Biomanufacturing and U.S. and Chinese Economies‘ Hurtle Toward Messy Divorce --- Breakup focuses on issues now considered matters of national security

 

„In China's northeastern grain belt, farmers are getting a windfall from the government: more subsidies to grow soybeans, part of an estimated $1 trillion national effort to declare economic independence from the U.S.

 

More than 7,500 miles away, in Milwaukee, the industrial-parts manufacturer Husco is scrambling to use fewer Chinese-made components in its U.S. factories, as the Trump administration wields tariffs to reduce imports and try to resurrect American manufacturing.

 

"Some customers," said Husco Chief Executive Austin Ramirez, "are demanding zero exposure to China."

 

The forces underlying these two trends are driven by a reality settling in across Washington and Beijing. The two countries are starting to manage a messy divorce on the most sensitive issues of trade. Both view their economic competition as a matter of national security.

 

China's leaders have determined that disentangling the two economies -- often called "decoupling" or "derisking" -- is inevitable. The shift fulfills a longstanding Chinese ambition to no longer be a junior partner to the West. It's a break with decades of Beijing's orthodoxy that China's economic success depended on selling low-cost goods to American consumers and building its technological might with U.S. money and know-how.

 

Neither side wants to end all trade between the two economies. But fierce rivalry with the U.S. is now the primary driver of China's economic strategy, and Xi Jinping is determined to come out on top.

 

"Over the past year, China has started to see the U.S. as a peer equal," said Sarah Beran, a veteran American diplomat who is now a partner at Macro Advisory Partners. "China has accepted decoupling, and is now focused on controlling the pace of that decoupling."

 

Since early 2024, Beijing has allocated nearly $1 trillion to build self-sufficiency in agriculture, energy and the semiconductors that power its artificial-intelligence drive, a Wall Street Journal analysis of Chinese public records shows. The playbook has already helped China evolve into a powerhouse in sectors like green energy and electric vehicles.

 

Even purported signs of continued economic integration, like President Trump's approval of Nvidia's H200 chips for sale to China, are seen in Beijing as supercharging its eventual independence from American tech. Trump has said the decision allows the U.S. to monetize its technological lead while still withholding Nvidia's most advanced products.

 

The Trump administration's 2025 National Security Strategy, a guiding policy document released in December, said the U.S. will "restore American economic independence" and that trade with China "should be balanced and focused on non-sensitive factors."

 

The White House aims to break U.S. dependence on strategic commodities produced in China, such as the rare-earth minerals needed for electronics and military equipment. The effort is gaining urgency thanks to Beijing's restrictions on exporting such materials.

 

The Trump administration said Wednesday it has agreed to work with Japan, Mexico and the European Union on the development of those minerals -- including setting "preferential trade zones" among allied nations -- to counter China's dominance.

 

As the world's largest consumer, America will always represent an immense source of demand for goods from China, the world's dominant producer. But even a small reduction in the amount of stuff the U.S. buys from China stands to have a major impact on both economies. Trump's tariffs have begun to push up the prices of some retail items, though overall inflation has remained relatively steady.

 

China's share of U.S. imports dropped to roughly 7.5% by late 2025, according to Goldman Sachs, erasing over two decades of growth following China's 2001 entry into the World Trade Organization.

 

China, to compensate, has flooded the rest of the world with cheap goods. It is also routing components to be assembled into products bound for the U.S. through other countries to get around tariffs. China's annual trade surplus rose to a record $1.2 trillion last year.

 

Overall, trade between the U.S. and China has plummeted to 2010 levels, according to Moody's Analytics chief economist Mark Zandi, and investment and tourism are also down sharply in both directions. The two superpowers, Zandi said, are now "running away from each other as much as possible."

 

The effects of the disentanglement are just starting to take hold. Some businesses have moved production from China to the U.S. to avoid tariffs, but the flow is still modest. Mexico and Southeast Asian nations are more common destinations for manufacturers leaving China.

 

About 9% of Ohio manufacturers in a recent survey said they had reshored some production to the U.S. in 2025, up from 4% in 2021. About 60% of the reshoring in 2025 relocated from China, according to the Manufacturing Advocacy and Growth Network, a nonprofit that conducted the survey.

 

Ramirez, the Husco CEO, said the company has had some success reshoring production of an electric coil made of copper wire coated with plastic. It found a factory in Michigan and taught workers how to make the part.

 

Husco is resigned to paying the tariffs for other components its U.S. factories need because reshoring them isn't really possible, Ramirez said. Cast-metal components that require a lot of labor in uncomfortably hot and dusty conditions are one example.

 

Money and geopolitics are forcing him to keep trying.

 

"There's economic pressure to avoid the uncertainty of tariffs in the future by sourcing as much as possible in the U.S.," he said. Husco owns a large factory in China that makes products for the Chinese market and some non-U.S. destinations, he added.

 

Tracie Roberts, chief executive of Montville Plastics & Rubber in Parkman, Ohio, said automation and AI are helping her company better compete with China's lower labor costs. The tariffs on Chinese imports have given Montville another boost, Roberts said, helping it win new business from companies that hire Montville to make plastic items ultimately sold in big-box stores. Montville's business from such customers has increased roughly 20% since the tariffs, she said.

 

Plastic products can be made competitively in the U.S. without much problem, Roberts said. Goods that include electronics or many intricate components are more challenging to reshore. And many U.S. manufacturers need help with the cost of adding automated equipment, she added.

 

Beijing has found ways around U.S. tariffs. "A lot of the goods that we were previously importing from China became parts that are exported to Southeast Asia for final assembly," said Brad Setser, a senior fellow at the Council on Foreign Relations. "The underlying dependence is the same."

 

To stop such transshipments, Washington negotiated deals with countries including Vietnam and Thailand, offering them exemptions from high-penalty tariffs on their goods if they reduce the level of Chinese content in the products they assemble.

 

Washington's drive for economic independence has limits. In early 2025, the Trump administration raised tariffs on Chinese goods to sky-high levels, only to negotiate a tactical truce after a swift and aggressive response from Beijing. The president is now focused on ensuring this trade truce holds as he prepares for a high-stakes trip to Beijing in April.

 

Beyond tariffs, administration officials said the U.S. is preparing a domestic counteroffensive that, through deregulation and new government equity stakes, will help America gain independence from China in important sectors.

 

China's position today is a major pivot from Trump's first term, when Beijing pushed back against the idea that it was a strategic economic competitor, former and current American diplomats said.

 

"Beijing believes it is better positioned than during the last Trump administration to compete as near peers and stand on its own feet," said Beran, one of the former diplomats.

 

This shift was made clear in a November article by Vice Premier He Lifeng, Xi's economic czar. He said developing China's next generation of proprietary, high-tech industry for the next five years is an "inherent requirement for securing the strategic initiative in the great-power competition."

 

Beijing now calls for "decisive breakthroughs" in six key sectors in the next five years: semiconductors, software, high-end machines, medical equipment, advanced materials and biomanufacturing [1].

 

Already, the push toward self-sufficiency shows that Beijing is effectively attempting to out-invest the West to shore up vulnerabilities.

 

Spending on semiconductors has ballooned, with $47.5 billion raised in 2024, largely channeled through the China Integrated Circuit Industry Investment Fund, dubbed the Big Fund.

 

Earlier phases of the Big Fund focused on building chip factories. Now it is transitioning to bankrolling the specialized equipment that remains a foreign chokepoint. In late 2024, the fund channeled roughly $63 million into Piotech Jianke, a subsidiary of the Shenyang-based toolmaker Piotech.

 

Piotech is experimenting with a workaround for a Chinese weakness in chipmaking. Because the U.S. prevents China from acquiring the most advanced lithography machines needed to shrink chips horizontally, Beijing is betting on Piotech's "vertical stacking" method, which allows different types of chips -- like memory and processors -- to be layered on top of each other to increase power and efficiency without needing the smallest, most restricted transistors.

 

Piotech and the National Development and Reform Commission, which handles inquiries for the Big Fund, didn't respond to requests for comment.

 

China is spending more on clean energy than any other country, with total investment reaching an estimated $940 billion in 2024, according to Carbon Brief, a British organization that tracks energy and climate issues.

 

To reduce dependence on imported energy from the U.S. and others, China is planning dozens of nuclear reactors along the coast. Vast hydropower and solar projects are under way in the interior. The urgency has only intensified after the U.S. in January captured Venezuelan leader Nicolas Maduro and threatened a 25% tariff on any country conducting business with Iran -- twin shocks that could jeopardize over 1.8 million barrels of China's daily oil imports.

 

Perhaps the ultimate geopolitical chip in modern trade is soybeans. Although China is self-sufficient in staples like rice and wheat, its massive pork industry remains dependent on foreign soybeans for over 80% of its feed. If trade routes are blocked, the price of pork -- the primary protein for 1.4 billion people -- skyrockets, risking domestic instability.

 

Beijing has shifted some of its soybean purchases from the U.S. to Brazil and Argentina in recent years. It's increasingly incentivizing production at home, even as it maintains a 25 million-ton annual U.S. purchase commitment as a tactical anchor for the current trade truce.

 

In the northeastern province of Heilongjiang, where corn has long been the most common crop, the government offered soybean producers subsidies of roughly $739 per hectare -- nearly 17 times the amount offered for corn. For local growers, this windfall overrides the market logic that would otherwise favor cheaper imports from the U.S. or Brazil.

 

Researchers at the Chinese Academy of Sciences are also working to accelerate the breeding of a high-yield line of soybean seeds. Their goal is to close the "yield gap" -- the efficiency lead historically held by American farms -- by developing seeds that maximize oil content and resist local pests.

 

Across sectors, China is encouraging its companies to invest abroad, specifically in Africa and Southeast Asia, to diversify supply chains and bypass U.S. tariffs. The idea, said people close to Beijing, is that separation from the U.S. is acceptable as long as China remains firmly connected to the rest of the world.“ [2]

 

1. Biomanufacturing is the production of goods—primarily biopharmaceuticals, vaccines, and specialty chemicals—by using living organisms like bacteria, yeast, or mammalian cells. This process leverages genetically engineered cells in large bioreactors to synthesize complex, high-value products that are difficult to create through traditional chemical manufacturing.

 

Key Aspects of Biomanufacturing:

 

    The Process: It involves cultivating cells (upstream processing) to produce the desired molecule, followed by purification methods like chromatography and filtration (downstream processing).

 

    Products: Major outputs include monoclonal antibodies, insulin, vaccines, therapeutic proteins, biofuels, and food ingredients.

 

    Applications: It bridges the gap between scientific discovery and patient care, as well as enabling sustainable production of materials.

 

    Industries: Beyond pharmaceuticals, it is used in agriculture, food processing, and the creation of biodegradable materials.

 

Biomanufacturing is increasingly seen as a way to use biology for creating sustainable products, such as in the development of materials like bio-cement or cosmetics.

 

The U.S. and Chinese economies are undergoing a contentious "decoupling," with biomanufacturing emerging as a critical, high-stakes sector for both nations

. While the U.S. seeks to reduce dependence on Chinese Contract Development and Manufacturing Organizations (CDMOs), China is rapidly investing in synthetic biology to dominate the future of bio-based production.

Key aspects of this industrial realignment include:

 

    Deep Dependency: Approximately 79% of surveyed biopharma members rely on Chinese CDMOs for at least one contract or product, making an abrupt split risky for patient access.

    China’s Strategy: Beijing has identified 36 specific biomanufactured products for dominance, treating the sector as a foundation for economic security.

    Investment Surge: Investment in Chinese synthetic biomanufacturing has grown significantly, aiming for, for example, 30 billion yuan ($4.3 billion) annually by late 2025.

    U.S. Countermeasures: The U.S. is pushing for "reshoring" and "friend-shoring" of critical supply chains, including pharmaceuticals and biotech, amid fears of technological dependency.

 

This separation is leading to more redundant, higher-cost supply chains as companies seek to avoid future tariff shocks and geopolitical risks.

 

 

2. U.S. and Chinese Economies Hurtle Toward Messy Divorce --- Breakup focuses on issues now considered matters of national security. Wei, Lingling; Whalen, Jeanne.  Wall Street Journal, Eastern edition; New York, N.Y.. 06 Feb 2026: A1.  

You don't have to be a talented strategist to understand that no one will sacrifice New York, Berlin, and Paris for Marijampolė, even though Marijampolė is important for the Suwalki Corridor

 

It's time to stop playing war. It's time to engage in diplomacy.

Nereikia būti talentingu strategu, kad suprasti, jog niekas nepaaukos Niujorko, Berlyno ir Paryžiaus dėl Marijampolės, nors Marijampolė yra svarbi Suvalkų koridoriui

 

Laikas nustoti žaisti karą. Laikas imtis diplomatijos.

Tyrėjai nufilmavo mokyklinio autobuso dydžio medūzą

“Tyrėjai nufilmavo milžinišką fantominę medūzą kelionės iš Buenos Airių į Ugnies Žemę metu. Šių būtybių čiuptuvai gali siekti iki dešimties metrų ilgio. Tačiau mokslininkai atrado dar daugiau.

 

Mokslininkai nufilmavo milžinišką medūzą giliavandenėje jūroje prie Argentinos Atlanto vandenyno pakrantės. Šmidt vandenynų institutas pranešė, kad mokyklinio autobuso dydžio fantominė medūza (Stygiomedusa gigantea) buvo aptikta maždaug 250 metrų gylyje. Šių būtybių čiuptuvai gali siekti iki dešimties metrų ilgio.

 

Kelionės iš Buenos Airių į Ugnies Žemę metu tyrėjai taip pat atrado kelis koralinius rifus ir, tikėtina, 28 naujas rūšis, įskaitant kirminus, sraiges ir jūrines anemones. Jie taip pat rado daug šiukšlių, tokių kaip žvejybos tinklai, plastikiniai maišeliai ir VHS kasetė su korėjietiškais dainų tekstais, beveik nepriekaištingos būklės. Tai rodo, kaip ilgai plastikas teršia vandenynus, teigė mokslininkai savo pranešime spaudai.

 

„Surinkome precedento neturintį kiekį cheminių, fizinių ir biologinių mėginių, kurie padės mums suprasti mūsų vandenų dinamiką“, – sakė Melisa Fernández Severini iš Argentinos okeanografijos instituto. „Šie mėginiai suteikia unikalią galimybę ne tik suprasti, kokios nepaprastos yra šios ekstremalios ekosistemos, bet ir kokios jos gali būti pažeidžiamos.“”

 

Researchers film jellyfish the "size of a school bus"

"While traveling from Buenos Aires to Tierra del Fuego, researchers filmed a giant phantom jellyfish. The tentacles of these creatures can grow up to ten meters long. But the scientists discovered even more.

 

Scientists have filmed a giant jellyfish in the deep sea off Argentina's Atlantic coast. The phantom jellyfish (Stygiomedusa gigantea), the "size of a school bus," was discovered at a depth of approximately 250 meters, the Schmidt Ocean Institute announced. The tentacles of these animals can reach up to ten meters in length.

 

During their journey from Buenos Aires to Tierra del Fuego, the researchers also discovered several coral reefs and presumably 28 new species, including worms, snails, and sea anemones. They also found a large amount of trash, such as fishing nets, plastic bags, and a VHS cassette with Arabic writing in almost pristine condition. This shows how long plastics pollute the oceans, the scientists said in their statement.

 

"We have collected an unprecedented number of chemical, physical, and biological samples that will help us understand the interconnectedness of our waters," said Melisa Fernández Severini of the Argentine Institute of Oceanography. "These samples offer a unique opportunity to understand not only how extraordinary these extreme ecosystems are, but also how vulnerable they can be."”

 

„Microsoft“ pagrindinis dirbtinio intelekto produktas susiduria su didelėmis problemomis

„Microsoft“ pokalbių robotas „Copilot“ tapo pagrindine dirbtinio intelekto strategijos dalimi, nes mažėja glaudi bendrovės partnerystė su „OpenAI“. Tačiau pastangos jį paversti „ChatGPT“ alternatyva buvo sunkios.

 

Painios prekės ženklo pozicionavimo ir sąveikumo problemos vargina vartotojus, teigė dabartiniai ir buvę darbuotojai, dirbę su „Microsoft“ dirbtinio intelekto produktais. Tik nedidelė dalis „Microsoft“ įmonių paketo prenumeratorių naudoja „Copilot“, o procentinė dalis, kuri jį renkasi labiau nei „Google“ „Gemini“ ar kitus įrankius, pastaraisiais mėnesiais sumažėjo, rodo „The Wall Street Journal“ peržiūrėti duomenys.

 

„Microsoft“ statymai yra dideli, nes „Copilot“ yra pagrindinė generalinio direktoriaus Satya Nadella pastangų transformuoti „Microsoft“ į dirbtinio intelekto pagrindu veikiančią bendrovę, panašiai kaip jis ją pavertė debesijos pagrindu veikiančia bendrove maždaug prieš dešimtmetį. „Copilot“ yra vienas iš pagrindinių Nadella prioritetų, teigė dabartiniai ir buvę vadovai.

 

„Microsoft“ akcijų vertė krito po to, kai praėjusią savaitę paskelbta pelno ataskaita sukėlė investuotojų susirūpinimą dėl svarbiausio padalinio – „Azure“ debesijos kompiuterijos verslo – augimo. lėtėja ir kad jos dirbtinio intelekto verslas priklauso nuo „OpenAI“, o „Copilot“ lieka nepatikrintas.

 

„Mes peržengėme pradinį dirbtinio intelekto atradimo etapą“, – gruodžio mėnesio tinklaraščio įraše rašė Nadella, pridurdamas, kad pramonė žengia į etapą, kai „pradedame atskirti „spektaklį“ nuo „esminio“.“

 

Net jei „Microsoft“ taip atsilieka pokalbių robotų lenktynėse, ji vis dar uždirba daug milijardų iš dirbtinio intelekto valdomos debesų kompiuterijos paklausos, todėl išlieka viena vertingiausių pasaulio bendrovių. Analitikai mano, kad bendrovė yra gerai pasirengusi panaikinti šią spragą, nes jos produktyvumo programinę įrangą naudoja šimtai milijonų įmonių vartotojų – tai yra uždara auditorija, kuriai ji gali lengvai reklamuoti naujus dirbtinio intelekto produktus.

 

Chadas A. Morganlanderis, vyresnysis portfelio valdytojas „Microsoft“ investuotojoje „Washington Crossing Advisors“, sakė, kad nors „Copilot“ dabar patiria sunkumų, „mes tikimės, kad jie turi šią įterptąją klientų bazę ir kad jie suklys, kol nepadarys teisingų sprendimų“. „Jie turi daug pinigų maratonui.“

 

„Microsoft“ turi kelias „Copilot“ versijas, kurios yra įpintas į programas ir paslaugas, įskaitant „365“ produktyvumo įrankius, tokius kaip „PowerPoint“ ir „GitHub“ kūrėjų platformą. Taip pat yra vartotojams skirta versija, pasiekiama per „Edge“ naršyklę ir programėlę.

 

Skirtingi „Copilot“ skirstomi į tris pagrindines kategorijas: įmonių įrankius, kuriuos „Microsoft“ parduoda įmonėms ir specialistams, „Copilot“ kūrėjams ir IT personalui bei bendrą vartotojų pokalbių robotą, kuriam vadovauja „Microsoft“ dirbtinio intelekto generalinis direktorius Mustafa Suleymanas.

 

„Microsoft“ pasamdė Suleymaną 2024 m., kad prižiūrėtų savo vartotojams skirtus dirbtinio intelekto produktus ir kurtų dirbtinio intelekto modelius, kurie galėtų konkuruoti su „OpenAI“ ir kitų produktais. Iki šiol „Microsoft“ rėmėsi „OpenAI“ ir jos konkurentu „Anthropic“, kad šie valdytų įvairius „Copilot“ produktus, ir teigė, kad naudos geriausius turimus modelius.

 

Praėjusią savaitę „Microsoft“ pranešė, kad pardavė 15 milijonų „Microsoft 365 Copilot“ „vietų“. Jos „Microsoft 365“ verslas iš viso turi daugiau nei 450 milijonų mokamų vietų. Praėjusių metų pabaigoje bendrovė teigė, kad turi daugiau nei 150 milijonai aktyvių „Copilot“ naudotojų per mėnesį visose pirmosios šalies platformose. „Google Gemini“ turi daugiau nei 650 milijonų naudotojų per mėnesį, o „ChatGPT“ – apie 900 milijonų aktyvių naudotojų per savaitę.

 

Anksčiau neskelbti duomenys rodo, kad „Copilot“ prenumeratoriai, įskaitant turinčius įmonių paskyras, vis labiau renkasi konkuruojančius variantus.

 

Nuo praėjusių metų liepos iki sausio pabaigos „Copilot“ prenumeratorių, kurie naudoja produktą kaip pagrindinę parinktį, procentinė dalis sumažėjo nuo 18,8 % iki 11,5 %, rodo rinkos tyrimų bendrovės „Recon Analytics“ atlikta daugiau nei 150 000 respondentų apklausa JAV. Tai įvyko tuo metu, kai mokamų naudotojų, kurie pasirenka „Google Gemini“ kaip pirmąją parinktį, dalis padidėjo nuo 12,8 % iki 15,7 %.

 

Apklaustieji, kurie perėjo nuo „Copilot“, teigė, kad kitur rado geresnę kokybę, kai kurie nurodė prastą naudotojų patirtį ir ribojančius naudojimo apribojimus. „Recon“ duomenys rodo, kad darbuotojai, turintys prieigą prie „Copilot“, „ChatGPT“ ir „Gemini“ prenumeratų, dažniau renkasi „ChatGPT“ ir „Gemini“ nei „Copilot“.

 

Kai kurios įmonės naudoja tik apie 10 % „Copilot“ prenumeratos vietų jie moka, remiantis neseniai „Citi Research“ analitikų paskelbta ataskaita. Analitikai rašė, kad „Copilot“ problema buvo „netvarkingi duomenų silosai“.

 

Interviu Jaredas Spataro, „Microsoft“ dirbtinio intelekto darbe rinkodaros vadovas, teigė, kad kasdienis aktyvus „365 Copilot“ naudojimas per metus išaugo 10 kartų ir lenkia kitų „365“ įmonių pasiūlymų augimą. Spataro užginčijo „Citi“ išvadas, sakydamas: „Augimo tempas, kurį matome, nepanašus į nieką, ką esame matę anksčiau“, tačiau atsisakė pateikti konkrečių skaičių.

 

„Microsoft“ atliktos klientų apklausos parodė, kad vartotojai buvo sutrikę dėl daugybės „Copilot“ versijų, teigė su šiuo klausimu susipažinę asmenys. Kai kurie vartotojai jau seniai skundėsi dėl to, kad “Copilot” vertė juos veikti, iššokdamas visur – nuo ​​dokumentų iki naršyklės.

 

Viena iš dabartinių ir buvusių darbuotojų įvardytų problemų – darnios patirties trūkumas skirtinguose „Copilot“ įrenginiuose – tai vartotojų problema, apie kurią „Nadella“ yra kalbėjusi anksčiau. Maždaug prieš metus „Nadella“ išsiuntė nusivylimo kupiną el. laišką Rajeshui Jha, patirties ir įrenginių vykdomajam viceprezidentui, kuriame išsamiai aprašė incidentą, kai „Nadella“ paprašė įmonės versijos „Copilot“ „Edge“ naršyklėje padėti su viešu tinklalapiu, kuriame jis buvo, tačiau, anot su el. laišku susipažinusių asmenų, ši negalėjo įvykdyti jo raginimo.

 

„Nadella“ iškelta problema buvo išspręsta, tačiau panašių sąveikumo sunkumų vartotojams vis dar kyla.

 

Pastangas apmokyti nuosavybės teise priklausančius modelius taip pat stabdo skaičiavimo pajėgumų trūkumas, nes bendrovė taupo serverio laiką, kad užtikrintų prieinamumą „OpenAI“ ir kitiems jos „Azure“ debesijos paslaugos klientams. Daugelyje lyginamųjų testų „Microsoft“ pagrindinis nuosavybės teise priklausantis dirbtinio intelekto modelis yra gerokai prastesnis nei konkurentai.

 

Interviu „Microsoft“ debesijos ir dirbtinio intelekto grupės vykdomasis viceprezidentas Scottas Guthrie pažymėjo, kad Suleymano komanda buvo sukurta tik 2024 m.

 

Jis teigė, kad ilgas debesijos infrastruktūros kūrimo laikotarpis paaiškino komandos skaičiavimo pajėgumų trūkumą iki šiol.

 

Naujausioje pelno ataskaitoje „Microsoft“ teigė, kad skiria daugiau skaičiavimo galios savo „Copilot“ produktams tobulinti, nes įgijo pasitikėjimo savo gebėjimu juos monetizuoti.“ [1]

 

1. Microsoft's Pivotal AI Product Is Running Into Big Problems. Herrera, Sebastian.  Wall Street Journal, Eastern edition; New York, N.Y.. 05 Feb 2026: B1.

Microsoft's Pivotal AI Product Is Running Into Big Problems

 

“Microsoft's Copilot chatbot has become central to its artificial-intelligence strategy as the company's close partnership with OpenAI diminishes. But the effort to build it up as a ChatGPT alternative has been tough going.

 

Confusing brand positioning and interoperability problems have frustrated users, current and former employees who have worked on Microsoft's AI products said. Only a small proportion of subscribers to Microsoft's enterprise suite use Copilot, and the percentage who favor it over Google's Gemini or other tools has decreased in recent months, according to data reviewed by The Wall Street Journal.

 

The stakes are high for Microsoft because Copilot is core to a push by Chief Executive Satya Nadella to transform Microsoft into an AI-first company, much as he transformed it into a cloud-first company around a decade ago. Copilot is one of Nadella's top priorities, current and former executives said.

 

Microsoft shares tumbled after its earnings report last week sparked investor concern that growth in its most important unit, the Azure cloud-computing business, is slowing, and that its AI business is reliant on OpenAI while Copilot remains unproved.

 

"We have moved past the initial phase of discovery" of AI, Nadella wrote in a December blog post, adding that the industry was entering a phase where "we are beginning to distinguish between 'spectacle' and 'substance.'"

 

Even if Microsoft is so far lagging behind in the chatbot race, it is still making many billions from AI-driven cloud-computing demand, keeping it among the world's most-valuable companies. And analysts see the company as well positioned to close the gap because its productivity software is used by hundreds of millions of corporate users, a captive audience to whom it can easily promote new AI products.

 

Chad A. Morganlander, senior portfolio manager at Microsoft investor Washington Crossing Advisors, said that while Copilot is struggling now, "our bet is they have this embedded client base, and that they will get it wrong until they get it right. They have plenty of money for the marathon."

 

Microsoft has several versions of Copilot that are woven into apps and services, including its 365 productivity tools such as PowerPoint and the GitHub developer platform. There is also a consumer-facing version available through its Edge browser and via an app.

 

The different Copilots are divided into three main categories: the enterprise tools Microsoft sells to companies and professionals, Copilots for developers and IT personnel and the general consumer chatbot led by Microsoft AI CEO Mustafa Suleyman.

 

Microsoft hired Suleyman in 2024 to oversee its consumer AI products and build AI models that could compete with those of OpenAI and others. So far, Microsoft has relied on OpenAI and its competitor, Anthropic, to power its various Copilots and has said it would use the best models available.

 

Last week, Microsoft reported that it had sold 15 million Microsoft 365 Copilot "seats." Its Microsoft 365 business has a base of 450 million-plus paid seats overall. The company late last year said it had more than 150 million monthly active Copilot users across its first-party platforms. Google's Gemini has more than 650 million monthly users, while ChatGPT has about 900 million weekly active users.

 

Previously unreported data shows that Copilot subscribers, including those with corporate accounts, are increasingly favoring competing options.

 

From last July through late January, the percentage of Copilot subscribers who use the product as a primary option decreased from 18.8% to 11.5%, according to a survey of more than 150,000 respondents in the U.S. by market-research firm Recon Analytics. This happened while the share of paid users who choose Google's Gemini as the first option increased from 12.8% to 15.7%.

 

Those surveyed who switched from Copilot said they found better quality elsewhere, with some citing poor user experience and restrictive usage limits. Workers who have access to subscriptions for Copilot, ChatGPT and Gemini choose ChatGPT and Gemini at a higher rate than Copilot, the Recon data show.

 

Some companies are using only about 10% of the Copilot subscription seats they are paying for, according to a recent note by analysts at Citi Research. "Disorganized data silos" have been an issue for Copilot, analysts wrote.

 

In an interview, Jared Spataro, Microsoft's chief marketing officer of AI at work, said daily active usage of 365 Copilot has grown 10-fold year over year and is outpacing growth of other 365 enterprise offerings. Spataro challenged Citi's findings, saying, "The pace of growth that we're seeing is unlike anything we've seen before," but he declined to provide specific figures.

 

Customer surveys by Microsoft have shown that users have been confused by the multiple versions of Copilot, people familiar with the matter said. Some users have long complained about Copilot being forced onto them, popping up on everything from documents to the browser.

 

One issue cited by current and former employees is the lack of a cohesive experience across the different Copilots, a user pain point Nadella has flagged in the past. About a year ago, Nadella sent a frustrated email to Rajesh Jha, executive vice president of experiences and devices, detailing an incident in which Nadella had asked the enterprise version of Copilot on the Edge browser to help with a public webpage he was on, but it couldn't fulfill his prompt, according to people familiar with the email.

 

The issue Nadella raised was resolved, but similar interoperability difficulties persist for users.

 

The effort to train proprietary models has also been hampered by a shortage of computing capacity, with the company rationing server time to ensure availability for OpenAI and other customers of its Azure cloud service. On a number of benchmark tests, Microsoft's flagship proprietary AI model ranks well below competitors.

 

In an interview, Scott Guthrie, executive vice president of Microsoft's Cloud and AI Group, noted that Suleyman's team was only created in 2024.

 

He said the long timeline involved in building cloud infrastructure explained the team's lack of computing capacity until recently.

 

In its recent earnings report, Microsoft said it was allocating more computing power to improve its Copilot products as it had gained confidence in its ability to monetize them.” [1]

 

1. Microsoft's Pivotal AI Product Is Running Into Big Problems. Herrera, Sebastian.  Wall Street Journal, Eastern edition; New York, N.Y.. 05 Feb 2026: B1.