Microsoft Agent Builder — Simply Explained

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Hello everyone and welcome to another episode of Microsoft Knowledge Nuggets here on M365.

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FM, I'm your host, Mirko Peters.

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Today's topic is one that almost everyone has heard of, but few people truly understand

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AI agents.

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What exactly is an AI agent and do you really need to be a developer to build one?

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Those are fair questions, especially when you hear terms like declarative agent and orchestration thrown around.

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Here's the short answer, no, you don't need to code.

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By the end of this episode, you'll understand what Microsoft agent builder is, how it works,

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and exactly when to use it versus co-pilot studio or AI Foundry.

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Grab your coffee and let's dive in.

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What agent builder actually is, Microsoft agent builder is a no-code tool that lives inside

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Microsoft 365 co-pilot.

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It lets you create what Microsoft calls declarative agents.

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In plain English, that means you design a personal AI assistant just by describing what

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you want, you don't write code, you write sentences.

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So how does it actually work?

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Open co-pilot in your browser, look at the sidebar on the left and you'll see a section called

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agents.

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Click New Agent and you get two tabs at the top.

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Describe and configure.

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The Describe tab is the magic one.

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You type something like "I need an agent that helps onboard new team members" and co-pilot

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builds the agent for you, generating a name, description, instructions and even suggested

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prompts.

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You talk, it builds.

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The configure tab is for tweaking things manually.

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Change the name, upload an icon, rewrite the instructions, add knowledge sources.

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Most people start with describe, then switch to configure to polish things up.

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Think of describe as the fast lane.

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You just tell it what you need and the agent appears in seconds.

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The user is for fine tuning, like adjusting the furniture after the room is built.

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But here's the thing, agent builder is not a separate website.

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You don't go to co-pilot studio, Microsoft.com or some other portal.

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It lives right inside the co-pilot sidebar in the same place you chat with co-pilot every

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day and that's by design.

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Microsoft wants this to feel like a natural extension of your workflow, not a separate tool

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you have to learn.

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Most users never notice the complexity behind the scenes, but that's the beauty of it.

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Think of it like an office building.

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Imagine you work in a big building with rooms for different things.

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Building rooms, storage rooms, break rooms.

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In the old days, if you needed a new room, you'd have to hire an architect, draw up plans,

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get permits and wait weeks for construction.

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That's what building an AI agent used to feel like.

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Agent builder is the opposite.

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It's like walking up to the building manager and saying, "I need a small room on the third

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floor with a whiteboard and good lighting."

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The manager says, "Got it, and it's ready in minutes.

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You don't design the plumbing or the wiring.

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You just describe the room you need and the building handles the rest."

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That's the core idea.

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Agent builder takes your description and turns it into a working agent, handling all the

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technical stuff behind the scenes, the AI model, the grounding, the permissions.

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You just tell it what you want.

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The creation flow.

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Step by step.

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What does this actually look like in practice?

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Let's walk through it.

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You start from the co-pilot sidebar.

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Click New Agent and you see two tabs.

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Describe and configure.

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Most people land on Describe first.

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That's where the magic happens.

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In the Describe tab, you type what you need.

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Like, "I need an agent that helps onboard new team members."

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Hit Send and co-pilot starts working.

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It thinks for a few seconds, then comes back with a complete agent, including a name, description,

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instructions, and suggested prompts users can click when they start chatting.

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It's all generated from that one sentence you typed.

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You can accept it as is or switch to configure and tweak things manually.

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The configure tab is where you get hands-on.

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You can change the agent's name, upload a custom icon, or rewrite the description.

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The instructions field is the most important part.

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This is where you tell the agent how to behave.

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And something like "You are an HR assistant."

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Only answer questions using the provided documents.

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If you don't know the answer, tell the user to contact HR directly.

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That's your instruction and the agent follows it.

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Then there's the Knowledge section.

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This is where you connect the agent to actual data.

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Without knowledge sources, the agent is just a chatbot with a personality.

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It doesn't know anything about your company.

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So you add sources, SharePoint sites, specific files from one drive, upload a document from

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your computer, public URLs, Teams chats, or Outlook emails.

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The agent reads those sources and answers questions based on what it finds.

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Below that, there's a capabilities section with toggles.

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You can let the agent generate documents, write code, or create images.

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Flip those on if you want the agent to produce word docs or PowerPoint slides.

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They're off by default, but easy to enable.

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Then there are suggested prompts.

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Pre-written questions that show up when someone opens the agent.

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Things like "What are the steps for new hire paperwork?" or find the travel policy document.

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You can write your own or let co-pilot generate them based on your description.

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And everything looks good, click "Create".

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The agent appears in your co-pilot sidebar alongside any other agents you've built or installed,

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and you can start chatting with it immediately.

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If you need to change something later, just click the three dots next to the agent and

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choose "Edit".

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It opens the "Configure" tab again, and you can tweak anything.

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Instructions, knowledge sources, prompts, update it, and the changes take effect right away.

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Where the smarts come from?

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Knowledge sources.

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Now you've got a working agent, but where does its intelligence actually come from?

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Here's the thing.

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A agent doesn't know anything by default.

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It's like a new employee on their first day.

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They might be smart, but they don't know your company's policies, your products, or your

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customers.

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They need training materials and for an agent, those training materials are called "knowledge

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sources".

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Without grounding data, your agent is just a generic chatbot with a personality.

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It can hold a conversation, but won't know anything specific about your business.

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That's why the knowledge section is the most important part of building an agent.

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You have several types of sources you can connect.

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SharePoint sites are the most common.

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Think of them as your company's document libraries.

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One drive files work too if you have a specific document stored in your personal cloud.

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You can upload files directly from your computer.

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PDFs, Word documents, PowerPoints, Excel spreadsheets, public URLs or another option so you

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can point the agent to your company website or a public knowledge base.

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And if you have a copilot license, you can also connect Teams chats and Outlook emails.

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Now there's a toggle that matters a lot.

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Only use specified sources.

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Flip this on, and the agent will only answer from the documents and sites you've provided.

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But don't use the general knowledge of the AI model to make things up.

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This is your best defense against hallucinations.

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If you're building an HR agent that answers from your employee handbook, you want this turned

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on like you don't want the agent inventing a policy that doesn't exist.

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There are limits to keep in mind.

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Microsoft says individual files can be up to 512 megabytes for most document types.

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With Excel files kept at 30 megabytes.

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In practical terms, you're looking at about 100 SharePoint files per agent and around

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50 one drive files.

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Those aren't hard limits written in stone, but they're good guidelines for planning.

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Here's the part that surprises most people.

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The agent respects your existing Microsoft 365 permissions.

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It doesn't get special access.

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If you add a SharePoint site as a knowledge source, the agent can only return information

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that the person asking the question is already allowed to see.

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So if a user can't normally view a specific document in SharePoint, the agent won't show it

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to them either.

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This is built in security, and it works automatically.

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The template shortcut.

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Welcome back to Microsoft Knowledge Nuggets.

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I'm Mirko Peters.

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But what if you want to build something faster than starting from scratch?

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That's where templates come in.

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Microsoft now pushes template first creation pretty heavily.

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Instead of staring at a blank described tab, you pick from pre-configured agents designed

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for common scenarios.

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Career coach helps people navigate professional development.

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Researcher digs deep across multiple sources.

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Analyst focuses on data and spreadsheets.

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And there are industry-specific ones too, depending on your organization.

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Microsoft keeps adding more over time.

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The workflow is simple.

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Pick a template close to what you need.

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Then customize it.

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Swap in your own knowledge sources.

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Tweak the instructions.

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Adjust the suggested prompts.

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The template gives you a solid starting structure, but the real value comes from the data

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you connect.

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Think of it like cooking.

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Starting from a recipe is way easier than inventing a dish from scratch.

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The recipe gives you the proportions, the techniques, the order of operations.

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You still need to add your own ingredients, and that's your company's data.

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But you don't have to figure out the structure yourself.

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Templates are great for business users who want speed without complexity.

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If you're not a developer and don't want to learn prompt engineering, a template gets

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you a working agent in minutes.

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You just need to know what you want the agent to do and where the relevant information

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lives.

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Just remember, a template is a starting point, not a finished product.

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The agent is only as useful as the knowledge sources you connect to it.

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A career coach template with no company data attached is just a generic career advice

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board, connected to your internal training documents and job postings, and suddenly it

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becomes a tool that actually helps your employees.

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The spectrum.

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Agent Builda versus Copilot Studio versus AI Foundry.

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Now here's the question everyone asks.

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When should you use Agent Builda versus the other tools Microsoft offers?

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Because Microsoft gives you three ways to build agents and they're not the same thing.

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Think of it as a spectrum.

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On one end, you have Agent Builda, the simplest, fastest, most accessible option in the middle,

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Copilot Studio with more power, more complexity, more control, and on the far end, AI Foundry,

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the full developer platform where you can do almost anything, but you'd better know

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what you're doing.

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Start with Agent Builda.

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This is for quick internal Q&A assistance grounded in Microsoft 365 content.

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No code required.

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You describe what you want, connect some knowledge sources, and you're done.

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But there are trade-offs.

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Agent Builda agents stay inside your organization.

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You can't put them on a public website.

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You can't connect them to Salesforce or Service now.

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They answer questions from your SharePoint sites and documents, and that's about it.

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If that's all you need, Agent Builda is perfect.

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Copilot Studio is the next step up.

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This is a low-code platform for enterprise-grade agents.

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It supports workflows, real multi-step processes with branching and conditional logic.

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It has connectors to external systems like Salesforce, Dataverse, and hundreds of other services.

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You can publish agents to websites, teams, Slack, even custom apps.

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But with that power comes complexity.

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You need licensing.

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You need governance.

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Your IT department needs to be involved.

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It's not something a business user sets up in five minutes.

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AI Foundry is the far end of the spectrum.

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This is Microsoft's professional AI development platform.

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Pro developers only.

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You can choose from thousands of AI models, not just Microsoft's, but Claude, Grog, even

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specialized healthcare models.

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You can fine tune them, customize them, build entirely custom solutions.

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But for most business users, AI Foundry is overkill.

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If you're asking, should I use Agent Builda or AI Foundry?

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The answer is Agent Builda.

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So when do you move from Agent Builda to Copilot Studio?

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Three main reasons.

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Reason one, you need an external facing agent.

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Agent Builda agents only work inside your organization.

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If you want a customer service bot on your public website, you need Copilot Studio.

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Reason two, you need exotic data sources.

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Agent Builda connects to SharePoint, OneDrive, WebContent, and Microsoft 365 data.

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But if you need to pull data from a SQL database, Salesforce, or an MCP server, you need Copilot

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Studio.

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Reason three, you need agentic actions.

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This means the agent doesn't just answer questions, it does things, it creates tickets, sends

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emails, updates records, triggers workflows.

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Agent Builda can't do that.

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Copilot Studio can.

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Here's a real world way to think about it.

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An HR FAQ bot that answers questions from your employee handbook is Agent Builda territory.

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A helpdesk agent that reads a support request creates a ticket in service now, roots it to

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the right team, and sends a confirmation email is Copilot Studio.

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A medical diagnosis assistant that uses specialized healthcare models and needs to comply with

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strict regulations is AI Foundry.

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The bottom line is simple, start with Agent Builda.

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It's free with your Copilot license, it takes minutes to set up, and it handles a surprising

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number of use cases.

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Only level up when you hit a wall, when you need external access, different data sources

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or actual actions.

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Most people never need to leave Agent Builda.

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The hard limits, what Agent Builda can't do, but Agent Builda does have limits.

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Let's talk about where it stops, because knowing when a tool isn't right for the job is

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just as important as knowing when it is.

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One important limit, these agents stay inside Copilot.

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You open Copilot in your browser, see your agent in the sidebar and chat with it there,

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but you cannot pull it into a team's conversation or add it to a channel.

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If you need an agent that lives inside teams, you have outgrown Agent Builda.

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The limit, no external facing agents.

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Everything you build in Agent Builda stays internal to your organization.

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You can share agents with co-workers, but you cannot put one on your public website, embedded

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in a customer portal, or let anyone outside your company use it.

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If your goal is a customer service bot on your homepage, you need Copilot Studio.

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Then there's complexity, Agent Builda is designed for Q&A, not automation.

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There is no branching logic, no conditional steps, no if this then that sequences.

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You cannot connect it to Power Automate to trigger actions when someone asks the question.

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The agent answers questions and that is it.

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If you need a multi-step process, like an agent that reads a request, checks inventory, creates

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an order, and sends a confirmation.

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Agent Builda will not do it.

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External connections are also off the table.

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You cannot connect Agent Builda to Salesforce, ServiceNow, or any other third-party system.

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It works with Microsoft 365 content, SharePoint, OneDrive, Teams, Email, and Public Web content.

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That is the full list.

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If your agent needs to pull data from a CRM or update a record in an external database,

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you need a different tool.

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Compliance features are missing too.

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Agent Builda does not support lockbox or customer managed keys.

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Those controls that let organizations manage encryption keys or require explicit approval

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before Microsoft engineers can access data.

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If you work in a highly regulated industry where those are mandatory, Agent Builda is not

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the right choice.

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Here is a licensing gotcha that catches people during testing.

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SharePoint grounding requires a proper Microsoft 365 Copilot license.

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You cannot build an agent that reads from SharePoint in a developer-only tenant or a trial account.

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The agent will work, but it won't be able to access your SharePoint data.

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And finally, practical source limits.

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Per agent you are looking at roughly 100 SharePoint files, 51 Drive files, 20 uploaded documents,

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full public URLs, and five Teams chats.

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Those aren't hard Microsoft limits written in stone, but they're what the community consistently

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reports.

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If your agent needs to search across hundreds of documents, you will hit a ceiling.

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So here is the honest truth.

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If you need any of these things, you have outgrown Agent Builda.

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That is not a failure.

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Agent Builda is made for a specific job and it does that job well.

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But when your needs get more complex, it is time to look at Copilot Studio.

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Security and governance, the simple version.

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So how does security work with Agent Builda?

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Here is the simple version.

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Agent Builda respects your existing Microsoft 365 permissions.

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That is the key point.

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When you add a SharePoint site as a knowledge source, the agent does not get special access.

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They can only return information that the person asking the question is already allowed

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to see.

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Other user cannot view a specific document in SharePoint.

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The agent will not show it to them either.

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The permissions are inherited automatically.

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This is built in and works without any extra configuration.

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You do not need to set up separate access rules for your agents.

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They follow the same rules your organization already has in place.

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The only use specified sources toggle is very useful.

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Turn it on.

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And the agent only answers from the documents and sites you explicitly provide.

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It ignores the general knowledge of the AI model.

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This is your primary defense against hallucinations.

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The agent cannot make up a policy if it is forced to use only your employee handbook.

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Simple, effective, and we always recommend it.

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One thing to watch for.

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Tenant level policies can override what you see in the UI.

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If your IT admin has disabled web search and copilot through a tenant policy, the web content

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toggle in Agent Builda might still appear enabled, but it won't actually work.

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The policy wins.

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So if you are building an agent and wondering why web content isn't working, check with your

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admin first.

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You do not need to become a security expert to use Agent Builda.

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You will understand that the agent inherits your organization's rules.

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It does not create new permissions or bypass existing ones.

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If your data is secure and share point, it is secure in your agent.

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For organizations that need more, monitoring, lifecycle management, identity controls, there

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is a tool called Agent365.

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It is Microsoft's governance layer for AI agents.

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But that is a separate topic for a future episode.

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For most people using Agent Builda, the built-in security is enough.

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So that's Microsoft Agent Builda in plain English and the easiest way to create a helpful

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AI assistant for your team without writing any code.

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Here is your one task this week.

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Open Copilot, click New Agent, start with the Described tab, pick a template or describe

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what you need, connect a SharePoint site and test it.

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You'll have a working agent in under 10 minutes.

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If this helped, subscribe on your favorite podcast platform and share it with someone starting

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their AI journey.

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I'm Mirko Peters and I'll catch you on the next episode.