But really what we’re seeing is engagement grow. As to Satya’s point on how you learn and your behavior changes you see engagement grow with time. And so I think those are just to put a pin in that, because it’s an important dynamic when we think about the optimism you hear from us.
Brad Zelnick: Excellent, thank you so much.
Brett Iversen: Thanks, Brad. Joe, next question, please.
Operator: Our next question comes from the line of Mark Murphy with J.P. Morgan. Please proceed.
Mark Murphy: Yeah. Thank you very much. Is it possible to unpack the 6 point AI services tailwind, it’s just to help us understand which elements ramped up by the three incremental points. For instance, is it more of the open AI inferencing, GitHub Copilot, other Copilots, the Azure OpenAI service, third party LLMs running on Azure. I’m just wondering, where did you see the strongest step-up in that activity?
Amy Hood: Mark, without getting into tons of line items, it’s more simple to think of it as really, it’s people adopting it for inferencing at the API generally. I mean that’s the easiest way to think about it. And we also saw growth in GitHub Copilot which you talked — which Satya talked about and we saw a growing number of third parties using it in some small ways for training. But this is primarily an inferencing workload right now in terms of what’s driving that number. We used to think of it that way.
Satya Nadella: Azure OpenAI and then OpenAIs on APIs on top of Azure would be the sort of the major drivers. But there is a lot of the small batch training that goes on, whether it’s let Jeff for fine-tuning. And then lot of people who are you starting to use models as a service with all the other new models, but it’s predominantly Azure open AI today.
Mark Murphy: Thank you.
Brett Iversen: Thanks, Mark. Joe, next question, please.
Operator: Our next question comes from the line of Brad Reback with Stifel. Please proceed.
Brad Reback: Great, thanks very much. Amy for many, many years in Commercial Office 365 seat growth has far outpaced ARPU and over the last couple of quarters, we’re getting a convergence, obviously, as the seat count gets really large. As we look-forward, should they run even for a period of time or should we expect ARPU to outpace seat growth here in the short term? Thanks.
Amy Hood: That’s a great question, Brad. Let me split apart the components. And then we can come back to whether they should equalize or just go on sort of a bit, actually believe it or not, somewhat independent trajectory and I will explain why I say that. Your seat growth as we talk about is primarily from, at this point, small and medium-size businesses and really frontline workers scenarios. And to your point on occasion, those are lower ARPU seats, but there are also — there are new seats and so you see that in the seat count number. And as we get through and we’ve seen that come down a little bit quarter-over-quarter and we’ve guided for that really to happen again next quarter, but a very separate thing is being able to add ARPU.
And traditionally, and again this quarter, right, that’s come over-time from E3. Then from E5. And we’re continuing to see very healthy seat momentum and you heard very good renewals. So, all of that, right, completely independent in some way from seat growth. Then the next thing, that actually we just talked about, maybe in Brad’s question I’m trying to recall is that, you’re going to see Copilot revenue will run there as ARPU, right. That won’t show a seat growth. So you’ll have E3, E5 transition, Copilot, all show-up in ARPU over time, and then you’ll have the seat growth be primarily still small business and frontline worker and maybe new industry scenarios. So, I tend to not really, Brad, think about them as related lines, believe it or not.
I think about them as sort of unique Independent motions we run and there is still room for seat growth and obviously with the levers we’ve talked about, there’s room for ARPU growth as well.
Brad Reback: That’s great. Thanks very much.
Brett Iversen: Thanks, Brad. Joe we have time for one last question.
Operator: Our last question will come from the line of Tyler Radke with Citi. Please proceed.
Tyler Radke: Thanks for taking my question. Satya your enthusiasm about GitHub Copilot was noticeable on the conference call and at the AI Summit in New York last week. I’m wondering how you’re thinking about pricing, obviously, this is driving pretty incredible breakthroughs and productivity for developers. But how do you think about your ability to drive ARPU on the GitHub Copilot over-time and just talk us through how you’re thinking about the next phase of new releases there?
Satya Nadella: Yeah. I mean — it’s — I always go back to sort of my own conviction that this generation of AI is going to be different, started with the move from 2.5 to 3 of GPT. And then it’s use inside of developer scenario with GitHub copilot and so yes. I think this is the place where it’s most evolved. In terms of its economic benefits or productivity benefits and you see it. We see it inside of Microsoft, we see it in all of the key studies we put out of customers, everybody had talked to its pick-up, but it is the one place where it’s becoming standard issue for any developer is like if you takeaways spell check from Word, I’ll be unemployable. And similarly, it will be like — I think GitHub Copilot becomes core to anybody who is doing software development.
The thing that you brought up is a little bit of a continuation to how Amy talked about, right. So you are going to start seeing people think of these tools as productivity enhancers, right. I mean, if I look at it, our ARPUs have been great, but they’re pretty low.. You know even though we’ve had a lot of success, it’s not like we had a high-priced ARPU company. I think what you’re going to start finding is, whether it’s sales copilot or service copilot or GitHub Copilot of security copilot. They are going to fundamentally capture some of the value they drive in terms of the productivity of the OpEx, right. So it’s like 2 points, 3 points of OpEx leverage would be goal is on software spend. I think that’s a pretty straightforward value equation.
And so that’s the first time, I mean this is not something we’ve been able to make the case for before whereas now I think we have that case. Then even the horizontal copilot is what Amy was talking about, which is at the Office 365 or Microsoft 365 level, even there, you can make the same argument whatever ARPU we may even have with E5, now, you can see incrementally as a percentage of the OpEx, how much would you pay for a copilot to give you more time savings for example. And so yes, I think all up, I do see this as a new vector for us in what I’ll call the next phase of knowledge work and frontline work even in their productivity and how we participate. And I think GitHub copilot, I never thought of the tools business as fundamentally participating in the operating expenses of a company’s spend on, let’s say, development activity and now you’re seeing that transition, it is just not tools, it’s about productivity of your dev team.
Brett Iversen: Thanks, Tyler. That wraps up the Q&A portion of today’s earnings call. Thank you for joining us today and we look forward to speaking with all of you soon.
Amy Hood: Thank you.
Satya Nadella: Thank you.
Operator: This concludes today’s conference. You may now disconnect. Enjoy the rest of your evening.
