How a Windows shake-up could position Microsoft to capitalize on AI PCs

After Windows and Surface chief Panos Panay departed Microsoft last year, the software giant quickly split his two divisions into two different teams. It was a move designed to push Windows engineers to focus on more web and AI features under Mikhail Parakhin, who was previously responsible for Bing and ads. It didn’t work out.

Six months after that shake-up, Windows and Surface are back together under a new leader, following frustrations from the very top of Microsoft. The shuffling comes just as Microsoft gets ready for a big “AI PC” push.

Pavan Davuluri, who’s currently in charge of Surface hardware, will now lead both Windows and Surface. Mustafa Suleyman, the DeepMind co-founder who Microsoft CEO Satya Nadella just hired, will now take over the company’s consumer AI push as the CEO of Microsoft AI. The hiring of Suleyman is a key admission that something wasn’t working out with the Windows and AI shake-up from six months ago.

Nadella placed Suleyman above Parakhin in Microsoft’s organization chart. Parakhin had taken on parts of Windows engineering after Panay’s departure last year, and he had been working closely on Bing Chat and several Microsoft Edge features. Parakhin’s official title was CEO of advertising and web services at Microsoft, so if he remained in his position then he would have been a CEO, reporting to the Microsoft AI CEO, who reports to the actual Microsoft CEO. That’s a lot of CEOs, and Microsoft typically reserves CEO titles for big acquisitions like LinkedIn or GitHub, or for big divisions like Microsoft Gaming.

Instead, Parakhin is leaving his current position and “has decided to explore new roles” according to a Microsoft internal memo obtained by The Verge. He will report to Kevin Scott, the previous face of Microsoft’s AI efforts, during a transition phase. But it sounds like Parakhin will be leaving Microsoft soon.

It’s a surprise turn of events for a leader who one source described to me as one of the “fastest rising leaders in the company” just six months ago. Parakhin was responsible for Microsoft’s reborn advertising business and all of the company’s ad-based consumer businesses. It’s a big organization of more than 10,000 people, but some were frustrated with the way it was being managed. Bloomberg reported earlier this week that Nadella was growing impatient with Parakhin’s team, too.

One employee, who wishes to remain anonymous, tells me that the web experiences team that Parakhin led had a different culture from the rest of Microsoft that often resulted in micromanaging and “insane deadlines” for projects. It’s been described as a culture of being forced to do more with less.

The Windows and Web Experiences (WWE) team that Parakhin briefly oversaw also developed the malware-like Bing pop-ups we’ve seen appear in Windows recently. Microsoft has also been aggressively pushing Edge in Windows, with lots of tricks to get users to move away from Chrome or use Edge’s shopping and AI features. 

I’m personally hoping that Microsoft ends these tactics and focuses on making Microsoft Edge a better browser for consumers instead of tricking them into using it. That will now be down to Microsoft AI CEO Mustafa Suleyman, as his team will continue to handle the company’s consumer-facing AI products like Copilot, Bing, and Edge.

Windows and Surface returning under one leader should hopefully bring some much-needed clarity to Microsoft’s AI efforts for Windows, too. Microsoft has been gradually unveiling more AI-powered features in Windows, and pushing the need for “AI PCs” with neural processing units, but it hasn’t coherently explained why any of this matters.

The new Windows and Surface chief, Davuluri, is experienced when it comes to the combination of hardware and software that Microsoft needs to get right in this new era of AI. Davuluri has worked at Microsoft for more than 23 years and has been at the heart of Surface engineering. He was deeply involved in the company’s work with Qualcomm and AMD to create custom Surface processors.

While it looked like Surface hardware could get sidelined after Microsoft changed up its hardware portfolio amid layoffs last year, it’s encouraging to see Microsoft return to a focus on hardware and software for Windows under Davuluri.

Microsoft’s Windows future looked like it was tied to hardware just before the pandemic began in 2020, and the rollercoaster of laptop sales over the past few years has clearly had an impact on how Nadella positions Windows in a new era of AI. There was a brief period of trying something new after Panay departed, but now it feels like Surface and Windows are back together where they belong.

Now it’s up to Microsoft to explain why consumers should care about AI PCs, and define exactly what they are beyond a flashy marketing term that involves a Copilot key on a keyboard. Pavan Davuluri has spent the past six months focused on leading Microsoft’s silicon efforts, with the company expected to launch Arm-powered versions of its Surface Pro 10 and Surface Laptop 6 at an event on May 20th.

This could be a huge turning point for Windows and Microsoft’s relationship with Intel. While Microsoft has experimented with custom Qualcomm-powered chips for its Surface devices in the past, there has always been an Intel option for consumers to fall back on. Microsoft appears to have much more confidence in Qualcomm’s latest Snapdragon Elite X processors, because I understand it’s about to only offer these chips to consumers on an OLED version of the Surface Pro 10.

That’s a big change for Microsoft’s hero Surface device, and Davuluri will have been at the center of it. If the performance of the Snapdragon X Elite is greatly improved and Microsoft’s app emulation efforts are solid, we could be about to witness an Arm transition for Windows laptops that has been years in the making. Microsoft won’t have the luxury of dropping Intel in quite the same fashion as Apple did with its transition to its own silicon, but by only shipping Surface consumer devices on Arm, it’s putting down a new line in the silicon sand.