Microsoft redirects Copilot traffic to own AI to cut costs
Microsoft is quietly routing some Copilot traffic to its own AI models, a strategic shift aimed at slashing third-party compute costs and gaining leverage over partners OpenAI and Anthropic.
Microsoft has begun directing a portion of Excel and Outlook prompts away from OpenAI and Anthropic models, routing tens of thousands of them weekly to its proprietary Microsoft AI (MAI) family. While this represents a fraction of total Copilot traffic, the shift signals a deliberate move to convert a rented cost center into owned infrastructure.
The financial logic is straightforward. Copilot carries a $30 per-seat subscription fee, but every query processed by a third-party model incurs a variable cost. By deploying its own models for routine tasks like spreadsheet formulas and email drafts, Microsoft can dramatically improve the unit economics of its AI suite. "We pay a lot of money to Anthropic, so our goal is to reduce and ultimately eliminate that cost," said AI chief Mustafa Suleyman.
Beyond immediate margins, the strategy addresses a structural risk. Chief executive Satya Nadella has reportedly expressed a fear of Microsoft becoming "the next IBM" by ceding control of the foundational technology layer. Developing MAI creates a three-way hedge alongside its OpenAI stake and Anthropic integration, ensuring Microsoft is not solely dependent on any single vendor.
This leverage will be crucial long before Microsoft's discounted OpenAI pricing deal expires in 2032. Building a credible in-house alternative gives the software giant significant negotiating power for future contract renewals, insulating it from potential price hikes by frontier model developers.
However, execution risks remain. Microsoft has not set a timeline for expanding MAI's footprint, and the company's materials compare the technology to prior-generation Anthropic models. While Microsoft claims its MAI-Thinking-1 model matches Claude Opus 4.6 on coding tasks, any noticeable degradation in everyday user experience could offset the cost savings.
The move complicates the outlook for Microsoft's AI partners just as they eye public markets. Anthropic filed confidentially for an IPO in June, and OpenAI is reportedly preparing its own listing. Their largest enterprise distributor is now actively building cheaper, competing alternatives, challenging the thesis that third-party AI labs will remain indispensable.
Shares of Microsoft have rebounded roughly 10% after hitting a 52-week low of $349.20 in late June, currently trading around $385. At 22.9 times forward earnings—a discount to both the broader market and its historical average—the stock appears to be pricing in significant pessimism. With 41 of 48 tracked analysts still rating the shares a buy, the market is waiting to see if the MAI margin story materializes.
