Nadella, Copilot, and a Big Problem: Uptake at 3.3%. Mayday!
February 2, 2026
Another dinobaby post. No AI unless it is an image. This dinobaby is not Grandma Moses, just Grandpa Arnold.
When Satya Nadella embarrassed the Google, it was January 2023. Billions of dollars and 24 months later, Mr. Nadella may have a problem on his capable hands. I want to suggest that he use IBM Watson to get some ideas on how to make smart software deliver on the promises some true believers make. I won’t. Watson won a game show and now is serving out its time as WatsonX. (Raise your virtual hand if you can explain what WatsonX is. No cheating.)
I want to mention to items and then offer some observations.
The first item is a report in the UK online service The Register. Its story “Microsoft Spends Billions on AI, Converts Just 3.3% of Copilot Chat Users” states:
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.
I am not very good at math and not very good at big time management. I would suggest that a lot of money and a lot of fancy talk has not resulted in a Hula Hoop-type craze. The money spent by a big time, big tech outfit is not the big problem. From my clueless understanding of big companies, I think the Titanic factoid is that 3.3 percent of the sample like it enough to pay for the AI enhanced, super duper world shaking service.
I have suggested a number of times in my writings and my lectures, AI is a utility which includes search. Making tons of money on tools and from search is tough. I have presented a number of reason over the years. Let me compress those words into a simple statement: Tough sell. In the utility department, open source software works pretty well. Example: One Commander file manager for Windows. The version I am using is free. No File Manager headaches. In the search department, I use Bing, Google, and Yandex. On my primary machine, I use Everything search. Why? It works and is free. My primary computer runs Windows 11. I don’t want or need smart software getting in my way. I simply don’t believe the AI hype from Microsoft. I want to do my work my way, just as Frank Sinatra’s song said.
Now the second item is a write up in a publication called The Street. Its article snappy enough to catch my attention is “Microsoft Sends Wall Street a $625 Billion Message.” From my addled little brain, the article is a gild the lily job.
This is a gilded lily output by MidJourney. Seems okay to me.
The Street’s article says:
Microsoft said it now has 15 million paying Microsoft 365 Copilot seats, while it has more than 450 million business users. The gap is why Wall Street is so impatient. It also outlines the possible upside.
If one were an investor, the Street implies that everything is coming up roses. I think the Street as well as other Microsoft believers are talking about gilded lilies. One gilds when the reality is simply not delivering.
The Street does not agree with the Register’s waspish sting. The Street says and everyone listens to the Street:
Three key signs of adoption have emerged.
- Daily active users are up 10x year over year.
- 80% of CIOs expect to use Copilot within the next 12 months, per Morgan Stanley surveys.
- ARPU expansion is becoming the primary growth lever as seat growth slows.
To put it simply, monetization is still in its early stages, but the utilization curve is going in the correct direction.
Note I am not sure but I think ARPU (undefined in the write up) means “annual return per user” maybe? The point is that Microsoft has this AI opportunity in hand. The future is a hockey stick festooned with a gilded lily. Imagine the thrill an MBA experiences seeing a hockey stick curve with a honest-to-goodness gold-covered lily at the end of the handle.
Several observations:
- The old chestnut “if we build it, they will come” may be wrong about smart software that produces security professionals who sweat bullets when users dump corporate into in a chatbot’s maw
- The data center build out seems to make perfect sense in a world which finds happiness in a software system that hallucinates and needs to consumer more and more information to produce smaller and smaller incremental improvements in outputs
- The employees exposed to smart software may [a] not want to change their work processes, [b] do not want to use outputs that often contain errors, and [c] want to keep their jobs not have them deleted by AI systems.
The question becomes, “What will Microsoft do?” Is there a T shirt with WWMD on it?”
Net net: Microsoft along with a number of other big technology AI champions has a here-and-now problem. I suppose Microsoft’s PR machine can find ways to explain that Copilot is the way to fly to the future with a Microsoft AI operating system. My view is that people will avoid Copilot the way I used to avoid the Russia airline Aeroflot.
Stephen E Arnold, February 2, 2026
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