Speech Transcript – Craig Mundie, Canadian Club

Remarks by Craig Mundie, Senior Vice President and Chief Technical Officer, Advanced Strategies and Policy
“New Frontiers of Knowledge and Innovation”
Canadian Club
Toronto, Ontario, Canada
November 21, 2003

CRAIG MUNDIE: I would like to share with you several thoughts, one about the evolution in computing and how it will affect our lives and why it’s a very interesting moment in time, both as the developers of the computer programs and hardware, as well as the users of it. I will also talk a little bit about the challenges that we all face, both as business people and as a society, in adapting to changes that have already been brought about by the use of the technology. At the end I will mention a few things that are policy questions that I think the governments of the world are going to have to come to grips with as this technology pervades everything we do on a global basis.

We begin by talking about how did we get here. To some extent, the computer industry moves in long cycles, and these cycles tend to be driven by what we call waves of innovation. Many people around the world – whether in government funded laboratories, academic institutions or businesses – do research on a continuous basis. Ultimately, that research gets clumped together and flows out in innovations that people adopt in the products that they choose to use and buy. The computer industry has been, in my view, only through about three and a half such major cycles. There was the mainframe cycle – which began with people using or feeling the impact of computing mostly in business. Then, there was the departmental computing or mini-computer era. But the one that really began to touch us all quite directly was the one driven by the micro processor, and the personal computer in the early 1980s was what brought us to that point in time.

Each of these cycles I think has two parts: the first part is where this new platform which becomes a global programming environment for the world is diffused into our society. I think that almost always happens with a few killer applications that have ubiquitous appeal being taken up by the grass roots. Not because there’s an on-high mandate that says, “Thou shalt use the new platform,” but rather, against, in many the cases, the judgment of those controlling the current platform, it is the people, saying, “I’m going to go off and use this because it looks interesting to me.” The personal computer went through that process on the strength of interest people had in spreadsheets and word processing, not even the ones we know today, but the ones that ran under DOS and a character-mode interface, but which had strong appeal and people took it up. Tens of millions of people bought a PC and put it on their desk.

But eventually, you tap out all the people who can use it in that form and you have to move on, and the question is, what takes you to the next level? And the answer to that question is some of the invention that continues to go on in the background gets added to the platform, and it gets converted from something that people use for a limited set of tasks to something that people use for an unlimited set of tasks. That power is created by the people writing programs that run on the new platform. So when we added networking and graphical user interface and programming tools to the lowly desktop PC, we begat the computing environment that now has emerged as the client-server model of computing that pretty much all of government enterprises operate using that technology today. But even that begins to run out of steam; it solves a large class of problems but not all problems.

And so in the mid 1990s, we really began again I think the next phase of computing, the emergence of the Internet as a computing platform. But similar to the early days of the personal computer, I think that this began again on the back of just two applications, e-mail clients, which Ravi mentioned, and Web browsers, which he also mentioned, and if you think about it for the last eight or nine years – the new thing in computing was to use e-mail or Web browsing as the way in which you got incremental benefit. It didn’t negate what we got out of the earlier generation; it just added something completely new and different.

Today, there is probably close to half a billion people on this planet who have decided that this Internet thing has some real value, and they use it every single day. All they’ve really done is finish that first half of the cycle – they’ve used a couple of killer apps to get the platform established, and what the R & D folks have been doing for the past few years in the backroom is developing the new sets of technologies which will essentially allow this platform to carry on. So, things like speech and handwriting recognition, the advent of wireless technologies, broadband deployments, and a new model of programming called Web services, and changes in the underlying hardware to provide stronger trust models – all of these new technologies are now getting overlaid on the computers that are out there. In addition, computers are not constrained to the desktop anymore.

Now this is one of the new Smartphones that Motorola has recently released that runs some software from Microsoft. What’s interesting is that this is more of a computer than a Windows 98 PC was, it has a several hundred megahertz machine in it, this one has over 300 megabytes of memory in it. It does multi media, it does e-mail, it does telephone, does a lot of things. And so there is no question that these new devices represent an opportunity to program in ways that we didn’t do before. But to do it, we have to escape the boundaries of just thinking about the enterprise boundary as the place in which this happens. So, we had an interesting moment because the economies have been a little slow, people have been asking at least rhetorically the question, is this all there is to computing? There were some quite famous articles written earlier this year by some notable academics from the Harvard Business Review which got a lot of popularity saying that IT doesn’t matter anymore, it’s all just about wringing cost out of the system we have, because we’ve seen it all.

We find that a little amusing because if you look at what’s going on in the R & D sense, there’s more going on now then in the past, so the idea that it’s all going to stop here is not plausible to us. We in fact think that we’re at a point in time that the market will turn up, and in particular, the use of computing will turn up. Why? Because the programmers can now move from the old platform to the new platform and the beginning of that process has really begun in earnest in this calendar year. So in the course of the next couple of years, as the efforts of those programmers come to the market place, we’ll see radical changes in what computers can do to help people in their personal lives, in their business lives, and in many other aspects. They will come to take on an important role – not only in traditional notions of computer enhancement of personal productivity or creativity, but they’ll mediate pretty much every form of communication of voice, video, e-mail, instant messaging -there will basically be an integrated platform, and they’ll also be involved in pretty much all forms of entertainment, audio, video, movie watching, whatever becomes television, will also be done using these new technologies. We now have to confront the new realities. Society has become critically dependant on computing and telecommunications. Anyone who had wondered if this was really true, need only to look at some of the side effects of the terrorists’ attack in the United States on September 11th of 2001. Everybody, of course, watched the buildings collapse. What people didn’t pay as much attention to was the fact that the New York Stock Exchange couldn’t go back into operation for a week. Why? Nobody was hurt at the New York Stock Exchange; the buildings didn’t fall on the New York Stock Exchange. In fact a building did fall on a telephone switch under the Trade Center and that took out enough communications capability that it took a week to repair enough of it to put the stock exchange back on line. The world’s financial markets were essentially crippled for that period of time simply because of that loss. Also, at the time in the United States, for about a day you couldn’t use cell phones in the eastern half of the United States. Why?

Similarly, we had lost some critical linkages and the system was never designed to take up the amount of traffic that was produced when the rest of normal telephone system ceased to operate. So there are many new things that are happening and many terms that in a surprising way you find being re-used in cyber-space that are hallmarks of problems that the society even today grapples with on a regular basis. If you read the newspapers, you can often hear the term WMD for weapons of mass destruction, but if you worry about cyber-terrorism – WMD stands for weapons of mass disruption. And similarly, when we talk about proliferation we don’t talk about nuclear weapon proliferation – we talk about the proliferation of the tools and the devices that essentially allow people to attack the world’s network infrastructures. And critical infrastructure protection doesn’t mean just protecting the bridges and the power supply and the water supply, it means protecting all of the communications infrastructure and operational systems that society depends on to operate everyday. There’s no going back from this, just as there’s no going back from having automobiles or electricity or indoor plumbing or anything else.

We become dependant on it, and the reality is as a society we are dependant on this now, and will be increasingly dependant upon it in the future. That brings us to having to address a number of questions head on. Security, of course, being a critical one. It’s one of the ones with the most notoriety around it because the people today who prosecute these criminal activities on the Internet largely do it seeking publicity. To do that, of course, we need to improve the products and development process. But more and more we need to get to a point where automatic updating of the machines is the norm, as opposed to something that is quite unusual. Ultimately, we’re also going to have to change the legal environment in ways that actually provide a legal deterrent that will essentially help find a balance between what people think they are entitled to do that disrupts everybody on the Internet, and what they are clearly unable to do in the tangible world.

This becomes a part of a larger question that at Microsoft we call the Trustworthy Computing question. At our company, two and a half years ago, we embarked on a process to change the culture of our company to reflect the need to operate responsibly in the design of our products and the servicing of our products with respect to being critical infrastructure. Not just for banks and governments, but ultimately every single individual who won’t be able to communicate, watch television, listen to music, or perhaps drive their car without some dependency on these technologies. So we reduce these down to a couple of key ideas, security being a key one but also privacy. These new technologies which will find their way into the cracks and crevices of everything we do will have a more intimate relationship and knowledge of what every single person does. Where they are, what they like, more than any technology than we’ve never know. And at the same moment, they have a level of conductivity that the world has never known, so clearly the potential for both benefit and abuse is at a level that we’ve never known. And so many of these things rely on a set of not only product design and business integrity questions but a set of policy and legal challenges that go beyond those that society has addressed up to the present. When we think about this future of technology and we read about IT being dead, we at Microsoft believe that this couldn’t be farther from the truth, in fact, all of the benefits that society has accrued from the deployment of computing today probably pale in comparison to the benefits that will come from this next wave of programming.

Why? Because now it transcends the boundary of the corporation. You can have computer to computer interaction for any purpose that anyone wants to create and write code to do. And it can operate on a global basis, so whether it’s the exchange of information, the translation of documents, whether it’s basically getting machines to do tasks that otherwise people would have to do in a repetitive way, all of these things become possible at a scale and level of performance and interaction that was never achievable before. So what we envision now is a fabric of loosely coupled devices which will be the computers that are in everything, your pocket devices, your wrist watch, your car, your television, your game machine, your desk top – pretty much everything – will be connected.

And in fact, the conductivity will cost less and less in some sense because there’s a revolution coming even in radio technology. Today most people of think of radios as they relate to cell phones or maybe even FM in your car – or watching somebody talk on a walkie-talkie. When in fact, the radio hasn’t changed materially since the days of Marconi.

The steady advance in micro-processor technology has created a situation where in a few years time it’s highly likely that anything with a micro-processor in it will have a radio for free. And the radios may not in fact work in any way that we know today, and that represents, again, both problems and opportunities. But clearly, the cost of getting all these things to talk to each other will decline quite dramatically. So in the 1960s, the use of computing was quite manual and beyond the 60s, we created an island of computers largely within a corporation – and in the 90s, we created connected processes. But, again, largely within the boundaries of the corporation.

The coming wave will essentially be smart processes where everything people want to do will essentially be encapsulated in some software that will either do it for them or help them do it more efficiently. And through that we expect we will revolutionize many of the daily tasks, certainly around communication and collaboration. And increasingly, we will just add intelligence to help people in everyday tasks in everyday devices. In order for this next wave to happen, though, I think there will be an ever increasing requirement for people who know how to program. People who know how to do this.

In the last eight or nine years, a lot has happened in the world. We went from a place where it was the G8 countries who had advanced technology, and a lot of educated people, to a time where we have a set of emerging economies at some dramatically larger scale than even the G8 countries in population – who now stand equally ready and interested to capitalize on this new technology. And so I think that every country will have to find a strategy to develop a local software economy. Because without a powerful capability locally to develop these novel applications according to the needs of the country, according to the culture, the laws, the language, the alphabet of the country, you won’t be able to get the benefit of all this technology and you’ll end up with a significant disparity between the countries who have a strategy to do that and the countries that don’t. There are a couple of key things that must get better for these local software economies to emerge on a global basis.

First is the concept of intellectual property. It’s not a new concept – it’s been around for a few hundred years, it’s really being challenged, though, in many ways simply because the ability to digitally copy almost anything is growing in an unlimited way. The music industry, the computer software industry – these are the ones that have been at the pointy end of this problem and have had to deal with it the longest, and have seen some of the side effects from it. Microsoft – in many emerging countries has seen some piracy rates on our software of a low of 75 percent to a high of 97 percent and as a result, you begin to realize there’s some serious economic issues associated with that. If everyone thought they had an entitlement to having all software for free, then no one would be doing the R & D that has to be done at the level it is currently being done to drive these things forward. But I contend that this intellectual-property question is quite thorny, because it won’t apply just to the current intellectual-property assets.

I met with a president of a country recently who said they had just completed a study – and this is a modern, fully developed country – and had come to the conclusion that about 50 percent of all branded goods imported into the country are counterfeit. Why? Because it’s digitally easy to do it. I met with another company leader recently who said they had a new problem in that they’re a car company and their entire car was being cloned part for part and sold for 40percent less than they could sell it for, because there was no R & D cost. If that were to continue – how long will people continue to do this kind of engineering?

An additional problem we have is that many of these technologies, and the ability to do this, is a globalized set of problems, it’s a trans-national set of problems and yet, largely the laws that govern these things still reside within the sovereign state. And so while we struggle to find treaties to deal with global warming and other things, I predict we will similarly find a set of challenging policy issues around the resolution of many of the disparities that exist around the key concepts like intellectual property and enforcement in this network connected environment.

The second issue that will have to be addressed is one of education in many countries of the world. Some are better off than others, but clearly by and large, there is insufficient focus on getting a general population who is prepared to deal with the technical challenges and opportunities that are available through all these things. I think that in Canada, there is an opportunity for this technology to contribute to a vibrant Canadian economy. The percentage of the business sector that is employed by IT – at least in the year 2000 – in Canada was about 8.4percent, which is slightly less than countries like Finland and Sweden, but basically above that of the Unites States, Korea, and Germany. So clearly a foundation exists here, if it’s capitalized on to continue to move forward.

But it will mean that you have to move forward to the new world, not to just continue to do more in the old world. And so a retraining exercise is required even for the IT professionals you have, and how to do that aggressively, will be quite a challenge. Many other countries that don’t have a legacy in this environment realize this is a huge opportunity, and are making great efforts to train their people – both at the consumer level and the business level – to be prepared to use these technologies aggressively. We think that, ultimately, technology is about helping people to realize their potential and clearly, there are four distinct areas in which this can play a role.

In the case of government, the new technologies using the Web, the movement toward e-government and electronic services will allow government to be more efficient – perhaps to have representative democracies be even more effective and to deliver programs and services online at lower costs. That may produce more effective engagements with the citizens and all of that would obviously be good.

It also allows us to tackle very difficult problems that the technology itself brings forward. Microsoft has been a big sponsor here in Canada with the Toronto police in using technology to track criminals who use the Internet to prey on children, and we think that obviously, you have to use the technology to fight the adverse uses at the same time. Cleary, you can empower citizens as the technologies get better. As we move from mouse clicks and keyboards, to speech recognition and vision systems, the modalities, and user input and output will change, and more and more people can be well served by the computer. Clearly, we’ve already been able to help many people who are either less privileged or who have physical disabilities, and I think that the power with which we’ll be able to do that in the future will improve.

Education is a challenge in every country. The dream of every parent and every policy person could be ultimately revolutionized by applying the technology aggressively in education. But so far, the policy choices haven’t been made the way they have been made in government, the way they have been made in business – to put a computer in the hand of every student and use it as a fundamental tool of education.

Today, it’s still more or less the icing on the cake and viewed as an extra cost option against the traditional method of teaching. Ultimately, it will be broken down and that will require aggressive development of specialty computer systems and low cost devices to be used in education. But clearly, it can create a revolution in the educational process and, of course, businesses now can essentially move aggressively forward to use these technologies in ways that they’ve never contemplated before. The efficiency of capturing virtually every business process in software and exposing it as a Web service makes available an array of interactions between our companies, our customers, our supply chains – that has really never been imagined in the past. There is a general agreement among the technology providers of the world that this model of Web services and XML technologies really does create a lingua franca that allows this interaction to occur.

We want to see this move aggressively forward, and we think that the operational and productivity benefits of doing so can be quite dramatic. Of course it’s really the kids that are going to set the trends in this environment, they’re the early adapters of most of this new technology, particularly when you realize that more of the smart devices will flow out in the form of consumer electronics and things that people will buy for their personal lives than will be flowing out of the enterprise environment itself. It’s pretty interesting to look at the statistics and the demographics of the role that young people will play today and in the future in the work force.

If we look at events in the Unites States, the statistics and you say, OK, where are we today, what percentage of kids use the Internet? Of ages 3-4 in the United States today, 14 percent of them are active internet users. Age 14-17, 80 percent of them are active Internet users. This was actually where the statistics were at the end of ’01, so it’s probably going up substantially down there. Of age 18-24 kids still in school, 85 percent use the Internet. What’s interesting now is by the age of 10, kids are more likely to use the Internet than adults of any age beyond 25 and, of course, kids are a growing part of the population if you look at the percentage of the work force that will be made up of people under the age of 25 – today, that’s about a little under 25 percent but by the year 2025 it will be over 50 percent. So there’s a demographic wave sweeping through even the fully developed countries, which arguably is even more extreme in the developing economies, and as a result, these people who have no fear of technology, who grow up knowing nothing else but this is the way to do things.

They are your workforce of the future and if you aren’t prepared to embrace them and provide them with the tools they are accustomed to in their personal lives, then in fact, you will have a tough time recruiting them and retaining them in your organization. So society has a number of challenges and focus areas I think we have to deal with and I’ve talked at some length here about opportunities of education and traditional uses of computing in government and business. But these also change in other fundamental ways. In essence, there’s no area of science today that can be prosecuted without active use of computer technology. One of the more important ones, is the area of human health. The processes of sequencing the human genome working on proteomics and ultimately, adapting this into the form of perhaps even personalized diagnostics and personalized medicine, obviously can’t be done without pretty much extreme applications of information technology.

Criminal justice, the quest for stability in our society – we still face these challenges as I mentioned earlier relative to the privacy aspect; we have more tools available to people using IT to prosecute these issues and to share information than anything we’ve ever had before.

We’re pretty clearly at a point in the very near future where computers will be quite good at things like face recognition. Today they do pretty well at fingerprint recognition as a biometric identity, but we have working prototypes today at Microsoft in our research labs where I can basically pan a video camera across this room, and if I stopped and annotated the faces of each of you and then had you stand in front of the camera somewhere else, the machine would promptly recognize who you were. Pretty much just as I might be able to, except its memory is a lot better.

Clearly, the whole notion of tax and revenue, and how money essentially flows into the government to balance society for the purpose of education or pre-competitive research, are also affected by how this works and people have to think carefully about how taxation works, what’s the jurisdiction for taxation in a technology environment that’s transnational. Just like intellectual property rights and protections around there, we don’t really understand how we’re going to share revenues to reflect these costs that are essentially transnational in nature.

The digital divide remains a big challenge, that being the idea that some people will have access to this technology and some people will not. Ultimately, you can expect to face this question, not just in your country, of whether you have haves and have-nots in the digital sense, there will be whole countries that will essentially be facing the digital divide where they – for whatever reasons – have not risen to the same level that others have to adapt to the capabilities that these technologies provide. So many global issues and certainly many national issues, I think, are directly affected by these technologies. So that leaves us to a set of policy challenges. I mentioned specifically the question of a local software economy, most governments of the world get it now.

It’s pretty hard to go to any country and talk to any top level of the government, including prime ministers, that don’t understand the critical role that information technology plays in their economy and in their society – and all of them recognize that unless they do something to address it, they will be left behind and their ability to compete in a globalized economy will be substantially diminished.

Yet, despite that, many of them are not familiar with the technologies and frankly don’t have any kind of holistic plan to deal with the formation and sustained operation of a local software economy. In some sense, in the last eight or nine years they’ve all gotten by. Why? Well, the programmers that were doing it in the enterprise were well cared for, we’ve had enough of that, we’ve been in this period where programming didn’t matter that much because we were in the diffusion cycle of the Internet as a platform. But now we need programmers again, and there’s going to be a worldwide demand for that both in a global exchange sense but certainly in a local sense, and I think it’s a significant policy challenge particularly in the developed countries, I’ll say especially in Canada and the United States, where the media tends to idolize singers, movies stars and sports figures – we don’t do much to idolize engineers and scientists. They are, in fact, critical to making all these things go forward, but yet if you look at all the matriculation numbers for people in the university who are going into these disciplines, they are actually declining, and that’s happening at a time when in fact many of the people who were studying these disciplines in the United States and Canada for the last 10 or 15 years were people from other countries. They were the elite academically in other places, and today those people have an opportunity to both be educated at home – and even if they come here to get educated, they certainly have a great opportunity to go back and work at home. So certainly the idea that you’re not going to see the repatriation of that talent I think is going to be much higher than it has been for the last decade. And so the influx of IQ from countries where, in fact, there is less infatuation through the media with sports and music and movies, is going to continue to outpace us in terms of their production of engineers.

In the last year, for example, in China, the Chinese government two years ago decided that a critical thing for the country would be to “informationalize,” they made their own word. All the sectors of the Chinese economy realized that they didn’t have enough talent in programming to do that, so last year they opened 35 software universities, from scratch. So these are the things that each country is going to have to come to grips with, a real earnest analysis of where are we relative to the need and what are we really doing to address that need and recognize that there’s different flux in the system as to where this talent is going to come from.

So intellectual property protection, I think, is a critical issue. You’ve got to figure out on a treaty basis how that’s going to happen, because in a world where the piracy can happen or the virus can be released or whatever it is – in any little country that’s connected to the internet – but has no laws, no extradition treaties, no common policies, it’s not illegal over there. So one of the major viruses that was released in the Philippines about 18 months ago was done by teenagers, and at the time they did it, it wasn’t illegal in the Philippines. It happened to cause a billion dollars in damage elsewhere, but what do you do? I mean were they doing the right or the wrong thing? The public mores may have adjusted to be inline with these technologies, and I contend that they are not. So I think that the challenge falls with the parents, the educators, and policy people to figure out how we’re going to get the society acclimated to these issues. Broadband and spectrum policies are equally important, if you don’t have conductivity both in terms of performance and reach that’s akin to what you’ll see in other countries. That itself is a reason that you invest and still not get the benefit. And with the idea that new radio technologies will come, the more developed countries have the bigger problem because to some extent, they’ve already allocated all their spectrum to old style uses, they don’t have much of the good stuff left to go around. The emerging countries, they don’t have that problem.

So there are many things in play here that I think require informed choice on the part of both business and policy people within the country. Interoperability is of course an issue, but I think the industry is moving aggressively forward to do that. Many countries today are facing the question of do I have to help other technologies emerge, should I have a local platform in my country, should I prefer one technology over another? Which essentially, I’ll call high-tech trade protectionism, and many countries are burdened with these questions. But the world has really benefited from this because, in fact, the technology being largely neutral from a procurement preference point of view and, in fact, up to the present, these technologies in the IT side, at least, have been completely unregulated industries. There is a challenge though, because societies have this propensity to say anything which is a critical infrastructure, we should regulate to make sure it doesn’t go away. But the history of regulated industries is not very good in terms of sustaining their productivity and their rate of advance, so if this is a critical technology – what are we to do? Do we regulate it to make it safer and more available, or do we actually let it run free on a global basis in order to continue to get the benefit in every sector of economy. And then finally, we have to face these challenges of privacy and security. We have to be able to have legislative environments to let us deal effectively in finding a balance between legal deterrent and technological deterrent, in getting rid of annoyances like spam and in getting rid of the abuses of technology, as we see, for example, with pornography and child abuse on the internet.

These items are just a short list of the policy challenges that I think we have to come to grips with, and why they can’t be addressed specifically by the technology community itself. At the end of the day, though, we’re at the point where it isn’t about technology for technology’s sake anymore. We believe ultimately that the greatest contribution of this technology is helping people realize their full potential and Microsoft as a company is very committed to that as our mission going forward.

Thank you for your time.

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