The AI landscape in 2023 has been a confusing blend of reality and hype, yet Microsoft seems to be charting a course toward substance. Microsoft’s shares (NASDAQ: MSFT) experienced a 4% boost on Tuesday following the revelation of the company’s pricing for their upcoming AI assistant for Microsoft 365, namely the Microsoft 365 Copilot. Designed to optimize and supplement tasks across various applications, including Word, PowerPoint, Outlook, Teams, and Excel, the impressive $30 monthly rate per user demonstrates the company’s confidence in its product.
This bold pricing decision lends credibility to what some might have considered a speculative venture. The substantial price tag could significantly increase Microsoft’s revenue and operating income as workers turn to Copilot to simplify their tasks and enhance their creativity and productivity.
Value Perceived by Early Users
Copilot’s bold $30 price tag is not arbitrary but derived from feedback from a vast early access program. The program included 600 enterprise customers worldwide, providing Microsoft with ample data to gauge customers’ willingness to meet the high monthly fee.
The participating users of the paid early access program have reportedly been finding value in the product.
In a recent press release, Microsoft said, “The more our customers use Copilot, the more they appreciate its capabilities.” Users’ feedback indicates that Copilot “is set to revolutionize productivity,” as anticipated by Microsoft.
A Potent Stock Catalyst
AI is progressively becoming a critical fuel for Microsoft. The increased interest and hype around AI leads to a greater demand for computing power, likely resulting in a beneficial impact on Microsoft’s cloud business, Azure, over time. The introduction of Copilot further opens revenue generation avenues for Microsoft from AI.
The $30 subscription add-on could contribute significantly to Microsoft’s revenue in several ways. Firstly, it could persuade some Office 365 users to upgrade to the more feature-rich and costly Microsoft 365. For now, Copilot is exclusively available as a Microsoft 365 option and not an add-on for Office 365.
Secondly, incorporating the AI software into a 365 subscription could inflate the price by around 50% to 80% for most users, as analysts estimate. Considering the enormous number of Office 365 commercial seats, which stood at 382 million at the end of the most recent quarter, the resultant revenue boost could be substantial. Upselling to this existing customer base could drastically improve sales.
Lastly, the innovative Copilot could entice new users eager to explore its capabilities.
Without the $30 AI subscription, Microsoft’s current price-to-earnings ratio of approximately 39 could raise eyebrows. However, this fresh offering could sway investors to consider the stock a viable investment option, even at its current level.
Microsoft is yet to disclose the official launch date for Copilot but promises to “share more details on the timeline in the coming months,” as stated in their press release.
Microsoft’s new AI Copilot offering demonstrates how the company is leveraging AI to create innovative products and increase revenue. With an impressive early access program and positive feedback, this move could substantially increase Microsoft’s bottom line. It’s a fascinating time to watch as Microsoft shapes the future of AI applications in productivity software. Investors and users alike will eagerly await the official launch of Microsoft 365 Copilot.
