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Welcome back! Microsoft’s slightly-slowing growth in cloud server rentals cast a pall over its quarterly earnings report on Wednesday, but the company had a salve to numb that sting: It’s generating significant revenue from AI software subscriptions. During its earnings call, CEO Satya Nadella revealed one of the most hotly anticipated figures investors and competitors have been waiting for: it has 15 million paying users of 365 Copilot, the flagship AI features in its Office apps suite for automating tasks including summarizing Teams meetings, generating PowerPoint presentations, or doing math in Excel spreadsheets. That’s an impressive figure because 365 Copilot costs $30 per person per month, which means Microsoft is likely on track to generate at least several billion dollars annually from these add-on subscriptions. (The company typically offers discounts to customers that buy the software in bulk, making it hard to precisely estimate sales from the product.) That would put Microsoft ahead of Google, which has around 8 million corporate subscribers for Gemini Enterprise, which competes head to head with 365 Copilot and starts at $21 per person per month. (It isn’t clear how many people pay for the Gemini chatbot on its own.) 365 Copilot revenue is also likely much bigger than Anthropic’s revenue from chatbot subscriptions to Claude, which is trying to become a major tool for business workers in its own right. (An Anthropic spokesperson declined to comment on subscriber numbers but said its revenue from Claude subscriptions is six times higher than it was a year ago.) ChatGPT is still the king of AI app subscriptions: as of last July, it had 35 million paying customers. We don’t know how many it’s added since then, but OpenAI revenue is still growing mighty fast and the vast majority of it is from ChatGPT subscriptions. To be sure, some of those may be consumers, not business users, but it’s reasonable to think many are business subscribers. In addition, OpenAI said in November it has 7 million paying subscribers to a different version of ChatGPT, specially aimed at businesses, which starts at $30 per person per month and includes the kind of security and other enterprise-grade features that customers of 365 Copilot get. Microsoft still has a lot of room to grow Copilot, as it has more than 400 million global subscribers to Office 365 apps. First, though, it must improve the product to get more of the paying customers to actually use it; Erin, Amir and I reported last month that Nadella and his deputies had privately said that some large customers aren’t using the AI very much, even if they are paying for it. And as I detailed in a story on Wednesday, Nadella and his deputies are moving fast to utilize technology from Anthropic and other sources to improve and create new Copilot features as well as an agent that can take over Windows devices and use any apps a worker might use—which would resemble Anthropic’s efforts with its Cowork product. It’s fortuitous that Microsoft showed real 365 Copilot revenue for another reason: it partly countered shareholder concerns around its ability to speed up revenue growth in its Azure cloud unit. When an analyst on Wednesday asked Microsoft executives why Azure growth didn’t match the rate of the capex for new data centers and servers equipped with Nvidia chips, Chief Financial Officer Amy Hood said the company needed to save some of that server capacity to develop and run 365 Copilot and other AI products. “We‘re allocating [AI chips] and capacity to many of the talented AI people we’ve been hiring in past years,” Hood said, adding that “if I had taken the [AI chips] that just came online in Q1 and Q2 and allocated them all to Azure,” its growth would have been “well over 40%,” compared to the 39% that Microsoft reported. “We don’t want to maximize just one business of ours,” Nadella said. It’s a fair point, especially because software sales typically generate much higher gross profit margins than renting out cloud servers. Nadella said Tuesday that Microsoft has driven down the cost of running 365 Copilot by reducing how much computing power is needed for the AI that powers the features, though he didn’t say what the margins are.
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