Microsoft (MSFT.O) has been working to integrate both internal and third-party AI models into its Microsoft 365 Copilot product, aiming to reduce reliance on OpenAI’s technology and lower costs, according to sources familiar with the efforts who spoke to Reuters.
This move marks the latest step in Microsoft’s strategy to reduce its dependence on OpenAI, a company it has heavily supported. Historically, Microsoft highlighted its exclusive early access to OpenAI’s models, particularly when it launched Microsoft 365 Copilot in March 2023, which prominently featured OpenAI’s GPT-4 model.
Sources said that Microsoft is seeking alternatives to OpenAI’s models for Copilot in order to address concerns about the cost and speed of the service, especially for enterprise users. These sources, who requested anonymity to discuss internal matters, added that the company is exploring options to customize its own smaller AI models, including the new Phi-4 model, and is also looking at open-weight models to enhance Copilot’s efficiency.
A Microsoft spokesperson confirmed that OpenAI remains a partner for developing advanced AI models but emphasized that Microsoft uses a variety of models—both from OpenAI and its own systems—depending on the product. The original partnership with OpenAI gives Microsoft the flexibility to customize its models.
“We incorporate various models from OpenAI and Microsoft depending on the product and experience,” Microsoft said in a statement. OpenAI declined to comment.
The goal, according to one of the sources, is to reduce the operational costs of running 365 Copilot and potentially pass on the savings to customers. The effort is being closely monitored by Microsoft executives, including CEO Satya Nadella.
This shift aligns with changes in other Microsoft units, such as GitHub, which Microsoft acquired in 2018. In October, GitHub began incorporating AI models from Anthropic and Google as alternatives to OpenAI’s GPT-4. Similarly, its consumer-facing chatbot, Copilot, was recently revamped to include both proprietary and OpenAI models.
Despite ongoing concerns about pricing and the utility of Microsoft 365 Copilot, which is built into Microsoft’s suite of productivity tools like Word and PowerPoint, analysts report a growing adoption. A recent Gartner survey revealed that many companies are still in the pilot phase, with limited rollout. However, BNP Paribas Exane analysts believe Microsoft will reach over 10 million paid 365 Copilot users in 2024. Microsoft also shared that 70% of Fortune 500 companies are now using the product, according to a November blog post.
