The News: On January 16, Microsoft announced extensive expansion of Microsoft Copilot. Here are the key details:
- Microsoft reported that Copilot users have now had more than 5 billion chats and created more than 5 billion images to date.
- The company introduced Copilot Pro, a new subscription for individual users. For $20/user per month, Copilot Pro offers the following capabilities over the free Copilot version:
- Priority access to the latest foundation models (e.g., GPT-4 Turbo during peak times)
- Enhanced and faster image generation (combing DALL-E and techniques from Microsoft Designer)
- Copilot in Word, Excel, PowerPoint, Outlook, and OneNote
- Ability to build Copilot GPTs (customized for a specific domain and set of actions)
- The Copilot app (for the free version and Copilot Pro) is available for Windows, Android, and iOS.
- Copilot in Microsoft 365 is now available to businesses of all sizes, without a minimum number of subscriptions, for $30/user per month.
- Copilot for Microsoft 365 is now generally available for small businesses with Microsoft 365 Business Premium and Business Standard. Customers can purchase between one and 299 seats for $30 per person per month.
- Copilot is included in all Office apps plus Copilot in Teams and Business Chat. It integrates all the data and signals across the organization through the Microsoft Graph.
- Copilot GPTs enable users to customize the behavior of Microsoft Copilot on a topic of particular interest. Copilot GPTs will roll out immediately for fitness, travel, and cooking.
Microsoft Unleashes Copilot and Potential 2024 AI Revenue
Analyst Take: With the most used enterprise software and operating system in the world, Microsoft placed a significant bet on AI with the introduction of Copilot to enterprise users in September 2023. Now Microsoft has unleashed Copilot, making it available to nearly every 365 user. What will the impact be? Is Microsoft poised to generate material revenue from AI in 2024? Here are my thoughts.
Market Approach and Testing Tiers
Note Microsoft’s market approach: all 365 users get some Copilot capabilities, but the company is charging a premium to tap into, in its view, the most desirable options as laid out in the description for Copilot Pro. As noted, individuals will pay an additional $20 per month for Copilot Pro, while the already established Enterprise cost is $30 per month per seat.
Copilot Revenue Impact to Microsoft
Let’s for a moment think about the potential revenue impact. According to Microsoft’s 2022 annual report, as reported in Office 365 for IT Pros blog post, the number of paid seats for Office 365 in third quarter (Q3 2022) was 345 million. Further, Microsoft told Wall Street in September that it felt the installed base opportunity for Copilot was 160 million seats for enterprise users.
Here is my forecast for Copilot revenue for Microsoft in calendar year and Microsoft’s reporting year, which is July 1-June 30. Please note that the pricing and the paid seat estimates are based on public information.
Methodology
- Develop a low, medium, and high estimate
- Assign a percentage of paid seats per month, per category
- Enterprise seats are $30 per seat per month
- All other seats are $20 per seat per month (based on Copilot Pro pricing)
- Model uses static number of paid seats for the year, assumes no growth rate in total seats
2024 Calendar Year
Forecast notes:
- For enterprise seats:
- Low: I estimated a baseline of 5% of enterprise seats (8 million) will pay $30 each in the month of January, growing to 12% in December.
- Medium: I estimated a baseline of 10% of enterprise seats (16 million) will pay $30 each in the month of January, growing to 27% in December.
- High: I estimated a baseline of 17% of enterprise seats (27.2 million) will pay $30 each in the month of January, growing to 41% in December.
- For all other seats:
- Low: I estimated a baseline of 1% of all other segment seats (1.8 million) will pay $20 each in the month of January, growing to 8% in December.
- Medium: I estimated a baseline of 3% of all other segment seats (5.5 million) will pay $20 each in the month of January, growing to 22% in December.
- High: I estimated a baseline of 6% of all other segment seats (11.1 million) will pay $20 each in the month of January, growing to 29% in December.
2024 Microsoft Fiscal Year (ends June 30, 2024)
I believe the premium Copilot seats will resonate in the market. In Microsoft’s current fiscal year, I estimate Copilot will contribute between $2.39 billion (or 1% of total revenue) and $9.2 billion (or 4% of total revenue) to Microsoft’s total revenue.
Full Speed Ahead, No Hesitation
I noted in my research note about the September launch of Copilot:
If Copilot rolls out smoothly, AI will become a mass market technology within the next 18 months. Microsoft will be tasked with educating the world and training the world how to best use AI tools.
If Copilot can seamlessly orchestrate apps as envisioned, work and personal productivity will rise simply based on Microsoft users alone and fundamentally change the way we interact with software. Its success or even the promise of its success will spur even greater investment by enterprises to leverage the power of AI.
For Microsoft specifically, a Copilot success will solidify the company’s stranglehold market share for Windows OS and Microsoft 365 applications. It could create greater opportunities for Microsoft to gain market share in enterprise applications they don’t currently dominate, such as sales/marketing/CRM (Salesforce, Adobe), ERP-type software (SAP, Oracle, ServiceNow, etc.). Microsoft Teams becomes more powerful and increases Microsoft’s potential to grab more market share in collaboration tools. Finally, a Copilot success might give Microsoft a chance to break Google’s dominance of search.
Given the company is rolling out Copilot across nearly every 365 market segment with premium upgrade pricing, Microsoft appears to feel very comfortable and confident in the technology, which has some downside risks, will perform and behave within the guardrails Microsoft has built for it. Not only is Microsoft poised to deliver guided generative AI to the mass market, AI, through Copilot, is poised to deliver material revenue to Microsoft in the company’s fiscal year and calendar 2024.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
My Pick for the 2023 AI Innovation Company of the Year Is Microsoft
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Microsoft’s AI Safety Policies: Best Practice
Author Information
Based in Tampa, Florida, Mark is a veteran market research analyst with 25 years of experience interpreting technology business and holds a Bachelor of Science from the University of Florida.
