Microsoft is expanding its flagship AI product, Microsoft 365 Copilot, by integrating both internal and third-party AI models to diversify beyond its reliance on OpenAI’s technology and reduce operational costs, according to sources familiar with the matter.
This marks a shift for Microsoft, a major investor in OpenAI, which previously highlighted its exclusive access to OpenAI’s models as a key advantage. When Microsoft introduced 365 Copilot in March 2023, its use of OpenAI’s GPT-4 model was a primary selling point.
The company now seeks to reduce its dependence on OpenAI due to concerns about cost and performance for enterprise users, the sources said. A Microsoft spokesperson confirmed that OpenAI remains a key partner for advanced AI models, but Microsoft also customizes OpenAI’s models as part of their agreement.
“We incorporate various models from OpenAI and Microsoft depending on the product and experience,” Microsoft stated. OpenAI declined to comment.
Microsoft is training its own smaller models, including the latest Phi-4, and customizing open-weight models to make 365 Copilot faster and more cost-effective. These efforts aim to lower operational expenses and potentially reduce costs for customers, sources said.
Microsoft’s leadership, including CEO Satya Nadella, is closely monitoring these developments.
This strategy aligns with changes in other Microsoft units, such as GitHub, which added models from Anthropic and Google in October alongside OpenAI’s GPT-4. Similarly, its consumer chatbot Copilot now integrates both in-house and OpenAI models.
Microsoft 365 Copilot, an AI assistant for enterprise applications like Word and PowerPoint, is still proving its value to businesses. While adoption among Fortune 500 companies has reached 70%, many enterprises remain in the pilot phase, according to Gartner. Pricing and utility have been cited as potential hurdles.
Despite these challenges, adoption is accelerating. Analysts at BNP Paribas Exane predict that Microsoft will sell 365 Copilot to over 10 million paid users this year. In a November blog post, Microsoft highlighted its growing traction within large enterprises.