Steve Ballmer Speech Transcript – Streaming Media West 2000

Remarks by Steve Ballmer
Streaming Media West 2000
San Jose, Calif., Dec. 12, 2000

MR. BALLMER: Well, thanks. It’s my great privilege and honor to have a chance to be here with you today. I’m excited to have my first opportunity to be here to express some of my enthusiasm, and give you a little bit of perspective for some of the great innovation and change and market impact that we have seen, and expect to continue to see, over the next several years coming out of the efforts that a variety of companies in this industry are doing around digital media.

We entitled this talk Digital Media Everywhere, and that’s only the slightest of exaggerations, at best. If you were to ask us what the two biggest themes will be for transformation in the technology, computing, information industry over the next several years, one will certainly be the move to speech and natural language, but the other is quite significantly digital media, and whether we’re talking about home users or business users, whether we’re talking about that which professionals do for us, or that which we do for ourselves, the digital media phenomenon is absolutely one of the engines that will full increased interest and activity and excitement around the personal computer.

Just to give you a little bit of perspective on how far this phenomenon that we’re all involved with has already come, a few statistics, you can quote them to your friends, twice as many people listen to Internet radio every week as watch Monday night football. Now, if you think about that, and depending particularly on your age, when I was a kid, Monday night football first came on the scene and it was big, and it was everything, and it took off like a huge phenomenon, twice as many people every week, and I’m talking about the football season, not the off-season, twice as many people every week listen to Internet radio in just the few scant years that people have had the opportunity.

More than 250,000 terabits of digital media traffic is carried on the Internet on a daily basis, 250,000 terabits, it’s almost hard to say and conceive and think of, it’s so big. A number that’s perhaps less stunning is that twice as many people use digital media as go jogging. This is an area in which digital media will lead. And as we get new, smaller form factor devices that you can really very comfortably take jogging with you, the joggers will catch up with the digital media people, I’m quite sure.

So the phenomenon is certainly unbelievable, and that impact is, if anything, just growing. Over the last several weeks, we all had a chance to learn about and participate in the Madonna Webcast. The Madonna Webcast reached about 30 times, 30 times the audience of the 12 other largest concerts that week, 30 times. And if you’re an artist, if you’re a performer, if you’re anybody, frankly, who wants to communicate, if you’re Al Gore, if you’re George Bush, this digital media stuff, it’s powerful. It has incredible ability to let you communicate in the way you want to the broadest possible audience.

We’re part owner in MSNBC, both on cable and on the Internet. We see what’s going on with the TV viewership, we see what’s going on the Internet, and we’ve actually seen an annual growth of video streams of almost four fold in the last year. And in November we streamed over 6.8 million video streams. I’ve got to tell you, the election did help, there was a lot of interest in those election video screens this last month.

And I think perhaps most importantly in some senses, a part of the market that’s gotten less attention, but I think is every bit as important, and presents every bit the opportunity of other parts of this market, the enterprise market has literally doubled every year in existence. There will be a day, I promise you, where every corporation will view it as routine to communicate with its employees via streaming media over the corporate intranet. I think that should be already routine, yet we don’t find that in all but maybe a third of the companies, people are not using streaming media still inside these enterprise accounts. But the impact is all there, a good base of usage, a lot of new things happening, impact growing and developing every day. And that’s why we, as a company, invest something close to $200 million every year in technology, and marketing and partnership around the digital media space.

Some people ask, is there still room for change, for improvement, are we in the early part of the technology cycle, or are we in a later part of the technology cycle? This is a technology area that is very early. We can all say, wow, things have come so far in the last five, six, ten years, but if you really look at the fundamental ease of use, how easy it is to create and distribute content, the quality of the content that is distributed, the presence of bandwidth that facilitates the distribution of content, we are still so far from what this industry can realize that people have to really inculcate that because the next five years will be even more exciting than the last five years in terms of the pace and kind of innovation that we see in digital media. Think just for a second about how easy it is to use digital media compared to just popping in a CD or a VHS cassette or a DVD. Ease of use is still just not there. That gets brought home, I’m afraid, to me on a daily basis. We have a one-year-old. Our one-year-old has figured out how to plug a cassette into the video machine, our one-year-old has not figured out how to double click on something yet on the PC to watch digital media. There’s still room for ease of use improvement.

Creation of content, today most people still largely turn to professionals to create digital media content. Sure some of us will go repack some music, or edit an occasional photo, but think about creating a presentation that you want to broadcast to your employees, think about recording a training session and annotating it, and trying to mix the video, the audio, the slides, the annotations. That’s something I ought to be able to do. I ought to be able to come in on a weekend, sit in front of a video camera, give a speech, mark up the PowerPoint slides, and then just have that thing be available on a Web site. That requires a staff, an entourage, somebody to orchestrate, to produce, to put it on the Web site, much, much, much harder than it needs to be.

Distributing content, particularly content that you care about. It’s very difficult still today to secure, it can be done, but it’s difficult. Quality, the quality of digital media today can be very good. You’ve all seen, and we’re going to show you the demos today, where it’s really, really, really good. The problem is, there are also plenty of people who see it in a very, very, very bad form. There’s plenty of slow bandwidth. There are plenty of people for whom we’ve made it too hard to configure these options, who don’t even know they exist in their PCs. There’s a lot of room for improvement.

And bandwidth, there’s still only about 4 million households even in the United States that are connected at high speeds, DSL or cable modem. I was joking with some of the guys back stage, that in my neighborhood outside Seattle, we still can’t get DSL or cable modem service. I’m not in a rural area. The area is reasonably affluent. We can’t get DSL or cable modem service. It’s truthful. But, trying showing it to somebody, we all sit here and guffaw. I did a demonstration for a friend the other day of watching a media stream at about 40K bits per second, that’s all I could get out of my ISP that day, 40K bits per second, and I’ll tell you, there’s still a lot of opportunity, a lot of room for improvement. So whether it’s bandwidth, the way we use bandwidth, the quality that we put up, the ease of use of digital media, or how easy it is to create and distribute. This is an industry that will change more in the next five years even than it has in the last five.

People ask me, why are you guys at Microsoft so interested in this area, why is it so important? And I talked about it earlier as one of the absolutely critical factors in the ongoing development of the information industry. I mean, media is really the most natural data type to work with, not text and numbers, but speech and voice, and audio, and video. And so we’ve been investing in this area actually for a long, long time.

Ten years or so ago we shipped Windows 3.0, and it included something we called our
“multimedia extensions.”
And, in fact, since about 1987, we’ve been investing in what were the precursors to today’s digital media efforts. We improved our work in Windows 3.1, with the AVI technology for full screen video. We started to have 32-bit multimedia in Windows 95, streaming with Windows NT and the ability to stream broadcasts. The Windows media technologies in Windows 2000, our Version 7 work, both player and format, which shipped as part of Windows Me, and today we’ll have a chance to talk to you about some of the work that we’re doing on Windows Media 8, and some of the great new things that we’re going to build into Whistler, which is the next version of Windows, which will span and sell both into the consumer market, and into the business market. And we have some unique innovations; in fact, some of the most fundamentally unique innovations in the Whistler product are in this area of digital media. It is important, we are investing, and we are passionate about the ability for this to be fundamental and fundamentally important in the change it brings in our industry.

Microsoft as a company is really investing in seven different businesses, and every one of our businesses we see influenced and affected by digital media. The Windows PC, that’s the basic business that you know us from. The Windows PC experience has to be as good as it possibly can be, the best ever in using digital media, or people will turn to other devices. That’s one of the reasons we worked so hard to really have a great integrated media experience inside of Microsoft Windows. We have a huge investment going into new, non-PC devices. We have work going on our Pocket PC, set-top boxes, the Xbox gaming platform, which we’ll introduce next year. Every one of those devices has to be an excellent platform for digital media.

When you travel the globe and you talk to these wireless operators who’ve spent billions, and billions of dollars to buy wireless spectrum. And you ask them, what are you most excited about doing with this high bandwidth wireless spectrum? They all say, it’s digital media, we’ve got to be able to have video calls, we’ve got to be able to stream people movies and music to telephones, to Pocket PCs, to other handheld devices.

I talked already a little bit about the enterprise. The enterprise arena, and the building out of digital media applications in the enterprise will grow dramatically. And we think that one of the main solutions that we need to offer, as part of our enterprise platform is solutions that let people build out media applications. Our office product, I am still sitting on top of the Office guys to make PowerPoint one of the best video authoring tools in the world. How can I just sit there in PowerPoint and synchronize digital media, slides, outline, annotations? How do we make that very easy? And those are fundamental scenarios for the kinds of next generation things people need to do with Microsoft Office.

Our MSN consumer service, we’re not running out and buying media companies, like AOL/Time Warner, but it is certainly fundamental to the work we do there, and the kinds of services we provide people, that we do a great job of digital media, with their music, with their pictures, with their videos. How do you let people host and share, and annotate those things in an online service? We’ve recently launched a service we call bCentral for smaller businesses. How do we provide customized news feeds, video feeds for smaller businesses?

And last, but certainly not least, the seventh priority for our company is the investment in this .NET platform. A platform to enable a new generation of applications that is natively Internet based, that lets applications be extended and integrated very nicely using XML, and that lets people build applications in which rich clients and rich servers, or rich clients and rich clients in a peer-to-peer model talk to one another. And if you think about many of the interesting digital media scenarios, they fundamentally must be peer-to-peer scenarios. You don’t want all we send through some service in the Internet cloud, everything that’s going on.

Part of the beauty and the excitement about what is good about Napster is the way in which it highlights the necessity in the digital media world of rich peer-to-peer work. Sure, there are issues of copy protection, and digital rights management, et cetera, important issues that need to be worked on. But, I think it points to an architectural model that is necessary for the next generation Internet platform, fundamentally important if we’re going to support digital media very, very well.

Microsoft.NET, as I said is a platform for a next generation Internet platform. What’s wrong with today’s Internet? Well, not much in some senses, but if you ask what’s going to be different 10 years from now, we’re going to have more devices, different types, more bandwidth, and people are going to get unhappy with the current lack of integration in the Internet. How many passwords do you have? How many passwords do you want to have? How many people want to notify you and bombard you with email, and instant messages, and your bills this, your overdue there, blah, blah, blah. You want to be able to consolidate, and put that information together.

If you’re a big Web site today, and you have a third party community that’s active, how do you tell them to build applications or Web sites that extend and provide new facilities around your Web site. There’s no model for this kind of application integration, or Web site integration. There’s no model for how we really involve natural language, and voice recognition into these Internet applications, which will be very important as we add the TV and the phone as important devices in the Internet world. So there’s a lot of work that needs to be done. And certainly, the inclusion of digital media as a fundamental set of data types is one of the most important things going.

Today, you know, when we in our player, or Rio and their player, we store media in a separate, funny way. It’s not stored in a way that it’s easy to manage along with all the rest of your information. We should make that seamless and transparent. The user interface can be better stitched in with the rest of the Internet user interface. And all of this kind of rich integration of digital media into the basic platform I think is very important.

In this world just a couple of examples for you to think about: My media anywhere. How do you create a world in which you can have a repository of your media, your pictures, your photos, your videos, your music, and it should follow you wherever you go, to your car, to your television, to your PC, to your phone or Pocket PC, what’s the technology that makes that easy, that roams that with you in the right way? Where should the media be cached, should it all be in the cloud, or do you cache songs, for example, that you listen to frequently on a hard disk, or some other kind of storage device in your car or your home. Those are fundamental issues that I think we have a chance to do a great job as an industry addressing. Just in time business news, how do I create a set of profiles about me and my business, and my interest, and actually have clipping services that will go through video streams, and audio streams, and present to me exactly what I want, when I want it.

So I think there’s a set of very natural examples, that we as an industry have yet to face, and that we as a platform builder have yet to do. Our goal for this next 12 months is to take some more steps, to push the technology envelope further, and we’re going to show you some of that, with Windows Media 8, to weave digital media much more fundamentally into our enterprise platform and tools, and we want to show you a little bit of that, and then to do some things for end users to make digital media technologies more mainstream and usable for consumers. And we want to have a chance to show you a little bit of that today.

The technology requirements for all of this stuff are pretty straightforward. We have to provide the people who author content security. We’ve got to provide the people who use the content quality. There has to be mass distribution capabilities available, or this whole phenomenon will move more slowly than it could, and there needs to be a level of integration and mobility of media, so that people really do have access to what they want, any time, anywhere, and in any place. I want to say just a couple more words on the security issue. A lot of people think of digital rights management and security as fundamentally an issue just for the music industry, or the movie industry. You can actually think about it as an issue that all of us at some point are going to want to address.

If I sent a piece of electronic mail to, I don’t know, a set of people at work. And maybe I even include a little digital media in that, maybe my voice angrily yelling, I can’t believe we did this, blah, blah, blah, blah, blah. I might really want to communicate that fervor on a certain topic. But, I also might now want anybody else in the world, except the people I sent it to, to see that comment. How would I do that? It’s a digital rights management problem. Here, Bill, and Charlie, and Dave, here’s what I really think, but I’m not going to let you forward this one. I’m going to protect my content this time. So there’s plenty of avenues and walks of life in which we can think about this kind of security and quality being an important issue. It’s not just an issue, frankly, from the point of view of today’s movie industry, or today’s record industry.

It’s very important for us, though, to model through the cases and situations with the standard media types, movies, music, et cetera. Over an ISDN line, if you wanted to download a 2 hour movie, it would take you about 587 minutes. Today, with a DSL or cable connection, except in my neighborhood, it would take you about an hour to download that movie. And if you were fortunate enough, as many people, for example, living in Finland or Singapore are, to have fiber to the home it would take about 35 seconds to download that movie. And these are good, high quality movies, movies that you’d really want to watch. And it’s certainly the kind of scenario we need to invest in, is to give this kind of download and play performance.

And the first thing that we would like to do today is announce Windows Media 8. It’s our new audio and video format, and player, that helps deliver this kind of performance capability at a whole new level of quality. And to help with that introduction I’d like to invite on stage with me Will Poole, Will Poole is the vice president who has been heading our digital media efforts over the last three years. And he really is the architect and driver of the digital media strategies at Microsoft. Please join me in welcoming Will Poole.

MR. POOLE: Thanks, Steve.

Well, as you know, we’ve been investing a lot in making the quality of audio and video on the Internet as good as it can be. And our investments are really driven by two areas of requirements. One is the content providers you’re talking about, they want to deliver the best quality they can at the lowest bandwidth possible, so it’s profitable. They want to protect it, as you mentioned; they want to get the content that is great to their customers. The other area of requirements are driven by the customers themselves. They want to just have the experience work. It’s got to be as easy as plugging in a DVD. It’s got to be portable, take it with them on the airplane. So those two sets of requirements, content providers and customers, are going to drive a lot of the work you’re going to see demonstrated here, and that we’ve been doing over the last couple of years.

So, what I would like to do is to start off and talk about audio quality. About two years ago, we introduced Windows Media Version 4 at that time, and there we had a breakthrough

MR. BALLMER: Two years ago with Version 4, and now we’re Version 8.

MR. POOLE: We’re Version 8. We’ve actually been iterating a little bit here.

MR. BALLMER: Kind of an industry that’s moving quickly.

MR. POOLE: Absolutely.

MR. BALLMER: Okay.

MR. POOLE: And we’ve got our numbers in sync, I think, and really what our goal is to say how can we get near CD quality at the lowest possible data rate, the lowest possible file size. MP3 was the gold standard back then. With Version 4 what we did was to

— and Media Player 7 shipping today also, we introduced the ability to get twice the amount of CD quality music in the same space as MP3. And with Windows Media Version 8, we’ve taken that a step further. We now get almost three times the amount of music in the same space as MP3. And our goal here again is on mirror CD. So, what I would like to do is to play for the audience the quality that we can now achieve with Windows Media Version 8. I’m going to play two clips, one of which will be actual CD, and the other will be Windows Media 8 audio.

MR. BALLMER: And this is in beta now, it’s in shipment when we ship Whistler next year?

MR. POOLE: Actually, it’s in beta now, and you’ll see content starting to come out over the next couple of months, and it will also be included in Whistler.

MR. BALLMER: Great.

MR. POOLE: So it’s available and downloadable to all players with Windows Media support.

(Audio clip.)

MR. POOLE: I’m not going to tell you which is which, and you don’t even know, which is the best part. So we’ll see how it goes here.

(Audio clip.)

MR. POOLE: Okay, now let’s hear another clip.

(Audio clip.)

MR. POOLE: So, you know, this is not exactly the best venue for audio files, listening comparisons, and actually I urge everybody to go to our Web site and check it out on their own PC, or go by our booth. But I think they sound pretty similar. And, in fact, I don’t know if you guys had any guess, the first on there was 48K Windows Media. That means you get three hours of music on a portable player. That means you get it distributed at a lowest possible cost if you’re Internet radio station. The second one was the uncompressed CD. So, innovation there has been great in audio.

The other area is video. And you were telling me earlier about a little story about your kid playing some video, and it looked pretty good over a modem. And at these conferences every year, we see demonstrations of video quality, and people say, wow, that’s amazing, big improvement, but not good enough. And I think now we’re actually better than good enough. And we feel really great about what we’ve done here. There’s two places that we’ve been targeting. One is, how do we get close to VHS quality video at the lowest possible data rate that can reach the broadest number of DSL or cable customers? So that data rate there is 250 kilobits. And what I’m going to do now is play a clip of near VHS quality at 250 kilobits. And we’ll zoom this in a little bit.

(Video clip.)

MR. POOLE: That’s pretty amazing quality, I think. And if you’re a company like NaviSite that’s going to broadcast a Madonna Webcast to nine million streams worldwide, you’re really focused on how do you get the quality the consumers want and get the data rate low enough to deliver a good quality in incredible volumes to a mass audience.

Now the other target we’ve been looking at is 500 kilobits. Here’s how do we get a quality that is comparable to what somebody is going to see on a DVD or on a digital cable system.

(Video clip.)

MR. POOLE: So what you see there is what we’re able to deliver with Windows Media Video 8 and Audio 8, and approaching DVD quality. It’s not there yet, but it is darned good, and we think it’s better than anything else out there.

Now, the next thing I’d like to show you, and this is sort of the fun part here, is where we do a little bit of audience participation.

MR. BALLMER: Okay.

MR. POOLE: And what we’re going to do here is actually run a true DVD clip, meaning right off of a DVD, and we’ll also run a Windows Media encoded version of the same content. And at the end of that, we’re going to let the audience tell us which was which.

MR. BALLMER: All right.

MR. POOLE: Okay. So everybody pay attention, please, and we’re going to play Clip A, and then we’re going to play Clip B, and then see how many of you think which one was DVD. So, let’s start with A.

(Video clip.)

MR. POOLE: Okay; now we’ll go to B.

(Video clip.)

MR. POOLE: All right. So what I’d like is an applause from all of you who thought that Clip A was a DVD?

(Applause.)

MR. POOLE: Okay, now let’s hear the applause meter for how many thought Clip B was DVD?

(Applause.)

MR. POOLE: I think A has the edge there, but it’s pretty close. So, let’s see which one was which. A was the DVD; B was 750K Windows Media encoding. So, I feel pretty good about that test, and I thank you all for participating.

All right. So, we’ve now seen about how we can deliver some great audio and video on the PC, but it’s not all about the PC. Consumers want to get this experience on portable devices; they want it anytime, anywhere. So what I would like to do is talk a little bit about how we have moved Windows Media not just from the PC, but to over 50 devices that are shipping in the marketplace right now, and I’ve got a lot of them up here actually. So, let’s start over here, and let’s look, starting at business-focused devices.

MR. BALLMER: A year ago how many devices were there?

MR. POOLE: I came up here a year ago, I think we had two or three, and those were Pocket PC, not too hard for us to get lined up there. But, here now, we’ve got not just the Pocket PC, but we’ve got home audio devices, we’ve got portable devices, it’s pretty incredible.

Here’s a Pocket PC, in fact one that we started out with last year from Casio. We also are now having Windows Media in the Compaq MSN Companion. We’re seeing it in home audio devices, like this one from Dell that we’re going to show you in just a couple of minutes that lets you play your music in your living room that’s coming off of your PC in your den. Another one that’s particularly innovative here is one from Nakamichi, so this one here is a desktop device that has a dockable portable audio player. You take it out with you jogging, and bring it back and play it at your desk, play it in the clock radio next to your bed, whatever it might be. A pretty interesting innovation from Nakamichi.

You’ve probably seen, again, being a big jogging fan here, the Nike device. This one here will strap onto your arm.

MR. BALLMER: That’s one of my favorites right here.

MR. POOLE: So you can take it with you. With the Windows Media Version 8, you can now get three hours of music instead of one hour of MP3. You’ve seen a tremendous number of these little innovative form factors in the portable audio space. One that we’re also interested in here is the Iomega; it’s called a Hip

Zip. And this one here has a removable storage, and it gets about two-and-a-half ours of Windows Media Audio 8 of music in here, 12 hours of battery life, and that media costs under $10.

Now, there’s a couple of other devices coming out that have really changed the landscape, I believe. This one here is one of my personal favorites. This is from Creative; it’s their Nomad Jukebox. It has a 6-gigabyte hard disk in it. It’s been on the market for a while. It supports Windows Media now native in the device. It will store about 100 hours of MP3 encoded CDs, 200 hours with Windows Media Version 7, and now 300 hours of music with Version 8. I don’t know if you own that much music, Steve.

MR. BALLMER: I don’t, but I’ll bet there are some that do, Will.

MR. POOLE: It’s a pretty amazing device. Now let’s talk about some brand new things. Here we have the Sony VAIO music clip. This one is the new version that they brought out. The last one came out last year, and it is just incredibly small and light, one AAA battery in here, three hours of music in the Windows Media Version 8.

This one here is a new device from Kenwood. People started putting MP3 onto CDs, so compressed music actually on a CDR, burning it with their CD, and now they can put Windows Media on that same CD. So you can have over 22 hours of music, enough to listen, fly to Europe and back and never listen to the same song twice on this one device, and then, of course, you can change the CDs anytime you want. So, a dollar for the media, and you can put all your music there and carry it around with you.

So, that gives you an idea of some of the innovation we’ve had in devices. The other area we’ve been investing and innovating in is wireless. In October, we showed for the first time our ability to put video, wireless transmission of video onto Compaq iPAQs. And that was just the beginning, a business focused application onto a Pocket PC. Well, now what we want to do is to take that to the consumer market.

So where do you have the bandwidth in the wireless space in the consumer market happening in a big way, and the answer to that is looking at what NTT is doing in Japan with their DoCoMo service. It has been just a wildfire success there in Japan with their first Internet-enabled service. And what they’ve done now is to move from their first generation service to the fairly low data rate up to a much higher data rate. They have a 64 kilobit wireless service now. And they are certainly a world leader in this area of bringing Internet communication to a wireless device. And they believe, as you mentioned, they’re spending incredible amounts of money around the world with telecommunication companies to buy up bandwidth, and they see multimedia as the driving factor that will allow them to make money in the coming years with all that new bandwidth.

So, what I would like to show you now is a new device here that is called the Eggy. It’s a novel idea.

MR. BALLMER: The Eggy?

MR. POOLE: The Eggy.

MR. BALLMER: Okay.

MR. POOLE: Can everybody see that up there? So this is a wireless connected device that can receive video in Windows Media format transmitted over their 2G network in Japan, it’s actually on the market, started shipping last week, it’s on the market now. And what we can do, my Japanese isn’t too good, but I actually know which to click on, and we can see some videos that have been transmitted down to this device. It’s got a small amount of storage, it’s highly compressed video, and let’s think about an application where maybe I’m using this for business and I get a video clip of news about my competition, or about my company, and it’s sent to me while I’m on the train, in the car, in transit, or whatever. So here we have it playing video on this device. We don’t have any audio, I’m sorry.

We also have the ability to, you could imagine getting the new music video from your favorite musician sent down to you, be the first kid on the block, right there instantly available.

Now, let’s see what else we can do, though, this is where it gets really exciting, we turn this little lens around here, and hang on a second, I’m going to get you in here.

MR. BALLMER: I got too excited.

MR. POOLE: There you go.

MR. BALLMER: Hi, Will.

MR. POOLE: There you are.

MR. BALLMER: A lot of light behind me.

MR. POOLE: I don’t know if the audience can see that or not. But you can imagine being able to do a birthday greeting, a hello, leave a video message, and transmit that from this over the wireless network just like you would leave a voice mail message.

MR. BALLMER: And NTT DoCoMo has this on the market.

MR. POOLE: Yes. They do. This is in the market today, actually shipping in Japan. The U.S. market is actually a little bit behind the Japanese and European markets, as you know, but we can certainly expect to see devices like that coming here within the next couple of years. So it’s pretty exciting stuff.

Thanks very much.

MR. BALLMER: Thank you, Will.

I think it’s quite obvious that with the kind of work that others and we will do on the underlying technologies, a wide variety of new scenarios will be enabled. The notion, literally, that within the next year or so I’ll be able to get near DVD quality movies downloaded onto my machine in a half-an-hour to an hour that changes the nature of the way businesses work. You get the kind of device Will showed, I can see DoCoMo, and I could tell by audience reaction how it changes the way people think about using these technologies and what thy use them for.

I mentioned earlier our work in the enterprise, and that we’d have a chance to talk to you a little bit about some of the initiatives in the next year, I’ve talked about broadcast, and learning, we’ve talked about authoring and making the technology transparent. Before I invite Gary Schare from our enterprise team to come on up and join me, I want to have a chance to just share with you a little bit of the work that we do this way, and some of our customers.

Whenever I’ve got something important to say to our entire 40,000 person employee base, what do I do? I give a speech. And I give the speech electronically. We might have 10, or 20, or 50 people live in a studio audience, the rest is a Windows Media Format broadcast that we put out. And then we take back real-time questions via email over our company-wide intranet. There’s a ruling in the DOJ case; I give a broadcast. There’s a positive ruling; I do a cartwheel. There —

whatever. We do that all live using the digital media technology.

We have customers like the Aetna, the insurance company who conducted their first company-wide meeting ever, 35,000 people, using these technologies. Ernst and Young uses these digital media technologies to offer training classes to their employees, so that they’ve essentially taken the learning and training and teaching activity and moved it to be based upon electronic techniques. JD Edwards as a fundamental part of their internal knowledge management system packages up and produces digital media presentations.

The University of Cincinnati has gone so far as to say that for their entire university, for all the curriculum, in all of the classes, they want to make sure they can package up the lectures in this kind of digital form, all moving and going in new places. So a lot of people are really pushing the envelope. But, as I said earlier, only about 1 out of 3 enterprises today uses digital media. And even most of the people who are in the game are using it on a far more limited basis than I think will be interesting long term.

To show you some of the things that we have coming in this area, I’d like to invite Gary Schare, our enterprise group program manager in this area, to come on board and show you some of these technologies.

Gary.

MR. SCHARE: Hi, Steve. Good to see you.

MR. BALLMER: Good to see you.

MR. SCHARE: Okay. I can definitely hear the passion in your voice when it gets down to business applications. So we’ll leave the gadgets aside, and get to work on business.

So you mentioned that end-to-end solutions are really the key to taking digital media adoption in the enterprise to the next level. And by solutions what I mean is the ability to author rich media presentations, intelligently manage these on the corporate network, and to be able to find access and enrich the content as a viewer. So what we want to do is show you a couple of applications from Microsoft and our partners that are really going to make this happen.

So we’re going to start out with authoring. And generally authoring rich media presentations in the past required the work of a professional Web developer that can cobble together the script and the HTML by hand, and make this all happen. But, that’s all about to change. What we mean by rich media is really video and PowerPoint synchronized together in a Web page kind of like this.

Now, what we’re looking at here is the presentation preview window of a brand new application from Microsoft. This is a pre-release version of a product called Windows Media Producer, which will be available next year. And this is an application that is basically the front page of rich media authoring. So what it allows you to do is take all the piece parts, like the video and the slides, assemble them together, and then build and then publish this rich media presentation. Now, in this particular

MR. BALLMER: Kind of like Movie Maker for the enterprise?

MR. SCHARE: Exactly. In fact, this is built off of the same code base as Movie Maker, and then adding the rich media capabilities to it. So in this particular scenario I’m going to play the role of the worker in the corporate communications department of a company called Kintoso, Inc. And I’ve been working on this project, this company meeting, that I want to make available to all the employees. Now, in this case, what we did is we took the CEO into the studio and recorded the video of him speaking, and we also had a little live Q & A in there. Now, what I want to do is go assemble this together, and make it available to everyone in the company.

Now, before I came on stage I did quite a bit of work, and laid out a bunch of this. So I just want to finish up a few last tests. When we started out we actually brought the PowerPoint slides in directly from Office 2000, and Producer actually converts them directly into HTML. We’ve laid them all out on the time line, along with some of the video. What I want to do is add a little bit more to the video. So I left off actually at Frank’s Q & A. And there was an interesting question asked of him regarding our advertising strategy. We happen to have some good footage in a backroom about some of our billboards. I want to add that in. So I’m just going to go ahead and drop it right on the time line. We’ve got two different clips, we’ll lay those out right next to each other, and then put in the closing part of the Q & A, and snap it right in. And now we’ve got our video laid out exactly like we want.

Now, I want to go ahead and add one little effect. I’m going to go into transitions, and I’m going to find a transition that I like. And I kind of like the fade transition. Let me go ahead and make sure this is the one that I want. I’ll preview it here, and we see it’s got a nice fade out, and fade back in. So I’ll go ahead and drop this right on the time line, right in-between those two clips, and now it automatically fades those together.

Now, the last step I want to do is to add some HTML. With producer I can add basically any arbitrary HTML object to my presentation, and lay that out in a Web page. I’ve got a poll object that was delivered by a back end system that we’re going to see in just a moment. So we’re going to take this and lay out the poll, so that we can actually deliver a poll to the employees, right about as slide three pops up. So I lay it out on the time line there. And now we’re all set. Now, we’ve actually completed building our presentation.

Next step is publishing. Now, to publish we can do a couple of different things. We could save it locally and maybe press it to CD and distribute it that way, or even better yet, we can publish to a service on the Internet, or even one on our corporate intranet. And you can imagine with a tool as rich and powerful as Producer you’re going to start seeing a lot more of these rich media presentations. And so what companies need is a solution to manage the content on the back end, and make it available to the employees.

Fortunately, at Kintoso we run a solution called Eloquent Communications Server, or ECS for short. Now, Eloquent is a company from right here in the Bay area, and they build rich media communications solutions for enterprises, and ECS is one of their key products. So we’ve go ECS running. So I’m going to go ahead and public to ECS. So click on the publish button, it brings up a log in screen, so I have permission to publish. It extracts all the meta-data from the presentation, gives me some choices about how to manage it, and replicate the content on the network. I’ll go ahead and upload it. So it’s now moving that content from my front-end machine, to the back end SQL Server database where we’re going to be able to serve it up to the employees in the company.

So now that we’ve completed that, now it’s time for me to change roles a bit. Instead of being a content author, I’m going to go ahead and play the role of an end user within the company, and I want to go in and actually find the content, and be able to play it. So I’ll go ahead and log into the ECS system. I’m immediately shown a corporate portal. This is basically all the interesting content available on our corporate network, it makes it very easy for me to find. I’ve got my favorites, this is content I access fairly often, my subscriptions, content that I want to be notified when it’s updated, and recommendations, this is content that others in the organization think that I should be watching.

Now, what I want to do is use some of the advanced capabilities and we’ll do a search. Now, thankfully, ECS will actually index all the content that it manages, so I can just type in the word Kintoso, and click on search. It’s going to go query that SQL Server database, and give me a bunch of hits. And we see that the company meeting happens to be the first one, which is great, so now we can take a look at that. So let’s go ahead and click that, and we’ll start to play it inside of the ECS shell. So this is the presentation that we laid out inside of Producer. Let’s go ahead and kick it off.

Okay. So we’ve now got a very nice, compelling presentation here. Let’s go ahead and take a look at some of the elements that we authored inside of Producer. Now, remember, we added that poll right at slide three. So if I click ahead to slide three, now the poll shows up. So I can go ahead and answer the question if I plan to visit the employee Q & A Web site. Let’s go ahead and click yes. And notice that if I hold the mouse down really hard I can make sure I punch out that chad, don’t want to leave that behind.

MR. BALLMER: Take the chad out.

MR. SCHARE: I’ll go ahead and vote, and we’ve got some results. So we see that I’ve been hitting this thing a number of times before I came up here, and so we’ve got 60 percent hit. So we get our results, and Frank continues on with his presentation. We can have many polls throughout the presentation. Now, let’s go to the end here for the Q & A section, let’s get a little bit of audio up here of what Frank is saying.

Now we’re going to see the footage that I inserted in there, that b-roll footage. So now you can see that we inserted the footage of the convention center there, and some of our billboards. It shows right up in the video screen. And there we have it. So we’ve got a nice complete presentation, very easy to author. And now for the first time we’ve really got end-to-end solutions, to create content, to manage the content, to be able to find, access, and enrich the content. This is really going to move things forward in the enterprise.

MR. BALLMER: Super, great. Thanks, Gary.

MR. SCHARE: Thank you, Steve.

MR. BALLMER: That’s the kind of stuff I have to say I love. I spend more time at work often than I do at home. And guess digital media in business, as Gary said, just kind of excites me in a special way.

A third area I was going to talk about is a little bit on the kind of work we’re trying to do though for consumers on their PCs, on other devices, at home. You know, 99 percent of people today actually experience digital media in the home, because of, as I said earlier, corporations are still early in the adoption phase, and light in the adoption. It’s really the PC at home where people get their first experiences, by and large, with digital media. Then they may go out and buy a music player, they might go do something else. But it’s at home where they get this experience. And we really have a lot of work to do to make it easier and, frankly, just cooler to use this stuff.

As we sit here and think about the future of the personal compute, and what we want to do in Windows, we see computers being more capable than ever before, we see the need to make the PC at the hub of coordinating what you do on other devices that you might use with digital media, how do you connect up those devices, how do you keep your music, your videos, on your PC, but then put them on a portable player to take with you, to put on a pocket PC, to distribute around your house to a variety of different devices. How do we do that, how do we make the PC much more central? How do we get the PC to do what I expect, and to let me express myself? Heck, how do we make it even easy today for me to just take my own videos, my own photos, my own songs, my own kids work, and just burn it nicely on a CD, all of that stuff needs to be simpler, smoother, and easier in the future.

I want to show you some of the work we have going on there. Sean Alexander is a technical program manager at Microsoft, he’s going to come out and show us a little bit what digital media will look like in Whistler, the next version of Windows.

Sean.

MR. ALEXANDER: Steve, how you doing.

MR. BALLMER: Welcome.

(Applause.)

MR. ALEXANDER: So, I’m very excited today because this is the first opportunity you’re going to see a sneak preview of how we’re making the next generation of Windows the best operating system for digital media, from movies to music. So what I have here is, let’s imagine it’s about a year from now, I have a Whistler-based PC.

MR. BALLMER: It had better be a year from now, next Christmas we want this stuff. Keep going.

MR. ALEXANDER: Exactly. So, a buddy of mine, Dave, gave me Sting’s latest CD. So I went ahead and put it in my PC because I want to copy it into my media library. So here I have Windows Media Player 8 launched, and we wanted to take a key focus on discoverability, ease of use, and all in the nature of the Windows Media player with this new version.

So the first thing I want to do is, I want to be able to go ahead and copy a couple clips onto my PC, and I’m going to do that in the great fidelity of Windows Media Audio 8. So I want when I copy it automatically, I can do 48 kilobits, as high as I want.

So, another thing that we wanted to do was, we found out that consumers really enjoy the rich album and artist information that’s available in Windows Media Player, but they wanted it to be more discoverable. So now we have this optional split pane view so I can go ahead and take a look, for example, at Sting’s album information, which is being retrieved off the Internet, or I can go ahead and take a look at the artist profile information.

Now, one of the neat things about this is, when I’m connected to the Internet, it automatically goes out and retrieves that information. But in Windows Media Player 7, we heard consumers really want to have that information available to them even when they’re offline. So in Windows Media Player 8, all this information, the rich artist pictures, and album information, are all going to be available to you even when you’re disconnected from the Internet.

So that kind of gives you an example of some of the discoverability features that we’re adding. We’re also making ease of use and all in one nature of Windows Media Player a key focus. So, one way that we’re doing that is, we’re adding support for one of the most popular digital media formats, DVD. So now Windows Media Player becomes a full feature DVD player right inside the media player. So, for example here

(Video clip.)

MR. ALEXANDER: — (inaudible)

— subtitles, just like you might have on a DVD player in your living room. Now, another thing that you might notice is that over here on the left-hand side, my DVD has automatically been recognized, that’s because my PC is connected to the Internet, and just like in Windows Media Player 7 we introduced the ability to go ahead and go out to the Internet and grab the audio CD information, we’re introducing that now for DVD. So what I can do here is, I can just go ahead and jump to another point in my DVD where maybe I left it off last time I was viewing it.

(Video clip.)

MR. ALEXANDER: Now if I want to watch it full screen, I can just go ahead and click the new full screen button, making it very easy to use, and very easy for consumers to go ahead and watch the DVD that’s on the PC.

(Video clip.)

MR. ALEXANDER: We weaved digital media throughout the new Whistler operating system. Let me show you what I mean. I’m going to go ahead and close down Windows Media Player here, and click on the start button, and you’ll notice it also has this great new start menu here. You see a number of new things here, for example, My Music folder is a top-level item, so it’s just a single click away.

MR. BALLMER: So, My Documents, My Pictures, My Music.

MR. ALEXANDER: Exactly, just like in prior versions of Windows we really focused on making digital photography and digital pictures very easy to use, we’re now doing the same thing for My Music. So, for example, when I copy a CD to my PC, like I did with Sting, it automatically shows up here in My Music folder, and immediately you notice I have this rich album artist art that’s available.

Now, if I want to go ahead and, for example, listen to some Sting, I can go ahead and double click on his folder, and here I see my PC has automatically gone out to the Internet and retrieved the album art for all the Sting’s albums I have in my media library. Now, if I want to listen to that, I can just go ahead and select a particular album, select from the music task, play selection, and it will automatically launch my media player and start playing back my content.

So, this is just a small sneak preview of what’s to come with Windows Media Player 8, and the Whistler operating system. But, Steve, I know you like to take home movies.

MR. BALLMER: I do.

MR. ALEXANDER: So, you probably know with Windows Millennium Edition we introduced Windows Movie Maker, so it makes it easy for you to create your home movies. Well, I actually got married this last summer, so what I did was, for the holidays I’m putting together just a quick video montage for friends and family.

MR. BALLMER: You’re not going to give me your home wedding video, are you?

MR. ALEXANDER: You won’t suffer through two hours worth, I promise.

MR. BALLMER: Let’s see what you’ve got.

MR. ALEXANDER: It’s just a couple seconds here, it’s actually a couple minutes worth. So I added a couple title graphics, for example. You see with Movie Maker I can go ahead and do some cross-fades. And here we can see my wife, for example, being led by her father into the church.

MR. BALLMER: That’s very nice.

MR. ALEXANDER: Really exciting stuff.

So, this is great, I can go ahead and copy this off to a service such as POPcast, or I can save it and send it off in email. But, you know, I really want to see my mother’s reaction in person when she sees this. So the way I can do that is, I can actually use the new video copy feature in Windows Media Player 8. So what I can do is, I can just go ahead and click on portable device, select that video, and copy it onto my pocket PC. So, in fact, today, we’re announcing the new Windows Media Player 7 for pocket PC, which is going to make it very easy for consumers to now playback both their audio and their video on these devices.

So let me give you an example here.

MR. BALLMER: You’re telling me now, I’ve been kind of maybe boring people a little bit with the pictures of my kids on the pocket PC, now I’m going to show them these videos too?

MR. ALEXANDER: Exactly. You’re not just going to break out the wallet on the plane, now you’re going to break out the movies.

MR. BALLMER: They’re going to love me.

MR. ALEXANDER: So, what I’m going to do here is, I’m going to go ahead and start up Windows Media Player, choose my video from the play list.

(Video clip.)

MR. BALLMER: That’s neat.

(Applause.)

MR. ALEXANDER: So, you see, this gives you a very quick example of how

just a sneak preview of how we’re making Whistler the best operating system for digital media and digital entertainment, and extending that experience to other devices such as the Windows-powered Pocket PC devices.

MR. BALLMER: That’s great. Thanks, Sean. Congratulations on your wedding.

MR. ALEXANDER: Thank you.

(Applause.)

MR. BALLMER: Certainly, we see the PC as a center, a real hub for what’s going to go on in the home, but we do see a variety of different devices in the home participating in these digital media scenarios, from the home office, the bedroom where you want to have screen up, even the refrigerator over time that will have a built in screen capability, the stereo, the gaming device, the TV, there’s just a variety of different places in which I want notes, and pictures, and music. The portable picture frame. And we need to make sure that we provide the infrastructure in Windows and in these devices, the networking infrastructure to move digital media. The capabilities to display, and manage, and manipulate digital media. We thought we’d give you just a little quick picture of how some of this might work with technologies that we’re building now on top of the Windows Media foundation to support the notion of the digital home. And I’m going to let Sean take it away and give you just a brief demonstration.

MR. ALEXANDER: Thanks, Steve.

Steve, as you know, currently digital media in the home is really a disconnected experience. You have, for example, my Whistler PC where it has all of my CD collection, but if I want to listen to that, for example, in the living room, or maybe up in my bedroom, it’s a very difficult experience. Normally, I’ll have to burn a CD, and then go and play it in my CD player.

So what we’re doing today is, I’m going to show you a couple of new devices that are shipping today that allow you to extend your digital media experience to other areas of your home. So, for example, here I have a new Dell audio receiver which is actually shipping today, and what this does is, it actually connects up to my PC that’s sitting in my study, and allows me access to my full digital media library and Windows Media audio. Now, I didn’t have to string a lot of Ethernet throughout the home in order to make this happen. This device actually supports the latest home networking standard, so I can juts go ahead and plug it into my phone line, and it’s automatically recognized using Universal Plug and Play.

So, let’s imagine for a second that I’m going to have the guys over for a game of poker, maybe we’re going to watch a movie afterwards, so I want to go ahead and tape that CD that I just copied onto my PC, that Sting CD, and add it to my play list here so we can listen to music while we’re playing some games here.

So, what I’m going to do is just go ahead and select the play list. Not the traditional Sting sound. It’s really that simple. It may be difficult to see, but actually all the metadata is being displayed here as well, so I see the track, and the title, and the artist and album information right here on the display.

MR. BALLMER: You don’t need to manage this stuff separately on this device, it’s all just managed and maintained on the PC, and you’re playing it now through your stereo system.

MR. ALEXANDER: It’s literally plug and play.

Great, so I’m pretty happy with that. So, the guys want to watch a movie after we play some poker, so what I thought I’d do is go ahead and bring up a movie. And what I have here is a shipping set-top box by uniView, which is actually connected to a new service, a high-speed video on demand service being deployed right now by Entertainer. So what I have here is, I’m going to go ahead and select a movie, I’m going to switch to the Entertainer service here, go ahead and log in, I don’t know about you, but Gladiator looks like a pretty good movie, so I’m going to go ahead and preview that here. So what’s happening right now is, it’s actually streaming that on demand from Entertainer service sitting at a central location. That’s happening at about 500 kilobits per second. Take a look at that quality.

MR. BALLMER: You picked the big action part of the movie.

MR. ALEXANDER: Definitely.

Great. So, after the guys leave, you know, perhaps I want to be able to watch my movies that might be sitting on my PC. You remember the home movie I created earlier, that little wedding video?

MR. BALLMER: You’re going to see your wedding again?

MR. ALEXANDER: Absolutely.

MR. BALLMER: Okay.

MR. ALEXANDER: So what I’m going to do here is, that’s automatically recognized as being a part of a media library on my Whistler PC, so that’s central to the experience. And since it’s connected via home phone line networking, I can just go ahead and select Sean’s wedding, here for example. And then I can torture you with this again.

MR. BALLMER: I’m still waiting to see whether she actually said, I do.

MR. ALEXANDER: Yes.

So that’s just a small example of how we’re enhancing the experience in the home, and these are actually shipping devices today, and stay tuned because you’re going to see a lot more. But what’s neat about this is that Whistler is central to this experience of providing a single place for all of your content to be stored, and making it very easy for you to stream it either within the home, or connect to outside services like Entertainer.

MR. BALLMER: Super. Thanks again, Sean. Take care.

(Applause.)

MR. BALLMER: Before I wrap up, I want to thank some of the companies that partnered with us in showing you some of these technologies today, people like Dell and Compaq, Kenwood, Eloquent, Universal, Warner Brothers, Intertainer, Sony and Creative, and NTT DoCoMo. A lot of very, very interesting things.

If you don’t take away anything else from this speech, I think you should take away the amount of enthusiasm and innovation and energy that our company and I think our industry is bringing to the digital media space, fueled by the broadband revolution, new services, higher quality, better digital rights management, new devices, and business models, and a new version of Windows. It’s squarely burned on the front of our forehead that digital media is one of the fundamental drivers of excitement and innovation and just incredible new things that consumers and business people are going to be able to do with information technology in the future.

Share the enthusiasm, we look forward to having a chance to work with many of you on these projects, and I appreciate the opportunity to talk to you today. Thanks very much.

(Applause and end of event.)

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