Copilot goes cheap as Microsoft phases out OpenAI and Anthropic models to cut costs

Microsoft is replacing OpenAI and Anthropic models with its own MAI models across Copilot products like Excel and Outlook. Tens of thousands of queries per week already route through Microsoft's internal models as the company cuts costs. AI chief Mustafa Suleyman stated the goal is to "ultimately eliminate" the expense of external models.

This shift reflects a broader cost optimization strategy. Microsoft previously relied heavily on OpenAI models through its partnership and licensing deal. By deploying proprietary MAI models, the company reduces dependency on third-party vendors and cuts operational expenses. The transition shows Microsoft building internal AI capabilities to compete directly with OpenAI rather than remain a primary customer.

The tradeoff for users is real. Copilot customers may experience reduced performance while paying the same price. Microsoft's internal models appear less capable than leading OpenAI or Anthropic offerings. The company is essentially trading raw performance for margin improvement. This strategy works if customers accept degraded results, but it risks competitive disadvantage if rivals maintain higher-quality outputs.

Microsoft faces pressure from two directions. OpenAI has grown into a standalone competitor with its own products. Anthropic, backed by Google and others, offers alternatives. By internalizing model development, Microsoft reduces leverage held by either partner. The company also gains direct control over model updates and feature releases.

The move raises questions about Microsoft's AI roadmap. If internal models consistently underperform, the strategy could backfire. Enterprise customers paying for Copilot licenses expect reliability and accuracy. Substitute lower-quality models, and churn follows.

For OpenAI, this represents a significant business risk. Microsoft remains a major revenue source through Azure credits and licensing. Gradual model replacement threatens that relationship. OpenAI must either improve its competitive position or accept reduced volumes from its largest partner. Anthropic faces similar pressure, though it has