BILL GATES: Good afternoon. It’s great to be back in Japan. It was just about 30 years ago when I made my first visit here, and that was Kazuhiko Nishi invited me, and we talked about how we both believed in personal computers, and started a lot of partnerships with the great Japanese companies that we are still working with today. That was the year that we did the BASIC for the PC 8000, and it’s been wonderful to see the market grow, and the impact that the personal computer has had as a tool of creativity and productivity.

This was the first market where Windows and graphics interface really took off, the first market where we really integrated Microsoft Office, and so there’s been a ton of firsts here, and this market has always been, along with the United States, one of our two biggest markets, and the customers here have taught us a lot in terms of their demands and their requirements.

Now, the world of software is always changing. The one thing that’s stayed the same throughout Microsoft’s history is our commitment to building great software platforms, and working with partners. But the specifics of what we do is always getting more ambitious, partly because of the miracle of the microprocessor. As it increases in power, our ability to do more ambitious things goes up and up and up. And so we’ve been able to invest in advanced research, increase our R&D budget which is now almost $8 billion a year, and that just shows our belief and optimism in the power of software.

We look at the next 10 years, which I call the Second Digital Decade, since it’s been about 10 years that the Internet exploded, we can see that some great things are going to happen. The computers will not just be more powerful, but we’ll interact with them in new ways, we’ll connect up to software services over the Internet, so we can simplify a lot of the way that software gets used. We have a very strong foundation that we build on with the success of Windows Vista, and Office, but also with our research group, and the collaborations they have, including the special structure we have here in Japan, the Joint Research Group that picks projects that we’re working on together.

I’ve got two specific announcements about things we’re doing in Japan, both of which I’m quite excited about. One is that we’re doing special work with partners here in Windows Media Center so that it will support, later this year, the ISDB-T. That means that connecting to digital broadcast and mixing that into your Windows experience in a rich way, that will be a feature of a lot of the Windows-based PCs, and we’re very excited about the work that’s coming together on that, and next month we’ll go through the specifics of what that will look like later this year.

Another announcement has to do with supporting young developers. Obviously, I was a young developer, and I was very anxious to build new software, and a lot of the breakthrough ideas will come in the future from young people. We’ve created a new program called DreamSpark, and what this does is it makes all the Microsoft tools which are the very professional tools that cost money, make them available for free to student developers. And so at no charge, they will have Visual Studio, Expression, a broad set of things. There’s a lot of young developers in Japan, and I’ll be excited to see what they can do. Next month we’ll give the details of how somebody comes on, verifies that they’re a student, once they do that, then they get the ability to download this full range of tools, and so that’s going to allow them to do some great things. So DreamSpark is a very innovative program, and as we’ve been talking it through with people it’s had a very strong response.

So let me just close, and I’ll leave as much time as I can for questions, by saying that Microsoft has a huge commitment to this market, a huge commitment to our partners here. We’ve always done unique things for the Japanese market, and many of those have really helped us on a global basis. I’ve had a chance today to meet with a lot of our key partners, and it’s very exciting to hear about the breadth of things we’re doing and how we’re expanding. The long-term approach we’re taking is very similar to what they believe in, and so computing really is just at the beginning, and under Higuchisan’s leadership, I know that Microsoft Japan will continue to do the best it can. We’ve got over 2,500 people. We’re very proud that we’ve been rated one of the top places to work. So, with that, thank you for coming today.

MODERATOR: (Not translated.)

QUESTION: (Not translated.)

BILL GATES: Well, we’ve put a lot of effort into talking to Yahoo, and the conclusion was reached that we should pursue our independent path. We’ve got a lot of research and ideas about helping advertisers, doing great online work, including the work we do in search. Steve Ballmer is the one who is driving our strategy. Of course, he is the CEO, and I think he’s made some very clear statements, and I would just stick with what he’s said, which is that now at this point Microsoft is focused on its independent strategy.

MODERATOR: (Not translated.)

QUESTION: (Not translated.)

BILL GATES: You’re right, the discussion about information at your fingertips was some time ago. I think that was either my 1998 or 1999 COMDEX keynote that I talked about that. And, in fact, as you say, the Internet today in large part is a realization of that dream. The fact that you can get on and whether it’s photos, or video, or articles about the latest scientific advances, find that information. For consumers the Internet is amazing. Perhaps even more impactful was the fact that inside a business today, if you use the latest software from Microsoft and others, the information you need to do your job well is there. You can find the documents, you can find the people who have expertise. And so I think it’s amazing what the industry has done. It’s driven productivity worldwide, it’s driven innovation. So that vision of information at your fingertips, we and our partners stayed focused on that.

In terms of the decade ahead, some of the big changes will be that the way we’ll interact with the machine will be very different. We’ll have the keyboard still, but more and more the natural techniques of simply touching the surface of your desk, or a future intelligent whiteboard, the idea of speaking, using a pen, these natural interface techniques will take computing and, in many ways, make it more pervasive. And that’s the magic of software, including investments that we’ve been making over the next decade  over the last decade to prepare us for those new capabilities, and now making that available to all the different software developers.

In terms of software on the Internet, you’ll really have computing in three places. You’ll have it on the local device, which will be the phone, or the personal computer, or microprocessor in the car, or microprocessor in your set-top box connected to your TV, all of those client devices will run rich software. The phone and the PC will be able to operate either connected to the network or not connected, and so they need rich local functionality, and they’ll have a lot of software that relates to visual recognition, ink recognition, speech recognition, modeling the user and being more responsive to your particular interests. You’ll also have server computers that companies will still buy servers, that’s a very big business that we and our partners have done very well in, but you’ll, in addition, connect to services through the Internet, software as a service. And the exact balance of the client, the server, and the service piece will be pretty equal. I think you’ll see a lot of computing in each of those three areas.

We’re, in fact, giving customers a choice when they want to run on the server, or want to run as a service, so that they can have applications on one or on the other, and make that very flexible. In fact, if they run it themselves, we can help them with overflow, or backup, or disaster recovery, and so there’s a lot flexibility built into this architecture.

It’s really a new thing that we need advances in the platform, advances in the tools, and later this year at our Developer Conference, Ray Ozzie, who is the innovator who is driving this effort inside Microsoft, will be talking very concretely about how other software developers can connect up to that service platform more. So it’s another case where we’re betting on a future trend, just like we did on the PC itself, or graphics user interface.

MODERATOR: (Not translated.)

QUESTION: (Not translated.)

BILL GATES: Well, the Japanese PC market is one of the largest and most innovative in the world, and yet, of course, we and our partners are often looking at how can we grow the market. In fact, this afternoon we were meeting with the group we call the Windows Digital Lifestyle Consortium, that includes all the major companies in Japan who think about the Windows PC, and what we can do even better.

It is interesting to note that in Japan the use of personal computers for young students is actually a lot lower than in any of the other rich countries, that is the degree to which the curriculum has been put online, the degree to which students are using their online, Internet curriculum instead of textbooks, that’s fairly slow. There are even schools that are not connected to the Internet, whereas many countries have achieved 100 percent there.

So I think doing our part to help education move online, to have people get that experience at a younger age, to make it available at more locations, libraries, community centers, so people have that tool, I think there are some key applications. For example, getting TV content onto the Internet, so that you can browse that information, getting the machines so that reading off the screen is as attractive as reading off of paper, so that you have some benefit there.

Once something is in digital form your ability to annotate it, and search it, record it, send it to a friend who might be interested in it, the digital form of documents is superior, and so we’re always looking at these key applications, whether it’s new games, new ways of interacting, to help the PC market stay strong. It’s a huge market, but we want to add to it through new applications, because on a worldwide basis, as you say, the growth has been quite amazing.

MODERATOR: (Not translated.)

QUESTION: (Not translated.)

BILL GATES: Certainly as you go around and look at different markets in the world, some of our products have very high share in some countries, and not so much in others. Our core products, which you’d have to say are things like Windows on the client, Windows Server, Microsoft Exchange, Excel, all the elements of Microsoft Office, SQL Server, if you define those as our core products I think you’d find in virtually every country those products are doing very, very well. In fact, on the server side the growth here in Japan, both in units and in market share, has been very, very good for us. So the core products are very strong.

The videogame market you have vastly different shares. Our share in the United States is very high, our share in the United Kingdom is very high. Then you have markets where Xbox doesn’t exist at all. So we’re very  a company that keeps improving things, we keep doing new things, but really it’s the core products that have driven the incredible success that we’ve had here in Japan. When it comes to online, we’re making big investments there. We think we can surprise people with some breakthroughs that we’ll make, but Microsoft always is learning, ready to do new versions of things. So at any time we’ll have some products with a low share, and some with a high share.

MODERATOR: (Not translated.)

QUESTION: (Not translated.)

BILL GATES: Yes, July 1 is a point where my career will change somewhat, where I have been, of course, full-time at Microsoft since age 17, and part-time doing work for my foundation. After July 1 that will switch, where I’ll be the part-time chairman of Microsoft, still care a lot, and help on some big strategy things, but my full time work will become the work for the Gates Foundation. So hopefully in the future you’ll see me again, whether it’s a Microsoft-type event, or some announcement related to the foundation. I’ll certainly be coming back to Japan on a regular basis, since both of those topics we have very key partners here in Japan.

This transition is one that we’ve been planning for for quite some time. In fact it was announced publicly about two years ago, so that we have great people like Ray Ozzie, who is stepping up to do a lot of what I’ve been doing, the Chief Software Architect job, and I’m very enthused about how he’s stepping up to that responsibility. Craig Mundie has stepped up to run Microsoft Research. So there’s really a pretty incredible Microsoft team. In a way I hope that they do get more visibility, because even though people think of Microsoft, they think of me, and of course, I’ve done such a small part of the great work, and these people deserve to have credit for the incredible role they play in terms of the immense success and the investments that we’re making.

So it will be a change, but I think it will be a great thing, and very smooth for Microsoft, as well as a nice opportunity for me to really advance the big causes that the foundation invests in.

QUESTION: (Not translated.)

BILL GATES: Well, Google in many countries has a very high share of the search market. We think that there are innovations that will take place in search, and that we’re a company with a commitment to breakthrough software technology that can provide some competition there, and really make sure that the state of the art does get advanced, and that advertisers have good choices, in terms of what they’re doing with their interactive advertising.

We have a conference coming up in, I think, the next month in Seattle, called Advance, where we’ll start to show you the next version of the search, and some of the things we’re very excited about with that. Of course, as we make these advances we’ll need to invest in marketing, to get the word out there, so that people will try out our product.

Fortunately, in search it’s very easy to type in a new URL and try out a different product, and so we’ll give people that opportunity as we make the advances that will give people a great choice there.

MODERATOR: (Not translated.)

QUESTION: (Not translated.)

BILL GATES: Microsoft has certainly in many respects been the leading software company for quite some time. And we’ve gone through  you can define generations in many different ways, I’m sure. But, the original kit computer, then the 8-bit disk-based computer, then the IBM PC with MS DOS, then the original Windows-based machine, then the explosion of the Internet, where Internet Explorer and the .NET programming model became a very big thing. Now we’re moving to the natural user interface, and software as a service.

So really from the beginning Microsoft, by having great research, investing in the long-run, and having partnerships, we’ve been able to be a leader. And we’re just going to keep coming in, writing the best software we can, and believing that software is very, very important, and it’s worth doing a good job. So at many times people thought that, what was it called, Just Systems, that we’d never gain share in word processing, or that Sun Microsystems would be incredibly successful. There are many companies, Ashton Tate, I can’t remember all of them, I’m sure, but there has been healthy competition at every stage of our business.

Today I’d say it’s more competitive than ever. There are people doing great phones, we do Windows Mobile. There are people doing databases, there are people doing videogame machines. So it’s not just in the search area that we have healthy competition. We love the competition, in a lot of ways we get out in front on things like IPTV, or tablet computing, because of the investments we make, but from product-to-product we’ve done very well, and I predict future success, but the reason this is such a fun market, and smart people love working in it, is because it’s always changing, and we always have to make big bets like we’re making on software as a service today.

MODERATOR: (Not translated.)

QUESTION: (Not translated.)

BILL GATES: We’re hard at work on a new version of Windows that has the top-secret code name Windows 7. So don’t tell anybody about that. In terms of the ship date, we’re not talking about that, because we want to get feedback from our partners and customers, and tune what we’re doing, so there’s no particular announcement about that. Historically we’ve had new versions of Windows every  somewhere between  around a three-year timeframe, but we’re not at all announcing or predicting for this one.

One thing that I did share with our partners today, that I’ll share with you is that with Vista we’ve now reached 140 million copies. So that’s a very rapid sales rate. Obviously, we always have ideas of new things to do in Windows, and I’m thrilled with the work we’re doing with that next version. So that’s all I can share with you at this time.

MODERATOR: (Not translated.)

END