Was Microsoft’s flagship Sydney retail store a strategic misstep from the beginning, or simply a bad idea that finally caught up with them? Whatever the case, its closure of their direct sell store stores around the world including in Sydney,  has become a cautionary tale for brands attempting to compete directly with established retailers.

In an ironic twist, the former Microsoft store—once dedicated to selling struggling Surface laptops and pushing consumers toward buggy Microsoft 365 subscriptions—has now been replaced by something far more popular: oversized Chinese Labubu dolls.

A new Pop Mart store is  moving into the space where the Microsoft store use to be and  is expected to draw significantly larger crowds than Microsoft ever managed.

Industry insiders say the store, originally opened to promote Microsoft’s Surface hardware line, was ultimately shut because the company’s device business is in steady decline.

Microsoft’s own financials support this: Surface revenue fell 26% in the quarter ending September 30, 2025, continuing a multi-year slump. Consumers began abandoning the Surface lineup as far back as April 2023, when revenue dropped 30%, following an even sharper 39% fall the previous quarter.

The Xbox division is not faring much better. Microsoft has been grappling with elevated channel inventory and weakening demand.

In Q1 FY2026, Xbox hardware sales plunged nearly 30% year-over-year, following previous drops of 22% and a massive 42% in Q4 2024. Analysts attribute the decline to rising console prices and intensifying competition.

Surface laptops and tablets have long been dogged by reliability issues.

Consumer Reports estimated that about a quarter of devices would experience some form of failure within two years—ranging from freezing and unresponsive touchscreens to unexpected shutdowns. As a result, the organisation removed its “recommended” rating from the entire Surface line.

User review sites paint an even bleaker picture. Beyond persistent complaints about buggy Office software and Azure security failures, many customers say the hardware itself is fatally flawed. One former owner of a $2,999 Surface laptop described it as “the worst notebook I have ever owned,” criticising everything from the build quality to the so-called “smart” screen-detachment mechanism, which he claimed felt like it cost “three dollars” to produce.

Another reviewer wrote, “By far the worst laptop I’ve ever owned. It overheats while just watching Netflix. When editing photos it becomes unusable.” After repeated attempts, four Microsoft technicians were unable to resolve the device’s recurring USB error.

Observers argue that the Surface product line exposed deeper structural problems inside Microsoft, including inconsistent hardware design, unreliable quality control, and an overreliance on marketing rather than engineering. The company opened lavish Microsoft Stores to showcase its premium-priced devices, but when widespread defects emerged, the strategy collapsed—costing Microsoft millions.

Once promoted as innovative, high-end machines, Surface devices are now regarded by some former owners as “a dog of a notebook.”

Now Microsoft is shifting its focus to another controversial initiative: Copilot AI.

Users complain that Copilot messaging appears throughout Windows and Office with limited ability to disable it, leading many to describe the rollout as intrusive.

Early customer feedback highlights several problems: sluggish performance, lag—especially in creative mode or when processing long or complex content—unexpected feature appearances after updates, confusing opt-out options, and serious privacy and data-handling concerns.

For many users, Copilot is simply the latest in a growing list of Microsoft features that feel half-finished, poorly managed, and difficult to control.

Next week ChannelNews is taking a look at the problems that Microsoft’s Copilot is causing for people who have tried to use it.