To The Moon

Microsoft is planning a significant overhaul of its Copilot AI products, aiming to unify its consumer and enterprise offerings into a single application and remove underutilized features. The company's goal is to solidify its position in the competitive AI landscape.

According to an internal memo, Microsoft executive vice president Jacob Anderu informed employees that the company will integrate its separate Copilot apps. The new unified application will also feature AI programming tools and new intelligent agent capabilities, which will require additional payment from users.

The memo detailed a new intelligent agent named AutoPilot, designed to run continuously and handle repetitive tasks automatically on behalf of users. Microsoft had previously previewed an AutoPilot agent called Scout, which can organize schedules, monitor inboxes, and summarize emails. Anderu's team is now developing other similar intelligent agent products.

In a related move, Microsoft announced the formation of a new $25 billion AI consulting division named the Microsoft Frontier Division. This unit will deploy 6,000 industry and engineering experts to partner with clients on the co-design, innovation, deployment, and optimization of AI systems. This initiative mirrors similar efforts by Amazon, OpenAI, and Anthropic to lower barriers for traditional businesses adopting advanced AI tools.

The "Copilot" brand encompasses various Microsoft AI dialogue products. The consumer version is a general-purpose chatbot similar to ChatGPT, while the enterprise version automates tasks within Office 365 and other Microsoft software, such as generating presentations or replying to emails. The technology underlying Copilot incorporates models from OpenAI and Anthropic, alongside Microsoft's own large language models.

Anderu stated that his team has already removed numerous inefficient features, including several low-usage Copilot add-ons within enterprise products.

Another objective of this product revamp is to encourage existing Copilot subscribers to pay for new premium modules within the upcoming "super app." These will include AI programming tools, the AutoPilot agent, and the Copilot Cowork service, for which Microsoft revealed some pricing last month. While these features compete with offerings like Anthropic's Claude Cowork, Microsoft maintains an open approach, allowing companies like Anthropic to develop plugins for Office software.

Informed sources indicate that while the memo did not specify a launch date, Microsoft plans to release the fully redesigned Copilot in August.

The memo framed artificial intelligence as a transformative technology on par with the printing press or the telephone, reflecting Anderu's ambition to set a new direction for his 11,000-person team.

He wrote, "If we treat AI as a deity, we build something to be worshipped. If we treat it as a tool, we build something to serve people. This choice, whether intentional or not, defines the technology's core, its interaction, and its social impact."

Revamping Copilot's reputation is critical for Microsoft. AI tools from Anthropic and OpenAI targeting white-collar workers pose a significant threat to Microsoft's core Office software suite. Last fall, CEO Satya Nadella and his leadership team expressed concerns that the Copilot integrated into Office 365 was not delivering on its promise of office automation, with low employee usage even in companies that had paid for it.

Microsoft's stock has fallen nearly 20% year-to-date, underperforming other major tech giants. Several large institutional investors have reduced their holdings, citing Copilot's inferior user experience compared to rival AI chatbots and market fears that new AI tools could undermine Microsoft's dominance in office software. Microsoft executives have recently acknowledged that its GitHub Copilot programming tool is losing market share to competitors.

Inherent Strengths

However, Microsoft possesses a formidable advantage: its vast, long-standing enterprise customer base. Financial analysts estimate Microsoft's fair valuation could be as high as $3.8 trillion, about 30% above its current market cap. While adoption of the enterprise Copilot, priced from $30 per user per month, was uneven after its 2023 launch, its growth has accelerated recently. Microsoft reported 15 million Copilot subscribers in January, a figure that grew 33% to 20 million by April. The company credits Copilot with driving recent Office revenue growth. For comparison, ChatGPT reportedly has over 50 million paid subscribers, including individual and enterprise users.

Previously, numerous Copilot features were scattered across different Microsoft products, confusing users and drawing internal criticism. Anderu aims to create a unified entry point for all AI capabilities. For instance, users could leverage Copilot's AI programming to create dashboards from data within Microsoft software or deploy a persistent agent to automatically reschedule conflicting meetings and send new invitations.

In his memo, Anderu distanced his approach from his predecessors, including executive vice president Rajesh Jha, who announced his retirement this year, and Mustafa Suleyman, the former head of consumer AI at Microsoft, who now leads a team of about 850 focused on core model research.

Anderu emphasized that Copilot should focus on real office scenarios and business outcomes rather than purely pursuing technical intelligence. He wrote, "This is our new foundation for growth and our confidence in iterating the product, enabling us to truly establish a place and gain recognition in users' work and lives."

"Customers are now constantly asking about return on investment," Anderu noted, "partly because the enterprise services market has changed, and all enterprise software now faces a higher bar for entry."

He added that as the company that pioneered the graphical user interface and the PC era, global users expect Microsoft not only to create usable AI products but also to deliver mature, practical implementation plans.

Discontinuing Podcasts and Experimental Labs

Anderu joined Microsoft in the spring of last year amid Nadella's broader reshuffle of Copilot leadership and was quickly promoted. Early this year, Nadella tasked him with leading the product upgrade to improve Copilot's market perception.

In his first year, Anderu expanded his role from overseeing a team of several hundred in Suleyman's consumer AI division to leading the combined consumer and enterprise Copilot organization of 11,000 people. He also took over the Bing, MSN, and Edge browser businesses previously under Suleyman.

Sources indicate that Nadella's key performance indicators for Anderu include overall Copilot business growth, user retention, and customer satisfaction. Employees relayed that Anderu expressed satisfaction with the business momentum for the fiscal quarter ending in June, though the latest total paid user numbers have not been officially disclosed.

While Thursday's memo did not list specific features to be cut, two people familiar with the projects said the team is phasing out the poorly received Copilot podcast feature, which generated AI podcasts from web pages or uploaded documents.

The team will also shut down the Copilot Labs section, which hosted experimental features like AI 3D rendering that failed to attract a significant user base.

Anderu had previously directed the removal of features users disliked. Data showed that various Copilot floating buttons in Windows software were often accidentally clicked and immediately closed, prompting him to order the removal of these redundant buttons.

A Higher Bar for the Industry

In an interview last month, Anderu admitted that enterprise clients now scrutinize every AI investment, and Microsoft must continue to expand its paid Copilot user base. A core strategy is simplifying the unified Copilot's interface so that non-technical employees can use AI programming features and are willing to pay for them, rather than solely purchasing GitHub Copilot separately.

"Customers are now constantly asking about return on investment," Anderu reiterated, "partly because the enterprise services market has changed, and all enterprise software now faces a higher bar for entry."

Early in his tenure, Anderu had an in-depth discussion with Nadella about building a Copilot product that Microsoft would still be proud of in ten years. Anderu argued that while Microsoft's revenue primarily comes from enterprise clients, the consumer market is equally vital. Positive word-of-mouth from individual users directly influences decisions to adopt the product within their companies, a point Nadella agreed with.

"For businesses serving consumers, if the product experience is poor and users leave, the foundation of the business can collapse instantly," Anderu said. "Nadella's words deeply resonated with me: for Microsoft to grow steadily over the next decade, we must create products with a top-tier consumer experience."

Currently, Copilot's user base on the consumer side still lags far behind competitors. According to mobile app analytics firm Sensor Tower, Copilot has 38.5 million monthly active users, compared to approximately 1 billion for ChatGPT.