Only 3.3 percent of Microsoft 365 and Office 365 users who touch Copilot Chat actually pay for it, an awkward figure that landed alongside Microsoft’s $37.5 billion quarterly AI splurge and its insistence that the payoff is coming.
That single percentage stat undermines the company’s carefully polished Copilot success story. On its Q2 FY26 earnings call, Microsoft repeatedly cited “record” AI momentum, telling investors it now has 15 million paid Microsoft 365 Copilot seats, with seat growth up more than 160 percent year-over-year. Satya Nadella described Copilot as “becoming a true daily habit,” claiming daily active users are up tenfold year-over-year and that average conversations per user have doubled.
What Microsoft did not articulate is how small that paid footprint looks against the vast base of Microsoft 365 users experimenting with Copilot Chat for free, as highlighted by Directions on Microsoft analyst Mary Jo Foley.
Weird take. Typical playbook in SV is to push a free product to gain market dominance for a few years. Also 2% is a common paying user percentage for almost every freemium biz model, and 3%+ is actually considered pretty good
Do those freemium models usually include a $37,500,000,00 overhead?
…per quarter
Yeah… They’re lightyears away from breaking even.
Weird take, because you just said a string of words which are not related to what is actually happening here. Ed Zitron has the real skinny.
You have to consider that for most servers, the marginal expenses per customer are close to negligible, that’s why you can make a profit even though only 3% of users pay you. But AI is so wasteful, that even the paying users are subsidized. Basically, the demand is not sufficient to support profitable monetization.
The issue is there are currently hundreds of companies trying to push the exact same freemium model. And they all have very similar use cases, features, performance and user interface. So why exactly would users ever stay once the price goes up? Or are they hoping like with free games a very small number of users provides a very large revenue stream? Cause with them burning billions every month, I really don’t see that happening any time soon.
There won’t be that many of them in a few years when consolidation happens. The theory is this is a turning point in all of society, so high investment is seen as warranted. Meanwhile, the price of inference and infrastructure is going to continue to reduce, while corporate adoption will rise
Typically, the free product they push doesn’t cost them trillions of dollars.
That model works when free users are costing a couple of cents in server resources, not hundreds of dollars.