Microsoft is preparing to cancel most of its Claude Code licenses, pushing thousands of its own developers to switch to GitHub Copilot CLI. The move marks a significant reversal from earlier this year when the company enthusiastically embraced Anthropic’s AI coding assistant for internal use.

The decision, first reported by The Verge, comes after a six-month experiment in which Microsoft encouraged employees from project managers to designers to use Claude Code daily. The tool quickly gained a loyal following inside the company, but its success appears to have become a problem for Microsoft’s own competing product, GitHub Copilot CLI.

Sources familiar with the matter say that Microsoft’s Experiences + Devices (E+D) team, which oversees Windows, Microsoft 365, Outlook, Teams, and Surface, will wind down its usage of Claude Code by the end of June. Engineers are being asked to transition their workflows to Copilot CLI in the coming weeks, ahead of the cutoff.

Rajesh Jha, executive vice president of the Experiences + Devices group, confirmed the shift in an internal memo obtained by Notepad. “When we began offering both Copilot CLI and Claude Code, our goal was to learn quickly, benchmark the tools in real engineering workflows, and understand what best supported our teams,” Jha wrote. “Claude Code was an important part of that learning… at the same time, Copilot CLI has given us something especially important: a product we can help shape directly with GitHub for Microsoft’s repos, workflows, security expectations, and engineering needs.”

The popular but expensive experiment

Microsoft first opened access to Claude Code in December 2025, inviting thousands of its own developers to use the tool daily. The initiative was part of a broader push to get non-engineers—such as project managers and designers—to experiment with coding for the first time. According to sources, Claude Code quickly became a favorite, with employees lauding its ability to generate code from natural language prompts and its seamless integration with various development environments.

But the tool’s popularity came at a cost. Microsoft had simultaneously been developing Copilot CLI, a command-line version of GitHub Copilot designed to work outside of traditional IDEs like Visual Studio Code. The two tools served similar functions, but Claude Code’s head start and superior user experience led many Microsoft developers to prefer it over the in-house alternative. That preference undermined Microsoft’s strategic goal of promoting its own AI tooling.

The financial aspect also played a role. The June 30 cutoff aligns perfectly with the end of Microsoft’s fiscal year. Canceling Claude Code licenses provides an easy way to reduce operating expenses for the new fiscal year starting in July. While Microsoft declined to disclose the exact cost of the licenses, analysts estimate that the company had been paying Anthropic tens of millions of dollars annually for the service.

Copilot CLI: The chosen successor

Microsoft is betting that Copilot CLI can fill the gap left by Claude Code. The tool, which runs entirely in the terminal, is designed for developers who prefer command-line interfaces over graphical IDEs. GitHub has been rapidly improving Copilot CLI based on feedback from Microsoft’s own engineers, and the company is confident it can surpass Claude Code in capability.

“We are partnering closely with GitHub and continue to improve Copilot CLI for Microsoft engineers,” Jha said in the memo. “The GitHub team has already shipped significant improvements based on Microsoft feedback, and Experiences + Devices will remain closely involved in shaping the product. This is a shared accountability across GitHub and E+D leadership: to make Copilot CLI the best agentic coding experience for Microsoft engineers.”

One key advantage Copilot CLI holds is deep integration with Microsoft’s own engineering workflows. The tool can be customised to meet the company’s security requirements, repository standards, and development practices. Microsoft also plans to invest further in Copilot CLI, ensuring it becomes the default AI coding assistant across the entire company.

The broader AI competition

Microsoft’s decision to abandon Claude Code internally does not mean it is cutting ties with Anthropic. The company remains one of Anthropic’s largest customers, and its models will continue to be accessible through Copilot CLI. Microsoft also has a Foundry deal that allows Azure customers to use Anthropic’s latest models, including Claude Sonnet 4.5 and Claude Opus 4.1. That agreement remains unaffected.

In fact, Microsoft has been actively integrating Anthropic’s technology into its own products. The company recently brought the technology behind Anthropic’s Claude Cowork into Microsoft 365 Copilot, making tasks like document summarization and data analysis more efficient. Microsoft also continues to favor Claude models inside 365 Copilot for certain tasks where they outperform OpenAI’s counterparts.

The decision to cancel Claude Code licenses is thus a pragmatic one: Microsoft wants to control its internal toolchain while still leveraging Anthropic’s underlying AI models. The move also signals that the company is serious about making GitHub Copilot the gold standard for AI-assisted coding, both inside and outside the company.

Reactions and challenges

The transition away from Claude Code will not be easy. Many Microsoft engineers have grown accustomed to the tool and its capabilities. Some have expressed frustration that they are being forced to switch to a less mature product. “Claude Code just worked better for our workflows,” one Microsoft engineer told Notepad on condition of anonymity. “Copilot CLI still has gaps, and we’re being told to adapt before it’s ready.”

Microsoft acknowledged these concerns in Jha’s memo. He urged developers to file bug reports and feedback on Copilot CLI ahead of the Claude Code cutoff. “We want to hear from you. Your input will help us shape the tool into something that truly serves your needs,” he wrote.

The pressure is now on GitHub to deliver. Microsoft reported last year that 91% of its engineering teams were using some form of GitHub Copilot, but Claude Code’s adoption over the past six months has eaten into that number. Regaining those users will require Copilot CLI to match—or exceed—Claude Code’s capabilities.

To that end, Microsoft had reportedly considered acquiring Cursor, another popular AI coding tool, to accelerate development. However, the company ultimately decided against it due to potential regulatory scrutiny and instead began looking at smaller AI startups to bolster its ambitions. The exact targets of these acquisitions remain unclear.

While the internal shift is significant, it is important to note that Microsoft’s overall relationship with Anthropic remains strong. The Foundry deal continues, and Anthropic’s models are still deeply integrated into Microsoft’s cloud and productivity offerings. The cancellation of Claude Code licenses is purely an internal tooling decision, not a strategic pivot away from Anthropic.

As Microsoft’s fiscal year draws to a close, thousands of developers will be transitioning their workflows. The coming weeks will be critical for GitHub as it races to close the gap between Copilot CLI and Claude Code. Whether the move ultimately strengthens Microsoft’s AI ecosystem or stifles developer productivity remains to be seen.

The story illustrates the delicate balance tech giants must strike between fostering innovation and controlling their product roadmaps. For now, Microsoft is betting that its own tools can deliver the best experience for its developers—a bet that will be put to the test starting July 1.

Source: The Verge News