Microsoft can’t afford any turbulence from the new Copilot

Clippy just got a serious promotion. Now Microsoft MSFT 4.05%

must ensure that this does not get out of hand.

Microsoft, led by CEO Satya Nadella, on Tuesday announced plans to integrate the artificial intelligence technology powering the popular ChatGPT chatbot into its suite of office software tools. This launch will take the form of a new interface called Copilot, which can write Word documents, create PowerPoint presentations, analyze Excel spreadsheets, and even reply to emails through Outlook — essentially a far more powerful tool than the Office Assistant called Clippy, which Microsoft once provided through its Office products.

The new copilot is also the next step in Microsoft’s aggressive campaign to introduce generative AI into its products, following a similar announcement last month related to its internet search business.

But the stakes are much higher now. Microsoft plays a small role in search, with its search engine Bing accounting for less than 3% of global search volume, according to data from Statcounter, compared to 93% for Google. With Office app software, it’s almost the other way around; According to Gartner, Microsoft controlled more than 85% of this market by the end of 2021, compared to Google’s 13.7% share.

And it’s big business. Office 365 — the cloud-based version of Microsoft’s suite of productivity software — alone generated nearly $41 billion in revenue between its commercial and consumer versions in calendar year 2021, according to Visible Alpha consensus estimates. That’s more than the combined annual revenue of most large-cap software companies, including Salesforce and Adobe. Office products and related cloud services accounted for 23% of Microsoft’s total revenue last fiscal year, compared to a 6% contribution from search and news advertising.

As such, Microsoft cannot afford to get this wrong. It also can’t afford to have its new AI-powered Office apps inexplicably spit out inaccurate information or read out copyrighted materials like the public version of ChatGPT sometimes did. And it really can’t afford some of the more bizarre turns its new AI-powered Bing engine has taken on some early testers – the chatbot seemed to take on sentient qualities and even a full personality. Microsoft says it has pushed the technology to new frontiers to prevent these problems, and the company said Thursday it is slowly rolling out the new Copilot tool, with only a small group of customers getting initial access “to get the critical.” Getting feedback needed to improve these models as they scale.”

The next question: Are Microsoft’s many corporate customers paying? Generative AI technology requires intensive computing power and is therefore expensive to activate. But Microsoft now has the highest operating margins of its major technology rivals, and its segment, which includes the office business, is the most profitable with operating margins 6 percentage points above the company average for calendar 2022.

Microsoft announced on Thursday that new pricing and licensing details for Copilot will be announced soon. You have to walk a fine line. While office tools are an essential part of corporate life for most companies, these same companies are under pressure to reduce their own costs in a slowing economy and as a result may be reluctant to pay for unproven technology. In a note to clients earlier this week, UBS analyst Karl Keirstead cited conversations with several large corporate clients that “expressed a reluctance to pay until the technology is truly enterprise-ready and ROI is demonstrated.” A PowerPoint that makes itself could be worth the money. A sentient Clippy is another story.

Write to Dan Gallagher at

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