OpenAI technology and reduce costs.

The move represents a strategic shift for Microsoft, which has relied heavily on OpenAI's GPT-4 model since 365 Copilot's launch in March 2023. The tool, which is embedded in Microsoft Office products such as Word and PowerPoint, has been a key component of the company's AI push.

According to sources, Microsoft's pivot is driven by the high operational costs and speed challenges associated with using OpenAI's technology for enterprise users. By combining internally developed models and open-source alternatives, Microsoft hopes to improve 365 Copilot's performance and lower costs, potentially passing these savings on to customers.

"We incorporate various models from OpenAI and Microsoft depending on the product and experience," a Microsoft spokesperson said, highlighting the company's ongoing collaboration with OpenAI for advanced AI models.

Microsoft has not disclosed the number of 365 Copilot licenses sold, but the tool is used by 70% of Fortune 500 companies.

In addition to using OpenAI's technology, Microsoft has created its own smaller AI models, such as Phi-4, and customised open-weight models to improve speed and efficiency.

The company is following a trend seen in other business units, such as GitHub, which recently added AI models from Anthropic and Google as alternatives to OpenAI's GPT-4.

Satya Nadella, Microsoft's CEO, is closely monitoring these efforts, indicating the strategic importance of AI in the company's future.

Despite the push for diversification, Microsoft 365 Copilot faces challenges in demonstrating its ROI to enterprises. According to Gartner research from August, the majority of the 152 IT firms surveyed had not progressed beyond the pilot stage of implementing the tool.

However, it appears that adoption is accelerating. Analysts at BNP Paribas Exane predict that Microsoft will sell 365 Copilot to over 10 million users this year, indicating a growing demand for AI-enhanced enterprise tools.

Microsoft's shift reflects broader industry trends, as businesses strive to strike a balance between innovation and operational efficiency. While OpenAI remains an important partner, Microsoft's diversification strategy reflects a pragmatic approach to maintaining AI leadership while controlling costs.