Why Microsoft's GitHub Copilot is Deeply Unprofitable

The GPT-4 API scam looks like a costly mistake for many Enterprise customers.

Photo by Turag Photography on Unsplash

Hey Everyone,

There is something I find a bit perplexing. Given how ChatGPT has stalled in the second half of 2023 and GitHub Copilot is apparently a huge cash bleeding entity for Microsoft, why do Enterprise adopters of GPT-4 think they will be winners?

Generative A.I. might be a gigantic bust. Apparently even GitHub Copilot has reportedly been costing Microsoft up to $80 per user per month in some cases as the company struggles to make its AI assistant turn a profit.

Even if you have ARR of $100 milion, what kind of loses is Microsoft able to tolerate here?

How much are you willing to bet on Generative A.I., even as it remains very costly to do so? What a gamble.

Microsoft’s GitHub Copilot, the automatic code-writing tool powered by OpenAI’s artificial intelligence, has exceeded $100 million in annual recurring revenue, vice president of product Mario Rodriguez said on Tuesday at an event in San Francisco, as reported by the Information.

But if you claim your tool can help coders, but the cost of the subscription is just one fifth of the cost, you have a problem. Can you imagine a loss of $80 per user? According to a Wall Street Journal report, the figures reportedly come from an unnamed individual familiar with the company, who noted that the Microsoft-owned platform was losing an average of $20 per user per month in the first few months of 2023.

As you might know, GitHub is using OpenAI's latest GPT-4 model to go way beyond auto-completing comments and code. Copilot X gets chat and voice support.

Productivity Gains for Lazy Habits

And are we dumbing down our software engineers and deskilling them in the process? GitHub Copilot was obviously designed to help developers write code more quickly and efficiently by suggesting code completions, functions, and entire files. Copilot has been praised by many developers for its productivity-boosting capabilities, but it has also come under criticism for its cost and its potential to promote lazy coding habits.

There are two subscription plans available for GitHub Copilot:

• Individual Plan: Priced at $10 per month or $100 per year.

• Business Plan: Priced at $19 per user per month.

• Microsoft says it’s losing $20 per month on average for each user of GitHub Copilot (so the real costs is likely between $30 and $40 to run the service per user).

Here is what people on Hacker News had to say about this.

Microsoft tried to hype OpenAI when it’s losing money in weird ways in reality. In June, unredacted court documents uncovered that Azure was actually proving to be far less profitable than AWS.

If AI costs exceed revenue for Microsoft, imagine how it will be for all of these Enterprise customers of OpenAI when they find out the truth of the benefits of GPT-4? It’s going to be expensive and a letdown.

GitHub Copilot uses GPT models from OpenAI to help solve coding problems. Microsoft has famously invested billions into the AI startup and has since gone on to use its models to power countless other AI tools across its businesses, but it might have been a horribly naive gamble.

While Microsoft’s acquisition of GitHub has proved fascinating, has it really been profitable? So on average, GitHub was losing more than $20 per user each month earlier this year. Some users were even costing GitHub as much as $80 a month. With approximately 1.5 million users, this translates to a substantial monthly loss for GitHub. It does not paint Microsoft in a very favorable light. They seem like corporate idiots in this report.

Can you imagine the media was talking about Bing AI being sentient earlier this year? It’s all very fuzzy. Microsoft’s work with AMD on their Athena chips was also very expensive, at least totalling 2 Billion. Artificial intelligence uses models that are capable of processing billions of parameters really quickly, but they require large amounts of resources like power and water for cooling. So there’s an environmental cost too for Microsoft’s reputation. All for so-called productivity gains?

ChatGPT hasn’t been what we might have hoped it would become. Even as OpenAI used Microsoft’s funds for its own designs. It will make OpenAI look very rich in 2024 with Enterprise contracts for the GPT-4 API, but how will all of this actually turn out?

In a related development, Microsoft announced the pricing for Microsoft 365 Copilot at $30 per user per month for enterprise customers. Microsoft is trying to recover some of the losses with an overpriced product for Enterprise customers.

Developing and maintaining Copilot is a costly endeavor. Microsoft has to pay for the computational resources that are needed to train and run Copilot's AI models. The company also has to pay for the engineers who develop and maintain the service. Azure and Microsoft’s AI bets might actually not turn out great if Generative A.I. isn’t as mature as they are claiming. We know it’s supposedly a nascent industry.

That GitHub Copilot has 100 million developers earlier in 2023 is a sign of the scale of these losses. When you are as profitable as Microsoft, Meta, Amazon or Google you can waste a lot of money is some pretty outrageous bets. The bandwagon of Generative A.I. might be in part, a faked campaign.

Individuals pay $10 a month for the AI assistant. In the first few months of this year, the company was losing on average more than $20 a month per user, according to a person familiar with the figures, who said some users were costing the company as much as $80 a month.

It appears that Microsoft’s Enterprise Copilot pricing strategy is aimed at mitigating significant losses similar to those experienced with GitHub Copilot. Even OpenAI doesn’t seem to understand how to turn a mobile app into a winner or the right form factor for ChatGPT’s ideal interface. It has not met with consumer appeal, outside of students, geeks and even some coders. In fact most young people, have never and will never use ChatGPT.

In a world with subscription overload and A.I. tool saturation, what does Microsoft expect to happen to its A.I. investments? Despite the partnership with OpenAI and the presence of more than 1.5 million users, GitHub Copilot remains unprofitable. They acquired GitHub five years ago, so it’s not as if they haven’t had time to optimize the business model.

Companies anticipate that generative AI will become cheaper over time, driven by innovations and improvements in processing efficiency. It’s unclear how much Microsoft’s internal A.I. Chips, dubbed Athena could help things along.

For those unaware, GitHub Copilot, which was first launched in June 2022, is powered by a generative AI model developed by GitHub, OpenAI, and Microsoft. This triad of A.I. greed might not actually be serving the best interests of developers who may become the guinea pigs who are training their replacement and deskilling themselves in the process.

Currently, there are two paid subscription plans available for GitHub Copilot, which are: the Individual Plan, which costs $10 per month or $100 per year, and the Business Plan, which is priced at $19 per user per month. While this amount is nothing for most developers, what if they were paying the true cost that’s likely closer to $40 a month?

As good as GitHub Copilot is, its competitors are only going to get better, cheaper and more numerous. Microsoft might find that its acquisition of GitHub never really reaches the heights that it was supposed to.

Companies stuffing GPT-4 into their products might be in for a rude awakening if even Microsoft who had early-access to the tech looks so immature in their ability to even turn a profit. What happens to OpenAI when this all comes to light? GPT-4 might go down in the history of tech as the most over-hyped product in history.