Microsoft’s problems are mounting. After burning through more than A$100 billion on gaming studio acquisitions only to gut the Xbox division with layoffs, the Company is now facing the humiliating collapse of its biggest AI bet, with Windows and Microsoft 365 users comprehensively rejecting Copilot despite years of having it forced on them.

The scale of the rejection is now impossible for Microsoft to hide with Microsoft moving to prop up key Australian financial media with Nine Media and ther AFR publication getting a big injection of cash from Microsoft with some claiming it’s a case of the US software Company looking for media friends as big junks of their busineess struggles with the real problem emerging that key clients could desert them.

Fewer than 4.5 per cent of Microsoft’s 450 million commercial Microsoft 365 customers pay for Copilot features, and of those who do, only 20 to 30 per cent bother to use it weekly.

One analysis calculated that Copilot’s weekly active footprint inside Microsoft 365 works out to roughly one per cent of the entire customer base, despite the AI being hardwired into Word, Excel, Outlook, Teams and the Windows 11 taskbar.

This is a product that Microsoft made extraordinarily difficult to avoid.

2395266125

Across Australia, Copilot popped up every time users tried to access Microsoft services. It appeared in Windows 11, Teams, Excel and a raft of other apps.

Microsoft leant on PC manufacturers to fit a dedicated Copilot key to every new Windows notebook, while refusing requests to provide tools that would allow Copilot, or its perennially rejected Edge browser, to be stripped out of the Windows operating system.

The strategy was simple, make AI a daily habit by pushing it at hundreds of millions of captive customers. The result was a flop.

“Earn The Right To Exist”

The most damning admission has come from inside Microsoft itself.

In a roughly 1,200 word internal memo first reported by The Information, Executive Vice President Jacob Andreou, the 33 year old former Snap executive handed control of Copilot in March, told the product’s 11,000 strong team that Copilot must “earn the right to exist”.

Andreou admitted that Copilot’s excessive feature expansion had confused users and become an internal embarrassment. He had previously ordered Copilot buttons removed from certain Windows apps after data showed most users were clicking them by mistake, then immediately closing them.

The rescue plan involves merging the consumer and enterprise Copilot applications into a single app by August 2026 and introducing a new class of paid, always on background AI agents branded AutoPilot. Andreou told staff the team had “stripped out what wasn’t working”, including Copilot Podcasts and Copilot Labs, both of which are being killed off, and that Copilot should focus on “real work” rather than chasing intelligence for its own sake.

Enterprise Users Walking Away

The competitive data is arguably worse than the adoption numbers.

The CEO of Microsoft is Satya Nadella. He has served as the Chief Executive Officer since 2014, when he succeeded Steve Ballmer, and he also took on the role of Chairman in 2021. Some are saying it’s time for him to be replaced.

Recon Analytics recorded Copilot’s paid AI subscriber share among US enterprise users falling from 18.8 per cent in July 2025 to 11.5 per cent by January 2026, a 39 per cent contraction in six months. Over the same period, Google’s Gemini overtook Copilot in paid share for the first time.

When enterprise workers in a survey of more than 150,000 users were given simultaneous access to Copilot, ChatGPT and Gemini, only eight per cent chose Copilot as their preferred tool.

Bloomberg reported in mid 2025 that Microsoft’s biggest customers were ignoring Copilot and adopting ChatGPT instead, with OpenAI claiming more than 3 million paying business users at the time, up 50 per cent from the start of that year. ChatGPT’s paid subscriber base has since blown past 50 million, against Copilot’s 20 million paid seats, many of them corporate licences that employees simply never use.

Users who have tried and abandoned Copilot cite poor memory, weak reasoning and hallucinations, with some enterprise users branding it a “lobotomised ChatGPT”. Technical constraints have not helped, with Copilot Chat’s 64k context window dwarfed by the million plus token windows of state of the art rival models.

Jefferies analyst Brent Thill was blunter still, observing that Microsoft has the best distribution in software and tech, but that the general perception of Copilot is that “it stinks”.

Cost Cutting Behind The Scenes

Bloomberg reported this week that Microsoft has quietly begun swapping out the OpenAI and Anthropic models that previously powered Copilot in Excel and Outlook, with tens of thousands of AI prompts now processed weekly by Microsoft’s in house MAI models.

Microsoft AI boss Mustafa Suleyman’s logic is that it is cheaper to wait three to six months for the AI frontier to advance, then build a more efficient specialised model, than to rent the newest OpenAI models for every interaction.

The pressure is showing up in the share price. Microsoft stock is down nearly 20 per cent this year, ranking last among the so called Magnificent Seven, with some major shareholders reducing their holdings.

What It Means For Australian Buyers

For Australian corporates and government agencies, many of which signed multi year Copilot agreements on the promise of a stable, expanding product, the implications are serious.

Features are being cut mid contract, the entire product is being rebuilt before August, and the new AutoPilot agents that Microsoft is pitching as the future of the platform will sit in an additional paid tier on top of existing Copilot seats.

Australian enterprise buyers who paid up to A$45 per user per month on top of their base Microsoft 365 licences are entitled to ask what exactly they have been paying for, and what they will be asked to pay next.