Bill Gates: Microsoft Strategic Account Summit 2007

JOANNE BRADFORD [Corporate Vice President and Chief Media Officer, Microsoft Corporation]: Good morning, good morning. Welcome. I hope you guys all enjoyed the evening last night.

Before we get started, I just wanted to give a shout out to the entire worldwide Microsoft Digital Ad Solutions sales staff and marketing staff just sitting in the other room watching us. So let’s give them a big shout out. (Applause.) I believe they’re one of the best sales forces in the online business today.

And I’d also just like to say hello to all the people back at our campus watching this on webcast, because we didn’t have enough capacity to fit them in here. So, hey, back at campus — the world of technology.

Last night my daughter, who’s 12, sent me an e-mail and she has an MSN account — we’re an MSN Premium family. She — of course — she sent me an e-mail, because we’ve been having a discussion. It’s the end of the school year and she wanted — I told her, “Hey, why don’t you have a little swim party” — it’s been hot — I live in California — “Why don’t you have a little swim party? Get some of your friends.” So she wrote me a note back and said, “Mom — can I really do that? Can I start planning it?” She loves to plan parties. And I got on IM with her and said, “Yes, you can do that.”

So when I got back to my room last night and checked my Windows mobile device I saw there she had sent me a bunch of links of party favor stores that she got off of Live Search of what she wanted to buy. I gave her a budget of $100, and she’s going to have luau theme party at our house on June 8th — you’re not all invited, but I wanted to let you know that the point of influence in my life about using mail and Messenger and services is real for me as a consumer. I live it every day, I love our products, and I am inspired by them every day. And I love that I can stay connected to my family. And I wanted to make sure that you guys understood that it happens real-time every single minute of every single day. She’s a little inspired 12-year-old that loves what she can do, and she’s building a pretty big network of Messenger users in her network.

I also wanted to just say we’ve got some interaction going today with your little devices. So I’m going to give you a little quiz today. The first question for you today is — do you have your little devices there? Ready to roll? How many — for you, is this your first Strategic Account Summit? Your fourth? Or you veterans out there, number eight, been to them all? And, if you went to them all, you were back in the cafeteria with 12 people eight years ago. That’s how far the online business has come. So let’s see what the results are on that. The thing isn’t working. The technology isn’t working, they tell me. I was waiting for the results. Well, we’ll come back to that later.

Let me ask you this, though: Can you guys raise your hands for anybody that’s changed jobs in the last 12 months? Yes, I think it’s about 20 percent of the place that’s changed jobs. It just goes to show that the online business is moving so fast that we all need to get new jobs and new skills and be inspired in what we do.

It’s not easy. I was just talking to Seth backstage — Godin — who wrote the book, “The Dip,” that you all got. It’s about taking the challenge. If you put something up on the Web and it doesn’t work, you need to fix it and make it better. It’s not like you have like a big old ad campaign where you shipped it and it didn’t work. This you can refine. So you have to be inspired every single day to take the challenge.

So we hope that today you’ll see people in the last year that have taken big, bold challenges — people like Howard Draft, people like Maurice Levy, David Kenny, Bobby Shriver and a guy who I’ll introduce in a few minutes named Bill Gates.

So at MSN we’re taking a big challenge to change the way the portal looks. We think that the portal needs to look pretty different going forward. We have a couple pillars that we’re using in the portal as we go forward.

The first one is “I Know.” People want information. They want to know when the Virginia Tech shooting happened. They want to know when Paris Hilton is going to jail, believe it or not. They want to know those things. So being in the know is super important to consumers.

And then they want to know they can do something. So at MSN we’re trying to give them tools to do things, to be able to search, to be able to look for things. Alec Baldwin — we wrote a story about him a few weeks ago — we had over 12,000 message board posts in a half of a day on the debate about divorced parenting. People wanted to know their opinion could be heard: “I can have an opinion; I can weigh in on this discussion.”

And the third one is “I Care.” And “I Care” is about loyalty. My husband is a big MSN homepage user, and he must launch the browser 25 times during the day, and he reads every headline on the homepage, and then he comes and tells me, “Did you know this?” And I always say, “I know.” His caring is about loyalty, his frequency of use, how often he engages and how he uses our products and services.

So “I Know,” “I Can,” “I Care” are really the premise of MSN and the portal and the technology that underlies that.

One of the biggest news stories that we had on the portal in the last couple weeks was the CEO of Home Depot. We wrote a story about how bad customer service was at Home Depot. We received 10,000 e-mails, 20,000 message board posts. And the CEO of Home Depot wrote his apology to his customers on the MSN Messenger Board. Now, that’s “I know,” “I can,” and “I care enough to do something about it” from a CEO. So look for more on MSN in those areas coming in the future.

We want to make sure that you really have a couple of days to engage people in a discussion. I took some of the agency community for dinner last night. We had a great discussion about how important it is to share information and to become partners; because as we take on these new marketing challenges, you guys are probably buying more content than I am right now. So we should partner on how we use our content. We should partner on what we do. I saw — I don’t know if Schmul’s (?) here — I’m sure he is — you know, he sent me a video link the other day of his marketing guy putting some video up on YouTube. He’s creating content. Every day every one of you is creating content. And we’d like you to buy mother something from Ice.com — just so you know. Schmul (?), that counts as an impression, and I want some performance revenue on that.

So, you know, we want to make sure that you have a chance to have a discussion and to share with us your content ideas about what you’re doing, and how we can bring that to life using all of our services.

The other thing I wanted to do is make sure that you know at Microsoft we think about lots of things every single day. There’s lots of challenges and lots of ways for us to bring our products to you. We had Steve Ballmer with a few customers yesterday. He said, “We build services that can be applied in many different things.” So our mail beta yesterday — we build mail for the enterprise, we build mail for the consumer, we build mail for a 12-year-old girl. And that’s an “ia,” not an “le” — anybody get that joke?

So we build mail for all those different audiences, and we’ve got lots of different products in the pipeline.

I wanted to bring out the president of the Platforms and Services Division to talk a little bit about what inspires him. So, Kevin, come on up. (Applause.)

So, Kevin, how are you today?

KEVIN JOHNSON [President, Platforms & Services Division, Microsoft Corporation]: I’m very well. Good morning.

JOANNE BRADFORD: So how much do you love the advertising business?

KEVIN JOHNSON: I love the advertising business. Today’s world — we live in a world where digital technology is really changing people’s lives — at home, and in business. And I think certainly we’re all part of that. And the fact that technology is changing how advertisers can connect to their customers, the advertising platform is changing the way they can improve efficiency and targeting and return on investment, and reaching — and to be a part of that is an exciting opportunity.

JOANNE BRADFORD: So, Kevin, I have a couple questions for you. You used to run a sales organization of about 35,000 employees before you took over running the Platforms and Services Division. You’ve run marathons, right? How many?

KEVIN JOHNSON: Actually just one.

JOANNE BRADFORD: Just one. That’s all you need.

KEVIN JOHNSON: Yeah, it’s a nerve-shattering experience actually. (Laughter.)

JOANNE BRADFORD: And then recently you shipped a little product for this company — what’s the name of that of that product?

KEVIN JOHNSON: Windows Vista.

JOANNE BRADFORD: And how was that experience?

KEVIN JOHNSON: Shipping Windows Vista was a great, great milestone for the company. And in the first 30 days I think we sold over 20 million units, which doubled the run rate of Windows XP. So we’re excited to have the product released in the marketplace, and we’re excited about the impact it’s having on our customers.

JOANNE BRADFORD: Yeah, and are you a big Xbox gamer?

KEVIN JOHNSON: You know, I am an Xbox gamer, with my two sons. I admit my sons are much better and much bigger gamers than I am, but —

JOANNE BRADFORD: Your sons are in that elusive 18-to-34 demographic that you can only get online?

KEVIN JOHNSON: My sons are right in the sweet spot of that demographic.

JOANNE BRADFORD: Excellent, excellent.

So, can you tell us a little bit about what you expect to see for the next two days and how inspired you are about this business?

KEVIN JOHNSON: Well, we certainly hope that over the next two days we have the opportunity to share a variety of perspectives on this changing world that we live in and the role that digital technology is playing in helping advertisers connect with audience. As a company we’re investing in first-party audience, whether it’s things around MSN and bringing our Windows Live services together with MSN, work we’re doing in Xbox Live, Office Live — across every division in the company, we are building services that are based on a business model of online advertising. So we’re creating audience opportunities.

Second, we’re investing very heavily in the advertising platform, being able to have the technology that can help advertisers better connect with that audience, and do it in a way that’s scaled — scaled to help provide efficiency to the industry. And so my hope is over the next two days that the attendees here at SAS have the opportunity to see the things that we’re doing, and hear from a variety of perspectives in the industry, because this really is an industry-wide phenomenon in digital technology, really transforming the way people work and people live.

JOANNE BRADFORD: And, Kevin, do you think of the ad business as a little bit more fun than the enterprise software business?

KEVIN JOHNSON: Joanne, the ad business is a lot of fun.

JOANNE BRADFORD: Well, you know, we’ve got a big concert tonight: Chris Cornell with Audioslave. You know Audioslave and Soundgarden?

KEVIN JOHNSON: I do, absolutely.

JOANNE BRADFORD: Do you? Right on. Great. So we’ll see you there. We want to see you there in some rock ‘n roll clothes — put your jeans on.

KEVIN JOHNSON: Look, my son is a rock musician, and for the last 10 years I’ve been a roadie for his rock band. So I’m looking forward to tonight. I don’t think I have to do the roadie job, but I’m looking forward to it.

JOANNE BRADFORD: Really? Well, you know, in the meantime, we’ll be looking forward to having you with us in the next few days.

The next person up to speak is someone that sort of needs no introduction. So let’s introduce Bill Gates.

KEVIN JOHNSON: Welcome our chairman and [former] chief software architect, Bill Gates. (Applause.)

BILL GATES: Well, good morning. I’m excited to be here and show to you some of the things that software is going to be doing to really revolutionize not only advertising, but the whole way people consume media, the way they communicate, and the way they create.

It’s a thrilling time, because the advances that we’ve had over the last 20 years are just the foundation we’re using to take pretty dramatic leaps forward. In some ways, what we’ve done today is very small compared to what will be achieved over the next 10 years. And I want to give you a sense of it in all the different domains, whether it’s TV, reading, commerce — all the ways that people gather information — how software advances will change that, and faster than ever before.

Now, the thing that allows us to move at this dramatic speed is the advances in the underlying platform, hardware and software. The chips themselves continue to be subject to the exponential improvement, doubling in power every two years. So you see something like, hey, carrying around the music that you enjoy. Five years ago that just wasn’t possible. [If you] have a large hard disk, it would have been very, very expensive. Well, that’s changed so that now flash memory is getting cheap enough that you don’t even need a hard disk. You can carry a very small device around, and it’s quite adequate. Actually that, the capacity of those devices is doubling in an even shorter time than the normal two-year period.

Now it’s to the point where even video can be carried around. But with video you might think, well, that’s hard to set up. It takes a long time to transfer the information, you have to cable it up. That’s very complex. In fact, wireless technology, so-called ultra wide-band technology, will allow multiple-gigabyte transfer speeds over the next couple of years. So something like pointing to a show, saying, “Hey, here’s my device 10 feet away — just send it over to that thing” — that will become something that happens very, very rapidly. So fairly dramatic changes in the how we look at these things.

Even something as basic as phone numbers, where you have to know my mobile phone, my work phone. When somebody calls up you have to decide do you want to have a little recording that explains why you’re not there? All of those things have been based on a non-digital approach; that is, the PBX in your office that requires — when phones are removed or features are changed, it’s very complicated. That too is being pulled onto the Internet — pulled into a pure digital form where when you want to contact someone you just say you want to call them, and then they can decide, based on who you are, is it forwarded to their various phone numbers, and what kind of information is made available to you. So the digitization process has finally gotten to the point where it’s not just the screen-based information; it’s the way you connect up for voice, the way you connect up for TV, the way you connect up for all the marketplaces in the world — the product catalogue is up-to-date, deep information, community-type information moving to this digital environment.

It means big change in the form factor, and we need to add to the input techniques that we’ve had — getting a keyboard onto little phones — yes, there’s been good work on that. But in the long run you need both speech and pen-based input to complement the idea of using the keyboard. And when you call up directory assistance, a company we acquired recently has the software technology that you can take that query and give you the phone number. Well, now, think if you call up that company — or any time you’re on your phone, or even when you’re on your PC, and you just want not a specific business, but information about a set of businesses: you know, what are the pizza stores that are nearby or gift shops that might have some type of product? The idea of directory assistance and search really becomes essentially one application, not two different things. And voice is the quickest and easiest entry into that type of capability.

As devices get smaller, we can make them far more pervasive. In fact, the dream of a Tablet device that a student can carry around, and dispense with the large and heavy textbooks they have, in fact have a reading experience that’s every bit as good, and yet also have the interaction, the ability of the teacher to pick different things, link onto the Web, watch videos — all of that can make an educational experience far better than it has been.

Now, to achieve that we have to bring the size down, we have to bring the cost down, we have to make software advances in how simple it is to just simply ink in the information that you want and have that be recognized and acted on. And that’s why the industry as a whole is spending a record amount in research & development dollars. Microsoft specifically has become a company with the largest R&D investment every year — over $6 billion a year that we spend on the basic software platform, on the software that goes into the cars, the software that goes into the phone, the software that goes into the TV set. Yes, it’s the PC, that full-screen device that’s at the center of these experiences; but it’s software everywhere, including a lot of software running up on the Internet itself to provide new services, things like, hey, put all my files up there so no matter what device I connect up with I see it and it’s available.

The microprocessor itself has broken the barriers of memory limitations by moving up to be a 64-bit device. And that extra performance let’s us do amazing things with the user interface. You know, people might say, “Well, why when I got to the Web, why is it such a two-dimensional broad experience?” Haven’t people talked about it as being something like I can walk into the store and see the books I care about? The answer is yes, people would like to do that. But in fact over the last five years as people have played around with it, the performance and the tools were not good enough. It actually took the graphics parts that are just shipping this year to be able to make that smooth enough and fast enough and rich enough in detail that it’s attractive, versus just being a list of the merchandise. So we’re really starting to see, whether it’s in the entertainment space, so-called virtual worlds or in the mapping space, what we call Virtual Earth, or just in creating an interactive experience of any type — a meeting, a get-together — that a three-dimensional way of doing that is becoming one of the interfaces that will be very mainstream.

And that won’t happen just one place on the Web. The tools we give people to create Web sites will make it very simple for them to say they want to add to their Web experience the idea of 3-D interaction. So the same way that you look at a Web site, and you say, “OK, how does this look on a phone?” — and tools for making that easier and easier — now we’ll say, “OK, how do you take this two-dimensional Web site, make it very easy for that to also present itself in a more navigational rich environment type form, and the performance will be such that it won’t just be a cool demo; it will be something that people will use on a regular basis.”

The phones are also getting powerful. In fact, if we take everything below the PC, there’s a proliferation of device types, media-dedicated devices like iPods, navigation-dedicated devices, the phone itself, people talking about reading devices as being a category there as well. As this constant innovation drives down the size and drives up the power of these devices, you will start to see more integration. But over time, the idea of a device that is your digital wallet, is your mapping device, is your phone, has your music and your video on it — that becomes far more practical. Probably over the five-year period that we’ll play around with different form factors and really get to the point where total integration makes sense, so there will be different bets on different tradeoffs which things the device is dedicated to within that time period. But over time, far more functionality, far more integration.

The ability of the device to connect up to different wireless networks, and do that in a way that’s very user centric, will just be taken for granted. The fact that when you’re in your wide-area network, you’re connecting up to something that has less bandwidth, more extensive, it has that pervasive connectivity; then, as you move into any area — your home, your office, business meeting area — you’ll have Wi-Fi type connection that will provide lower cost, higher bandwidth. You won’t even have to get involved with that — those kind of capabilities are just going to happen now.

Even if technology stopped where it is today, we’d continue to see adoption as people are realizing the benefits of digitization. But in fact it’s not stopping. When you have exponential improvement, like we have here, that’s actually an acceleration of the capabilities. And there’s not an industry that this isn’t changing in a very dramatic way. Even classic manufacturing the products are prototyped in a digital 3D form. The questions about safety can be actually tested in that digital form. Various vendors can bid what they might be able to provide simply using that software design of the thing. The whole work-flow process can eliminate paper and work in an efficient way. So it’s not just advertising. It’s not just media. It’s all parts of the economy, how they design their products, how they connect the buyers to the sellers. Those things are moving to use a far more Internet software-driven-type approach.

Now, one of the big things we need to do in this is make things more user-centric. So, for example, today, if you own multiple devices — if you own multiple phones, multiple PCs, if you use a little bit of technology in your car or on your TV set — those are all different things. If you want to move files between them, schedules between them — if you want to say this is a sports team I care about — you do that once on your phone, you do it on your portal, you may in a few cases now with advanced software you can design a ticker that would go across your TV set. But it’s all done on a per-device basis.

As we move to be user-centric, what will happen is any time you prove that it’s you, either picking up a device that you don’t have to log into, because you said you always have physical control of it, or even picking up someone’s device that you’re borrowing, as soon as you say it’s you, it will connect up into the Internet and look at that profile of things that you care about — your files, your calendar, your information — and bring that down onto the device. So when you buy a new phone, instead of going through a lot of process to do those things, you’ll connect it up to the profile you have. And then immediately when you take a photo on that phone, whatever your preference is in terms of how it gets published up on the Internet or just goes to a private space where you can look it over, that will happen. There is no file transfer involved. There’s no thinking through, OK, what are the difference on all of these different devices?

When you leave the office, the idea that you can grab a Tablet, a portable, the phone, and yet know that all the information that’s accessible there — that would be very, very straightforward.

So as we get software into more places, as people have more variety of devices, or they just find themselves somewhere they want to borrow someone else’s device and quickly use that, and know that they can get to their information. And when they stop using it, that that information is no longer kept on that device — it’s deleted and simply available to them only when they authenticate themselves to the information stored up on the Internet — that’s all done there.

The flexibility you get in these new environments is much more user-driven. The idea that you can watch things whenever you’re interested in — the idea that you can not just look at the reputation of something based on the broad people in the world and how they’re looking at things, but also take your friends — take the buddy list that you assemble, with some effort through your instant-messaging, and take their opinions and their activities, and use those to guide what is it that you might be interested in looking into, what’s hot. That becomes very straightforward.

Today things are quite fragmented. The place you might go to find where people publish photos, where they publish lists of information they’re interested in — many different communities. What we need to do with software is allow you to participate in those communities, but really go to one place driven through the portal and the instant-messaging that will let you see immediately if any of your friends have done something out on a photo site or a listing site — actually pull that into the user interface using advanced forms of our accounts, but it feels like a single experience; that you’re not logging in multiple times and having to go check all those different sites. So there’s a great simplification that comes after these specialized Web sites have done particular things to say, “Yes, that’s great — we don’t need to give that up” — but let’s create a more integrated experience around that. So that’s why we talk about it as a very customer driven interaction.

Next we have the idea that the media itself will be quite different. You know, who can create this media? Who can distribute it? How do you find what you’re interested in? I have a lot of friends in the newspaper industry, and of course this is a tough, wrenching change for them, because the number of people who actually buy, subscribe to the newspaper and read it have started an inexorable decline. In fact, if you look at it by age group, it’s quite dramatic how different that is. People have found some combination of TV and the Internet as the way that they can get their news, even the local news that historically was only available in that print-based form.

And for many years, even as readership started to go down, the value of print advertising maintained itself, because the dollars per user sort of offset these subscription declines. Now it’s kicked into a point where people are shifting budgets into the new areas, and that’s a very tough challenge, and it means they need to take a lot of their skills, a lot of their expertise and move it into that Internet world.

But it’s a very different world. It’s not a world where you have a single person who can deliver things like the classified ads, you have many people competing.

So it’s fascinating to look at, say, job markets within a city, or the nationwide job markets, and look at to the degree it’s new people who’ve done that well, or it’s traditional media people who have come in. One thing we can say for sure, it’s a far richer experience for the person who has [to] list and find that job, and far more competitive in terms of the rate of innovation that those things are going to take place. So the Internet is like a lot of things, the only sure winner with the breakthrough are the consumers themselves. There will be some companies that do well out of it, but it really, most of it, passes on to simplify things for now the not only hundreds of millions but billions of users who are connected up through these devices.

We’ve got about a billion PCs in the install base, and so a lot of the discussion around Microsoft in terms of simplicity and bringing cost down is how do we get the next several billion out there. After all, our founding principle was the computer on every desk and in every home, and that gets you up to the entire population, 6 billion people, that you would like to be available to. That won’t happen overnight, but we have set a goal for ourselves of getting out at least to the next billion over a five-year period, and we think that’s very achievable. In fact, some of the numbers we’re looking at suggest we can go even beyond that.

Now part of that will be that what we do with the PC is just so much broader than ever before. Five years ago people were talking about, yes, photos are a neat thing on the PC. Well, today, it’s just almost a given. Digital photography is more popular than film-based photography. And now we’re taking that idea and saying, well, what about letting you voice annotate it, what about organizing it so when your kid grows up over a 15-year period, you have a whole archive there that without much effort on your part it’s easy to go back and find things, and those whole memories, and traveling through them. Not just the photos, but maybe the notes that you were sent, or the homework that was digitized, all those things easy to navigate and find, and cherish things that before this was digital people often say, gee, I should have put more time into organizing that, and making sure it was kept. Well, here in this environment, with software help, that eventually can become something straightforward, and so memories will be very, very well organized.

So reading is going to go completely online. We believe that as we get the smaller form factor, the screen has gotten good enough. Why is reading online better? It’s up to date, you can navigate, you can follow links. The ads in the online reading are completely targeted as opposed to just being a run of prints where many of the readers will find it completely irrelevant. The ads can be in new and richer formats. In fact, the only drawback of the digital form are the things associated with the device, how big is it, heavy is it, how many hours of power does it have, how much do I have to spend to buy it? But those are things that once you achieve that threshold in terms of the convenience and the cost, then you see a dramatic change in behavior. Today for people who read newspapers and magazines, even the most avid PC user probably still does quite a bit of reading on print, but as the device moves down in size and simplicity, that will change, and so somewhere in the next five-year period we’ll hit that transition point, and things will be even more dramatic than they are today.

A good example of how media is changing is Microsoft itself. Classically, if we wanted to get news out about a product, we’d go to some broadcast news channel, talk to them, get the interview out there. And say it gets on some business’ channel, I guess people who watch TV during the day see that, if they just happen to have it on at that moment. And it’s kind of a mix of things, there’s a new candy bar announced, a new car, a new piece of software. It’s not very targeted.

If you compare that to actually having a video channel that we create ourselves on the Internet, that’s there when the big event is happening, it’s there on demand, you can search it, that’s a much better way, it’s a more direct way of getting at those people and giving them that flexibility. We started this many years ago with a thing called Channel 9, and that was for our developer customers, a very key constituency for us. It started very simply, one of our employees took a camera around and in a very candid way talked to the people working on the important projects. So it was simple, didn’t take a lot of work, and it had this sense of, yes, we want to talk directly to you, and people would give us feedback on those things. That really grew and grew, until now it’s every product group understands that getting that story out on Channel 9 is important. We have a viewership of over 3 million unique viewers every month who come to that channel. We get feedback from them, so we’re doing a better job on our products. They’re able to see, understand what are path is, and even something incredibly complex that we want to explain that we’re doing, that you could never get through a traditional media relationship with those developers, now we get through this medium. We can do a speech about device driers, and we’ll have the 100,000 people who care about that in the few weeks afterwards, they’ll get on, listen to that, and tell us is that a big advance, are we doing the right thing.

We’ve broadened that somewhat now in the last year with what we call Channel 10. It’s for a broader set of users. And so it’s complementary to the things that we do in terms of traditional media, but it’s becoming a very important asset. In fact, in terms of people finding out about our things, probably bigger than any other way that we reach people.

Let me now talk about TV, and this is a subject that I think about a lot, because it was actually about a little over 10 years ago that Microsoft first got involved in this idea of changing TV from being a simply broadcast medium to being a targeted medium. Broadcast, of course, means that a single signal goes to millions of people, and in the broadcast spectrum, you can squeeze in a very limited number of channels, the really good channels, and per city there’s about three or four of those. In order to have this be targeted, you cannot send it over the airwaves, there’s just not enough capacity to broadcast thousands and thousands of different video feeds. And that’s where the Internet comes in, the Internet is now cheap enough that the idea of having every household in America watching a different video feed has become practical. There is some infrastructure improvements that that implies, but actually that’s very much underway. AT&T just the other day updated by about 15 percent their forecast for how much capital spending it will take them to get by the end of 2008 to I think it was about 18 million customers. And so they’re actually one of the companies driving this forward, and saying that video should be delivered over the Internet.

How would users see this? Well, you’ll see that it’s not limited by the number of channels. If you go to your TV Guide page, the fact that you’re interested in the sports team that your kid is on, the HD video that some parent took with a cheap camera, and just uploaded to the Internet, that will show up in your guide as a thing that you might be interested in watching, and watching whatever you care about. Particular topics of interest, say your family does a lot skiing, well those things will show up, even though they wouldn’t have made a classic kind of channel lineup, and those channel lineups have gotten so unwieldy that they’re very difficult to work with. And so it’s customized, it’s any time that you want it. It goes beyond that, though, because, of course, once you’re in this form, you can interact. And so if an ad is of interest, you want more information, you want to see things, the fact you interact doesn’t mean you’re going to miss the TV show that’s behind it, because the infrastructure, even if it’s a political speech or a sports game, it can do the buffering so that you can go back to that show and be there just fine. So it’s a dramatic change in TV.

There’s no way broadcast infrastructure over these next five years will not be viewed as competitive. The end-user experience, and the creativity, the new content that will emerge using the capabilities of this environment will be so much dramatically better, that broadcast TV will not be competitive. And in this environment, the ads will be targeted, not just targeted to the neighborhood level, but targeted to the viewer. And more and more as the viewer is coming to a TV set, either through just choosing off a menu, or recognizing voice, or some video type thing, it will actually not just know the household that that viewing is taking place in, but will actually know who the viewers of that show are. And so it’s a very rich environment.

One of the ways we’re learning about the future of TV is what we’re doing with Xbox Live. That’s a gaming environment, but it’s a gaming environment with lots of people participating, lots of contests, people finding each other, and that’s been explosive in growth. The games that do a great job creating communities now are the games that are succeeding, and that interaction started where you were just talking to your friends. I will imagine if you’re watching the same show as your friend at the same time, yes, you should be able to talk to them, but now the gaming environment is adding cameras where it can recognize what you’re doing, send a video feed along, and so even that joint activity will become far, far richer, and that builds off of the richness of that graphical environment.

We even now are working with partners to take that game, the Xbox videogame, and make it a set-top box. So you see a technology intersection of using the Internet, and using the same client box, the Xbox, turned into by far the world’s best set-top box, as the way that these are coming together.

To give you a sense of how this is being presented to the user is a nice evolution of TV, and yet giving people a glimpse of how revolutionary this is, and that this is the time period, the five-year period, where it will go from being avant garde to being commonsense that this is the way it’s done, I decided to bring out one of the key people who helps drive our interactive TV business. So I would like to ask Ed Graczyk to come up and give us a glimpse of IPTV and how it works. Welcome, Ed.

ED GRACZYK: Hi, Bill. Thanks.

Thank you. By a show of hands, how many people had heard of IPTV before today? How many people really feel like you get what IPTV is all about, or maybe you’re a little confused? Hopefully we can clear up some of that confusion today. Fundamentally, IPTV is all about television, it’s about taking advantage of two-way delivering networks as opposed to one-way broadcast networks. It’s about taking advantage of next generation technologies that enable a much richer television experience. It’s easier. It’s really fundamentally better TV, better for consumers, better for content providers, better for the service operators, better for advertisers. It’s easier to use, it’s a more personalized TV experience. As Bill talked about, TV is no longer a one-size-fits-all kind of medium. It’s also increasingly now a connected TV experience, so no longer is that television set an island of technology in your home, and that connectivity also lends itself to a new type of connectivity, which is social connectivity, bringing that social aspect of friends, and family, and community to the TV viewing experience.

I’m going to take a couple of minutes to show you our IPTV platform, the role Microsoft plays here is, we provide the secret sauce, if you will, the underlying technology that powers a number of the world’s largest IPTV solutions in the market today. We’re working with 16 customers in 15 countries on four continents around the world. Nine of those customers are commercially deploying IPTV services to their consumers today. So every week thousands and thousands of new consumers are subscribing to services like the one you’ll see here.

Now, a big focus in IPTV has been around this concept of better TV. In all of the research we’ve done around the world, and in our usability labs, it’s clear to us that there’s a lot about television that consumers don’t necessarily like today. There’s a lot of little things that really hinder, as opposed to help the TV viewing experience. And we focused a lot in the initial versions of the platform that you’re seeing here today on really making that TV experience better. Now, one of the things that consumers tell us very clearly that annoys them as they move from analog to digital TV is that long delay between tuning channels. And, in fact, any of you that have digital systems at home are used to this one to two second delay. Now what we’ve done with IPTV is what we call instant channel zapping, and as you see here we can tune a channel in about as quick as you can blink an eye. What’s interesting about this technology is all this channel tuning is done in software, there aren’t hardware tuners in this device, which means that we can do some interesting things when it comes to multiple video streams on screen at once.

So here’s an example, I’m tuned to a channel, but I’m browsing ahead to see what’s on these other channels, and instead of just reading what’s on in the browse bar, I actually have a live video thumbnail of what’s actually on Channel 8 or Channel 9 right now. So if I like what I see I can tune to that channel, again, have that instant gratification. So what you saw there was not 300 broadcast channels coming down to the set top box, but rather two video streams. So it’s a very cost-effective way of delivering rich media to the consumer.

Now, we take that virtual tuning capability and we use it in some other places, like here in the program guide. So right away you notice we’ve got a great looking, really elegant, fast performing, user guide. It’s translucently overlaid on top of the video. So you can follow the show while you’re trying to find something else to watch. And as I navigate around the other shows that are on today, we also take advantage of this picture-in-picture technology. So I can not only read about Laguna Beach, or a tour of India, but actually see what’s on that channel right now, and I can tune to that channel again with instant gratification.

Now, of course in the guide we also support capabilities you’d expect, like one-touch recording of video programs, so I can press the record button once, or the record button twice and set up individual recordings, or series recordings. I can go in and fine-tune the recording capabilities, as well as part of digital video recording. Now, in IPTV DVR is just a built-in capability of the platform. Like video on demand, which is also just a built-in capability, these aren’t third party technologies that were added on to the experience later on in the game.

If we go to the main menu here, again, you see the rich user experience. Contoso TV, of course, is a fictitious service provider brand that we use. What you see in market today, with these nine operators, is AT&T U-verse, or BT Vision, or T-Home from Deutsche Telecom, or Bluewin TV from SwissCom. So this is, again, a service provider enabled service. It’s their ability to really extend their reach, extend their brand into a whole new entertainment kind of proposition as part of their overall suite of services that they offer.

Now, IPTV supports standard and high-definition programming, both linear, or live TV, as well as on demand. You saw that program guide. We enable things like favorites. So here’s one click of the button and I’ve got access to my favorite channels that I’ve customized. I can go in and fine-tune it. And even here I’ve got access to the picture in picture functionality, I’ve got access to the one-touch recording functionality, and things of that sort. So it gives you, again, really quick access to those favorite channels that might be of interest to you.

Now, one of my favorite features is search. How many people have actually tried to do a search on a digital TV service today? How many people think it’s a fulfilling experience? All right. So not only do we have search, and it’s, by the way, easy to use and discoverable, which is one of the problems in a lot of systems today, but one of the really cool capabilities is that it’s integrated search. So you notice I just type in a couple of letters, CA, and it’s pulling up search results for all of the media available to me through this platform.

So you can see where it says cars, and it says rented, that tells me it’s a video-on-demand title that I’ve already rented, and I’m in that 24-hour viewing window, or in the case of from Castro to Fidel, or the Grand Canyon, where it says more, that tells me it’s a live TV show that’s on multiple times during the week and I can drill in and get additional showings, or in the case of like the caller ID application at the bottom, that’s a video on demand asset. So I think this is, frankly, huge. The ability to finally search through the VOD. And if you live in a country like the United States, where you could have 2,000 to 8,000 titles of VOD programming available, imagine trying to navigate that huge library of choice if you’re only navigational metaphor is browsing and not this ability to search.

I talked about digital-video recording. This is actually Microsoft’s sixth-generation DVR technology. A lot of people don’t realize we have a number of firsts in the DVR space. I won’t kind of go through this, I assume most people are familiar with it. But, you have all the features and functionalities you’d expect from DVR, series recording, individual recording.

What’s interesting about IPTV, again, getting back to that virtual tuning capability, is you’re not limited to only one or two shows to be recorded, because, again, there aren’t tuners in the device. So in the case of AT&T, for example, they let their users record up to four different TV shows at once. So taking advantage of those advanced technologies and that broadband network to really make DVR just that much better.

Now, video on demand is a big thing. And if you want to browse through the VOD store, maybe you’re not sure what you want to search for, or you want to just kind of browse, even here we’ve taken video on demand to the next level. So you notice it’s not only a nice, fast performing, great looking user interface with backgrounds and things like poster art, so you can actually get a better feel for the different programs available.

Starz On Demand is actually a pretty interesting example, I think, for this audience, because this is what we call a branded storefront. So Starz, if you’re not familiar, is one of the premium movie channels here in the States. This is a way for them to extend their brand, to have a different kind of experience with their subscriber base, and really differentiate their programming offerings from the thousands of other programming offerings available in that VOD store. So in the case of Starz it’s, of course, their logos, their backgrounds, they do smart things like change the background color so you can tell when you’re in early premiers versus quickies, versus all movies just with some nice, quick visual feedback. They take advantage of all the poster art, et cetera.

So you can imagine taking this same concept of the Starz storefront, and applying this to an advertising storefront. So imagine a world of Coca-Cola and American Idol, where once the show is over you can go online and actually have access to backstage video interviews with the finalist who was kicked off, which hopefully won’t be Melinda today, or tomorrow, my personal favorite, anyhow. So from an advertiser perspective you could take advantage of these technologies to, again, really reach out, have a different kind of relationship, a deeper relationship with your subscriber than you can today with the traditional 30 or 60-second spot.

So as Rick…Rick…as Bill talked about  that’s one name you try not to forget. Sorry, Bill. As Bill talked about, one of the things we announced in Bill’s keynote at CES was IPTV on Xbox 360. And, in fact, everything you’ve seen today is running on that platform. What’s really interesting about IPTV on Xbox 360 is that it’s not just the best of gaming, and the best of IPTV on a single device, which is a nice benefit, don’t get me wrong, but it’s really a one-plus-one-equals-three kind of value proposition, because it brings all of that Xbox community into the TV viewing experience.

So I’m running on the Xbox 360, I can hit the Xbox button on my remote control. I pull up what’s called the heads up display, and here I’ve got now access to my community. All the friends in my Xbox buddy list. So I can take a look at messages, these can be text messages, these could be invitations to play a game, or to chat. I can see which friends are online, so I can see RoadBoy123, he’s backstage, he’s online. Now I can invite him off to a private chat. What’s cool about this is I can have up to four different chats going on with different friends at one time, or a video chat going on while I’m watching TV.

So imagine you’re watching the Super Bowl, you’re watching World Cup soccer or Wimbledon, and you’re able to not only watch that TV from the  that show or game from the comfort of your couch, but you’re able to now chat live with your Xbox headset, with friends and family who could be across town, or across the country for that matter.

So it’s really just the first example of how social is starting to come into the TV experience, where you can now extend this concept of the social network and take advantage of technologies like online presence and buddy lists, and what have you, and now start enriching the entertainment experience for genres of programming where that makes sense.

Now, most people, of course, are going to run IPTV on a set top box like this one. This happens to be from one of our partners, Tatung. So any of you that have HD, cable, or satellite boxes at home I think you’ll appreciate the small footprint and the elegance. Tatung is just one of several set top box partners that we’re working with today, including Motorola, Cisco-Scientific Atlantic, Cisco-Linksys, and a number of others. So we envision a world where a primary set top box is going to look something like this, and where the IPTV on Xbox can be either that main set top box in your home, an ancillary set top box in your home that enables the exact same TV experience as you’d have on a device like this, just without the Xbox functionality.

So when it comes to advertising, we as an industry, everyone in this room, companies like Microsoft, the other vendors involved in IPTV, and ad serving systems and what have you, we really just are scratching the surface of what’s possible with this technology. But, if you think of what’s possible in the future, the near-term, and the longer-term, it’s really the best of both worlds, because IPTV combines all the rich emotive, multi-sensory story telling that you have with television advertising, with all the interactivity, the target-ability, and the measurability that you have on the Web.

For the first time really, with technology like this, these capabilities come together to enable you to not only target your audience in a finer way, deliver new types of advertising to them, from telescoping ads, and bumper ads, and things like that, but more importantly, really measure the effectiveness of your campaigns, because, of course, all the data can be captured in a nice, anonymous way, and protecting user’s privacy. So you can fine-tune your marketing campaigns on a large scale, or on a fine scale, as well.

So with that, just kind of a quick look at IPTV, hopefully now you have a little better feel for what IPTV is all about, and hopefully all of you go home and call your service provider and ask them when IPTV is coming to your market.

Thank you. (Applause.)

BILL GATES: IPTV is a great example of getting in a long-time before something is cheap enough, and really making sure that the software gets developed. As I said, it was almost a decade ago we started doing our research in that area, and now we have this platform being adopted on a global basis. So it’s the time of exponential increase in usage there.

A lot of this event is going to focus in on advertising and how it will change. And, of course, there’s many aspects to that. If you just think of the workflow of what the customer wants, getting the creative people involved, having people look that over, like it, think about where it’s going to run, the customization for different users, different markets around the world, it’s really a classic problem where you’re involving lots of organizations, lots of people. There’s a lot of numbers involved, there’s confidentiality involved, you want to track the thing, and obviously classic tools, like Office and SharePoint can help with that.

We’ve actually created on top of our collaboration platform, which is SharePoint, an interactive media manager that actually builds the Web sites you want for connecting up with customers, putting up graphs, looking at the measurement tools. That’s just a template that does most of the work, we’ve actually with some customers like McCann and others, rolled that out, showed them how that just sits on top of the normal infrastructure. It’s very easy to learn, because the general use of Office and SharePoint are things that you run into all the time. So that’s the kind of productivity worker getting connected up.

As we start to get better numbers about user behavior, and as we have this targeting infrastructure, the opportunity and some of the complexity of these things goes up even more. As we think about targeting, even something like reading a newspaper online, on the Internet, the person who is most  who is putting the ads, filling in the white spaces around those articles, who that is most valuable to, is the person who understands that user the best.

So in the future, instead of just a publication saying, OK, I’ll go to a single provider who will do that, it will actually be a richer thing than that, because the publisher knows something about that particular reader, and various other companies, say, who have that user on their portal, or see the search operations that user has done recently, they know enough and it’s really a combination of that knowledge, far more than the article itself, that allows you to think, what should I display in that context.

So the way you create a digital bid market is that you don’t just take an entire publication, but any inventory and say, OK, who’s got the inventory who has the understanding of this user, so that it operates in the best way possible. That’s a dynamic that’s yet to come. And one clear message you get out of this conference is, Microsoft is very committed to make sure that we have either the, or one of a very few leading environments where that happens in. We believe that a rich marketplaces, very competitive here are very important to realize the full potential of this.

As we think about these ads, the ads themselves, creating them, making them rich, and that letting you engage, so that those things can be interactive, that’s an important thing. And the tools that we’ve had for creating software applications, and tools for doing rich media things have always fairly separate. The interactive world, the video world, and the normal computer application world, have been different, three different worlds. And just in the last month we’ve announced a new technology, called Silverlight, that brings the richness of all these things together, yet does it in a way that any PC user, Mac user, in the future phone user, will be able to connect up to these things.

The best way to understand why we think this unleashes an opportunity for new creativity is to actually see it action. I’m going to ask Brian Goldfarb up to show us what is Silverlight, and why we think it’s a great new capability.

Welcome, Brian. (Applause.)

BRIAN GOLDFARB: Thanks, Bill.

Good morning, everybody. How are you today? Good. So Silverlight is a cross-browser, cross platform plug-in that will usher in a new generation of media experiences and applications on the Web. With Silverlight’s rich graphical control, high quality media, and collaborative tools, customers will experience Web like never before. Now, Microsoft is partnered with companies like Netflix, Major League Baseball, CBS, and others, to create a bunch of incredibly compelling content fro the start to drive usage. So let’s go ahead and take a look at some of the experiences that Silverlight enables.

With Silverlight it’s easy to create highly immersive, branded experiences on the Web. Here’s an example of a casual game. It’s all built using Silverlight. It works cross-platform. It has a bunch of vector graphics, and logic behind it. If I go ahead and type my name in here and click okay, we’ll get the game going. There’s information behind the scenes controlling how I play against the computer. I have rich vector graphics, so I can scale that down, and everything dynamically updates. And this is just sort of one example of a category of applications that you can build using Silverlight.

But really where Silverlight shines today is with media experiences with video on the Web. Now with Silverlight, I can scale my video from devices all the way to 720p HD video in the browser. This is called Silverlight TV, it’s an example of a nice rich player with some nice video inside. I have picture-in-picture. But using the performance capabilities of Silverlight, I can go ahead and click on this window, and see nine simultaneous video streams being pulled down at once. It’s pretty incredible. I can then swap out those video streams, and move them back and forth. But I can go beyond just the browser context. I can actually take this entire experience full screen, and I have the same rich interactivity elements I had before, the same high quality video, and the same capabilities without having to do any incremental work. But that’s just an example that we make.

What about customers? Well, Major League Baseball has made a huge business of online access to content and games. Their player is an extension of their league, of their brand, and of their experience. And it has evolved dramatically over time. They’re particularly interested in Silverlight because it can create an incredibly immersive experience that will capture their users’ eyeballs for longer. Let’s go ahead and jump in here, and baseball is an always on sport. So immediately I’m presented with some video content, an actual game that’s live. But they want to drive me into the featured game. Let’s go ahead and go into the new player, and here we can see the player experience. I have sort of metadata information with the score, who is on base. I have my video experience here. I’m getting some advertising, and some shopping information. I could bring this experience full screen, and you’ll see I have a lot of rich controls overlaid on top of the video. And if I don’t hit any buttons, I can make all of those controls disappear, so I can focus on the content that matters. But I can also take advantage of interactivity elements. I can bring on the baseball diamond in the top left. I can bring on my Buddy List, and a chat window, so I can engage in the interactivity of the Web inside the constructs of the experience of the video that I’m watching. If I cursor over these, you’ll notice they highlight and become more visible. But then, again, when I want them to go away, they’ll all go away.

When I come back here to the main view, we’ll see it’s remembered that I’ve used some of these elements in the full screen mode, and provided that context now in the smaller view of the player. If we look over here in the bottom left, we do see that shop MLB logo. I’m about to get an IM from a friend that says Friend Alert, and Big Dog 01 has sent me a video clip to watch. He wants me to share in one of the highlights of the day. So I can go ahead and click on that alert, and it’s going to bring up another picture-in-picture window here, so I can see what my friend wanted me to see overlaid on top of the experience that I was focused on. If I don’t want to watch this anymore, you can very easily make this go away.

With Silverlight, it becomes very easy to build these immersive, branded experiences on the Web. What does this mean for advertising? Today, we’re all accustomed to the typical bumper ads, pre-roll and post-roll done video. These are kind of intrusive, they kind of break up the flow of the content. They kind of interrupt what I’m doing. And they’re not something that I like. We are, as we all know, customers are exposed to thousands of marketing messages every day. How do we get above that noise? Wouldn’t it be nice if the ads that I had in video were contextualized? If I could make them part of the experience itself? What if I could separate the advertising from the content, and then dynamically alter the advertising at view time? And what if doing all of that was easy and cost effective? Well Silverlight can deliver on that. We’ll take a look at a simple example of the advertising scenarios enabled by Silverlight. Here I have some video content that’s playing. I get a nice toast effect of the Halo 3 logo pops up, it’s overlaid on the content, it’s all integrated. And then I’m going to get a ticker that’s going to provide dynamic data inside of my experience. All of this is sort of happening automatically, building these experiences with the tools is very simple.

But what if I want to change the context here? What I can do then is take advantage of the rich video scaling technology and actually scale that video down, provide a new advertising view, show that to customers for a few seconds, and have that go away. We can overlay those on top, we can overlay them on the side, or we can completely change the aspect ratios of what’s happening with that advertising. And that’s just one example of what we can do with Silverlight sort of in the advertising space.

Now it’s pretty clear that we’re only scratched the surface of the capabilities that Silverlight provides for building applications on the Web. Last week at MIX, we gave this technology in beta form to our developer and designer customers, so your teams can begin experimenting with these capabilities today and, best of all, we’re going to be shipping it this summer.

Now I want to think about the future a little bit, the near future, about what we can do with search advertising in ways that we’ve never seen possible by leveraging new technologies. Now there’s a new technology called Seadragon that enables very smooth browsing of incredibly high resolution images. It scales from low bandwidth connections all the way to the highest broadband connections, and it gives customers a new experience on the way they deal with very valuable imagery. Now for advertising, this certainly opens up a lot of interesting new scenarios. What you see on the screen here is a very typical search results page. I have contextual ads on the right. I searched for Land Rover, but using Seadragon and Silverlight, if I cursor over this image icon, I actually have access to a very high resolution image. It’s just part of a smaller image. Incredibly smooth scrolling. I can actually drill in. I can even take this full screen, if I wanted to get more information, and we can zoom all the way in here. Oh, wow, look at the  let’s see what’s on the radio today. Incredibly smooth, incredibly high resolution image data, all being dynamically streamed to the client only as needed. So, if I zoom out, it’s giving me data for that. But as I zoom in, I’m getting access to that. So if I become captured and interested in this information, and I want to read the product specs on this car, we can actually drill in just like I have it. And this gives customers an amazing way to reuse the imagery that it already has for print publications, and now they can include that directly on the Web in these landing pages.

So what does that mean? IT means that the future holds a huge amount of promise for building these incredibly rich and immersive applications on the Web, and entirely new scenarios for advertising. What we just saw is rich media experiences, applications using high quality video, using interactivity, vector graphics, and the new Seadragon technology to really change the way that we experience the Web as we know it today.

With that, I thank you very much. (Applause.)

BILL GATES: Thank you. Thanks, Brian.

What you’re seeing there is quite important. Over the last three or four years, people have been really finding the limitations of HTML to be very problematic, and they’ve been trying some browser capabilities that we had really going back over five years with Internet Explorer 4.0. But even though so-called AJAX-type technologies have forced very complex development, and they don’t integrate into the traditional HTML very well. They’ve been experimenting with things that you download that let you do more interactivity and media.

In fact, what we’ve done there is pulled all of this together, and so the future of the Web experience that you’re not going to think about it as just being text, or click and wait long periods of time, really will be created around that Silverlight runtime, and it’s been great to see the reaction, not just in the classic developer community, but also in the designer community to the freedom that they’re getting there.

When we talk about Microsoft’s broad focus as a company, we talk about the Live Era. The era where all these devices connect up, where if you want your files backed up, if you want to share them, if you want to have meetings, not only with people in your company, but with people anywhere, if you want to do telephony in rich ways, it’s all what we call Live. Even for the IT departments, this is quite revolutionary because many things that you would have had to buy a server, have a lot of expertise, think about how to scale that, understand all the different error conditions, we’re now able to provide those as services across the Internet. And it’s not just low-end consumer capabilities, it’s actually the rich things that we’ve always done for business data centers will now be available to purchase in that way. And so there will be a period of time where people will have a mix, they’ll have some things in their data center that they want to customize and control, and they’ll have other things that they simply connect up to us and we run data center, actually a mega data center, to do things on their behalf. There’s a lot of advanced software breakthroughs that are needed for this. The ease of customization, administration, the security, the redundancy, a lot of things that we have the smartest people in the software world hard at work on, but that’s why we’ve got the optimism to have our R&D budget at this record level.

There’s a lot going on here with software. The bet we made when we started the company a long time ago is that software would have a central role. For us it’s about the tools, the platforms, tools for great ads, tools for the collaboration to create them in the first place, tools to understand the kind of impact they’re having, tools that will redefine media experiences. I’m saying to you that newspapers will go online, and there will be massive innovation that comes out of that. We’re saying that TV, the biggest ad market in the world will completely go online and have the kind of targeting and interaction that you only get out on the Web today. So as dramatic as things happening on the Web are, that’s actually what all advertising, all these contexts where people learn about products will be in the future.

And so it’s exciting that we all get to shape this, and it will make a big difference to all of our customers. Thank you. (Applause.)

JOANNE BRADFORD: Thanks, Bill. So, Bill, one of the things I love is the technology, and how much information you can find. So one of the games we play when I go to a cocktail party is, have you Zillowed your house? So, have you Zillowed your house?

BILL GATES: Oh, yes. Actually, the Zillow guys are great, they use our Web service, which is our Virtual Earth to actually create those maps. Their algorithms for figuring out prices don’t scale very well into the very low end, or the very high end, so I can tell you that. But they’re great for the parts that count, they’re great. But if you bid that number on my house, I won’t sell it to you.

JOANNE BRADFORD: So, you don’t have your house up making an offer on your house?

BILL GATES: No.

JOANNE BRADFORD: So, one of the things that you always talk about is how much technology really changes things, and how we really underestimate it. So you talked about a PC on every desktop. Now, I’ve got six PCs in my house, and two phones in my pocket, and probably a computer in my car. So what’s the thing on the horizon that you see that we’re underestimating today in today’s technology as it exists?

BILL GATES: A lot of things that come and surprise people are things that have been talked about for a long time, and they don’t happen. So people think, oh, when will that really happen? You know, TV on the Internet, we talked about it for a long time. We’re saying now we really mean it. AT&T is spending those billions, and the customer reaction is great. But understandably people need the hard evidence that finally the cost factors, and the tools, and the adoption are really there.

The Internet itself was like that, where we had five years where the network was going to explode, and then finally in the mid-’90s when it happened, even those of us who had been saying it for five years went, wow, now we’re telling the truth. Here it comes.

I think speech and ink are like that, where the last 20 years the industry has had this as kind of a next thing we need to do, because if you want to be pervasive, if you want to just be in the home so when I walk up to the TV set it knows, okay, that’s the father in the house, and here’s the shows he’s interested in, either vision or voice will just, boom, it customizes to me, and offers the buddies I may want to talk to, and tells me, yes, Steve’s watching this sports show if you want to chat with him at this time. Those natural interface things are finally becoming mature. And when we go off and spend a lot of money to buy Tellme to really drive our penetration of those things, those are the kind of symptoms you see that it’s happened, it’s happening.

It’s been kind of funny that we’ve mostly on phones had to put these small keyboards on it. I’m not saying that goes away, but it’s a fairly unnatural way to interact compared to what we should be able to do with voice. So voice and vision are very underestimated in terms of how they’ll enable new activities.

JOANNE BRADFORD: And voice, you know, I call United Airlines once and a while and get the whole experience. And even when you call Microsoft, you give the person’s name, and you get it. I feel like there’s still a little bit of a ways to go. So what, in your mind, what is the next way to get us to a little bit more natural interface, so it’s a better consumer experience?

BILL GATES: A lot of these interfaces will be mixed voice/screen interfaces. When you have just voice, and you say something, let’s say on the other end there’s three or four possibilities, that voicing of, did you mean A, B, C, D, that’s really slow and kind of painful. If you’re just sitting there with your phone with the screen, then it will propose those, and the idea that, okay, if it’s the one on top you just press enter, if it’s the others you just cursor down, take that, and press enter. Then it’s far more natural. And when I call up and I say, what is the movie schedule for this movie, voice has always been super slow, I have to sit there and hope that I’m listening right at the time it says the one thing that’s in my lane. If I say that, and it just comes back up on that screen, you know, I may have additional links, get more information, then it’s the voice/screen interaction that I believe in because it’s far more robust in the face of some uncertainty of exactly what the input is as opposed to a voice/voice interaction that is very limiting.

JOANNE BRADFORD: There’s a big implication that I think about to the local advertising market, and I really think that if you can do those two things in the phone, and in the screen, that you change that. So the Windows Live Local data on the phone, it’s a great experience. But I think it’s going to be better when I can combine the speech and the screen there. You think that’s coming sooner than later, and will it really wipe out Yellow Pages?

BILL GATES: Well, the Yellow Pages are going to be used less and less. We should be able, when you go to the service that’s going to take our technology and the Tellme technology that we acquired, when you ay something like plumber, the presentation you’ll get will be far better than what you get in the Yellow Pages. After all, we know your location, and so we can cluster around that. We can take the information and show you the names, and then you can expand the information easily. So, yes, I think that these things always take time, but Yellow Page usage amongst people in their, say, below 50, will drop to zero, near zero over the next five years.

JOANNE BRADFORD: So let’s change topic a little bit, and what you look at online, you said you look at some old  not old, current lectures on YouTube once in a while. I’m not watching lectures, but  so what inspires you about what’s going on on the Web today? What are you looking at? Like, if I went in and looked at your history right now, what would I see? What’s the Web 2.0 that you’re loving right now?

BILL GATES: I think a change that I’m thrilled about is that as videos become mainstream, we can finally get the world’s best lectures online and available. And some of those will be free, because some universities have chosen to put them up. I’ve gone back, there’s a few lectures on physics I think are great. I’m in the process of buying those so they can be seen free on the Web. And some you’ll pay some money for. But, this idea that if you’re a motivated learner, and want to learn about any topic, geology, medicine, computer science, that you can go and find it, it will be described in terms of what you expected to know, and then you can watch it, watch it when you want, you can look up terms, stop it at any time and get involved. I think that takes a huge part of education and makes it available in a much better way.

Then if you combine that with the fact that you can go online and have study groups of people who are interested, and then go online and test your knowledge, either diagnostic tests, or sort of a definitive accredited proof that, yes, I’m really proficient in this area, we finally have the basis to start to use technology in education. It’s not the  we still have lots of things about motivation, and how we draw teachers into this, so they contribute to it, and benefit from it, but we finally, because video is mainstream, we can start to do something dramatic. And for me it’s meant  I’m finding a lot of neat lectures and watching those.

JOANNE BRADFORD: Great. We’re going to take a couple of questions from the audience. Does anybody have any questions out there? So we’ll get someone, raise your hand, and they’ll come over with a microphone. I want to just ask you as you transition, this is  you’ve got about 15-18 months of full-time left, what are the things you’re going to spend your time on over the course of the next year to 15 months?

BILL GATES: Well, by far the biggest thing essentially what we’re talking about at this conference is the  when people go to the Internet they have a task in mind. And it’s not just to see a list of links. This is not a, hey, I’m paid to go do treasure hunts. They want to organize a trip, or learn about a topic, and the idea that we can capture things at that task level, and through the magic of software make that far better, and in particular when it’s where you want to buy something, that the people who want to buy something that the people who want to advertise, who want to offer up that maybe they’re the place that you want to do business with, I think we can make that far better.

I mean, after all, today if you want to do a certain type of transaction, there’s probably a specialized Web site you don’t know about that’s far better than just the general, say, search way of going about. Why can’t we take, by using a platform-type approach, the best of those dedicated sites and bring them in so that you don’t have to click on a tab or anything, you just type your words, and yet that domain, those people who are expert are somehow incorporated into that. Now, there’s a lot of software magic in terms of how you make sure that’s very performant, and make sure you’ve got it right for that user, but because we can learn so much about users, and if we talk to them about how we’re using that information, so they’re explicitly saying, yes, I’m comfortable with this, and I can control it at any time, I think that we can take and move away from the way we think about this today, that we can provide a lot more value there.

So broadly thinking, it’s about search, it’s about buyers and sellers, and that will be my biggest thing. There are some things about getting the tablet driven into the mainstream, and about dramatic things in Office. And some of these will actually be the projects Steve is likely to pick for me to put my  the part-time work into, even after mid-2008.

JOANNE BRADFORD: Great. Do we have any questions from the audience out here? Any questions? All right. They’re shy-kers today. I’m surprised Irwin doesn’t have a question.

QUESTION: I’d like to know your thoughts about the current state of e-commerce, and where you might think that’s headed?

BILL GATES: Well, the word e-commerce has always been hard to define. It’s essentially how we use these digital platforms to match buyers and sellers, how they find each other in the first place, and then through a complex transaction how it’s digitally facilitated.

There’s still a lot of paperwork, there’s still a lot of catalogues that get printed, and there’s still a lot of things where the structured systems that track what’s going on don’t match up to the sort of informal, either phone calls or instant messaging. And so we’re really  we’re just at the beginning of this. There’s a class of transaction where online payments, including small payments, often referred to as micro-payments, need to be done.

There’s an authentication approach of what things about me am I willing to share with other people. We’ve made this recent breakthrough called Card Space that now we’re getting the banks and others to adopt. So as we take Card Space, as we get some provider to do simple micro-payments systems around that, some of that base-level facilitation will come into place, and allow a set of transactions that haven’t been possible to take place in this environment.

So generally the Web is about commerce, and any way you measure it, it will go to dramatic new levels. Some areas, like stock buying and selling moved very quickly. Most of commerce is actually very  has not been revolutionized hardly at all. So we have about a decade here to get to the full use of these things. I mean, people still buy phone systems that are separate, and print those catalogues, and even in advertising some day people will look back and say, wow, it was a fairly blind game compared to what it will become.

JOANNE BRADFORD: There’s another question over there, number two over there.

QUESTION: Am I on? You talked about virtual worlds, or you made a reference to it. I’m just sort of curious, what do you think about virtual worlds, and how people are spending their time in them, and what will become of virtual worlds? Are they just the next generation of most Web sites?

BILL GATES: In the entertainment space I hope you’ve kept track of how realistic, say, a basketball game or a racing game is on the PC or on Xbox 360. With high-definition displays, and the latest graphics chips, those things are incredibly rich. So as you’re walking through and navigating the ability to create detail, and have it feel smooth and comfortable, is dramatically better than it was a few years ago. You’re seeing that not just in virtual worlds, but also in presenting the real world, what we call our Virtual Earth, where it’s gone from being these flat satellite photographs, to now with the buildings themselves.

What you want to do is not just have the buildings there, but be able to point to the building and go in, and walk around, and either see the store as it really is, or, depending on your preferences, the books you want, the type of clothing you like, have that store be presented according to a way that would be most efficient for you. And later you’ll hear from Gary Flake about a breakthrough where you can take all these photos and create a 3-D environment very easily, without a lot of cost, or time, or complex software development.

So we want to take the idea of the real world and entering into 3-D activities, and just make that a mainstream thing that every Web site does. It won’t be the case that there will be just this one virtual world where you have all the same rule that a company that goes there can’t control whether there’s pornography or who gets in, or what the relationships are, rather it’s as you put this in your Web site you’ll decide do you want to be completely isolated, or to use a reputation system, or money system from outside, but you’ll just do that as part of your Web site.

So all the store type environments will start to bring in a 3-D interactive capability, all these lobbies where people meet and talk will start to bring in a 3-D capability. And the reason is, when we just make that simple in our tools, when we offer it as something that the tools make easy, and in this case part of it a relationship we have with Dassault, who is a leader in 3-D-type environments, then it will become a kind of common sense.

And we see some ways to drive this with some of our own Web sites setting a strong example.

QUESTION: We had  yesterday I saw some things that Gary Flake had done, and he called the present UI that we have on the Web overall quaint, that we’ll talk about it as quaint in a few years, because of some of the things we’ve got today.

Switching topics, you’ve sort of brought back philanthropy to the world, and whether it’s individuals, or companies, I think it’s a huge trend in marketing, how to give back and how to really take it to the next level, whether it’s a child raising money in a lemonade stand, or you giving money to different organizations. How do you feel about the trend of philanthropy and giving, and where do you thin kit’s going to go? Are we underestimating it, is it just marketing hype?

BILL GATES: Well, there’s a tradition of philanthropy that’s particularly strong in the United States that goes back over 100 years, and there are some phenomenal things that have come out of that philanthropy, the willingness to invest in things that are risky, to drive new models of education, new medicine. We can go all the way back to Rockefeller and Carnegie and see that that was a fantastic thing that they did.

I do think we’re seeing a broader interest and awareness, a higher level of generosity, that people at all sizes of giving have an interest in not only having a fulfilling job, but some things they contribute to, whether it’s time or money, that allows their impact on inequity to be something that they’re very proud of. So actually giving people a way that they can know that those gifts are having an impact, that’s something that we need to use the Internet to facilitate. After all, people don’t see some of these tragedies, and they don’t see the easy way to cut through the complexity and help out.

The Internet is about eliminating distance, not just distance between factories and people buying the latest snow boards, it’s also about seeing what is the reality there in Africa, and if I give money to dig a well in a village can I go and see that. So we have to be very creative about new approaches, about drawing businesses in, whether it’s drug companies or software companies. There’s a lot of neat ideas about how to do that.

One of my key collaborators in this whole space has actually been Bono, and he’s worked with Bobby Shriver, who we’re going to hear from to come up with a very novel thing, which is Product Red. Bobby will talk a lot about that, but I think that just fits into this whole direction, where people do want to associate themselves with improving the world, and their time, their money, they have that available to somebody who can show them that its’ real, that it’s not just some mirage. And there’s a little bit of uncertainty there, because in the past some giving wasn’t there with this very big effect. We’ve seen now money going for AIDS drug treatments, it’s an unbelievable success story that the money has saved millions of lives, and so it’s important we get that message back to people so that we get this positive cycle taking place.

So a lot of innovation that can come to this philanthropic area, and I do think it’s going to explode. I spent the weekend out in Omaha with my friend Warren Buffett, who set a good example and I was amazed at the number of people who came up at that shareholder’s meeting and said, yes, I’m planning to be more generous. So hopefully we’re onto a big trend here.

JOANNE BRADFORD: Great. Well, let’s turn it over to Bobby. Thank you very much.

BILL GATES: Excellent. (Applause.)

JOANNE BRADFORD: Thank you, Bill. Appreciate it.