Microsoft is poised for its next growth phase, with the recent launch of the Microsoft 365 Copilot artificial intelligence add-on for its Office app subscriptions targeting businesses. This feature is integrated into Word, Excel, and other Office applications and comes at a cost of $30 per person per month. Piper Sandler analysts Brent Bracelin and Hannah Rudoff estimate that this could generate over $10 billion in annualized revenue by 2026.
Microsoft is leveraging its dominant position in the productivity software market, where it faces competition from Google’s Workspace tools. Piper Sandler’s model assumes that 18% of eligible users will adopt Copilot, as there is a strong “fear of missing out” (FOMO) element in industries where competitors are adopting this technology.
Piper Sandler has a buy rating on Microsoft shares, which have risen by 41% this year, outpacing the wider S&P 500 index’s gain of 9%. Microsoft’s CEO, Satya Nadella, has stated that customers find Copilot indispensable once they start using it.
Initially, Microsoft focused on large companies, with 40% of Fortune 100 firms already using Copilot in an invitation-only paid early-access program. However, it’s still early days, and there’s limited data on how Copilot impacts performance.
To access Copilot, companies need at least 300 licenses for their employees, and the challenge for Microsoft is to expand its user base beyond a small core of early adopters. Gartner suggests that organizations experiment with generative AI, like Copilot, and predicts that adoption rates could reach 20% within two to three years.
While it may be tempting to distribute Copilot primarily to high-level executives, who could benefit from its time-saving capabilities, this approach could also strain tech support resources. It might be more prudent to initially provide Copilot to technically proficient employees who have experience with generative AI, understanding its limitations, such as the potential for inaccurate information.
Despite the potential challenges, the adoption of AI tools like Copilot is on the rise. Microsoft is well-positioned not only to benefit from Copilot’s subscription fees but also to sell additional Azure cloud services to companies implementing this tool, such as Azure Purview for data management.