Silicon Valley Speaker Series: Home for the Holidays

Remarks by Steven Guggenheimer
Senior Director, Personal Services and Devices Group, Microsoft
Silicon Valley Speaker Series
Mountain View, Calif., December 20, 2000

PRESENTER: I want to thank you for joining us today for Home For The Holidays, a talk about the connected home.

This is actually our fourth installment of Microsoft’s monthly speakers series here in Silicon Valley. Steven Guggenheimer, senior director of the personal services and devices group within Microsoft, will be leading the talk today about the connected home, and the technology behind it, as well as how it can enrich our lives in the future. In addition, Steven is going to be doing some live demos, and taking you on a virtual tour from Microsoft’s home, which is actually a loft in downtown Manhattan where I think rent is very cheap.

Steven joined Microsoft in 1993, and is responsible currently for driving the business strategies within the division which covers MSN, Web TV, mobility, gaming, home products, and .NET services. It’s a very broad and impactful role at Microsoft.

Prior to his current role, Guggenheimer served as director of the consumer strategy group where he led the integrated communications and marketing efforts behind consumer platforms, devices, services, and Internet offerings from Microsoft. I’ve had the pleasure of knowing Steven for several years, and have seen him give many talks over the years, and I must say his talks are very exciting, and I think you’ll really enjoy today’s talk.

In addition, we’ll be giving away a Microsoft Pocket PC at the end of the talk. So I think you’re going to want to hang around to the end. If you haven’t put your name in, you can do so at the registration, which is, I believe, just outside. So, it is with great pleasure that I introduce to you Steven Guggenheimer.

(Applause.)

MR. GUGGENHEIMER: Okay. Can everybody hear me okay? Tim gave a very nice, very formal introduction, which I appreciate. And now we can relax, kick back for a little while. We’ll spend an hour, an hour and a half, talking about what’s going on in the consumer space. I’m real happy to be down here today at our Silicon Valley campus. One of the key products in our overall strategy, all TV work is done down here, so it’s a very fitting place to talk about Microsoft’s role and really what’s going on in the industry around consumer technology.

I chose the theme Home For The Holidays, this is a very exciting year in terms of consumer technology, and where we’re at, and I think next year will be even more exciting. One of the things for those of you who have been involved in the technology space and on our side in the PC space, is the pace of innovation is incredible. I’ve been at Microsoft about seven years, and when I came to work they were using extremely large 286 machines. Our portable at that time was a big old Compaq with two of the 5-1/4 inch floppies. That was the portable for demos. The stuff that’s happened in just seven years is phenomenal.

In the last two or three years, as I focused more and more on the consumer side, the stuff that’s happening on the consumer side of the house is even slicker and faster. I mean, the corporate side all you do is, you build bigger servers with more power, and a little bit more hard drive. On the consumer side, you do all kind of stuff around entertainment, communications, and daily tasks. It’s just slick stuff. And so what I want to do today is just try to walk you through some of what I think is cool stuff, how it all wraps together, and where we’re going.

Now, to give you a bit of a reminder of how fast technology does move, even in this space is, we’ve put together just a little video trying to give you an idea of the pace of changes in the last, I don’t know, 20 years. It will make some of you feel old, and if any of you don’t recognize the things in here, then you’re too young to be in the room, because I’ll feel old.

Can we roll that first video?

(Video shown.)

MR. GUGGENHEIMER: Okay. So there’s a good and a bad to that video. It’s fun to see how far we’ve come in a short time. The bad part is, I know one of the demos, I do lots and lots of demos, I know one of them is going to be captured on video, and 10 years from now some punk from Microsoft is going to make a video out of it, and show how silly the stuff I was demoing and thought was cool then is in the future. So there is a downside to everything we do in life. But it really has come a long way, and we’re just getting started.

From Microsoft, our vision has been to empower people through great software any time, any place and on any device. And that particular vision is about two years old. I think for those of you who know, for a long time our vision was about computers on desktops, and making people productive that way. And a lot of people ask, well, you know, why did you change your vision, what’s happened? And we changed our vision in a lot of ways because the world around us has changed. A lot of the technology that you found on a PC three to four years ago you now find on lots of devices, whether it’s a set-top box, or some of the handheld PCs that you find. Telephones today, game players, all of these devices now have the processing capability that PCs had three or four years ago. So, where software used to add value for a PC, it actually adds value to a lot of different devices. And it helps those devices not only do more things themselves, but work better together.

So, as the industry changes, and as we see what I think about as a large array of smart, connected devices becoming available, then to me software is the glue that helps them work better together. And this holiday season is fairly unique. I think this holiday season is kind of a kick off point for having all these devices work together, and really a little bit of a kickoff for home networking. We’re a little farther away from the full-blown world there, but we’re getting there.

There are three key things that I look at that are going on. First off, this is the first holiday season with what I’ll call a proliferation of smart, connected devices. These are things that are generally as smart as a PC was a couple of years ago, if not as smart as a PC is today. So they can do more than they used to. The second thing is, there are very few devices today that aren’t being built connected to something, whether it’s the Internet, whether it’s to other devices, there are things that attach to the PC, cameras, video cameras, they attach to a computer now where they didn’t use to, digital picture frames can attach into a network. You have a whole set of music devices. You have set-top boxes; even the game players that are coming out now connect to something.

And on top of that, about 45 percent of the homes in the U.S. are now connected to the Internet. You have a bunch of devices that are smart connected. You have homes everywhere that are starting to be connected to the Internet, and for the first time you’re starting to see networking that you can do without ripping up your walls. You can actually connect things together in a home without having to go in and lay new wiring in your house.

So there are several trends that are going on that make this holiday season fairly unique. And I think this year it’s really about the devices. It’s all the cool things you can do with new devices. And so, the world is changing, and as a result we believe that software is a key part of that, helps things work together, and that this holiday season in particular is where that starts to kick off. Now, this is a long process, the world evolves in a slow way, but there are pockets of innovation and speed that happen all the time.

The first challenge we run into is, as we have a whole new family or world of smart connected devices, we get to something I think about as technology schizophrenia. Today, I’m Stevengu at Microsoft.com. I also happen to be Stevengu at MSN.com, Stevengu at WebTV.com. I have a Stevengu at ATT for my cell phone address, et cetera, et cetera. I have multiple calendars, multiple address books; there isn’t a single set of stuff that represents my information that I can get at from any device.

So, while we’re creating tremendous opportunity for users and consumers, we’re also starting to create some confusion. One of the reports I just read on this holiday season is that while there are lots and lots of these neat new devices out there this year, nothing is really sticking through yet. Nothing is cutting through the clutter and being the singular device. That’s because there’s just so much out there, and it’s not so clear for consumers.

So, one of the first challenges we have to deal with as an industry is: how do we reduce this schizophrenia? How do we make all these devices, now that they’re smart and can talk to each other, how do we make them work better together. The second today is, even though the Web is very popular, it’s still challenging to use in a lot of ways. It’s not easy for everyone. A lot of the things we want to do around creativity and editing and interacting are still hard. And the last thing is, many real scenarios, things that we would want to do, are still out of reach.

I’ll give a very simple example. Tim might call me on my cell phone, and let’s say he’s got a new phone number. And so I save that new phone number. It would be super nice if when I got home that same phone number was in my address book on my PC, or my phone, my speed dialer at home. I don’t want to save the phone number once and have to copy it into all the different places. And it doesn’t matter what the information is, that ability to share that information and make it consistent and useful, that is real value. And that is, again, one of the things, overall, we have to work on as an industry to make better, and to me it’s one of the places where software adds value. It’s that ability to make real scenarios work for people.

I’ll talk a little bit about people with the next slide. People don’t buy things because they have cool technology. Well, some of us do, Tim is a good example and so am I, probably. But a lot of people buy things because they’re personal and relevant. At work, when we get a computer, we get software, it’s because our IT department says, hey, this is what the corporation uses. At home I buy what I want, and if you’re not making my life better somehow, if it’s not interesting to me, I’m not buying it. It’s a very simple statement.

So, we look at the things that people want to do on a daily basis, and think about how can we help make people’s lives better through technology, not just technology for technology’s sake, and we’ve actually had a home in Redmond for about seven years where we bring families through, we bring kids through, and we use it for research to see what resonates with people, and what doesn’t, what really works. And so, I would say there are three key categories of things that technology and software and all this stuff helps with.

The first is simplifying daily activities. I don’t care whether it’s a kid doing homework, grocery shopping for an adult, personal finances, being able to keep an eye on the babysitter when I’m out with my wife, and being able to have a camera to do that. There are a lot of simple daily tasks that we do that technology can help with. Technology can make it harder as well, but if it can simplify it, people would like that. That’s personal and relevant, and people would buy technology or technology-based products to do that.

The second area is easy access to people and information, the things we care about. We have this loft in New York 8:00 on a Monday night, trying to get ready to go, how do I find a pizza place that delivers to 145 Hudson on the 14th floor at 8:00? The Web is a tremendous tool for that. How do I share photos of the kids with my parents without having to mail them something? The Web is a tremendous tool for that. How do I communicate with people, how do I instant message back to Redmond right now to get some information as I need it while I’m setting up for this demo? So how does technology help us find information and communication with people? That’s another thing that is personal and relevant to people.

The third area is entertainment. If I’ve done all my daily tasks a little better, and I communicate with people, and I want to relax, how does technology help make entertainment better? And that’s to me one of the hottest areas this year. Music, the things you can do with digital music today are phenomenal. Television, we’re going to see a little bit about television later on. The steps there are great. EBooks — I’ll tell you a scenario that doesn’t exist yet, but it’s coming. When I fly home tonight, I’m going to walk to the airport and I might stop by the bookstore and pick up two newspapers — this was a long flight — a couple magazines, and a few books. Then I’ve got to lug all of that around. A couple of years from now, I’m going to walk into that same store with an electronic book reader of some type, and I’m going to basically connect it in, or just wirelessly download those newspapers, those books, and those magazines, have it all on one device, lightweight, easy to carry. I’m going to get on the plane, I’m going to read for a while, and then my eyes will get tired because I’m getting a little older, so I’ll plug in the headphones and listen to it. In today’s world, you know, you’d have to get all of the tapes, take a tape recorder, and all of the books to do that. In tomorrow’s world, you won’t have to. So simple things just get better, and it’s a fun time to be associated with the technology because you can see where it’s going.

Gaming, of course, is something that is getting hot, obviously Playstation 2 went out. Xbox is coming from us next year, so the next couple of years around gaming is going to be very cool.

Now, when I started this off, you know, I said a lot of people think about Microsoft as a business and productivity company. I mean, when you think of Microsoft, that’s what you think about. And I’m not sure people realize all the different areas that we’re working on in the consumer space. We do a lot of work on the Internet. With MSN there are 208 million unique users who come and visit that site every month, and they do different things on it. There are 150 million Windows households throughout the world, people who are on a PC using Windows access. Then there’s a bunch of other stuff that I’m not sure people even think about put it all in the same box with Microsoft. We make games, we make game software, we do television software, music software, things for digital photography, things for education, learning languages, the Encarta series.

So there’s a number of areas that when you wrap it all together, you start to say, wow, you know, actually Microsoft is doing a lot of work in different consumer areas. And that’s actually an important fact because when you get to trying to make all these things work together, it’s that software, it’s that glue that can make it so I’m just Stevegu, or I just have one phone address. And it’s done in conjunction with all kinds of partners, and all kinds of devices. But there is some glue that we provide, and we actually have a lot of expertise in different areas that people may not be familiar with.

So, when you have all of this different technology, how do you show it to people? I’m going to do the tough version today, which I’m going to give you kind of lots of different demos, but when you really want to help people understand, the best way to do it is to build it into a living space.

Again, we’ve had a home in Redmond for about seven years, it’s a research facility, big house, lots of technology, integrated everywhere. What we wanted to do this holiday season was set up much more of a real home in today’s world with the technology that you’re going to see here, and a bunch of other technology, to show people whether it’s the living room, or the kitchen, or the bedroom, or the kids bedroom, technology, PCs, set-top boxes, Internet appliances, can be used and are used for all kinds of different activities.

I’m going to show you just a short video in a couple of minutes, not quite yet, that just kind of gives you a layout of that loft, so you can see it. We can’t all travel there today; it’s a little tough. So, I’ll give you a view of the loft, and then we’ll walk through some of the demos over the course. The loft is six rooms plus a patio. If you were buying it, it’s a three-bedroom, one living room, one office, one patio and zero bath places. So it has one slight limitation if you want to live there. It’s kind of a sad statement because some of our tech guys did actually have to spend the night there a couple of times. I’m not sure how that worked out.

But there’s over 25 products and technologies on display. In terms of home networking, we set up different networks. One of the things, again, that I don’t think people are very familiar with is, there are different ways to network a home today. You can use, if you’re building a new house, you can use wiring, Ethernet, like we do at work, Category 5 wire. If you have an existing house, you can actually use phone lines, and I’ll show that in a little while, to connect things together so you don’t have to lay new wire. Or you can buy wireless networks. So we actually laid all three of these networks in the home to show reporters in a lot of ways, and different folks, just how easy it is to connect stuff together.

So, with that, let’s take a minute-and-a-half tour of the loft in New York, virtually, I’ll ask David to bring up that second video.

(Video shown.)

MR. GUGGENHEIMER: So over the course of about two weeks we probably brought 200 press people through the facility, probably had five or six receptions with 50 to 100 people each, and then there have been several others after. The thing that’s interesting is it’s not really a product sales pitch, you see lots of products. But, what it does is it helps people understand, again, how technology is becoming pervasive. And the intent when we built the house isn’t to say, okay, you’re going to buy all these things in all these rooms, it’s to point out that different people will think that different things are cool, but there’s so much possibilities, and people don’t actually think about it today, where technology is being integrated.

So it worked very well. We got a lot of positive feedback, and some press stories, but people

it’s helpful to them. It’s helpful to see how far technology has come in terms of being a part of the house, and just the breadth of things that are going on. So with that, let’s go into our three areas, and I’ll do some demos as we go along.

In terms of simplifying daily activities, there is a whole set of productivity software out there today that people use. They do personal finance on the computer today, and it’s gotten to the point where not only can I keep track of my different portfolios, but I can connect to the bank, I can do it from any device, I can track stuff anywhere I am. Education software — I’ve got two very small children, and whether it’s Freddie the Fish, or Arthur, any of that stuff, for kids it’s playing games. And at the same time they’re learning how to learn. It’s not so much a forced course, but they’re learning how to do stuff. And that’s a tremendous advantage. The kids have a great time with it. And as a parent I like to see them learning in that fashion, learning how to learn. For adults, Encarta and all that kind of stuff continues to exist.

Shopping online, I did all my Christmas shopping online this year. I have a very nice wife; she does nice things. She takes catalogues she gets in the mail and she folds down pages for me. And then I separate the catalogues by those that have a Web site, and those that don’t. And that’s how I do my holiday shopping. So it’s a great system. So that’s a huge convenience for me.

And then communicating with people, again, being able to communicate with my parents online, I started at Microsoft 7 years ago, my parents didn’t have a computer; they didn’t know what email was. Sometime after I gave them the first computer I wasn’t sure that being their tech support person was such a great idea. But, we’ve gotten past those hurdles, so it’s just amazing growth, and that continues to be very positive. So, in simplifying daily tasks, there’s a lot you can do.

Now, a key part of this is connecting devices together in the home. And we’ve spent a lot of time on the infrastructure side of the stuff. We work on standards around how do you connect various devices together, even if they’re not running any Microsoft software, or anybody else’s different types of software. There’s something called Universal Plug and Play, and when we released Windows 95 we released some software called Plug and Play. It lets you plug a device into a PC without having to take the case off and configure ports, and do the rest of that. The notion of Universal Plug and Play is — how do I take random devices, a camera of some type like that, or anything else, plug them into the network and have them be recognized? So regardless of whether a PC is in the network or not, and regardless of whether it’s attached directly to the PC versus over the network, how do I plug things together. So that’s slowly taking off. It’s an industry wide effort, there’s 200 companies, folks like Phillips and Thompson and the rest of those guys are all involved in making this stuff work together.

Broadband is taking off. People are starting to work on residential gateways and servers, which says broadband is becoming very popular in the U.S. It’s taking a while to roll out, but as it gets there, once I have broadband into the house I want to share it around the house. I don’t want to have just one machine on it; I want to get access everywhere. So there’s a whole new set of software enabling that. Folks in Ultimate TV and Web TV are working that, folks at Microsoft. So there’s a bunch of good work that’s going on in that area.

In terms of connecting homes together, again, with no new wires you can set up a wireless network. They’re getting to be inexpensive. I wouldn’t buy one this holiday season, but they’re getting there. So that’s a technology. Phone lines, you can actually use your phone lines to connect things together today, and that’s the second piece. And the third, which is just starting, is power lines. So by next holiday season I’ll be able to buy a pair of speakers that I plug into the power outlet in the wall, and be able to control those and run music through them from a computer. So that’s a slick way to be able to get music in any room. So even being able to control things over the power lines is coming, and to send data there.

There is a set of communities in the U.S. that are being built as connected communities, where all of the houses are built networked already, and the entire neighborhood is networked. So the school is built into that, all of the local services are built in. The nice thing for the users is all of their bills, their ISP, their heating, their phone, all of that is connected into one simple bill. The cost is reduced because they can integrate it all in one place coming into the neighborhood, and then all the different houses have connectivity.

So let’s try to show some of this, if I have my switcher right. It’s easy to run demos; it’s hard sometimes to run switching equipment. But, I’ll give it my best shot. Okay. So, we’ll do a very simple demo, in this case, around networking. The most simple demo we can do to start off with is sharing a printer. So I’ve got a printer over there, and I’ve got a computer over here, and a computer in another room. In today’s world to network those you have to find a way to connect them together, which means you have to lay new lines. In this case, with the technology that’s come out, I can do it with phone lines. So if I have a phone line in each room, and I want to connect them together, I can walk my phone cord over here, and plug it in to a little adapter, that plugs into a slot on the side of the PC. Then I can wander back over, and I can set it up to print. It will recognize the different devices there, and we’ll give it a second. Here it is. So it’s that easy to connect devices together.

So the first thing you do with home networking is connect two PCs together, because you want to share a printer, you want to share a scanner. So with phone line connectivity, and this stuff called Home PNA, you can buy these little cards to plug in, and use the existing phone lines in your home. So that’s kind of step one. And that is a big step for a lot of people. I mean, resource sharing amongst PCs is the first thing you want to do.

Now, the second thing you want to do after you’ve shared stuff through PCs, is you want to take non-PC type stuff and connect it into the network. So the second thing I have is I have this Access Camera sitting here. So the camera is sitting up here. I’m not sure if it’s slow or I’m slow. I think it’s slow, so we’ll give it a second. We’ll give it a second and see if it’s going to cooperate today. So the second level that you want to do is connect the cameras. Now, why would you want a camera? Well, again, a security camera in the home would be a nice thing to have. And being able to plug it into the network without having to do any work is the way to go.

So now, if I want to go out with my wife, and I want to have a camera around the kid’s bedroom or something like that, I can do that. And it’s very easy to hook in, because it’s just using, again, the same home networking, if we want to use phone lines, if we want to use Ethernet or wireless, I can hook it in. So in our loft in New York we have a couple of cameras there, and that’s how we monitor it. So even when we’re away we can keep track of it. So that’s the next level.

The third thing we want to do, I didn’t bring that demo with us, but if some of you come to see us, we’ll get there, is you want to take consumer electronics in next. So I want to take my stereo at home, hook in into the same network, and play the music off my PC on the stereo. And that’s the next level, and that’s what we’re getting to. So it’s three levels. Hooking two PCs together, using existing wires, taking new stuff, all the stuff that’s around the house, cameras, different devices, and hooking them in, the heating system, the power system, so I can keep track of all my expenses and what I’m spending. Then the third, and the final level is going to ultimately be all the consumer electronics devices, which is what that UPnP form is all about.

So, under simplifying daily tasks, that’s one of the key areas, being able to connect things together. And we’ll go on. Now, the second area is around communications and information, that’s really around Web access. And we’ve been working on something called MSN for a long time, longer than some of us would like to remember, gone through a lot of iterations. But, in the last two years we’ve really gotten focused on the key things people do on the Web, communications, how do I communicate with other people, shopping, I want to go shopping, which is probably the third most important, and search, how do I find stuff. Those three activities we focused on, spent a lot of time on that, and at the same time we started to create an integrated experience.

We just launched a new client for MSN and for the Internet, which takes all this stuff on the Web, and some local software, and pulls them together. Result: it’s the number one destination on the Web today. A lot of people go to this site, because it has relevant information. It’s a very large global network. We have 74 million Hotmail users, all of that is run out of the Bay Area, down here. The folks that do that live in this particular facility, and 24 million instant messaging users. So it continues to grow, and the Web continues to grow. I think the most important piece of it is the integration. And this is a nice picture, but it’s easier to show it, so I’ll go back to my machine, and we’ll go ahead and bring it up.

So a lot of things have changed on the Web. I gave the example of Christmas shopping a little earlier on the Web. One of the bad parts of Christmas shopping today on the Web is, every time I go to a site and buy something I get to enter my name, and my address, and my credit card, and I have to type that in each time. It would be nice to have a single login that once I approve it allows me to get onto all of the sites. And there’s some work going on at MSN on something called Passport that enables it.

When I log onto this site today, it now logs me into my personal finances, my Hotmail, my instant messenger account, my photos, and all of the rest of the information. So a single login is one of the steps we’re doing, and something we’re actually extending to something called .NET to make it available to all sites, and all developers, separate from Microsoft, so we can have a single login. When I go back to my notion of simplifying daily tasks, and making the Web easier for people, we need to do a few things that are global across all companies, to make it easier to work together.

Now, once I’m on here, I can check email, and you guys have seen that, and I can do a few other things. Communications is the area that I think is taking off. Instant messaging — a lot of us do this, I can chat back and forth with Mike right now. The thing that I like, which is one of my favorites right now, is the ability to make a phone call directly from within the browser, from within MSN. So I gave my cell phone to the guy that I was working with, in case we had any problems with the demo, so that I can call him from here. And we’ll track him down, and make sure he’s not off goofing off. Can you make sure the volume is up? So it’s nice, because I can talk to John. I’ve turned down my mike so that you can’t hear. But, I can talk back and forth from the PC.

Now, there’s a lot of interesting things here. Obviously, people with family overseas or long distance are saving long distance calls by using this type of technology today. So that’s one good benefit. The next is, over time this will just be the way you make phone calls. I’m not saying you’ll use the PC, but you’ll use the Internet infrastructure to be able to do it, and you’ll only ever dial local calls no matter where you’re calling. So that’s something, again, in terms of communications is a very high benefit to people, and it gets a lot of usage. I’m going to hang up on John now.

Now, the second area

actually before I go onto that, one of the things I should note is that around here it’s very customizable. So you’ll notice I have my calendar, I can see what I’m supposed to be doing today; we can look at stocks, Web sites, photos. The Web is very powerful and very useful; at times it can still be slow, though. That will be part of making it easier for people. I’m going to go to email; we kind of flew down here this morning and hooked everything up quickly. And I will apologize for the speed.

So I’ll let that settle in while it’s doing that. See all my mail, you get lots of nice junk mail. They put filtering systems in email, finally, so you can filter out all the junk. I don’t filter out too much of it. Communities are a way to put your own pictures on the Web. And one of the things that happened three or four years ago is I bought Guggenheimer.com, and you can imagine it wasn’t a very popular site. And I used to program that Web site. It turns out that with some of the Web technology they make it easy for you to create your own just from templates. So I own something now that’s called the Guggenheimer Community, and its’ very easy to use. And I share it with my folks. It basically allows me to put photo albums on the Web, which is the primary thing that I care about is the ability to access photos and share them with other people.

So let me pull that up. And you can see that, if we go to recent pictures we can do this. So I’ll bring that up. So a couple of years ago my parents didn’t have email, so now we can email. Within the last year I’ve gotten them set up so they can look at photos of the kids. So now they get pictures of the grand kids basically as often as I update it. By next year I’ll buy them one of the digital photo frames, so I can actually update in their house a photo frame with pictures of the kids as often as I take pictures. Another thing that’s happening is the digital cameras themselves are getting to the point where you can hook them into the PC, and once you hook it in the PC they’ll save automatically to your community, or to your photo album. So you don’t even have to go through a bunch of other steps.

So these are pictures, we’ll pull up one of the pictures of the kids. Proof is in the principle. So this is, again, it’s simple stuff, but in terms of communicating and sharing information with family it’s very popular. The stuff is great. The other thing that’s happened is we had a product that we sold in a box for a long time called Picture It, where you could basically edit your photos, take out red eye, do the rest of that. That type of technology is getting integrated on the Web, so the first step of that is not only can I post this picture up to the Web, but I can have it turned into post cards, cool gifts, I could turn it into a mouse pad or a mug, reprints of the photos.

So the next logical step once you get it up there is to be able to do more with it. The next step beyond that, again, the red eye, taking out red eye, all of that stuff will be added in. And at the ultimate end of the spectrum is, again, the digital photo frame for the folks for next year, because next year I think the prices will come down. So it’s that ability to share information once you get it into a central place that’s really taking off. And it goes back to the home networking. It’s not until you can connect things together that you can do that type of stuff. So software on the back end plus devices makes for very interesting solutions for people.

So let’s do one more. Let me go into help and settings. One thing that’s getting nice with all this stuff is it’s getting very easy to customize. So you’ll notice the left side is my calendar, my stocks, my Web site. I’m going to go into my stuff and say I want to personalize. Let’s say I want to listen to music. So I want to add a radio button on there. I can simply add the radio button, and now when I want to listen to music I click on my radio. And the way the Web is going in terms of music is that today in Seattle where I live I probably get two stations that play the genre that I like, and probably for most types of music you like there’s two stations. On the Web I can get 100 stations of the music I like.

Fortunately, or unfortunately, nobody likes the music I like, so I have to turn it down in the office. But, I’ve picked a good format here, urban hip-hop, which we’ll use throughout the day. And so if I want to go get a radio station, I’ll just go pick one, and again, because the Web is a little slow it will probably take a second, but I’ll go ahead and hit play. And while that’s coming up, the key here is, again, that there’s probably 100 stations from all over the world with the music I like. And I have fun with this. I go and I find whether it’s Australia or the UK or anywhere else, find the radio stations playing the music I like and see what they do. And early on there were no commercials, they’re just getting to the part where there’s commercials on it. But, so we’ll see how that goes. But, having commercial free radio of the type I like that I can play from all over the world is very slick. And it’s all integrated.

One thing to note from a user’s experience is, this frame never leaves. So whenever I want music or my photos, or any of that stuff, it’s very easy to get to. That’s their little station identifier. So that’s the advertising. Basically shut that down at this point, and then you listen to music all day. And that’s what I do around the office. So, we’ll go ahead and let that go. I hate to let it go before it actually plays. So, the proof is in the pudding, at that point, it’s on. You can do whatever you want. I’m not sure everybody likes the music; I just said I can play music.

Let me go ahead and go back to my slides. When the slide looks exactly like the demo, you think you’ve messed up somewhere. Okay, now let’s switch into entertainment. We’ve talked about communicating with people, and finding information. The third area is entertainment, how does the technology start to impact entertainment. The first place we’ll start is with television. We’re in the television valley; I’ll take it to that. And 15 years ago people thought about digital television, and they thought about this thing called high-definition television which was a slick concept, hey, we’re going to have more bandwidth, we’re going to have digital, what are we going to do with it? Well, we’re going to make pictures look better and sound better. It turns out that in the 15 years since then, the Internet has come along, hard drives, all this other technology that’s come along, and so now digital television means lots of things. A digital television is a television system you can get the Internet from if you’re interested. So it’s a place where you can do something called interactive television, where you can play along with a game show potentially, or get more sports scores. And the coolest thing that is happening this year, something called personal television. And that’s where the combination of some technology in the box plus just some pure raw television allows you to pause live TV or record shows directly on a single box, have a computer type interface, graphical, but with a remote control.

So we’ll show you a little bit of this later on, but television is gone, and digital television has gone from being just better pictures and sound to a whole bunch of stuff, streaming music, movies, personal television, the Internet, interactivity, and it’s just exploding. And, as a user, this stuff is quite exciting. The ability to basically set up Dragon Tales to record the night before, and then it doesn’t matter whether my kids get up at 8:15 or 8:45; Dragon Tales always starts when they get up. That’s a very slick system; it’s very handy as a parent to be able to have the show they want to watch start exactly when they get up in the morning. So that kind of personalization, and that kind of power is, again, what’s personal and relevant to people. I will buy that box because it helps me with the kids in the morning on the weekend. So that is it alone.

For Microsoft, we work on lots of different aspects of this. We were pioneers in terms of Web TV, in terms of getting the Internet on television. We’ve learned a lot about that. It’s a bit of a niche market as a narrowband product. There’s a lot of people who use it to get started. As we head towards broadband, and you can make the set-top box a node on a broadband network in the home, that’s going to become very popular because it will be fast. The ability to basically do the Internet interactive and personal TV, what we’ve been doing with Ultimate TV, we’ll show you that. And the third area is actually creating a platform so other people can do this as well. So not only do we do some of it ourselves in conjunction with partners, but we build a platform so anybody can do it, AT & T, UPC, Global Cabo. So people around the world are taking the software that we build, and building it into their infrastructure to enable these kinds of capabilities.

In terms of games, gaming is now a larger market than movies. More people buy game software and associated technology than they spend on going to the movies. So that’s just a huge category. We continue to build games for the PC. The thing that we’ve done this year, and we’ve announced, is the release for next holiday season of an actual game player. We got a lot of feedback over the years from developers, actually, who said, you know, we really like the fact that Windows and some of the software you guys write is easy to develop for. But the pace of innovation with PC is actually too fast for a console market. We need something that’s going to live in a person’s house and attached to the TV for four or five years. So, can you take your kind of technology and then build it into a stable box that’s not going to move for a couple of years. And that’s really what the XBOX is all about.

There are a number of advantages from the PC technology. At the end of the day, it allows you to create better games faster. You get better graphics capability. You get better looking games. And for the developers, it’s easier for them to create that. So, for users, we just get better games, which is all I care about. For the developers, they get to create better games faster, so they like it, and for retailers, it gives them another choice. So, this has been a very popular announcement product. We keep kind of rolling it out piece by piece, and by next holiday season, you’ll be able to buy them. I was in Toys R Us and I saw the little thing where you can preorder an Xbox now, so that marketing team is really early on in the world. But that puts a lot of good pressure on them to deliver.

At the end of the day, it’s all about the games, so we’re very committed to this product, it’s a natural extension of what we’ve been doing, and we’ll talk more about it. Music, we’ve been working on music for years, the digital music stuff continues to take off. The ability

I think it’s the largest, or the highest level, media is moving digital. It doesn’t matter whether it’s photos, music, television, movies; it’s all going towards digital technology. And once it’s bits, which is 1s and 0s, it’s the same as software, which means you can route it around, it means you can do more with it. And music is one of the first places that people are taking advantage of being digital. Internet radio is a very simple example of that, just taking your music and making it more available. I’ll show you the next level of that right now.

So, let me go back to my demo machine. This is basically a play list that I created. The way you work with music today is, you take your CDs and you stick them into the PC, and you pull the songs off that you like. So the first thing is, you get the songs you want versus the entire CD. You can also go to the Web and download music you like. Once you’ve done that, you can see I’ve got a whole

— you can do it by artist or genre. Once you’ve one that, you create a play list, so you take your favorite songs, you put them in a play list, so I’ve created my play list, and we’ll pick a song, and I’ll play it. And I’ve got a lot of songs. On the plane ride down here, I was working on my slides for this talk, and I had my headphones on and I was listening to the music. And I can turn it up. So it’s a nice thing to do if you ever listen to music, I like it a lot because I can pick the songs I like off my CDs.

Now, that’s kind of a good starting point. The slick part this year is, now that I’ve created that music, I don’t just want it on the PC, I want it anywhere I go. I’ve invested some of my time to create my play list. Well, there’s all kinds of different portable media. This one is called a Compact Flash. With this particular media, and I’ll switch over real quick, once I’ve created my music, I’m going to grab the mike off of this device, I’m going to take that Compact Flash card, and I’m going to stick it in this little personal portable player. And this is just one, there’s about 30 of them on the market for holiday this year. And I’ll hit play. There’s not really a lot to see on the screen. But I have my same play list there.

So, if I scroll down to that song and hit play, same song, same play list, same song, and I can take it with me. So this is how I listen to it on the plane. I love this. It’s a consumer device, loading software, if they’d just get rid of that one error menu, but it’s the same song. If I want to skip music, I can do that. I can set the format, the quality. I’m going to go ahead and stop this.

Take that same Compact Flash out, put it into one of these little handhelds, just like the one they’re going to raffle off later on, stick the mike in this one, try not to blow everybody’s ears out, go to the music player. Same thing, same exact play list anywhere I want to go, so very slick in terms of music.

Now, the thing I didn’t bring with me, which I have, is we actually have a car stereo, so I can just take that Compact Flash and stick it in a car stereo. So the things you can do with music, and your stuff, basically, is phenomenal. I mean, this is a great way to go. The removable media are getting smaller and cheaper. There’s about 20 different styles. Nike now makes a little music player you can stick on your arm, and you connect to your PC to play your music. Some companies are making basically attachments that you put onto your stereo system at home, and you can plug basically from your computer, again, using the phone line or any other type of line, to that box that’s on your computer, then you play your music through your stereos at home.

So this is actually how home networking takes off. People create something personal, like their music, or like their personal address book, and then they share it on a device, and they go, huh, once I’ve got it there, I’d like to have it everywhere. And so that’s how. People say, well, if I could just connect things together, then I can share that photo over here, I can share the music. And that’s really what kicks all this off. And so when I think about home networking, what I think about for this holiday season is the fact that people are going to go buy these little devices. This little guy here doesn’t weigh very much. If you shake it while you’re playing it, there are no moving parts. So it just plays the music. And they’re getting cheaper and cheaper. So that’s probably $150 this year, and by next year it will probably be $99, and they keep coming down. And there are lots of them.

So that’s what will actually kick off home networking, because people will create stuff and want to share it. I had this phone up here, I didn’t show you, but all that MAN stuff I did, my email account, and my instant messaging, and my stocks, and my photos, I can get half of that on my phone today. If I want to look up my flight for the way home, I can look that up from my phone on the way to the airport, find out what gate it’s at. If I want to look up my calendar, I can look that up on the phone. So, again, once I’ve created it, I can share it everywhere, the same thing with photos.

Let’s switch over now; let’s look at TV for a second. So music is one area of entertainment. Let’s look at what we’re doing with television, and the folks down here in the bay actually are driving this particular piece. My hard part is to get the video source right. And I’ll introduce Melissa, who is going to walk us through real quick.

MS. : I’ve got the fun part. I get to show you guys one of our products called Ultimate TV service from Microsoft, and basically it encompasses five major components in one box for the consumer. And it allows them to personalize their television experience. One of the major components is obviously the satellite feed, direct TV programming, it’s 210-plus digital channels that they have access to, which we all know is always fun. A whole lot of channels, not a whole lot to watch.

It also offers a DAR, digital video recording, and that’s up to 35 hours, and live TV control, with which we are familiar with some of our competitors, pause live TV up to 30 minutes, back, forward, rewind, replay, and all that.

And interactive TV, so you can play along with your favorite shows. You can interact with MSNBC, Wheel of Fortune, Jeopardy, Dateline, Judge Judy, and all those programs.

And Internet access, you don’t have a
“walled garden”
of Internet access, so you can go anywhere you want

(inaudible)

— and whatnot, and what’s really great is, it’s all in one box. It’s right over there.

So, I’m going to walk you through some of the controls, and this is your home page, basically, for the Ultimate TV

(inaudible)

— I’m going to go into the guide, as I said earlier, Direct TV offers you over 210 plus digital channels, and this is a 14-day virtual TV guide. So you can basically scroll through it, if you want, find what you want to watch, when you want to watch it, but that’s kind of time consuming, as you can see. So, what I’m going to do is go back and search these channels by hitting search TV. And I can break it down by title or phrase; I have a few examples in here for you, John Wayne and Bruce Willis, two random people that I picked to search. We’ll do John Wayne and see if he has any shows on in that 210 channel 14-day virtual TV guide. And it searched and came out with quite a few actually. So that’s a quick way to search it, the TV guide. And we’ll try one more searching. I don’t really know specific people, or the title of the movie, I really just want to find a movie, and I want it to be action/adventure. So let’s just search all those channels again, and it will bring up all of the action/adventure movies that are on, and I can choose from all of the listed movies. It’s a very quick way for you to find, again, what you want to watch when you want to watch it.

And with that said, you can go to your guide, once I’ve chosen what I want to watch, I’ve decided that I want to record it because I want to watch it again later, or I want my mom to see it, or my dad, or whoever. So, it’s one-touch record. You hit the record button, and a red dot appears on the program. If I want to record it every time that it’s on, I hit the record button again, and three dots appear. So every time that it airs, it will be recorded onto my hard drive, which, once again, is 35 hours of viewing. And if I chose not to record at all, I have the wrong program, or I’m just really not that interested like I thought I was, I hit record again, and it will stop recording. So it’s, once, again, very user friendly, very easy to program your recording.

Let’s go back to the home page again. And once I’ve recorded things, you know, I forgot a week ago I recorded a show, or I have scheduled ten days from now a show to be recorded, but I forgot what they are. I’m going to go into my shows, and it is your virtual library. It tells you what you have on the hard drive, and as you can see, I have a few things on here. In green tells you what’s already on the hard drive, how much time is utilized, and the date of the show. And if I had something scheduled to be recorded it would be blue. So, you know future things to be recorded, and what’s already existing on your hard drive.

I can also manipulate this data. If I want to remove something, you know, I’ve seen it ten times, that’s enough. I can erase it from my hard drive, very simple. And there you go. So it’s removed from my hard drive. If I was recording this program, it’s a little, again, user friendly, the green dot that appears right next to the my shows would be red if I was recording the program.

Now let me get into the really fun part. Everybody likes to have control of their viewing experience. If I wanted to, let’s say, pause live TV, I can pause it up to 30 minutes. And if I wanted to manipulate that data, say, I’m taking a phone call from mom and having a sandwich or whatever comes up, I can continue to play from where I left off, or I can rewind it, I forgot a few minutes before that, up to 300 times normal speed, I can also fast forward it up to 300 times the normal speed, and I can get back to catch up to live television. It will tell me that I’m back to a live feed.

So let me just rewind a little bit so I can manipulate the data one more time. And I’m playing normal speed now, I missed that guy catching a wave, so what I’m going to do is, I’m going to pause it, and I want to in slow motion

(inaudible)

— I’m going to pause it, and I want to do slow motion, and I want to see this guy, you know, really wipe out, or I can do frame-by-frame. I can see that shark take his leg off. Did you guys see the video on the news with the shark that was following these surfers, I don’t know if it was nationwide or not, but it was rather interesting, I would have liked to have seen that in slow motion.

Okay, so let me catch up to live TV, and I can also do instant replay, seven seconds, and I can also skip ahead 30 seconds. So, again, it’s really taking control of your viewing experience, and this is great, as you all know I’m sure, for sporting events. You can really see if that call was in or not, or if the ball hits the line. You can see the instant replays. Or the tackle, or was it a touchdown, really great to be in control of your viewing experience.

So, with that said, let me go back to the home page. And we also have Internet capabilities, you just click on Web home, unfortunately, we’re not connected here today, but you can browse the Internet, send and receive email, so all of that in one little box.

And I’ll give it back to Steve.

MR. GUGGENHEIMER: Thanks.

(Applause.)

MR. GUGGENHEIMER: Steve will remember which machine was on. Okay. So entertainment, music, I didn’t bring electronic books along, and I didn’t bring along Xbox, I apologize, next time we come back I’ll bring that with me.

I’ll point off the two things that we showed in the loft a little bit here. People used to think of computers are productivity centers, actually think of them as activity centers today. They deal with all of my creativity, digital photos, and digital music, creating postcards, all of that stuff. Communications center, I can make phone calls, I can instant message, I can do email. Entertainment, we set up a teen bedroom in the loft in New York, basically the kids came in and made phone calls off the PC, played games interactively with another person, listened to music, and then actually used the PC for watching TV based on some of the new monitors you have. So in a kids’ bedroom today, you took four devices and stuck them into one. So there’s a lot of things you can do. And then, again, my own favorite is shopping.

At the same time, as the PC becomes more of an activity center, devices are no longer islands. So the Internet appliances, we’ve got an MSN companion over there, there’s a whole new generation of those, set-top boxes like Ultimate TV, the handheld computers, cameras, music players, they work together now. It’s not that there’s this PC island over in the house that just does productivity, and there’s all these other islands that don’t talk to each other, they all work together, and that’s the step forward. This year, it’s about the devices, next year it’s about hooking them together more and more, and it’s the stuff that you create that makes it interesting to share them.

It’s an exciting time. We’re at the beginning of really taking off. I think, again, we’ve just started to see how software and hardware are coming together. And computer hardware in a lot of ways and technology with consumer electronics technology, the stuff moves at a very rapid pace. By the time we go to CES three weeks from now, I’ll have a whole new set of demos of new stuff that’s just ramping right along. So we just keep rolling in terms of how quickly this stuff changes and evolves. And all the stuff we show at CES in a couple of weeks will be available for the next holiday season. Everything I showed you here today is basically this holiday season.

I’ve brought along a little video that kind of shows where we’re going a couple of years out. As this stuff gets smoother, how does it hook together? This is something that we put together during Forum 2000. And I’ll see if I can get it to run, and it will run in the window there.

(Video shown.)

MR. GUGGENHEIMER: That’s where it’s going. There’s a lot of fun in that day, there’s a lot of simplifying tasks like making the trip reservations and silly stuff like, the guy works for a company that they get one of those 10 percent of 15 percent discounts off at the San Diego Zoo, but he never remembers it. But when they make the reservation he’s able to communicate with their work system and do it automatically. We cut about three minutes of video out of this. So, for example, I’ve created a play list, wouldn’t it be nice when we picked up our car at the rental place if the music was loaded, either my favorite stations were loaded, or if I had play lists they might have already downloaded those to the car.

I have small children, it would be super nice if they had a future where they have screens in the backseats of the cars, or even the hotel room, if they had the videos for the kids already preloaded on the hard drive, so I didn’t have to bring down the Disney collection of videotapes. So there are some very interesting things that you get into when you can share devices and find information.

In terms of communications, having the little boy go to the zoo, right, he’s got basically an instant messenger or a buddy list. Imagine the scenario that says

where he sets up a little thing that says, when I’m more than 10 miles from home; let me know if one of my buddies is within 300 yards of me. Right, that’s basically what happened at the zoo. He’s at the zoo; he doesn’t know his friend is there. But he’s got that rule set, so that when his friend comes within a certain radius, and they’re far away from home, all of a sudden he finds out his friend is there, which is a lot cooler than going back up to school and finding out, hey, you were there at the same time and I missed you.

So, there’s just a lot of really cool stuff you can do as these devices start to work together and share information, and that’s kind of one snip that we actually had about

we had another four minutes worth of video on that one, and another 25 minutes worth of video. So, as you start to think about this stuff, we’re just at the beginning, and it’s going to be a pretty cool year the next year. This simple slide just reflect that video, there’s a whole new generation of experiences coming. We’ve just started with all the stuff we’re doing. And with all the kind of problems, and it’s hard to make it work sometimes, and the rest of it, it’s way better than it was a few years ago.

A couple of years from now, I can’t even imagine my kids are 2-1/2 and 3-1/2, when they’re 15 and 16, it’s just scary, the things to think about in terms of what we can do today, and where they’re going to be at is phenomenal. And the fun part is, for all of us, we get to work with our partners and everybody else, we work in this stuff all the time, so it’s just like a giant playground for big kids.