Microsoft thinks Copilot will be a ‘moneymaker’ in long term

Microsoft is asking investors to “temper” expectations for quick financial returns from Copilot amid efforts to convince customers that paying “substantial” sums each month is actually worth it.

After trialing the use of Microsoft’s GenAI in their workflow, testers told the Wall Street Journal that they had mixed feelings about it, saying it was useful but maybe didn’t yet justify the price tag.

Juniper Networks CIO Sharon Mandell told the paper: “I wouldn’t say we’re ready to spend $30 per user for every user in the company.”

Copilot for Microsoft 365 was made generally available for enterprises from November 1, offering customers month-long trials in the hope to get them hooked to the point they become paying customers.

Talking at this month’s Morgan Stanley Technology, Media and Telecom 2024 conference, Jared Spataro, corporate vice president of Modern Work & Business Applications at Microsoft, said Copilot in various applications is at “different stages of development.”

He said where it is most effective is in relation to “sophisticated information retrieval” and “sophisticated task completion” for three areas: Office 365, Teams, and Outlook.

“We are able, I think, to justify the price point quite well when we move over into those scenarios,” said Spataro.

Other parts of the portfolio lag behind, he admitted. “So if you look at Copilot in Excel, like, we all can’t wait until it’s an Excel jockey and can do a lot, but it’s coming. It’s learning and people have very high expectations,” he told an audience of investors.

“Same is true of PowerPoint,” he added, explaining that users quoted in the WSJ want it to be their financial analyst. “And it’s going to disappoint there because we’re still learning the commanding surface of Excel.”

He said Microsoft has to spend time with customers “showing them and then helping them realize that value,” which at $30 per month is “a substantial price tag for sure.”

“People are definitely trying understand, who should I get this for? Is this for everyone in my organization? Is this for a certain segment or population?

“And it’s just based on hard facts. Are we saving enough in terms of time? Are we generating enough value? Previous Microsoft-commissioned research found Copilot testers worked 29 percent faster, and 77 percent that used it for two weeks found it indispensable.

“So let’s say, everybody says ten hours a month,” said Spataro in reference to the estimated productivity boost from using Copilot. He said customers were considering this:

“Does that mean I should allocate more budget to this [Copilot]? Or how do I think about an IT budget that is fairly fixed or not growing by leaps and bounds? So building that business case is right where we are.”

Helping Microsoft outline an average business case, Morgan Stanley analyst Keith Weiss said an “information worker” makes $75,000 a year, Copilot saves them ten hours a week in productivity enhancements, “that’s 20 to 25 percent of their work week.”

“It would seem $3 against that productivity savings is a pretty good value proposition or a very high return on investment,” said Weiss.

Spataro replied: “I’d say you’re hired as a salesperson.”

He added: “That’s exactly what we’re trying to do is to get people to understand their fully loaded costs for their FTEs [full-time employees].”

Microsoft is using a “land and expand” strategy, via pilots, to get its foot through a customer’s door then flog more and more licenses.

“Mostly where we are, right now, is working with customers to help them build out that business case, and it’s just based on hard facts. Are we saving enough in terms of time? Are we generating enough value? And we’re, right now, we’re very optimistic.

“But for this group [in the audience], I would say, my job here is to temper your expectations. Over the long term, we think this will be a great moneymaker for us.”

It might be worth remembering those words when next at the negotiating table with a Microsoft salesperson. ®

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• Source: https://go.theregister.com/feed/www.theregister.com/2024/03/18/microsoft_copilot_moneymaker/