Microsoft CEO Satya Nadella has delivered one of his clearest and most urgent warnings yet: the company must reinvent itself for an era where AI agents — not humans — become the primary users of software. Speaking on the Dwarkesh Podcast and in internal memos, Nadella outlined a tectonic shift already underway inside Microsoft, calling it as significant as the company’s pivot to cloud computing 15 years ago.

For decades, software has been priced “per user.” That model, Nadella argued, is becoming obsolete. As intelligent AI agents increasingly execute tasks, plan workflows, analyse data and communicate autonomously, companies will no longer pay for human seats but for “how much work the agents do.” Microsoft has already begun rolling out pay-as-you-go pricing for AI agents, while keeping basic Copilot access free.

“Our business, which today is an end-user tools business, will become essentially an infrastructure business in support of agents doing work,” Nadella said. These agents, embedded across Word, Excel, Outlook and Teams, will operate inside the Microsoft 365 ecosystem — turning the suite into a foundational layer where automation quietly runs.

Industry players are moving in a similar direction. Giants like Deloitte and EY have launched agentic AI platforms capable of generating reports, managing schedules and interacting with clients. EY predicts this could shift consulting toward a “service-as-a-software” model, where businesses pay for AI-delivered outcomes instead of billed hours. ServiceNow CEO Bill McDermott has also acknowledged the impending shift, admitting that as AI workloads scale, “some kind of meter” will be inevitable.

Internally, Nadella has stressed that Microsoft must rethink AI economics from the ground up. In a recent memo, he appointed Rolf Harms — architect of Microsoft’s seminal 2010 “Economics of the Cloud” white paper — to advise on AI strategy. Nadella warned employees that without deep changes, “some of the biggest businesses we’ve built might not be as relevant going forward.”

He has repeatedly cited the downfall of Digital Equipment Corporation as a cautionary tale, describing himself as “haunted” by companies that failed to adapt to platform shifts.

In his annual letter, Nadella outlined Microsoft’s long-term transformation: evolving from a “software factory” into an “intelligence engine” powering a new generation of Copilots and autonomous agents. The mission, he wrote, is to build an AI factory that drives usage, value and innovation across the entire stack — before competitors do.