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And Microsoft Keeps on Talking About Copilot in Their FY26 Q3 Results
On April 29, 2026, Microsoft released their FY26 Q3 results. Microsoft Cloud revenues, which includes Microsoft 365, Azure, LinkedIn, Dynamics 365, and some other services, reached $54.5 billion for the quarter, an annualized run rate (ARR) of $218 billion. Gross margin for the Microsoft Cloud was 66%. CFO Amy Hood attributed the increase to demand for the Azure platform.
Microsoft 365 Copilot Reaches Over 20 Million Paid Seats
As has become the norm recently, Microsoft dedicated a lot of time at their analyst briefing to talk up the work they’ve been doing with AI. Satya Nadella noted that the number of paid Microsoft 365 Copilot seats had reached “over 20 million,” up five million from the number given at their FY26 Q2 results three months ago.
Twenty million seems like a lot, but it’s still less than 4.5% of the “over 450 million” paid Microsoft 465 seats. 20 billion fully paid Microsoft 365 Copilot seats represent $7.2 billion revenue at list price, but you can bet that customers like Accenture pay a lot less per seat for their 740,000 users (the largest Copilot deployment). In any case, progress is progress, even if Copilot revenue is still way behind the massive capital investment Microsoft has made to build out its datacenter capacity. Amy Hood noted that Microsoft plans to spend to increase to “over $40 billion” in the coming quarter.
625 Changes Pushed Out for Copilot in a Year
The pace of change for Microsoft 365 Copilot can be seen in the 625 updates Microsoft claims to have introduced in the last year. Many of the updates are relatively small, like adding weblinks as resources in Copilot notebooks (MC1193414). Other changes, like triaging inboxes with Copilot via voice commands (MC1187805) are more impactful.
Although Anthrophic and OpenAI have engineered solutions like the Microsoft 365 Connector for Claude to allow their users to access Microsoft 365 content, the amount of information available within Microsoft 365 for Copilot to reason over is staggering. Microsoft said that Work IQ (Exchange, SharePoint, Teams, OneDrive, etc.) now spans more than 17 exabytes of data and grows at 35% annually. It’s kind of hard for the other AI players to access that kind of information given the limitations of the Graph-based integrations they have.
The Meaningless Numbers Continue
Along with some reasonably solid numbers, Microsoft tossed out some that don’t mean very much. For instance, Nadella said that Copilot queries per user increased 20% quarter over quarter. We don’t know what the base was, so it’s impossible to understand what this number actually means. The same is true for the assertion that first party agent active usage increased six times in the year to date. It all sounds good, but without baselines to measure from, these numbers are meaningless.
Microsoft loves to cite the number of Copilot interactions “audited by Purview.” This time round, Microsoft said that the number increased seven-fold year-over-year. However, Purview Audit does precisely nothing to interact Copilot interactions. Audit events are gathered to record Copilot interactions, but that’s about it.
Audit events are logged for every Copilot prompt and response, so many audit events are recorded for a single chat. Many audit events are automatic interactions, like when Word generates a summary of a document. It’s fair to say that an increasing number of Copilot audit events captured by Purview is a sign of increasing usage, but once again the lack of a baseline makes any comparison impossible.
No Numbers for Microsoft 365 Users or Teams
Microsoft didn’t update the number of monthly active users or paid seats for Microsoft 365 or Teams. The lack of Teams data is curious. A few years ago, Microsoft couldn’t stop talking about Teams and the growing number of monthly active users. The last official number given by Microsoft for Teams was 320 million monthly active users in Microsoft’s FY24 Q1 results in October 2023. Microsoft 365 user paid seats have grown by about 50 million since then. What’s happened to Teams?