Microsoft goes quiet on Copilot seats as the meter starts running

Microsoft reported results for the first quarter of its 2027 financial year, the three months to 30 September, on 28 October. Revenue rose 19% to $92.3bn (£69.5bn) and Microsoft Cloud revenue grew 30% to $63.9bn (£48.1bn), according to the company’s earnings release. What neither the release nor the call contained was a new paid seat count for Microsoft 365 Copilot. Microsoft had given one in each of the previous three quarters, reaching more than 30 million in July, as UC Today reported.

The gap came up on the earnings call. Tal Liani of Bank of America asked: “Did you disclose the Copilot numbers this quarter?” Amy Hood, executive vice-president and chief financial officer, answered a financing question first, then said: “And we did not disclose to answer your direct question, an update on the Copilot number this quarter.”

Satya Nadella, chairman and chief executive, gave other Copilot measures instead. Daily users, he said, “are up nearly 50% quarter-over-quarter and over 5x year-over-year”. He also said that “the number of Copilot customers actively consuming credits through usage-based billing grew over 75% over the quarter”. And he described the shift underneath both figures: “Our business model is expanding from per seat subscriptions to include consumption, expanding our TAM and ARPU” – its total addressable market and average revenue per user.

Microsoft has moved the yardstick for Copilot from how many licenses it sells to how much those licenses get used, and it is building that change into how its smaller customers are billed. From 1 December, new Copilot Business licenses bought through resellers come with pay-as-you-go metering switched on. For a mid-market buyer, the Copilot line on the invoice stops being a fixed price per person and becomes a seat price plus a meter.

What Microsoft chose to measure

Hood still reported seat growth for the wider suite. She said paid Microsoft 365 commercial seats grew 5%, with growth coming from the installed base “primarily in our SMB and frontline worker offerings”. She said average revenue per user growth “was led by our premium seat-based offerings, including M365 Copilot, E5 and E7”.

Apart from the number of customers with more than 50,000 Copilot seats, which Nadella said “increased over 8x year-over-year”, the numbers Microsoft chose to lead with are about activity rather than headcount. Nadella said that “as agents take on higher-value work, consumption opens up business funded demand with spending tied directly to the value these agents deliver”.

The 75% figure is a growth rate with no base attached: Microsoft did not say how many customers are consuming credits, how many credits they consume or what that consumption is worth in revenue. A seat count was a number outsiders could track from quarter to quarter. The measures Microsoft gave on 28 October show which way usage is moving, not how large it is.

When the meter switches on

The billing change is set out in a Partner Center announcement dated 1 October and updated on 14 October. It applies to new purchases of Microsoft 365 Copilot Business through the Cloud Solution Provider (CSP) program, through which resellers and managed service providers sell Microsoft licenses, and covers standalone licenses and bundles. The start date was pushed back from 2 November.

Pay-as-you-go becomes the default billing configuration, giving customers access to usage-based experiences “including Copilot Cowork, Work IQ APIs, and GitHub Copilot Harness”. The default spending limit is 4,000 Copilot Credits per user per month, which admins can change. Microsoft’s own example is a customer with 100 Copilot Business users, who “could consume up to 400,000 Copilot Credits per month under the default spending limit”, with charges based on actual usage. The change will initially not be available in Australia, Belgium, Brazil, France, Germany, India, Italy, Korea, the Netherlands, Poland and Spain.

Under the heading “Greater growth opportunity”, the announcement tells partners that “early usage can create a natural path to expanded consumption, upsell conversations” and a Copilot Cowork activation incentive.

What it does to the forecast

Under seat pricing, a Copilot budget is the license price multiplied by headcount. Under the meter it also depends on usage, and Microsoft’s guide to usage-based billing for Copilot Credits lists the services that now draw on credits: Cowork, advanced work in SharePoint and OneDrive, the Work IQ API for custom apps and agents, the Copilot Managed Runtime, Teams Phone Agent and Code. It also says Microsoft will add more agents and services over time, and that the “Auto-apply new services” setting, which extends a spending policy to future services, is enabled by default.

The cost management dashboard in the Microsoft 365 admin center handles spending policies, organization-level and user-level limits, alerts and consumption reports, and lets finance and operations staff in supported reader roles review consumption with read-only access. But the default ceiling is the one Microsoft set, and the partner announcement expresses it in credits, not currency. The Copilot Cost Management API, the guide says, “does not include pricing, invoices, currency costs, or purchasing forecasts”.

For a company buying 100 new Copilot Business licenses through a reseller from 1 December, the change does not alter the seat price. It adds a second line whose size depends on how often staff hand work to agents, under a limit Microsoft has preset at 400,000 credits a month for that company. The more those agents are used, the more the second line is worth to Microsoft, which is the point Nadella made to investors.

Microsoft left its Copilot seat count out of its results in the same month it confirmed that, from December, new Copilot Business customers buying through resellers will be billed for use by default, up to a ceiling Microsoft chose unless an admin changes it.