In a strategic shakeup, Microsoft (MSFT.O) is working to expand the artificial intelligence models powering its flagship product, Microsoft 365 Copilot. This bold move marks a step towards lessening its reliance on OpenAI’s GPT-4 model, the very backbone of the AI assistant it launched with great fanfare in March 2023. Sources familiar with the plans reveal that this shift is about more than just innovation—it’s about cost, speed, and keeping pace with the demands of enterprise users.
Why the Pivot?
OpenAI has been Microsoft’s poster child for advanced AI, with the company touting its exclusive access to frontier models in recent years. But behind the scenes, Microsoft has been quietly building and integrating its own smaller AI models, like the Phi-4, and customizing open-weight models. Why? To reduce the significant costs of running 365 Copilot while making the product faster and more efficient.
“We incorporate various models from OpenAI and Microsoft depending on the product and experience,” Microsoft said in a statement. While OpenAI declined to comment, Microsoft’s shift signals a move to take more control over its AI strategy.
A source close to the matter said, “The goal is to make it less expensive for Microsoft to run 365 Copilot, and potentially pass along those savings to the end customer.”
Efficiency Over Dependency
Microsoft’s leadership, including CEO Satya Nadella, is closely monitoring this evolution. The decision to expand AI partnerships and in-house capabilities reflects a broader trend within the company. Other Microsoft units, like GitHub, have already embraced alternative AI models. GitHub’s revamped Copilot now runs on models from Anthropic and Google, alongside OpenAI’s GPT-4.
This diversification isn’t just about saving money—it’s about offering a more seamless and efficient experience for enterprises that demand speed and performance.
Challenges with 365 Copilot Adoption
Despite the excitement around 365 Copilot’s potential, its journey to mainstream enterprise adoption hasn’t been without hurdles. Gartner research from August revealed that most companies are still stuck in the pilot stage, questioning the pricing and utility of the tool.
Yet, there’s optimism. Analysts at BNP Paribas Exane predict that Microsoft will surpass 10 million paid users for 365 Copilot this year. Microsoft’s own blog highlights that 70% of Fortune 500 companies are already onboard.
Balancing Innovation and Partnership
This move to diversify doesn’t mean Microsoft is severing ties with OpenAI. “OpenAI continues as the company’s partner on frontier models,” the tech giant clarified. But by combining OpenAI’s technology with its own models, Microsoft aims to strike a balance—leveraging cutting-edge innovation while ensuring long-term sustainability and scalability.
The stakes are high. As Microsoft 365 Copilot evolves, it’s not just competing with AI-powered tools; it’s redefining what enterprise productivity means in the age of AI.
A Bolder Future for AI
Microsoft’s strategy is clear: lead the AI charge with a diversified portfolio of technology that’s faster, smarter, and more cost-effective. Whether it’s through in-house advancements or partnerships with emerging players, Microsoft is showing it won’t be boxed into dependency—even on a partner as significant as OpenAI.
The question remains: will this shift pay off, both for Microsoft and its enterprise customers? As adoption accelerates, the world is watching.
