Microsoft’s pivotal AI product is running into big problems

After leaning on its OpenAl partnership, Microsoft is playing catch-up in the chatbot race. But it’s losing ground

- Sebastian Herrera

Confusing brand positioning and interoperability problems have frustrated users of Microsoft's Copilot

(BLOOMBERG)

Microsoft’s Copilot chatbot has become central to its artificial-intelligence strategy asthe company’s close partnership with OpenAl diminishes.

But the effort to build it up as a ChatGPT alternative has been tough going.

Confusing brand positioning and interoperability problems have frustrated users, current and former employees who have worked on Microsoft’s AI products said. Only a small proportion of subscribers to Microsoft’s enterprise suite use Copilot, and the percentage who favorit over Google’s Gemini or other tools has decreased in recent months, according to data reviewed by the Journal.

The stakes are high for Microsoft because Copilot is core to a push by Chief Executive Satya Nadella to transform Microsoft into an AI-first company, much as he transformed it into a cloud-first company around a decade ago. Copilot is one of Nadella’s top priorities, current and former executives said.

Microsoft shares tumbled after its earnings report last week sparked investor concern that growth in its most important unit, the Azure cloud-computing business, is slowing, and thatiits AI business is reliant on Openal while Copilot remains unproven. Shares fell nearly 3% Tuesday amid a slide in software stocks prompted by fresh concerns that Al tools will make enterprise subscriptions less necessary.

“We have moved past the initial phase of discovery” of AI, Nadella wrote ina Decemberblog post ,adding that the industry was entering a phase where “we are beginning to distinguish between ‘spectacle’ and ‘substance.’”