Nadella: AI Success Lies in Intense Users and Usage, Not Seats
Microsoft CEO Satya Nadella stated that success in AI comes down to securing intense users and heavy usage, rather than just counting seats. The company released strong financial results for its third fiscal quarter, ending in March, with total revenue reaching $82.89 billion, a rise of 18 percent from the previous year.
Strong Cloud Performance Drives Revenue
Microsoft Cloud revenue came in at $54.5 billion, marking a 29 percent increase year over year. Azure, Microsoft's cloud computing service launched in 2010, showed the strongest growth at 40 percent, or 39 percent when adjusted for currency changes. Company leaders expect this growth rate to continue into the next quarter.
Microsoft, founded in 1975 by Bill Gates and Paul Allen, has grown into a leader in software, cloud, and now AI under Nadella's leadership since he became CEO in 2014. The firm's close partnership with OpenAI has powered many of its AI offerings.
Copilot Hits Usage Milestone
Microsoft 365 Copilot, an AI assistant integrated into productivity tools like Word and Excel, now counts more than 20 million paying users. This figure is up from 15 million reported in January. Nadella noted that Copilot has achieved the same level of weekly usage as Outlook, calling it a sign that AI is turning into a daily habit for workers.
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Similar to Google, Microsoft intends to spend $190 billion on capital expenditures in 2026, exceeding what analysts had predicted. Despite this expansion, Nadella warned that capacity constraints will persist at least until the end of 2026.
Forecasts for the next quarter's revenue and margins fell short of Wall Street expectations, leading to a more than 5 percent drop in Microsoft's stock price that day. Like other tech giants, Microsoft does not provide separate figures for its AI operations. Details remain unclear on how much of Azure's growth stems from AI, Copilot's standalone profitability, or revenue from OpenAI as a customer.
Move to Usage-Based Models
Nadella addressed concerns that AI-boosted productivity might cut demand for traditional software licenses by reducing staff needs. During the earnings call, he explained, "Any per-user business of ours, whether it's productivity, coding, security, will become a per-user and usage business."
Microsoft already shifted GitHub Copilot, its AI coding tool, to a combined license and usage pricing structure. This approach could balance lower license sales from smaller teams with higher fees from increased AI use. However, as AI costs rise to match several full-time salaries at mid-sized firms, companies will demand clear proof of its financial returns.
Nadella reinforced this view, saying, "At the end of the day, it's going to come from some eval and outcome that a business has, where these agents that are working on behalf of users or with users has created value." He stressed that Microsoft's AI efforts center on building intense usage. As he put it, the business "is more about getting intense users and intense usage, and that's what we're focused on."
Measuring AI's true impact remains challenging. Tracking speed on individual tasks is straightforward, but linking those improvements to broader company results proves difficult. Few organizations have fully demonstrated such outcomes yet.