Choosing the Right Copilot: Microsoft 365 Licenses, Copilot Studio, or Fully Custom Development?

When integrating AI into your workflows, choosing the right approach can significantly impact cost and efficiency. For organizations in the Microsoft ecosystem, the options boil down to three paths:

1. Purchasing Microsoft 365 Copilot Licenses
2. Building Customized Low/No-Code Solutions with Copilot Studio
3. Fully Custom AI Development with Azure AI Platform tools like Azure OpenAI, Azure AI Foundry, and more

Each approach has its unique advantages and challenges, depending on the organization’s scale, needs, and goals which we’ll explore below.

This includes a breakeven calculation to give you an idea at what scale it makes sense to create custom solutions vs. buying the licenses.

Option 1: Microsoft 365 Copilot Licenses

Microsoft 365 Copilot is an enterprise-ready AI assistant designed to enhance productivity by integrating seamlessly with tools such as Word, Excel, PowerPoint, Outlook, and Teams.

According to Microsoft’s official documentation, it leverages advanced generative AI to streamline everyday tasks and improve organizational efficiency. It leverages advanced AI capabilities like natural language understanding and contextual insights to streamline tasks and improve collaboration.

Pros:

• Integrated AI Assistance: Enhances existing Microsoft 365 apps with intelligent features like summarizing long email threads, drafting documents & presentations, and generating data insights.
• Enterprise-Grade Security & Compliance: Built with robust security, privacy, and compliance measures to meet enterprise standards.
• Ease of Adoption: Quickly implemented within Microsoft 365 environments without additional infrastructure requirements.

Cons:

• Pricing: At $30 per user per month, costs can escalate significantly for large teams.
• Limited Adaptability: Predefined capabilities may not align with tailored workflow needs.

Best Use Cases:

• Enterprises aiming for rapid deployment of AI tools to enhance productivity.
• Organizations heavily using Microsoft 365 applications where immediate integration is a priority. Microsoft 365 Copilot provides out-of-the-box AI functionality integrated into familiar tools such as Word, Excel, and Teams.

Option 2: Microsoft Copilot Studio

Copilot Studio is a powerful tool within the Microsoft Copilot ecosystem that enables businesses to create, customize, and deploy AI workflows tailored to their needs. As highlighted on Microsoft’s Copilot Studio page, it empowers organizations with no-code and low-code interfaces for workflow optimization. With its visual interface, organizations can design specific prompts, tailor Copilot experiences to organizational workflows, and integrate custom data sources.

Pros:

• Custom Workflows: Easily modify and extend Copilot’s capabilities to suit specific business processes.
• No-Code/Low-Code Development: Streamlines customization without the need for extensive programming knowledge.
• Integration with Microsoft Ecosystem: Seamlessly connects with Microsoft 365 apps and other Microsoft products.

Cons:

• Moderate Learning Curve: Some expertise is required to optimize workflows and prompts effectively.
• Limited Beyond Microsoft: Heavily dependent on the Microsoft environment and may not be as flexible with third-party tools.
• Partial Customization: Some limitations in adapting to highly unique workflows.

Best Use Cases:

• Organizations that need specific AI workflows within their Microsoft ecosystem like in Microsoft Teams.
• Organizations requiring moderate customization without high development costs.
• Teams looking for an intermediate level of customization without the resources for full-scale development. Microsoft Copilot Studio empowers businesses to create semi-custom AI workflows tailored to their needs, while still leveraging Microsoft’s infrastructure.

Option 3: Fully Custom Copilot Development

Building a custom Copilot using Azure AI Platform, Azure OpenAI Service, and related tools provides unparalleled flexibility and scalability. The Azure AI solutions page outlines how these tools enable businesses to create intelligent applications with features like natural language understanding, machine learning, and AI-powered search. Azure's AI solutions empower organizations to design tailored applications that integrate advanced AI services such as machine learning, natural language processing, and AI-driven search capabilities.

Pros:

• Full Customization: Enables the creation of AI solutions designed entirely around your specific organizational workflows and business goals.
• Scalability and Performance: Leverages Azure’s cloud infrastructure for global scalability and reliability.
• Cost Efficiency at Scale: After initial development, ongoing costs can be lower compared to licensing large numbers of users.
• Comprehensive AI Tools: Includes services like AI Builder, Azure OpenAI Service, and AI Search to support varied use cases.
• Platform Independence: Can integrate across multiple ecosystems and platforms, not limited to Microsoft tools.

Cons:

• Upfront Investment: Requires significant resources and expertise for development and deployment.
• Maintenance Responsibility: Ongoing updates, scaling, and optimizations fall to your internal or outsourced teams.
• Longer Deployment Time: Fully custom solutions typically require more time to implement.

Best Use Cases:

• Enterprises with unique or complex requirements that outgrow the capabilities of off-the-shelf solutions. This can like Copilot Studio solutions include integrations with Microsoft Teams, Microsoft 365 apps, and diverse data sources.
• Organizations seeking long-term cost efficiency and platform flexibility.
• Organizations prioritizing control over their AI workflows and data security.
• Teams requiring integration of AI tools across multiple platforms and custom applications. Building a custom Copilot using Azure AI Platform, Azure OpenAI Service, and related tools offers the highest degree of flexibility and scalability.

Breakeven Analysis: Microsoft 365 Copilot Licenses vs. Microsoft Copilot Studio & Fully Custom Solutions

To determine the breakeven point for investing in a custom solution versus purchasing Microsoft 365 Copilot licenses, we need to consider costs.

Disclaimer: Please note, the below calculations are overly simplified to give you a general idea of the ballpark timelines and costs.

Actual timelines and costs heavily depend on what you would like to achieve with your project and there could be a variance of up to 50%.

For example, if you would like to develop a much simpler PoC, it might cost only half what we have highlighted below. If you’d like a more accurate estimation, please reach out to us for a free consultation & estimation.

The below table represents a quick overview of the costs per solution and how many users you need for breakeven costs vs. buying plain licenses. Detailed calculations are shown below.

Microsoft 365 Copilot Licensing:

• Monthly Cost per User: $30.
• Annual Cost per User: $360.
• Total Annual Cost for N Users: $360 × N.

Copilot Studio Custom Solution:

• Development Cost: this is usually associated with developer salaries primarily – it is reasonable to expect ~3 team members to develop
  • A PoC within ~1 month
  • An MVP within ~3 months
  • And even a production system within ~6 months
• We can assume $36,000/month as a salary assuming we have an Architect, Senior Developer, Quality Assurance Specialist, and a Business Analyst - not all are FTE’s.
• Monthly Message Volume per User: Based on message volume (e.g., $200 per 25,000 messages/month). We will assume 250 messages/user based on industry averages from ChatGPT engagement data and other AI tools.
• Total Monthly Messages for N Users: 250 × N.
• Monthly Cost: ($200 / 25,000) × (250 × N) = $36,000 + $0.02 × N.
• Annual Cost: ($36,000 + $0.02 × N) × 12 = $432,000 + $0.24 × N.

Fully Custom Development:

• 1st Year Development Cost: ~$804,000 USD - assuming:
  • PoC Development
    • Timeline: ~2 months to develop a PoC
    • Team Composition: ~2 FTEs - Architect and/or Senior Developer, Business Analyst
    • Approximate Cost: ~$48,000 USD
  • MVP Development
    • Timeline: ~3 months for MVP development
    • Team Composition: ~3 FTEs - Architect, Senior Developer, Business Analyst
    • Approximate Cost: ~$108,000 USD
  • Production Development
    • Timeline: ~6 months for Production development ($300,000-$500,000)
    • Team Composition: ~10 FTEs - Architect, Senior Developers, Quality Assurance Specialists, Business Analyst, Data Engineer
    • Approximate Costs: ~$648,000 USD
• Monthly Operational Cost: $0.02/message x 250 messages/person x N = $5 x N - this is the cost of the Models, Infrastructure, and more.
• Annual Maintenance Cost: $576,000. This includes primarily the team cost assuming ~4 team members. This is for maintaining the system and building new features.
• Total 1st Year Cost: $804,000 + Operational Costs
• Annual Cost for Subsequent Years: $576,000 + Operational Costs

Breakeven Point Analysis:

For Copilot Studio Development

• Total Annual Cost for Licensing = $360 × N.
• Total Annual Cost for Copilot Studio Development = $432,000 + 5 x N. This figure is an estimate based on typical industry costs for maintaining a fully custom AI solution.

Setting these equal:

• $360 × N = $432,000 + 5 x N.
• N = $432,000 / $355 ≈ 1200 users.

For Fully Custom Development

• Total Annual Cost for Licensing = $360 × N.
• Total Annual Cost for Custom Development (after the first year) = $432,000 + 5 x N. This figure is an estimate based on typical industry costs for maintaining a fully custom AI solution.

Setting these equal:

• $360 × N = $432,000 + 5 x N.
• N = $576,000 / $355 ≈ 1600 users.

Conclusion

For organizations with over 1,000 users, Copilot Studio or fully custom development offers long-term cost advantages. Smaller teams or those seeking immediate deployment should consider Microsoft 365 Copilot for its simplicity and rapid integration.

Assess your scale, workflow needs, and budget to make the right choice. If you need support, reach out for a free consultation.