- Microsoft exec Panos Panay is in charge of making Microsoft's Surface computers successful, while also pleasing the other Windows computer makers that Microsoft needs to keep happy.
- Panay's dual role as competitor and partner is on display this week as Microsoft starts offering upgrades to Windows 11, its first new operating system since 2015.
Microsoft chief product officer Panos Panay fills two sometimes contradictory roles for the company.
On one hand, he's been hyping Microsoft's Surface PCs since Microsoft showed its first tablet in 2012. But he's also responsible for the Windows user experience. That means he has to convince PC makers to ship and promote new versions of Windows, even as Microsoft competes directly against them.
That dual role is on full display this week as Microsoft starts offering upgrades to Windows 11, its first new operating system since 2015, while at the same time launching its latest Surface computers.
"I spend as much time with the OEMs as I do with Surface right now," Panay told CNBC.
He declined to say whether Surface or Windows is more important to him than the other, but Windows licenses still generate considerably more revenue for Microsoft than Surface computers. Morgan Stanley estimated that Microsoft will generate $13.3 billion in Windows OEM revenue and $6.5 billion in Surface revenue in the 2021 fiscal year.
But the partners that license Windows haven't always supported Microsoft's moves to step on their turf with its own tablets and laptops. The CEO of Acer told the Financial Times Microsoft should "think twice" when it first introduced its Surface tablet in 2012. And Asus reportedly felt blindsided when Panay unveiled the Surface Book -- which was more like a traditional laptop computer -- in 2015.
When Panay speaks at Microsoft events about the latest Surface computers, he almost unnaturally enthusiastic and oddly specific about hardware components. Now, he said, he's excited — he likes to use the word "pumped" — about the diversity of options for consumers and organizations, no matter who builds the hardware.
"OEMs provide choice for customers," Panos said of Microsoft's partners. "Not just choice for choice's sake. What do you want to accomplish? You can pick a device that suits you."
'A level playing field'
In 2016, Microsoft announced a partnership with Lenovo, the world's biggest seller of PCs, in an effort to prevent conflicts that might arise between the Surface business and Windows.
"We came to a very simple approach...we call it a level playing field," said Lenovo's leader of worldwide strategic alliances, Christian Eigen, who has known Panay for 15 years. "It means Microsoft does not give, from an operating system point of view, any feature exclusively to Surface."
The CEOs of Microsoft and Lenovo communicate four to six times per year, and teams lower down in the organizations talk 12 to 24 times per year, Eigen explained.
Microsoft also improved its communications with partners around Windows 11.
"It was definitely, by far, more transparent and open and kind of cooperative development," Eigen said. He joined Lenovo, the world's top PC maker by unit shipments, in 2011 and was there for the releases of Windows 8 in 2012 and Windows 10 in 2015.
Steven Sinofsky, who supervised the releases of Windows 7 and Windows 8, had pushed for a different approach to partner communication in 2018 when he said in a blog post any changes in direction can make the company look bad and cause issues for partners and customers.
Panay has emphasized communication, including with outsiders. As soon as he took on the Windows role last year, he began meeting with employees at chipmakers such as AMD and Intel, as well as Lenovo, Samsung and other PC makers.
"My whole goal is, 'Hey, what do your customers need?' This is from an OEM brand perspective," Panay said. "Same with Surface. 'What do the Surface customers need?' Ultimately, they're all Windows customers." He said has has had input on every Surface model, including the Surface Laptop Studio PC that went on sale this week.
Since Microsoft announced Windows 11 details in June, people have debated the minimum hardware requirements the company is insisting on, including a security chip.
Eigen said the hurdles to upgrade aren't too big.
"I believe that Microsoft made the right decision to say, 'Look, at a certain point we need to make progress with our operating system,'" Eigen said. He said people buy new smartphones every other year but became accustomed used to buying new PCs every six or seven years. The industry needs to do better at motivating people to buy new devices, he said.
A big release during a global chip shortage
The Windows 11 release on Tuesday comes as computer makers continue to struggle to secure enough chips to meet demand. But there was never a question of delaying PCs, Eigen said.
"For us, as you can imagine, the holiday season is an important season, and that's why we were asking from day 1 on that we need to keep October 5, and that was a tight race, but fortunately, due to a good collaboration, we were able to meet that date," he said.
The arrival of Windows 11 now also plays well at Dell, even though demand has outpaced the company's supply, pushing up its backlog.
"I think the timing is nice in that it comes before the holidays," said Sam Burd, president of Dell's client solutions group. "People can figure things out for next year, and we're pretty confident in our ability to get things done that we need to." Still, Microsoft waited six years to follow up on Windows 10, and Burd said he'd like to see a shorter gap next time.
Asus, HP, Lenovo and Microsoft showed new Windows 11 PCs in September. Acer, Dell, Samsung and other partners will release new Windows 11 devices soon, Panay wrote in a Monday blog post.
Will Windows 11 drive upgrades?
The big question is whether Windows 11 will do anything for PC sales, or if the PC refresh cycle is mostly influenced by broader economic and social factors, regardless of what Microsoft does with its operating system.
Windows 11 includes a redesigned Start menu, better trackpad and touchscreen controls, buttons for arranging multiple programs on-screen and access to Android apps. That may not be enough to get people to ditch Windows 10 computers.
"I don't think they're going to sell particularly well out of the gate," Michael Cherry, senior analyst at Directions on Microsoft, said of the new Windows 11 PCs. Early adopters might buy them at first, but people won't all suddenly have new computers running Windows 10, because of the chip shortage, Cherry said.
The PC market enjoyed a 13% year-over-year increase in unit shipments in 2020, the fastest growth in a decade, according to estimates from market research company IDC. And many of the computers people bought last year can upgrade to Windows 11 for free. The buying frenzy might not continue for much longer, even as many people continue remote work. While IDC forecasts 14% growth for 2021, it sees shipments rising less than 2% in 2022.
But Panos argued some Surface features are more compelling to customers now.
"'Why do you put cameras and microphones on your Surface?' I'd be asked that question," Panay said. "Can you imagine trying to ask that question today?" Now cameras and microphones enable people to meet virtually through their computers with coworkers, classmates and family members.
A new look for Windows counts for something, too. New Windows versions make a difference in people's willingness to spend their money, Burd said.
Eigen, at Lenovo, said he's hoping Windows 11 will accelerate the cycle of people replacing PCs. Young people might want to graduate from just owning smartphones, while older people might want to upgrade because the PC is easier to use with Windows 11, he said.
Panay's optimistic. He said Windows 11 will end up being more popular than Windows 10, which exceeded 1.3 billion monthly active devices. He did not say when that would happen. Support for Windows 10 ends in October 2025.
"We've got to see what customers think," Panay said. "We're super-inspired to listen."