This is Part 6 of The Real Cost of Agentic AI series.
Summary
Microsoft’s rapid layering of AI offerings on top of its existing products has created a situation where old licensing models and product lines coexist awkwardly with new AI models. This post delves into the internal dynamics at Microsoft – how the need to protect legacy product revenue and org structures leads to a slow, incremental approach (inertia) even as AI promises to shake things up. Ultimately, something’s got to give for Microsoft’s “agentic AI” dreams to fully materialize.
What’s happening
Microsoft has been introducing Copilot AI across the board, but notably, they haven’t retired or deeply restructured their existing offerings to accommodate it. Instead of, say, replacing an older product line with a new AI-based solution, they’re adding Copilot as an additive layer. This is not surprising – Microsoft is a huge company with entrenched product teams, each with revenue targets and existing customer bases.
There’s a bit of an “if it ain’t broke, don’t fix it” mindset internally, which results in a cautious approach: new AI capabilities are bolted on, not disruptive to the core. For example, Office 365 (now Microsoft 365) plans didn’t get cheaper or simpler when Copilot arrived; Copilot was simply offered as a $30 add-on. Dynamics 365 still has the same SKUs for Sales, Customer Service, etc., with Copilot features mostly being optional add-ons or included only in premium tiers, rather than overhauling how Dynamics is sold. Even in the Power Platform, the introduction of AI (like AI Builder, then AI features in Power Apps) did not overhaul the licensing model; it added new components (credits, capacity) on top of what was already a complex scheme.
This incremental approach speaks to internal inertia: no product team wants to cannibalize its existing cash cow or admit that a new model should replace the old. The result is a proliferation of SKUs and layers – a customer now might have to juggle traditional licenses (for core functionality) and AI licenses (for new capabilities) simultaneously. Microsoft’s messaging often emphasizes that these AI features “enhance but do not replace” the existing tools. That’s true functionally, but it’s also a business posture: Copilot is positioned as an enhancement so that it doesn’t threaten the base product’s value proposition.
Internally, there are likely debates: should Copilot eventually be included in E5 or Dynamics 365, for example? But short-term quarterly revenue pressures mean they sell it separately for now. Another manifestation of inertia is the slow update cycle of official licensing documentation and guidance. Especially Microsoft’s licensing guides often lag behind product changes or remain ambiguous. This suggests that even internally, coordinating these changes is challenging – multiple teams (engineering, marketing, legal, licensing specialists) have to agree on the messaging, and that machinery isn’t agile.
The net effect: customers get new AI announcements at Ignite or Build, but then maybe months of confusion until licensing catches up with clarity. Meanwhile, the old license constructs remain in force. In essence, Microsoft is layering a new world of AI onto an old foundation, and the foundation is largely unchanged – at least for now.
Why it matters
This internal inertia at Microsoft has direct consequences for customers and partners. First, it means complexity. Instead of a clean slate or a simplified new model for the AI era, we have to stack new rules on top of old rules. For example, a company might have finally mastered licensing Dynamics 365 or Power Apps under the pre-Copilot regime; now they must overlay Copilot licensing on top of that, doubling the cognitive load. If Microsoft had been more radical – e.g. revamping SKUs to bundle AI or retiring older SKUs – it might actually simplify things (after some initial pain). But inertia means we carry legacy baggage forward.
Second, it creates friction in adoption. If a customer is on the fence about adopting Copilot, the fact that it’s an extra thing to buy (with separate terms) rather than seamlessly part of what they already own can cause delay or rejection. We often hear, “We’re already paying for X, why do we need to pay more for Copilot? Can’t it replace something else?” Right now, it doesn’t replace; it’s additive. So budgets have to grow, not shift – and that’s a big ask.
Third, inertia can lead to incoherent strategy signals. Microsoft says AI is the future, but if we look at their sales incentives and product roadmaps, they’re still pushing classic offerings too. A partner might get mixed messaging: “Sell Copilot!” but also “Don’t forget to hit your quota on Dynamics seats!” – which product takes precedence? For customers, this can be seen in things like overlapping capabilities. For instance, do I use the AI features in Microsoft Sales Copilot (sold independently) or do I get them via Copilot in Dynamics 365 Sales (a common CRM license)? Both exist now, because nothing old was killed off.
It matters because customers might invest in one path and then Microsoft’s strategic winds shift later (when/if inertia is overcome). Ultimately, something’s got to make way for the agentic dreams to become real. Eventually Microsoft will have to reconcile the old and new. When that moment comes, it could be disruptive: perhaps bundling AI into base licenses (maybe raising their price), or discontinuing some old product editions. If customers aren’t given sufficient time to transition, that could be an operational shock.
Conversely, delaying that moment (due to inertia) means we live in a prolonged period of confusion. So either scenario has impact – either a sudden change or a drawn-out complexity. From a more positive angle, inertia means stability in the short term: organizations can be assured that their existing solutions won’t vanish overnight due to AI. But in the long run, too much stability becomes stagnation, and Microsoft risks competitors leaping ahead with cleaner, integrated offerings. For partners and customers betting on Microsoft’s platform, this matters: you want to know that Microsoft can execute on its AI vision without tripping over its legacy. If internal resistance keeps everything in a half-evolved state, the ecosystem might suffer.
In summary, internal inertia affects how fast and smoothly customers can embrace the new AI capabilities – it’s the difference between a revolutionary leap (which might be painful but clear) and an evolutionary crawl (which is easier day-to-day but ends up convoluted). Understanding this dynamic helps us temper our expectations and plan for a world where old and new coexist (for now).
My perspective
Having been close to Microsoft’s BizApps and Power Platform for years, I’ve seen this movie before. Microsoft often prefers evolution over revolution – for good reasons (customer base stability) and sometimes to its detriment (missing a chance to simplify). My take is that right now, Microsoft is hedging its bets: they don’t want to fully disrupt their current licensing cash cows until they’re sure AI will be a sustained golden goose.
I somewhat cynically view Copilot’s add-on pricing as a way to gauge the market: if enough people pay $30, great, keep it separate; if not, maybe one day roll it into E5 to drive adoption. This internal tug-of-war means customers get half-measures. From a practical standpoint, I advise clients to treat Copilot as an optional layer for the foreseeable future – plan your core solutions assuming the traditional model, and then layer Copilot on if needed. Don’t assume Microsoft will simplify or include it soon. Prepare for parallel tracks: one team manages traditional licensing, another tracks AI add-ons. It’s not elegant, but it reflects Microsoft’s current state.
On the contrarian side, I’ll say Microsoft’s inertia can be frustrating but it’s also an opportunity. Because the old products aren’t going away yet, you have time to evaluate AI at your own pace. If Microsoft had, for example, forced everyone onto a new AI-infused bundle at double the price, that would be chaotic. Instead, they bolt on options; you can choose to pilot them or ignore them until they mature. So inertia is a double-edged sword. I do think, however, that ultimately Microsoft will have to reconcile these models – perhaps in a year or two, when contracts come up for renewal and clients demand a more coherent deal.
If I put on my prediction hat (and some experience making bets on Microsoft’s moves), I suspect we’ll see bundling: maybe Copilot gets folded into certain high-end plans or volume deals, under pressure. Or maybe they create a new “AI Services Bundle” that combines several Copilots at a better rate. But those changes will be slow unless the market forces it. Internally, no team wants to give up revenue attribution – it’s easier for Office to say “Copilot money is separate” and for Dynamics to upsell its Copilot individually, than to split it or lose it.
My somewhat bold take: Microsoft’s internal inertia might only be broken by external factors – say, Google or another competitor doing a unified AI offering that puts pressure on Microsoft to respond. In the meantime, as customers, we should not hold our breath for Microsoft to simplify things on their own. We navigate what we have, perhaps with a bit of amused resignation.
On a personal note, I’ve learned to read between the lines of Microsoft announcements: if they don’t explicitly say a new AI feature is included for free in something you already buy, assume it’s not. That mindset has saved me from over-promising to stakeholders. And as always, keep those licensing guides handy (even if they’re sometimes outdated) and watch for those footnotes. (One service we provide is staying on top of these slow-burn changes – a value to our clients, as we can alert them early to any shifting winds.)
In conclusion, Microsoft’s inertia is real – but knowing it’s there helps you plan accordingly. Embrace the new, but keep one foot firmly on the old until Microsoft firmly moves its weight.
