At Microsoft Inspire, the company laid out its approach to commercializing its AI productivity capabilities. This piece discusses Microsoft’s significant announcements.
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Summary
At Microsoft Inspire, the company laid out its approach to commercializing its AI productivity capabilities and significant ($13bn) investment in OpenAI. Microsoft aims to seamlessly integrate Copilot into its 365 productivity app suite (Teams, Word, Excel, Outlook, etc.) to boost employee productivity. As previously revealed, Copilot AI will leverage capabilities such as natural language processing (NLP) to enhance how employees interact with their Microsoft productivity applications, helping make work more seamless and maximizing technology utilization. Anyone who has dabbled with #ChatGPT will have a level of familiarity and understanding of AI’s potential to enhance productivity, a use case Microsoft is well-positioned to support.
While many tech vendors are working on some form of artificial intelligence (AI), Microsoft has arguably invested the most resources in this emerging technology. Indeed, AI has become much of an arms race, with vendors keen to capitalize on this promise of augmented assistance to improve productivity, including Meta (LLaMA), Alphabet (Bard AI), and other key vendors in the digital workplace.
AI will help drive Microsoft’s ARPU
During Microsoft’s quarterly results, the vendor takes the opportunity to reinforce growing the average revenue per user (ARPU) from its cloud customers. Although Office 365 continues to gain traction, it is slowing, and the pressure to increase ARPU and drive extra revenue means Microsoft must convince customers to upgrade to more expensive Enterprise licenses (such as the E5 plan) or buy add-ons.
Indeed, this slowing was noted by Microsoft’s CEO, Satya Nadella, in the vendor’s second quarter FY 2023 earning call, where he stated, “Organizations are exercising caution given the macroeconomic uncertainty.” While Microsoft purports to have seen strong E5 license sales with four or five “really good quarters of E5 adoption” (as per Microsoft CFO Amy Hood during the second quarter, FY 2023 earnings call), the vendor must look outside core licensing subscriptions for additional revenue growth.
Microsoft’s ARPU is likely to increase, primarily driven by new add-on Premium licensing (such as Microsoft Teams Premium); however, the lure of AI is expected to add billions to the company’s top line, assuming a conservative uptake in Copilot add-on license revenue.
Will Copilot open an enterprise security and governance can of worms?
Microsoft also shared details on its approach to data security and governance—two areas that have recently been a vital discussion area around AI. The large language models (LLMs) that underpin Copilot combine data from Microsoft 365 apps and the Microsoft Graph data and intelligence repository. The real value of generative AI in a business context is how tailored the capability is to the needs and data generated by organizations. Copilot will be informed by an organization’s emails, documents, and other productivity data repositories, but AI’s ingesting of sensitive business data like this has led to concerns. Businesses have, rightfully so, expressed unease and uncertainty around the security and governance of the data and information that generative AI will leverage and potentially share. Microsoft announced that Copilot will inherit the existing security and compliance policies that organizations already have in place for Microsoft 365. Additionally, Microsoft advises that business data is protected by being isolated within a customer’s Microsoft 365 tenant. This means that businesses should not need to architect a completely new approach for security and governance around generative AI, as many of the policies and practices they currently have around an existing Microsoft 365 tenant will carry over.
However, Omdia believes, given the sensitivity of content held within the deep recesses of an enterprise (and subsequently parsed by AI), Copilot is likely to drive customers with E1 licensing plans to E3 and E5 licensing. E3 and E5 licenses are where security, advance compliance, and information protection are made available through add-ons (or included in the case of an E5 plan) in the subscription. Indeed, Microsoft Purview (available as a pay-as-you-go model) aims to safeguard all enterprise data across platforms, apps, and clouds with information protection, data governance, risk management, and compliance solutions. Consequently, Microsoft Purview will likely also drive additional revenue opportunities for Microsoft.
Availability and pricing
Microsoft 365 Copilot is in private preview with up to 600 invited paying customers, according to Microsoft; however, Microsoft has not announced when Copilot will be released commercially. Microsoft 365 Copilot will be available as an add-on for $30 per user per month for all enterprise customers with Microsoft 365 E3 and E5 subscriptions. This has created a degree of consternation with many existing customers. Microsoft 365 E3 license already costs $36 per user per month, and enterprise customers would face a significant increase in their monthly subscriptions.
Mitigating some of the “sticker shock” of the Copilot announcement, Microsoft also announced details of Bing Chat Enterprise. Bing Chat Enterprise is available in public preview for organizations with Microsoft 365 E3 and E5 subscriptions at no additional cost. Microsoft also plans to make the service available via a standalone plan priced at $5 per user per month.
Bing Chat Enterprise – a cheaper alternative for most employees
But sharing more details on Copilot was not its only announcement; Microsoft also shared details on Bing Chat Enterprise. According to Microsoft, Bing Chat Enterprise will provide complete, verifiable answers with citations and visual answers that include graphs, charts, and images via Microsoft’s Edge sidebar (and made available to Windows Copilot in the future.)
Bing Chat Enterprise ensures that user and business data are protected and will not leak outside the organization (something Microsoft calls “commercial data protection”) and will help employees quickly generate content, analyze or compare data, summarize documents, and write code.
Bing Chat Enterprise will likely help Microsoft drive the broader adoption of Microsoft’s Edge browser beyond the current 100 million daily active users of Bing through the added value of integrated search and chat.
Given the widespread availability of Bing Chat Enterprise through Microsoft’s E3 and E5 plan, broad adoption is likely; however, given the pricing of Microsoft Copilot, Omdia believes that only a select number of users or use cases will leverage Copilot for writing first drafts and summarizing documents; summarizing email threads and generating emails; creating presentations; and finding insights, analyzing trends, and creating data visualizations in Excel.
AI approaches from other vendors
While Microsoft is trialing Copilot AI with selected customers and announced pricing and licensing details, other vendors have also outlined their offerings. For example, Zoom IQ (available to select customers through a free trial) helps draft emails and chat messages, summarize meetings and chat threads, and assist with brainstorming sessions on Zoom’s intelligent whiteboard. However, Zoom has yet to release information regarding pricing and availability.
Cisco has also announced an AI-powered meeting assistant that offers real-time translations, a touchless experience for meetings using voice commands, and intelligent meeting summaries for Webex. Users can opt to automatically generate the most critical elements of a Webex meeting, extract the key points, and capture action items with owners. Cisco also brings summarization functionality to Vidcast, the vendor’s video message recording feature. Cisco’s implementation of AI will automatically generate video highlights and chapters so viewers can quickly navigate to the most critical parts of the video message. Webex Assistant is offered free for 15 days when organizations sign up for a paid account and lists at $12.50 per user per month after that.
However, Zoom and Cisco’s AI capabilities currently focus on unified communications and collaboration (and, to some extent, customer engagement). In contrast, Microsoft Copilot will also intelligently assist in content creation applications within the Microsoft Office portfolio. Microsoft will need to carefully monitor “price elasticity” (how responsive customer demand is for a product based on its price) and whether organizations will view Copilot as “nice-to-have” or “non-essential.”
Given the current economic headwinds, enterprises are sensitive to fluctuations in price and need to justify additional IT spending carefully (as previously noted by Microsoft’s CEO).
The future
Omdia believes mobile working represents one of the most significant opportunities for AI-infused productivity applications. How employees interact with productivity apps on mobile devices differs from their experience using those same apps on laptop and desktop endpoints. Tasks such as developing spreadsheets and longer Word documents are not convenient on a mobile device, so employees naturally gravitate toward doing this type of work on more traditional endpoints. The new interface modality that generative AI delivers opens the door for more tasks and activities within productivity apps to be undertaken from anywhere on a mobile device. Employees will no longer need to wait until they are at their desktops or laptops to carry out workflows enabled by productivity applications. As per the examples above, more seamless interaction with productivity apps will help businesses improve efficiencies and employee productivity.
Appendix
Author
Adam Holtby, Principal Analyst, Workplace Transformation
Tim Banting, Practice Leader, Digital Workplace
