Microsoft spends billions on AI, converts just 3.3% of Copilot Chat users
- Reference: 1770040874
- News link: https://www.theregister.co.uk/2026/02/02/microsoft_ai_spend_copilot/
- Source link:
That single percentage stat undermines the company's carefully polished Copilot success story. On its Q2 FY26 earnings call, Microsoft repeatedly cited "record" AI momentum, telling investors it now has 15 million paid Microsoft 365 Copilot seats, with seat growth up more than 160 percent year-over-year. Satya Nadella described Copilot as "becoming a true daily habit," claiming daily active users are up tenfold year-over-year and that average conversations per user have doubled.
What Microsoft did not articulate is how small that paid footprint looks against the vast base of Microsoft 365 users experimenting with Copilot Chat for free, as highlighted by Directions on Microsoft analyst Mary Jo Foley.
[1]
She said Microsoft has some 450 million commercial Microsoft 365 users, many of whom now have access to Copilot Chat at no additional cost. Once you ignore bundled deals and discounts, paid Copilot users are comparatively thin on the ground – an uncomfortable result given the scale of Microsoft's AI spending.
[2]
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Microsoft 365 Copilot launched in late 2023 as a $30 per user per month add-on, pitched as a productivity boost baked directly into Word, Outlook, Teams, Excel, and PowerPoint. Since then, Microsoft has worked hard to differentiate Copilot from other chatbots, recasting it as an AI "agent" that can search documents, meetings, and emails, and act on a user's behalf. That promise – more automation, less prompting – is the future Microsoft keeps pointing to when it talks about why all this AI investment makes sense.
The Q&A with analysts on the call quickly zeroed in on the obvious concern: Microsoft is spending huge sums on AI, but is it paying off? CFO Amy Hood said judging that spend by Azure growth alone was the wrong yardstick. "I think many investors are doing a very direct correlation... between the capex spend and seeing an Azure revenue number," she said.
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Hood argued that a large share of Microsoft's AI capacity is being allocated to its own products first, such as Microsoft 365 Copilot and GitHub Copilot, before being made available to external Azure customers. Nadella backed her up, telling investors to stop fixating on short-term uptake and focus on the long game.
[5]Lloyds Banking Group claims Microsoft Copilot saves staff 46 minutes a day
[6]Return on investment for Copilot? Microsoft has work to do
[7]Cops put Microsoft Copilot in holding cell after controversial hallucination
[8]Microsoft promises Copilot will be a 'moneymaker' in the long term
"We don't want to maximize just one business of ours," he said. "You should think about M365 Copilot, GitHub Copilot, Dragon Copilot, Security Copilot – all of those have a GM [gross margin] profile and lifetime value."
Maybe the argument holds eventually. For now, though, 15 million paid seats is awkward compared with the number of users getting Copilot Chat for nothing.
There are also signs Microsoft itself is still working out where AI genuinely adds value. A recent report from [9]Windows Central suggests the company is reevaluating how aggressively it pushes Copilot inside Windows 11, with plans to streamline or even remove some AI features where they don't make sense.
If even Microsoft is trimming parts of its AI rollout, the idea that Copilot adoption will naturally snowball into paid usage starts to look less inevitable than the earnings-call rhetoric suggests – a familiar concern given how closely investors have already been watching the company's broader AI commitments. ®
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[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2aYDYNBDWmm5mFOdf0fzvawAAA4I&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44aYDYNBDWmm5mFOdf0fzvawAAA4I&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
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[5] https://www.theregister.com/2025/10/20/lloyds_banking_copilot/
[6] https://www.theregister.com/2025/09/17/return_on_investment_for_copilot/
[7] https://www.theregister.com/2026/01/28/microsoft_copilot_wmp/
[8] https://www.theregister.com/2024/03/18/microsoft_copilot_moneymaker/
[9] https://www.windowscentral.com/microsoft/windows-11/microsoft-is-reevaluating-its-ai-efforts-on-windows-11-plans-to-reduce-copilot-integrations-and-evolve-recall
[10] https://whitepapers.theregister.com/
Isn't that Oracle's proprietary business plan ?
Most people don’t want to pay for a word processor or spreadsheet or other notionally useful application. So asking the same people to spend money on something that is considered by most people to be a bit of fun (at best) or the work of the devil is going to be a tough sell
Everyone is paying for Copilot
Even if you don't pay for copilot, if you pay for MS products, you are paying for copilot.
And even if you don't use AI, if you buy hardware, you are paying for AI.
And even if you don't buy hardware but just grocery, you are paying for AI. Because computers, software, and power are used everywhere on every supply chain, so in the end AI is making everything more expensive.
the only use of copilot...
Honestly, the only reason I use copilot at all is because of its generous free tier. I'd never pay for it, and I'm on Linux so I don't have to sit through all those forced integrations.
They're not gonna make money on this.
"Microsoft spends billions on AI, converts just 3.3% of Copilot Chat users"
I think it is safe to say that recruitment initiative does not represent good value for money. Indeed, that money would have been much better spent on Win 11 update quality control.
Improving W11 quality doesn't enable them to promise wonders for investors so no chance of that happening.
^ Now that is a very valid and relevant point!
I don't know who would pay for this crap
As time is always scarce, I told it to write a quick script for me. It generated the script but there were a number of problems with it. I told it what it what the problems were so it generated a new script and claimed the problems were allegedly solved however new problems had appeared so I couldn't test it. After five tries like this I gave up.
And I couldn't even fix the script myself as it contains an awk call in the middle which is completely incomprehensible.
I'm supposed to live in fear of this waste of electricity, water, bricks, and mortar taking my job away. I've never slept easier in my life.
Where there's a will there's a way
Worth bearing in mind that for home users of O365, the "free trial" runs until they renew their subscription. Then the renewal page only shows renewal options with Copilot , and for my family 365 sub that comes with a 33% (+£25) price increase on last year. Many people will just suck that up without thinking, especially because the cheaper-without-Copilot option is not shown unless the user selects "cancel my subscription". Having done so, my sub will lose Copilot at the renewal data because to me it's not even worth a few pence per month.
I suspect a good chunk of those 3.3% who are paying didn't realise they could avoid paying for Copilot, and I further guess that the number paying for Copilot will rise over the year for the same reason. Although on the subject of things I suspect and guess, I'll posit that 70p per user per month* is never going to pay off Microsoft/ChatGPT's ludicrous levels of LLM investment. Business users are already paying much more per user, but in both cases paying nominal amounts for Copilot is merely the thin end of the wedge, and in future years MS will need the price to go up dramatically.
* My household calcs: £25 annual increase for Copilot/(three users x 12 months)
Re: Where there's a will there's a way
I suspect a good chunk of those 3.3% who are paying didn't realise they could avoid paying for Copilot
And 96.7% home users don't realise they could avoid paying for Office as well?
Re: Where there's a will there's a way
Probably true for most of them.
In my case it's centred on the fact that the youngster is doing medicine, that's hard enough and I don't want to cause any problems with coursework that's all been created by MS applications and which she's been educated with. Once they've finished, then I'm a free agent, and Open Office goes onto the family fleet, and hopefully her indoors won't notice.
Re: Where there's a will there's a way
Yeah, MS has been doing everything it can to cook the books on this, like counting Office sales as 'AI Revenue'. And even with that the best they can come up with is 3.3%? I suspect it what's you said.
Imagine that.
It's like Wednesday following Tuesday.
Lay your bets, readers. Will the bubble pop or will it deflate?
Re: Imagine that.
Quietly ignored as soon as the next money making bandwagon appears.
Has AI found an actually helpful place for blockchain yet?
Re: Imagine that.
Only in the Metaverse.
Re: Imagine that.
All the quantum folk must be upset that AI's keeping them away from their turn for a bubble.
"plans to streamline or even remove some AI features where they don't make sense"
Notepad would like a word.
This is amusing
Years ago I worked at a company where certain customers were effectively loss-makers - it cost more to have them as customers than they paid. The fact that they were loss-makers was understood, but we tolerated them because they were about 3 or 4% overall. It would also look bad if we stopped their service. In time some churned away. The 95% of customers who paid were effectively subsidising the loss-makers.
According to Google, 5 to 6%% of customers pay for ChatGPT. MS is even less. Perplexity is about 1%.
There is no business case where 3 or 4% pay to cover the costs of the rest. But that is what the AI 'market' seems to be. There are no 'investments' in AI. They are throwing money into the bin.
Re: This is amusing
Well, "freemium" business models typically convert at around 2%, so in that sense ChatGPT is doing really well. Those companies don't typically start $50bn in the red though :D
Re: This is amusing
You make a good point, but "freemium" models work where the marginal per-user cost of the service is extremely low - I think it's mostly for software that's costly to develop, but really cheap to run. If each user costs you a penny per month in hosting, it's fine if almost all of them don't pay.
LLM users very much do not cost pennies per month. It's more like dollars, or even tens of dollars. Those inference runs are really expensive. There is no way that model works for LLMs.
Re: This is amusing
I think that's the killer here. I can make an app or whatever. Even if it takes me a year, the costs are not astronomical. So I can get away with 2% fremium upgrades. Or if like Adobe there is the free version online, that is paid for by having huge numbers of paying customers. But this AI stuff is just crazy sums of 'investment'. Who knows, perhaps lots of people will pay for it.
Re: This is amusing
Come on old chap. You really really don't understand, do you? Let me spell it out:
1) Get AI
2) Profit
See? It's easy, isn't it?
/Sarc
If you are a widow or an orphan,
steer well clear of investing in AI .
Useful A.I.
The only useful feature of A.I. at the moment that has serious uptake seems to be the generation of pictures and short videos. But this has little or no impact on the bottom line of these companies investing tens if not hundreds of billions in new data centers. It's a huge loss leader and it's only a matter of time before Wall Street reigns them in.
Just take it round the back of the barn and shoot it.
Double the fun
An AI enabled 3D TV with a built in videodisc player.
bankrupt them all
The only positive I see re: AI is for it to bankrupt all of big tech. But our corrupted officials will most likely remain on trend and socialize the loses/bankruptcies as recent history has shown for the sake of the insane argument of economic and national security. This is a bizarre campaign of forcing terrible products on to the majority of paying customers that don't want it...repeatedly, year after year. Customers have to start voting with their pocket books because they don't seem to be listening.
But I guess I'm the crazy one...
*snicker* PAY for something I removed your entire operating system to escape from? Now that's good for a laugh!