Photo credit: Grok/X

Microsoft is actively working to integrate internal and third-party artificial intelligence models into its 365 Copilot product suite, aiming to diversify beyond OpenAI's technology and reduce operational costs, sources familiar with the matter have told Reuters.

The move represents a significant shift for Microsoft, a key investor in OpenAI, as it seeks to lessen its reliance on the AI startup. When Microsoft launched 365 Copilot in March 2023, its use of OpenAI’s GPT-4 model was touted as a key feature. However, concerns about cost and performance for enterprise customers have prompted the company to explore alternative models.

Microsoft has confirmed its ongoing partnership with OpenAI for "frontier models" while also leveraging various models, including those developed in-house, such as the Phi-4 model. According to sources, the company is customizing other open-weight models to enhance speed and efficiency for 365 Copilot, potentially reducing expenses and passing those savings on to customers.

The strategy aligns with similar changes in other Microsoft business units. GitHub, acquired by Microsoft in 2018, added AI models from Anthropic and Google in October, complementing OpenAI’s GPT-4. Additionally, Microsoft’s consumer chatbot Copilot now incorporates in-house AI models alongside OpenAI’s technology.

Microsoft 365 Copilot, an AI assistant integrated into enterprise software like Word and PowerPoint, has seen mixed reception from users. While Microsoft reported that 70% of Fortune 500 companies are using 365 Copilot as of November, analysts remain cautious about its broader adoption. A Gartner survey from August revealed that most information technology companies had not advanced their 365 Copilot projects beyond the pilot stage, citing concerns over pricing and utility.

Despite these hurdles, analysts at BNP Paribas Exane predict Microsoft will sell 365 Copilot to over 10 million paid users this year, highlighting an acceleration in adoption. Microsoft’s efforts to refine the platform and reduce its reliance on OpenAI are seen as critical to driving efficiency and proving the product’s value to enterprises.

Microsoft’s leadership, including CEO Satya Nadella, is closely monitoring these developments, underscoring the strategic importance of optimizing 365 Copilot’s capabilities while managing costs and improving customer experiences.

‍