ZDNet: “Can Microsoft recover from the collapse of its Surface business?”

In the chart above, I’ve projected what the Surface revenue number might look like if the company rebounds to a loss of only 24%, repeating this year’s performance. Basically, they’re back to what the business was in 2016 and 2017, which is… not good?

At Microsoft, a division needs to be able to bring in $10 billion of revenue per year to be considered a “needle mover”. Surface once looked like it was on its way to building that kind of steady, growing business. It doesn’t anymore.

Maybe this explains the sudden departure of Windows & Devices boss Panos Panay, just days ahead of the company’s fall Surface showcase event. His portfolio had expanded dramatically in recent years to cover not just Surface devices but also Windows 11. A report in Business Insider, quoting “anonymous insiders”, says Panay was unhappy with recent changes in the Windows + Devices division, including significant cuts to simplify the Surface business ... and focus more on Microsoft’s hits rather than the more experimental devices the company funded in flush times.

Ed Bott

I’m going to play the contrarian here and say that, first of all, a collapse of the Surface business doesn’t make a noticeable dent in Microsoft’s financial results, secondly the entire PC market, including Apple, recorded lower sales than expected after people rushed to upgrade their devices during the pandemic, and finally higher interest rates drove companies to reduce headcounts, cut costs wherever possible, and slash extraneous projects – all external factors that marked the entire tech sector over the course of 2023. On top of that Surface devices are more premium than the average PC, so naturally their sales are more impacted by lower demand and lower disposable incomes caused by inflation.

That being said, Surface devices have become relatively stagnant, with few design changes over the years. I personally never understood the infatuation of some tech journalists with Panos Panay; he may be great at delivering presentations and ‘pumping up’ products, but his concrete results seemed underwhelming. He was put in charge of Windows design three years ago, and all we got was the directionless and permanently unfinished Windows 11. And if he’s expecting freedom and funding for experimental devices in his new role at Amazon, I think he’s going to be sorely disappointed – see the above external factors hitting Amazon just as hard.

As a side-thought, the guy he’s replacing, Dave Limp, became CEO of Blue Origin, which is a much cooler job in my book – frankly, working on space exploration would be my dream job – even as the challenge of competing with SpaceX will be formidable.

Surface Laptop Studio 1 vs Surface Laptop Studio 2. (Image credit: Daniel Rubino)

A recent exclusive report hints at the future of the Surface line in 2024, featuring ‘next-gen’ AI, Arm chips and design upgrades. The Surface line is far from dead, though I suspect customers will be more enticed by newer designs than by nebulous AI features, which to me sound increasingly like hollow marketing speak.