Q&A

How To (Eventually) Make Money from Microsoft 365 Copilot: Q&A with Nerdio CEO Vadim Vladimirskiy

There are three ways partners can actually build a viable business out of Microsoft 365 Copilot. Managing it is definitely not one.

• By Gladys Rama
• December 27, 2023

Microsoft has made much ado about Copilot for Microsoft 365, the AI support tool that became generally available in November, but how and when will the hype translate into actual profitability for Microsoft partners?   

According to Vadim Vladimirskiy, CEO of partner-focused Microsoft ISV Nerdio, it might take a few more months yet, and not without some careful planning. In a recent interview with Redmond Channel Partner, he shared a partner's-eye view of the opportunities and caveats around Copilot for Microsoft 365. Following is our conversation, edited for brevity and clarity. 

RCP: Let's start with a review. How much does Copilot for Microsoft 365 cost? How is it available? What are the licensing requirements and what do those costs and requirements mean for partners?
Vladimirskiy:  The interesting thing is, all we know about Copilot for Microsoft 365...is what's been announced for enterprise. As of today, there isn't a business or small business version or SKU of Copilot right now. Microsoft 365 Copilot is an add-on to M365 E3 or E5. It's $30 per named user per month, which means, like licensing any other M365 product, whoever you assign it to, you're paying for it regardless of whether they're using it or not. And there's even a 30-seat minimum. I believe it's at least an annual consumption, an annual commitment, if not more.

So you're looking at $9,000 a month at a minimum on top of an E3 or E5 Microsoft 365 product, which partners generally don't use. Their typical SKU of M365 that they sell is Business Premium. And Business Premium doesn't have Copilot yet.

So for most partners, this is not even a product option for them yet?
Not yet. Microsoft said that in the new year, they're going to start announcing products for the other side of the market. But, as you know, with Microsoft, they always lead with enterprise. That's where the majority of their business is -- that's what they're targeting. And as I'm sure you know, we're all hearing that the hardware and the compute power needed to power all of these AI technologies is somewhat at a premium. There's no constraint on how many chips are there are. Microsoft's now gotten into the game of building their own chips. 

So I think they are prioritizing their bigger customers that are willing to make a fairly significant commitment, whereas the smaller customers that MSPs and partners typically help support and manage, [that] at least hasn't been announced. Now, they're probably on the roadmap. They're probably being worked on. But we don't know much about what Microsoft is intending for those customers.  

How exactly is this Copilot add-on different from E5, which already comes with certain natural language AI capabilities, particularly in Teams. What does Copilot add?
There are some AI technologies that are already embedded in various Microsoft products, like you said, like Teams for transcription or translation -- things like that. And that's been the case for sometime. 

"The interesting thing is...there isn't a lot of management that goes into managing Copilot for Microsoft 365 for a customer. It's an AI, it sits on top of your existing data and it can do certain types of tasks. There isn't a lot of management, which is where partners generally make their living."

Vadim Vladimirskiy, CEO, Nerdio

What Copilot does is, think of a chatbot that's available in your Microsoft 365 products that sees all your data and can generate content for you. It can learn your style, it can read your email and summarize it, it can reply to people in your tone, it can generate spreadsheets and analyze spreadsheets and create charts and build PowerPoints. It's quite powerful because of the type of data that it sits on top of, which, for most organizations, is Microsoft 365 and SharePoint, it's email, it's Excel, Word. All of those things are within the scope of visibility. 

And the other thing that's really important about Copilot is that it's integrated with Microsoft Graph, the API overlay across all of their products. And it's security-aware, so Copilot can create data and help you with data that you have access to, and maybe someone else doesn't. It's aware of who it's talking to. If you have access to [particular data], it can talk to you about it. If you don't, then it securely will not know about any of that information.

How should partners start preparing their customers for Copilot if they're interested, but not currently eligible to use it yet?
I think education and maybe some training, just the awareness-building, within the customer base is the right set of actions today to get ready for this. It's imminent. It's not going to be a year until something is available for the SMB customers -- it's going to be probably some months. I don't know exactly what the timeframe is, but I imagine it's not going to be very long. Educating them about what [Copilot] is and how it can be used and building up that demand, so when it's available, they can start providing it to them. 

Now, the interesting thing is...there isn't a lot of management that goes into managing Copilot for Microsoft 365 for a customer. It's an AI, it sits on top of your existing data and it can do certain types of tasks. There isn't a lot of management, which is where partners generally make their living. 

So what's the partner play?
There are a couple of other technologies that I think partners should be exploring. There's something Microsoft announced called Copilot Studio, [which] is a technology that can be used by IT professionals to create custom copilots that are customized for non-Microsoft data sources -- let's say organic custom data sources. Think about accounting systems, CRMs, things that don't live in Microsoft 365 storage. I think partners have an opportunity to start identifying how they can build maybe a vertical-specific copilot with Microsoft Copilot Studio, using all the different pieces of Microsoft Copilot, creating something custom for a certain set of their customers that need that specific technology. That's one place to add value.

The other place to add value is, Copilot is built out of components that are available to everybody who's using the Microsoft cloud or Azure, specifically. ... [These] are available for API-based consumption for partners who want to build technologies on top of the raw building blocks. So rather than purchasing the fully finished product that's built in the way Microsoft sees fit for $30 a user a month, a partner may decide to build something custom for their customers that's priced more on a consumption basis. So you're only paying for it when the user uses it rather than paying a license on a monthly basis, regardless of usage. And that can also be customized in a more manageable way that gives partners the opportunity to actually make some margin and add value on top of these building blocks. 

How would you characterize the level of appetite among Microsoft partners for Copilot, especially given what you've said about the steps they would have to take to make money from it?
It's a little bit nuanced. Their customers are obviously all familiar with ChatGPT so they're being asked about Copilot and customers are being told, "Well, that's not available for you yet." So they're getting some of that demand from customers. They themselves are excited about the capabilities of Copilot to make their own company -- the partner's own organization -- a customer of that technology so they can be more efficient writing proposals, doing QBRs, whatever it is they're doing for their customers.

But as far as a way of making money? It's going to be a Microsoft 365 SKU, which means partners will be able to resell it and make a bit of a margin. The question is, how much margin is it? Nobody's making a living on five or 10 or 15 percent, whatever the discount is going to be. That's that's not really lucrative for them. They need to wait to figure out how to add value on top in order to to actually make it profitable.  

I think there are three ways they can do it. Training, best practices and enablement of their customers to use the out-of-the-box product. Building a custom version of Copilot using Copilot Studio that can talk to customers' own data. The third one is building a custom solution using OpenAI models through Microsoft Azure and doing something very unique that fits perfectly with a specific segment of the customers or specific vertical.

"Microsoft is a very, very big ship that takes a while to pivot. But once it decides in that direction, it typically gets there. So I think it's good, from a vision perspective, that they are going to be making AI core and central to everything that they do."

Vadim Vladimirskiy, CEO, Nerdio

What kind of up-skilling or handholds should partners have, or try to have, in place to be able to take one or more of those three avenues?
For the first one, the skilling is just learning it and being able to effectively educate customers, so there isn't a lot of technical skilling per se. They're going to be consuming and using an out-of-the-box product. The second one is more of a low-code approach. It's going to require some technical expertise, but I think people who are used to managing Microsoft 365 are probably going to be able to do that. ... The third one, the one that will require building a software product, will require developers and probably net-new skills that most partners or many partners may not have in-house today.

The other alternative [is] there may be partners who build such technology and make it available to others, similar to what Nerdio is doing around Microsoft cloud management in general. We've identified the gaps that partners have around managing Microsoft technology, we've created a product by hiring developers and actually building it from the ground up, and then we make it available to partners to make themselves more efficient when delivering services to their customers. 

How is Nerdio itself dealing with or preparing for Copilot?
We are very, very deep in this whole space, across several categories. We use it internally as a user of technology -- not Copilot per se, but the AI building blocks that Copilot is made up of. We're also in the process of infusing AI into pretty much every area of all of our products and making sure that all of our products have AI-powered capabilities that are built-in, and we're going to be making a lot of those announcements at NerdioCon a couple of months from now. And then we have a couple of other things that I am not really prepared to announce just yet. But that falls a little bit more in that other category of helping partners take advantage of this opportunity. 

This is a bit of a tangent but, as you know, Microsoft this past summer announced that the Microsoft Cloud Partner Program is now the Microsoft AI Cloud Partner Program. How has this rebrand moved the needle for partners?
I think it's a change that signals intention and direction and vision. Microsoft is a very, very big ship that takes a while to pivot. But once it decides in that direction, it typically gets there. So I think it's good, from a vision perspective, that they are going to be making AI core and central to everything that they do. Right now, they're not maybe pushing or rewarding partners that are doing a lot with AI disproportionately to others, but I would expect over time...there will be lots of incentives for partners to move into the AI space, whether that means Copilot, whether that means Azure AI -- whatever falls within the umbrella of the terminology. I think there are going to be real incentives put in place. 

If you think back to when Microsoft was launching Office 365 and they wanted everyone to move away from on-premises Exchange and perpetual licensing, they did something similar. ... They put incentives in place to move the market in the direction that they want it to go. And I think this is just part of that strategy. 

Is there anything that you are really looking forward to seeing from Microsoft in the coming months? Is there an announcement that you're hoping will break our brains at Inspire this coming year?
It's so hard to predict just given the rate of change in [the last] 12 months. ... I'm definitely very interested to see Copilot become available for the SMB and for MSP partners. That's definitely top of mind. And again, we're always on the lookout for what additional value-building opportunities on top of the Microsoft technology are available to partners. We've already discussed the three that I think exist but there could be others, and what Microsoft decides to launch for this market will determine what role MSPs will play in the space, and I think that's going to be interesting to see.