Bill Gates: Microsoft MIX06 Conference

Remarks by Bill Gates, Chairman & Chief Software Architect, Microsoft Corporation
Microsoft MIX06 Conference
Las Vegas, Nevada
March 20, 2006

ANNOUNCER: Ladies and gentlemen, please welcome Bill Gates. (Applause.)

BILL GATES: Well, good morning. And welcome here to MIX06. This is a new event for us, and we’re very excited about everyone who is here, and the opportunity to talk about how the Internet is changing, and how software can create fantastic experiences connecting you with your customers.

The first thing we usually do at an event is have a humor video that kind of makes fun of Microsoft, and me, in some very profound way. And actually we were talking about this, trying to figure out how to do it. We thought, hey, this is a very inexpensive way to get this done. We’ll just go up on the Web, go to one of these video sites, and see what’s up there. They’ve got to have something that makes fun of me. So, let’s go ahead, let’s call up U2, sure enough, type in my name, and there’s got to be something here. OK, “Bill Gates Celebrity Death Match,” I don’t think so. “Bill Gates gets mad,” no, that was not fun. “Bill Gates runs like a girl, Pamela Anderson.” Well, that’s not working as well as I thought it would. So, next time we’ll go back and do the video like we always do.

What’s our focus here? Well, it’s about new software opportunities. Web sites and applications, which we’ve often thought of as two different things, are actually adopting the best practices of each other, and being able to move to whole new levels. The responsiveness of the experience, the ability to connect to the rich graphical capabilities of the device, connecting up to the information that the users care about. We’ve got quite a variety of people here which really reflect the skill sets that need to be brought to bear to make these customer experiences as great as they can be. A lot of developers, a lot of designers, which is fantastic because we have very specific things we’re doing for that group, and then, of course, people who are deciding about what to invest, and seeing where the Web is going, understanding what those opportunities look like. In terms of size, you’ve got people doing the very biggest consumer Web sites all the way down to people doing smaller sized, and people who are design shops that help literally thousands of customers get in and use rich templates to have very competitive experiences.

So, the theme, as I said, is about using software to reach out and create a new customer experience, one that is valuable for the organization. This idea of both attracting customers from the very beginning, retaining them, making it easy for them to buy, make it easy to upsell them, building the community around them that draws in other customers, this is a very hot area. In fact, there’s best practices all over the Web. I wouldn’t say any one single Web site has all of these things brought together. People who have always thought of their Web sites as their key way to reach out to customers have been building that database, and for other companies the idea of how you merge the different experiences that you might have, gather that database, and personalize the experience based on things that happen outside of the Web, that’s very important as well.

Now, exactly what technical targets or what tools you should use is changing very rapidly here because the experience on the Web is not only moving to be more and more broadband, you can think of video and rich interaction, and even downloading rich applications, it’s also being done across different devices. Even on the PC, there’s a big difference between what we call the two-foot experience, where you’re sitting there at the keyboard, and the ten-foot experience, where you’re sitting at, say, a Media Center PC, or a Media Center Extender, and using a remote control, the kind of interface, the size of the menus, that’s a different experience even though it’s completely driven by your PC.

Obviously, the cell phone is another important experience for people who want to navigate your information, and there’s such variety there in terms of screen sizes, keyboards, and things like that, that software tools and abstractions that help with that is very, very important. In fact, the breadth of the experience that people are having as they browse the Web is just going to get larger and larger from the very biggest screen, to the smallest screen it’s quite a range. Even, over time, interaction that involves what we call master user interface, the ability to take speech as an input, for example, is something that will become mainstream. So, even on that phone, interacting with voice commands will become very important for a number of these Web sites.

MIX is about all these software technologies that let you make that connection. Many of the things we’re going to talk about are really falling into two categories. First, it’s the experience through the browser, and as you’ve seen there’s a lot of substantial change there including some tools that we’ve just come up with that you’ll get your hands on that will make that substantially richer than ever before. And then, second, is beyond the browser, where you are actually exchanging data with rich code, the client is not on a phone, or a Media Center PC, or any of the target devices. And there’s a way to take both of these approaches and connect that back to your database, and so you have the best of both worlds without duplicating anything across those two arenas. So, a lot about the browser, and a lot about going beyond the browser.

Next-Generation Browsing

Let’s first talk about the browsing arena, next-generation browsing. Clearly, the browser is a key element of the system, the amount of time people spend in the browser is very, very high. And yet the need to make that a richer experience is very, very clear. We’re hard at work on the next version of Internet Explorer, that’s Internet Explorer 7.0. In fact, you’ll see quite a bit about that here. It’s a very significant release. And I would say there are three areas to really focus in on.

First is the streamlined user interface. We’ve actually reduced the amount of area required by that. We’ve got tabs, zoom, print preview, dramatically better printing type capability.

A second area, probably the biggest area of investment, but one that is, in a sense, all below the covers and something that you just don’t have to think much about is what we’ve done in security. Our browser is clearly down the learning curve in terms of what you need to do with rich, rich security, dramatically more than any other browser. And so we’ve done a lot of things. One that I think is most interesting is the way we have the browser run in what we call low-rights mode, so the ability of software to restrict it very appropriately from doing things that would cause any problem. The way we let you opt in when you want the active control to come down, where we have the reputation of those controls clearly presented to you. We have this idea of stopping phishing because there are certain patterns of phishing sites that we have found that correlate across all of them, and so we’re able to build a reputation service, and present that information to the user. There’s also this idea of new certificates so that you can’t just get a Web site and get a certificate and be counted as a long-time, high-reputation site. Rather, in the browser user interface, you can see if it’s a long-established site, and that would give you a strong sense of whether you ought to be able to give out your credit card number there or if you ought to think twice about that. Obviously, a very big deal, and something where software technology can drive even the social attacks that are taking place down fairly dramatically.

The final area of the three is the platform capabilities built into the browser, CSS support, transparent PNGs, native XML, HTTP, a variety of things, in particular the feed store and the RSS capabilities you’ll see us highlighting that there.

There’s a new release of IE 7. In fact, it got put into the beta that you have, and it’s online today. And so that’s an important milestone for us. We also have place called the Compatibility Lab where you can go try out your sites there, make sure that not only your site works with IE 7, that you’re doing some things that actually can take advantage of this. IE 7 we expect very broad usage of really for two reasons. First, it will be a free download when we go final for XP users, and we’ll be promoting that pretty heavily. And, second of all, of course, this is a browser that people will get with Windows Vista. Windows Vista is due this year, making great progress on that, getting a lot of feedback, and so we expect as that comes out that manufacturers will ship their new machines pretty much exclusively with Windows Vista because there’s some dramatic improvements there including taking advantage and showing off the hardware. And so, very rapidly, that base of users will build and build. We’ve also seen with the browser, of course, that the willingness to download new versions is very, very high, probably higher than any other type of piece of software.

I think really the key point I want to make is that IE 7 is not the end of the line. In a sense, what we’re doing is saying, hey, we waited too long for a browser release. We will be able to [ ] a browser much faster than the typical major Windows release cycle. We’re already working on the next two releases. And so you can expect to see us moving very, very rapidly there because we see great opportunities. And one of the themes to this conference is to talk with you about some of the things we’re thinking and actually get feedback so that as we’re picking up at pretty dramatic speed, we’re doing the things in the browser that you think would be very helpful to you.


RSS, a lot of discussion about that. We’ve seen it do a number of things that we’ve put out as industry standards for people to adopt around RSS. We think it’s very, very important. We’ve got the simple list extensions that make feeds better particularly for structured data. We think the amount of RSS going on is going to skyrocket. It’s already very significant. It will move up to new levels. And making it easy for you to manage those feeds so that they show up in the appropriate place, and some of the same mechanisms that we’ve thought about with things like e-mail rules can be applied here so that even when your information comes in it’s coming to exactly the place that you’re interested in seeing it. We’re going beyond just a textual-type notification where people will have photos and the podcasts themselves.

When you think about RSS as the start of a programmable Web, as you expose APIs to your Web sites, amazing things can happen. eBay, of course, is an extreme example where over half the product listings now are done in a programmatic way. And the tools that are turning the Internet essentially into a programming environment where any Web site is almost like a component in a software application, where you make a request to it like you would a subroutine call, it comes back asynchronously with the information, that’s allowing people to think through architectures in a very different way. We have lots of software tools to help with these messaging type connections. The richest is around a set of standards called WS*. We call that the Windows Communication Framework that was code-named “Indigo,” and there’s a lot of industry support for those strong standards. And what you get there is, without your having to write a lot of complex code, exchanges where you’re calling a Web site to do something can actually be secure, you can exchange a lot of rich information, and actually pick in that protocol suite exactly what – tuned for the interaction that you want there. So, you can move from very simple types of Web call requests all the way up to the highly structured environment without you having to do a lot of software work.

Ray Ozzie, of course, is the person we have very focused on this new application pattern, and most recently he came out, and I hope many of you saw it, and talked about the idea of thinking of the Web as a place that you can exchange information with what he called the Live Clipboard, an analogy to what we’ve done between applications on the PC now working between Web sites. Whether it’s programmatic or the user being able to take pieces and combine them, this idea of modularity, Web sites being able to specialize in something and then being able to connect and get together in a rich way, that’s a powerful idea whose time has come, and we’re just really at the very beginning of taking advantage of that.

Interactive Experiences

When you build Web sites, there’s always been a question of how interactive are they? Are they – do you just deliver HTML and every time somebody clicks you have to go all the way back to your Web server? That’s not a very interactive experience. And so we’ve seen an explosion of really JavaScript programming down on the client to create rich exchange so that you get a menu that you can interact with, you can scroll the table. And that’s a super valuable approach. In fact, we’ll focus a lot on Atlas, which is our framework for this type of development.

The history of this is pretty interesting. We actually built into the browser going back quite some time, back as long ago as 1997, we had the scripting and DHTML-type support, and we’ve actually been using that increasingly in our applications. Our first was actually out with Web Access. That is delivering the Outlook experience through the browser. And Outlook Web Access has gone through many different versions, we’re actually on the third major version of that, and that’s part of the learning curve we’ve had in terms of figuring out how to do these libraries. Doing them well is very important, because after all this is asynchronous programming where you want to really not have the user see the fact that there is actually quite a bit of complicated message exchange going on in the background.

We looked at our own activities around our various Web sites. We’re using it pervasively as the framework that has been made mature through that type of usage. Likewise, Office now is going to beyond just Outlook using these capabilities. The version of Outlook – the version of Office, Office 2007, which ships later this year, actually you’ll see in InfoPath the ability to take the browser and have that rich form of interaction. You’ll even see with Excel the ability to come and take a lot of the rich capabilities in a spreadsheet, including navigation, and have that be viewed through a browser as well. And so a lot of things that we’re doing, we’ve gotten all the programmers to do that work together, and Atlas is the result. We think that that really puts you to a new level in terms of that Web-site interface. It works with any modern browser with DHTML and XML, HTTP capable. We, of course, connect it up, make it work super well with, but that it’s not necessary that there be that connection.

Today, we are going to be announcing that this framework that we’ve created that you can go ahead and use that live in Web sites. We’re doing that a lot ourselves. We have a number of companies that are going to take today’s announcement that we are saying go ahead and go live and take advantage of that. So, a significant milestone in that framework, and you’ll see a few demos later that will show you why we’re so excited about that.

If you think of “Atlas” as sort of raising the floor, sort of the just pure browser experience to a significant higher level, we also want to raise the ceiling. That is, your ability to do something even dramatically better there. And this is where we created the Windows Presentation Foundation, WPF. This is available on [Windows] Vista and XP. And it really takes a lot of the graphics pipeline that’s been separated and pulls it together in a very rich way. It exploits the graphics chip, so you can expect the drivers, because this is an integral part of Windows, and how pieces of Windows itself are being built, that quality richness of those drivers across all the different graphics chips will be pretty incredible, and those GPUs are really quite amazing in terms of what they can do. But you don’t want to have to get down there and do that direct programming yourself.

We use a declarative model here that makes the productivity in building things with this pretty incredible. You’ll see a number of applications today that hopefully you’ll agree with me are really quite amazing, and yet each of those was developed in a few weeks time. And so the productivity richness you get out of using that is quite phenomenal. We’ll hear more abut that when Dean Hachamovitch comes up and shows us that later in the keynote today.

Beyond browsing speaks to having rich client code that creates a great interaction. We’re seeing an explosion of this. Almost every popular Web site is now saying, OK, what can they do, whether it’s a little notification thing on the sidebar, or a full screen immersive type experience, this is a very state of the art thing that really is complementary to having that pure browser experience. [Windows] Vista has this gadget bar, and you’ll expect to see virtually all Web sites connecting up to that. Likewise, a lot of Web sites want to connect up to people if they use Microsoft Office. So the kind of extensibility we have there, a plugging in interface that makes that super simple, means writing code that runs on the client, but in that Office context.

The thing about the 10-foot experience, the TV capability that I talked about, we’ve seen an explosion of the form of Windows that targets that called Media Center. We sold 6 million units last year, and as we got towards December that volume went up very dramatically, and it was actually a very high percentage of all the retail PCs. We got to 48 percent of retail PCs here in December. In Media Center we’re really just at the beginning, because the ease of connecting up to the cable video feed or the satellite video feed, or getting high definition, all of those are things that over the next several years we’re making great progress through the partnerships we have with the companies that do that.

Also, the popularity of Xbox 360 is a big help here, because you may recognize that device is a Media Center extender. A PC anywhere in the house can send its information, watching videos, anything you want, to that box and you get the full fidelity experience there in the living room with the TV, which has that Xbox 360 connected up to that. So we’ll get into here quite a bit about building applications, and services for Media Center, and how you can share most of your work. But, you really do want to tune the user interface to that environment.

In the mobile environment, of course there’s an explosion of devices there. We’re involved with that, with the Windows Mobile capabilities that we have. It’s really exploding in terms of not only the volume, but the variety of devices we have. This is a Verizon 700W, hopefully some of you have seen this. This is through our partnership with Palm, and they did a great job on this. We’ve also got quite a variety of devices in a classic form factor, that’s Windows Mobile. This is one that’s with Cingular, where the keyboard is there, it just slides out. So these are new form factors that are letting people get messaging capabilities. Then we have one that’s shipping later this year. This is a Motorola device, a similar form factor to some of the other things they’ve done, but really fully taking advantage of Windows Mobile into the very nice keyboard there, and a very nice form factor.

The whole spectrum of mobile devices, from the smallest phones to the largest screen phones, really is a continuum where then you get to the low end, the smaller screen versions of the Tablet PC. There we had a big announcement a couple of weeks ago of what we call Origami. This is one of the devices, you see a very nice little screen here. This is a Samsung device. There are some things we’ve done to make it so that touch works very well in this environment, even the touch keyboard, and of course, full Windows applications and capability here in a very nice form factor.

Particularly as wireless data is exploding, we expect to see a lot of people using this. Obviously this works with the pen, it works with the ink type capabilities. So expect as people are in meetings, or students taking notes and things, those form factors will be very explosive, as well. So a lot of that beyond the browser capability, Joe Belfiore is going to get into that in his discussion tomorrow.

Live Software

So this is a new generation of software. We talk about it as Live software, what does that mean? It means software that’s really assuming the Internet, that in terms of how it gets downloaded, updated, how you can track if the experience of that software user is exactly what you want, how you can have extended help capability and connect up to these other Web sites, whether it’s community or mapping type capabilities, an application that connects up to the Web, that’s what we call a Live application.

Building the platform for that, that’s the big focus that Microsoft has, because it takes a lot of the rich platform things we’ve always done, storage, and presentation and security, but it brings those to a whole new level, so you can call in and get those services from us, and avoid your having to write that code. So the breadth of the platform, the richness, we’re going to be driving that forward, again, a great area for dialogue in this conference as we’re setting the priorities about how we expose those capabilities.

So it’s a world of software running on devices, but connecting up to software running on servers, what we often talk about as services. The power on the edge of the network will stay incredible here, from the latest PC to the Xbox 360, to those kinds of phones. So thinking about your different user interfaces, and yet having consistency across those becomes very, very important. It’s a variety of business models, new exploration, it’s great to see the experimentation, as obviously moving in new levels, transaction fees, subscriptions, one-time payments, all of those make sense, and the platform will facilitate that, give you things to connect up to no matter what your model is.

Windows Live is the idea of Windows PC users connecting up to those things. Office Live is the idea of the business connecting up, and often getting things that they would have had to set up a special server for, now just they’re connecting through the Internet. Obviously Xbox Live is very much in the spirit of that, because it brings in the community, it brings in the rich communication. So it’s about a platform, and it’s about making these things simpler and simpler for you, so you can focus in on your customer experience and not having to write lots of complex code.

The services we have here are going to be very substantial, and the tools. I can’t emphasize enough, making it easy for the developer, for the designer, for a rich project where you’ve got people specializing in both of those things, and making sure that that boundary is a very, very productive one. You’ll see the new expression tools and the things we’re doing there, very excited about that, and kind of the commitment to the audience that wants to do that rich kind of capability.

So lots to absorb, but all very state-of-the-art stuff, it should be very exciting. I wanted to show two examples of what I’ve been talking about, and so for the first of those, I’m very excited to have here people from MySpace, who have got really an explosive Web site, doing some amazing things with it, and it’s a wonderful example of using our technology.

So let me welcome Aber Whitcom to the stage, the CTO. Welcome.

ABER WHITCOM: Thank you.

Hello, everybody. I thought I’d start by bragging about some of our numbers. Business is booming, MySpace has 65 million registered members, and that’s growing at 260,000 members every day. In February we had 38 million unique views, and 23 billion page views. In fact, Media Metrics tells us that we’re the No. 2-trafficked site on the Internet, passing Google, eBay, and just recently MSN.

Sorry about that, Bill.

Bill can take comfort in knowing that we’ve achieved these numbers using SQL Server 2005, and also ASP.NET 2.0. (Applause.) So right around the time that we started MySpace we took a look at some other social networking sites on the Internet, Friendster was blowing up, but it was just a dating site. There were some other sites out there that were geared towards business, classifieds, we wanted to do something different, we wanted something for everybody.

Our vision was to become a next-generation portal that empowers people to speak for themselves, and do whatever they want. So we gathered all the cool features that we saw on the Internet, and we brought them together, and integrated them into our social networking platform. Music is one of the best examples of things to become incredibly popular on MySpace.

So let’s take a look at some of the technical milestones we’ve hit with Microsoft. We’ve been around for 2-1/2 years. Since the beginning we’ve had to make continuous changes to keep up with the growth. MySpace has primarily relied on Microsoft technologies, for both the operating system and for the database and development platform.

On our way to 65 million members we started off with a simple backend architecture, but we quickly realized a lot more was needed for us to stay alive.

Our first big win was at 9 million members when we converted parts of MySpace over to We immediately saw huge performance gains, specifically on the CPU. With our developers are also able to take advantage of the true object oriented programming nature that C# provides.

At 17 million members we deployed a large-scale dynamic caching engine in We were able to get 92 percent cache hit rates, which greatly reduced the amount of load on our databases. We were also using a 64-bit version of, so we can load up our servers with a huge amount of RAM, which reduced the number of servers we had to put in the data center.

SQL Server has been core to MySpace since the beginning. We were early adopters of SQL Server 2005, and in testing we found that there were huge performance benefits in it. We had SQL Server in production before it was officially released, and it relieved a lot of performance bottlenecks in the MySpace architecture.

I’m actually speaking about this topic later on today at 4:30 at the Mega Site session. I’ll be with Casey Jacobs from if you’re interested in knowing more.

Let me give you an example of some performance gains we saw with rolling out ASP.NET.

The MySpace home profile page is every registered user’s private control panel for MySpace. This key page has very strict up time and performance requirements. We recently rolled out brand new code, refactored ASP.NET 2.0 code with amazing results. The CPU was the most drastic change, actually reducing CPU from 85 percent to 27 percent.

Once this rollout was complete, we could take the server farm of 246 servers which just serve this page, and got it down to only 150 servers, with plenty of room to grow.

We actually captured this event while it was happening on our performance monitor. This graph shows the CPU of the servers as we were rolling it out. You can see the left side shows our brand new refactored code, the right side is our old code. I like to call this graph mowing the lawn. (Laughter.)

MySpace is much, much more than just these incredible numbers. Our members include people, bands, artists, filmmakers, clubs, and a lot more. More important than the numbers, MySpace is about friends and sharing with friends. Our members start on MySpace by creating their personal profile where they share their information. On this profile they can talk about themselves and their interests, their friends, post their blogs, and much more.

Now I’d like to introduce Alan, our director of engineering at MySpace. He’s responsible for all of our developers, and he’s going to help walk us through some of the features of MySpace. (Applause.)

So users have a lot of control over the way their profiles look. We’ve captured some information about Bill in this example, but he hasn’t done any customization on his page yet. Notice his About Me section, his friends, and the comments that his friends have made about him.

Some of our members are more artistic and creative. (Laughter.) We provide the means and encourage our users to customize their pages.

Maria is our office manager at MySpace. MugShot is a band sharing their music on MySpace. And this member, Dana Keller (?), creates custom profile designs for other members on MySpace.

The music section has been huge on MySpace, and here’s a band that launched themselves, and they stream their music on their pages in order to gain more audience for their music.

Our users share everything from music to videos, from comments to blogs, and not a small amount of love. One of the most popular items on MySpace is photos. If we click on view more photos, we can see a link that goes to more of their images, but it brings up our log-in dialogue.

Once logged in, I can view more content of my friends, but we’re going to skip this for now.

But what if the photo sharing experience could be even more intimate, on the desktop, all the time, and showed all my friends? Let’s take a look at this. Now, we’re going to show you something we’ve not yet done before at MySpace. This is an off-the-browser experience, a MySpace slides gadget. By the way, this is Windows Vista. We’re fully running on the Windows Vista environment right now.

Powered by MySpace Web Services and RSS feeds, the MySpace slides gadget resides in the Windows Vista sidebar, creating stickiness to our site that a Web page can’t match. Once I’m logged into the gadget, I can display pictures from any one of my picture galleries, and the public ones such as cool new people, and top ranked pictures.

You can choose to customize a show that contains all your friends or just certain friends that you’re most interested in.

Clicking on a picture of a friend opens up the main picture of this friend with useful links. From here, you can view the member’s profile, post a comment, send e-mail, or view more of your friend’s pictures.

Once logged into the gadget, we persist our security so you can perform these operations without having to log in again. For example, we click on View More Pics, and you can see more pictures.

This MySpace slides gadget provides a constant desktop link that really makes it easy to stay connected to all your friends. One of the keys to our success is that our users are incredibly active, uploading images all the time, and this gadget leverages that experience.

We’ll be launching this feature in the Vista timeframe. Tom, our president, who’s friends with everyone, will post a bulletin when we do.

We saw earlier how MySpace members have a good deal of control over how their personal profiles appear on the Web to let our members change colors, fonts, backgrounds, and a lot more. Alan is going to tell you a little bit more about our new profile editor, the Shuffler.

ALAN: So in the beginning at MySpace we offered the ability to users to pick a predefined template, but we gave them the ability to use cascading style sheets, or CSS, to customize their profile. We tried to create a lot of tags so they would be able to touch every element and customize it. Now, this requires that you have to be somewhat tech savvy and some third party sites that have popped up that have given us the ability to customize that without being so tech savvy.

So what we’re trying to do now is leverage the next level, which we’re going to call Profiles 2.0, and what that’s going to give you the ability to do, using Microsoft Atlas, is have modules that you’ll be able to drag on the page, if you don’t want your About Me, you don’t want your comments, you’ll be able to drag them off, you’ll be able to drag rich text editors on, and it’s going to give even your non-tech savvy users the ability to use the Web and present their public profile to the world.

So here let you show you a prototype. This is a sneak peak of what you’ll be seeing in the coming weeks live on MySpace. And like I said, it’s called Profiles 2.0 internally, and we also call it the Shuffler.

So if I want the mini player, which is where I want to take another band and play them on my site, I can drag them in here. And if I don’t want my extended network, which shows the degrees of separation on the site, I can drag it off over here. And what that gives us the ability to do in the future is add more modules, and you won’t have to have a predefined template as a band, a filmmaker, you’ll now be able to define who you want to be more than you’ve ever been able to do on

So what Microsoft Atlas has done for us, we started out with a few Ajax libraries, we spent about two months playing around with it, but Microsoft Atlas in like two evenings with two developers working for two or three hours, they were able to use that library to completely convert it to the Microsoft Atlas framework, and with 45 .NET developers they all now are able to use this framework. Atlas is a complete ecosystem, it’s more than just Ajax libraries, it’s the consistency into your development cycle.

And as always, Tom will send out a bulletin to all 64 million of his friends.

ABER WHITCOM: All right, I’d like to thank Microsoft for inviting us to MIX and for all their help in achieving our success. (Applause.)

BILL GATES: Thank you, guys, that was fantastic. Good job.

Well, I think the MySpace story really is phenomenal. What they’re doing with the scale, what they’re doing now with the new usability in the gadgets really talks about the reason we’ve built the ASP.NET platform, why we’re doing the “Atlas” libraries, and seeing it work in such incredible numbers is phenomenal.

The next thing we’re going to look at I think is also a great example of pioneering new approaches. This is actually the BBC that’s doing some amazing things.

So let me introduce Ashley Highfield, who’s the director of new media and technology from the BBC. Welcome. (Applause.)

Well, the BBC has got a lot of content, but how are you going to take that and really be totally relevant in this new age?

ASHLEY HIGHFIELD: That’s a big challenge for us. We can really see that our audience needs and their behavior is really changing. We run one of the world’s biggest pure content Web sites. Over half of all the people in the U.K. visit our Web site every month. And in the last year what we’ve seen is a really dramatic shift, we’ve seen an exponential literally increase in the amount of rich media that we’re serving. So in addition to our traditional business of text, of journalism and pictures and graphics, we’re now seeing there’s this huge consumption of audio and video, radio and television programs.

And you can partly explain that I guess by the take up of broadband in the U.K., but there’s something more than that, and I think that what we’re seeing is the audience expectations that they’ve got from the music industry of being able to consume the music on their terms, they’re now starting to expect that from television, they want television on their terms, they want to watch it whenever, however, wherever. And we as a media company, we need to respond to that.

The other thing that we’re seeing is that the distribution costs for us as a broadcaster are a really critical part of our business, and they are falling dramatically on the Web.

Just as a little comparison, it costs us around about 7 million pounds a year to distribute one of our TV channels over the airwaves, over digital terrestrial. It’s about a tenth that much, about 700,000 to distribute a channel over satellite. And using the latest technologies, peer-to-peer and multicasting, we can get that cost down by another factor of ten down to around about 70,000. So if the audience is there and the demand is really there, then for us the Internet, just looking at that, that television slice, is a hugely compelling platform for us.

BILL GATES: Well, what are the kind of issues that you’ve had to confront in terms of getting all that content out there and making it easy for people to use?

ASHLEY HIGHFIELD: There are a lot of issues, it’s not that simple. If the audience demand is there and our costs are falling, then I think the issues fall into two main camps. One is quality of service and the other one is Digital Rights Management.

Now, quality of service, up till now the video we’ve put onto the Internet, let’s say our live news, our audience hasn’t minded too much if it’s in a small window, if it’s jerky, if there’s a bit of buffering, because really they’re after the headlines and that’s okay, but it’s clearly not okay for a drama or an entertainment show.

And so we are taking a dual track approach here. We’re looking at new technologies for streaming, like multicasting, to improve the quality of our streaming, but we’re looking at the download model of using peer-to-peer to get the files down to the PC so that people can watch in broadcast quality the rest of our entertainment and drama and factual shows.

And we’ve just completed a trial in 5,000 homes of a service that we will also roll out later this year of offering all the BBC’s programming for up to a week after transmission free to download and then watch, and it’s looking pretty encouraging.

The second big issue for us then is Digital Rights Management, and that’s a tricky one. We commission about 25 percent of our content from third parties, we acquire some content, and we make the rest in house. And none of us want to see our programs pirated. And for some reason the U.K. is I think top of the world’s lead in television programming piracy; some people are proud of that. And for us that’s a really important thing.

So Digital Rights Management, but easy for the audience, our audience doesn’t want some really complicated framework to have to go through to watch our programs; light touch DRM, but also DRM for us because we want to give our programs away for a week where we’re funded by an annual license fee, and so wherever possible we want to give our audience a chance to view our programs for at least a week for free, then we want a kind of sophisticated DRM that would allow that, allow a week’s free and then move into potentially a pay model.

And we’ve also got to, like I say, our audience is by territory, we’ve got to make sure that in the U.K. they can get it for free, but unfortunately in the U.S. you may have to pay.

And finally, that kind of sophisticated DRM will improve the partnership with yourselves, for instance. It’s all coming together.

BILL GATES: Well, and the ease of use on that is very important. Let’s go ahead and take a look at what you’re doing with the interface.

ASHLEY HIGHFIELD: Sure. So this is a demo running on the [Windows] Vista platform, and over on the right-hand side is a bit like my space, is a BBC Gadget, which is a gateway to all of the BBC programming. So if I click on that, so again this is off the browser, this is our gateway to a week’s worth of all the BBC’s programming content. And I can either go into search for a specific program that I might be looking for, I can go and browse through our networks, through our television and radio networks, or I can use a more conventional electronic program guide. I can see what’s hot using the recommendations of the community or what the BBC thinks is good, or I can go and have a look in my space to look at programs I’ve already downloaded.

But first of all, what I’m going to do is I’m going to search. Now, as I search here, as I start to type in, I’m going to look for a program, and I just caught the last two minutes of it on Sunday night, a program called “Bleak House.” And as I start typing, it’s going to bring up all the BBC programming available beginning with B, and as I type through the words, so now I’ve got “Black Adder” and “Blake 7” and “Blue Peter.”” (Applause.) What was that for, which one, “Blue Peter?” (Laughter.) And as I get through to “Bleak House,” so it’s now just brought me up all the episodes of “Bleak House.”

And if I click on the first episode, then I can move this window over here, and I’ll go full screen on this. (Video segment.) I think that’s quite enough. (Laughter.) Now, for those of you who don’t visit England, this is not a contemporary drama. (Laughter.)

But what I’m going to do is I’m going to book the series here. What we’re offering for a number of our series, if you only come in at episode three, we’ve stacked the whole series online so that you can download, catch up to where you are, and then carry on watching it on television, which we believe is one of these kind of services that’s going to be really complementary to television, increase the reach of the television program. So I can just click on that and book the series.

If I know a bit more of what I’m looking for, let’s say I’m going to go and browse now, but I don’t know the exact program, I’m just going to play around a bit, and I’m going to look by genre. I know I want to find some comedy. Now, I could go into music, learning, sports, and so on, but I’m going to have a look and see what’s available from the BBC in the comedy genre. And I think I’ll go for “The Office.”

Now, the BBC knows probably what I’m looking for, which episode, and it probably knows what the clip I most want to see is, so here we go. (Video segment.) (Applause.)

Now, I not only learned everything I know about dancing from this guy, but everything about leadership as well. (Laughter.) And I thought that I’d like to share that with you, Bill. So I click on share and up comes the Vista bar at the bottom, and I can now spin through my rolodex until I get to you, there you are. And because that clip I’ve just been watching, that’s now down here, and I can drag and drop that program over to you, and I can now put that program into your playlist.

The last thing I want to show you then is by going into my space and if I click on play now, this is a list of all the programming that I’ve downloaded but not yet watched, two things from my network television channels and one from our radio, Radio One. But this is “Planet Earth,” and we’ve just finished shooting this, and this is airing in the U.K. at the moment, and it’s using the latest technologies, filmed in high def, it’s absolutely beautiful. So I’d much rather throw this to the Media Center and let’s have a look at it through Media Center. (Video segment.) OK, that’s probably enough monkeys.

And I think that that kind of sums it up for me, that kind of mixture of the quality, but to get that quality programming out we need to be technologically innovating, too.

BILL GATES: Well, that’s a phenomenal interface, and we’ve been excited to work with you on that, particularly with the breadth of content you’ve got, it’s phenomenal.

What are any of the final hurdles to get this fully into play?

ASHLEY HIGHFIELD: Well, one of them is, of course, that a lot of this content is coming down to the PC screen. That’s probably less of a hurdle than we thought it was initially. The trial that was just completed shows that a lot of people are quite happy to watch our programming on the PC and in their study, in their den, or on their laptop and take it to bed with them. But for a lot of people the barrier is that missing ten yards of railroad, and so we’re very interested in finding ways like the Media Center, like Digital Media Extenders like the Xbox 360, of moving the content onto the television screen.

We also want to exploit our archives, and the BBC has got the world’s biggest video archive of around 600,000 hours going right back to the 1930s, of which 99-point-something percent stays on the shelves. And clearly if we’re going to digitize that and make it available, then we’re going to need awesome next generation search tools, we’re going to have to put the metadata in to make this findable in this world and have that kind of end-to-end solution.

And not all the pieces even exist yet, so that is a major challenge for us, but we really believe there’s sort of the long tail that you’re seeing on Amazon and so on will happen in the television business as well.

BILL GATES: Well, it’s fantastic, and we’re going to do everything we can to help you with that. It’s an amazing new experience.

ASHLEY HIGHFIELD: Well, thanks for inviting me, Bill.

BILL GATES: Thank you. (Applause.)

Well, I think those demos really do illustrate why we’re so enthusiastic about software connecting people up to the things they care about in a new way.

Let me just remind you the top things to keep in mind. Get ready for IE 7, that’s just a very practical straightforward thing, but we think quite important. Improve your site with a kind of rich match-up extensibility that this “Atlas” framework provides, and you’re going to hear quite a bit about that. And then elevate the experiences. We saw with the BBC the visuals there, we saw with MySpace the gadgets, the customization-type things. You’ll hear a lot about wiring the Web, taking RSS, this Live Clipboard idea, pulling those things together, and you’ll hear a lot about how great design skills and great development skills really can be brought together in a complementary way, particularly with some of these new tools. And this will be one of the first times we’re talking about Live services, getting feedback on where we go with that, so we’re really looking forward to the smaller interactive sessions, because that will drive many of our priorities there.

So I really want to thank you all for coming. We’ve got one more thing I’m going to do, which should be fun, and that’s I’m going to ask Tim O’Reilly to come up, and he’s got a few questions in mind for me, and then he’ll give all of you a chance to ask a few questions as well. So let me welcome Tim. (Applause.)

TIM O’REILLY: So, you know, my Safari books online service runs on SQL Server and ASP.NET, but I don’t think that’s why you called me out there.

BILL GATES: No, I’m glad to hear it.

TIM O’REILLY: We’ve got monkeys on some of our books, but I don’t think that’s why I’m here either. (Laughter.)

I think we’re here because I’m the guy who launched about a hundred thousand blog posts and almost as many VC pitches with this idea of Web 2.0. You guys call it Live Software, but we’re still I think talking about the same thing, which is the evolution of the Internet as a platform.

And what I want to talk to you about this morning a little bit was just what are some of the ways that that platform is developing. And in your talk earlier you talked a little bit about the WS-STAR standards and this architecture for connecting Web sites as components, but it strikes me as interesting that the lightweight methods like RSS or the match-up, you know, Google Maps became the first real platform play in the online space when a hacker just decoded the format and people started programming against it, and so housing, which put together craigslist and Google Maps really was the template for a new kind of platform, and that doesn’t use any of these heavyweight frameworks.

BILL GATES: That’s right. Programming, you’ve always got to support the entire spectrum of people wanting just to sit down in a few minutes, do something great. I’d say this is the very spirit of Microsoft going back to the original days of BASIC where [ ] sit down and write a very simple program and get something going, and then making it so as you scale that up into a more complex system where you have customer transactions you can use richer techniques. But you’re absolutely right, the kind of experimentation, the excitement will often be there where you let people just very quickly get something done.

TIM O’REILLY: Low barriers to entry and then things take off, and then you figure out how to make it easier for the rest of the people later.

BILL GATES: That’s right. And events like this really let us talk through that spectrum, you know, if you use the WS protocols, what do you get out of that versus doing it the simple way, but we’re going to cover that entire spectrum. In fact, in the maps area we’re doing our best, we’ve got a lot of neat things there competing with the Google site as well.

TIM O’REILLY: Right, no, I understand, but you’ve had a great set of APIs there for a long time, but it was really more how accessible were they. You had to call up, get a developer key, it was sort of part of a sales process rather than just something that hackers could go to town on.

BILL GATES: That’s right. There in particular we were supporting people writing code and logic, and the model that came along was one that in a lot of cases you just want to do simple presentation overlays, and so you just wanted to basically layer your presentation on top, and so that’s a very important methodology. Now, we also see people who want to put logic on their site, and so both will be pretty important.

TIM O’REILLY: So when you look at this evolution of the Internet as an operating system, as you start to think about the parallels with the evolution of the PC, and obviously back in the early ’80s there were lots and lots of smaller players doing things differently, there was a lot of confusion, I remember all the battles over who’d use the space over 64k and how it would get used, and now we have people figuring out all these data interfaces, data is becoming the source of subsystems, whether location or identity. How do you see that evolving as an operating system? Does it become an operating system in the way that the Internet has been heretofore, which is a bunch of small pieces loosely joined, following common protocols, or is it something like what you did with WIN32 where there’s sort of a master system that ties it all together and makes it easy for developers?

BILL GATES: Well, I think we’re definitely going to have some of both of those things. In a sense you can say it’s like when you wrote a Windows application you could call whatever services you felt like calling, you didn’t need to call every one of them, and some people worked at a very high level and some people worked at a lower level.

Everything that we’ve had in an operating system, authentication, that’s taking things like Passport and generalizing that, making it so it can be used across Web sites, storage services out there on the Web, clearly an analogy to what we’ve had in the system itself; presentation richness like we’re showing with the presentation format work that we’re doing.

And so you can call whichever one of these things you want. In fact, there will be applications that will call services from Microsoft and services from other companies, and you as the user of that site won’t even necessarily know for some of those exactly which you’re seeing –

TIM O’REILLY: So you see this as a world with multiple vendors providing services, you don’t see it, for example, in the way Win32 became one ring to rule them all?

BILL GATES: No, I wouldn’t say that. (Laughter.) We will definitely have a comprehensive model that if you want to take our framework to write a Live application, there will be a benefit, an integration benefit for letting you do that. But in the Windows environment there were always third parties coming in with different libraries; it’s because anybody could come along and they didn’t require any permission from us. The amount of code from other software companies that got onto that platform and were used as building blocks for applications was absolutely phenomenal.

And so we see that here in the Internet as well that a backup service over there, an ad serving service there, a map service there, in a sense those will compete as components, but for a lot of people the simplicity hopefully of what we can do in terms of the pieces we do and how they connect together, that will be a choice for how you build a state of the art application.

TIM O’REILLY: You also have tools that support building this type of application. To what extent will your tools sort of favor Microsoft sites or will they be open to bringing in components from anywhere?

BILL GATES: Everything we do here has to be incredibly flexible, because you’re going to be doing your own sites, you might want things that are specific to your industry that, of course, Microsoft isn’t going to have those things, so you need total flexibility because you’re addressing all the different layers of the stack there.

And so all the interoperability standards here, whether it was XML to start with that we were a key part of giving that out as a standard, then the SOAP-level stuff, now we’ve moved up to a variety of techniques including Web services, all of those things are out there and free for people to use. Even the recent stuff that Ray has done about the simple list extensions, Live Clipboard, that’s connecting up to everyone.

TIM O’REILLY: That’s true, that stuff really wowed people when he demoed it at our e-Tech Conference. I thought, you know, this whole idea of the semantic Web is actually starting to happen in small ways with micro formats, and I thought the fact that Ray picked up on that was really nice, he got a really great response from the geeks who were my audience.

BILL GATES: Well, I think his analogy that we’ve been exchanging data and had some standard formats within a machine, that he now would take that to, okay, let’s exchange between different Web sites, it’s going to take the idea of contact cards, scheduled appointments, set of directions, all these things where we move standard schema, we need micro formats that people agree on, it’s going to let that bootstrap. Because the more those things become standard, the more other Web sites choose them, and therefore the more popular they become.

TIM O’REILLY: Right, so that you get the network effects that really allow us to weave applications together.

BILL GATES: Right. And it’s all very market driven. If some format is too rigid, then nobody is locked into that, somebody can come along and do something completely different.

TIM O’REILLY: So moving on to another aspect of Web 2.0, one point that I have made repeatedly is that one of the key concepts that’s different about network applications is that they get better the more people use them. Every time somebody makes the link on a Web site, and I think it was Scoble who made this point originally, at least in my awareness, they are contributing to a site like Google or any search engine, because it’s the users making links that is the raw material of the whole search Web. And in a similar way, every time somebody tags a photo in Flickr or a Web site in, they’re basically making the application better for everyone else.

Now, we’ve had sort of social computing as in we’re going to personalize this, you know, I’m going to make my My Yahoo page, but now we’re really talking about building content sites that are enriched by everybody’s activities. Do you see this spilling over into other areas of software, and in particular into what Microsoft does?

BILL GATES: Well, the idea that the more users you get, the more valuable something is, I think that concept is even stronger today when it’s so easy for people to connect up and build communities. I do think it goes back, I mean, as more people used Windows it became sort of a standard thing that people would learn, as people used Office they would do add-ons. Everyone who had an Office-formatted document who wanted to exchange it as an attachment with somebody else was kind of encouraging that person. And so these network effects, that was really in terms of a business model the thing that created Microsoft.

TIM O’REILLY: Oh, absolutely, but that’s network effect 1.0, because the Office file format didn’t change because more people used it, whereas I’m actually thinking of a couple of examples from Microsoft. When I was talking with Charles Fitzgerald about this yesterday, he brought up, for example, Watson, you know, where you’re basically getting feedback whenever anything goes wrong, that’s happening behind the scenes, and Microsoft software is getting better because of all of that.

BILL GATES: Absolutely. So let’s take some modern examples where we are jumping in on this. The idea that we can see for all the Windows users which drivers are not working for them and then analyze that, work with the driver vendor, and even use that connection to get that update out, that’s made a huge difference in the Windows experience. We take for our help tech, and of course it’s mostly hosted on the Web, we get feedback from only a few percent of the users but that tells us which of those things are not good, and then every month we’re completely revising that and making that better.

And connecting in to more and more community things, I think that’s absolutely the spirit for every software package. I don’t think you’ll have a software package without a community of free add-ons or charge add-ons or people commenting about how they’ve done things. Office Live has templates now, and the majority of all the Office users go up there, get calendar things, get clip art things, get hints for their profession about how to use Office.

TIM O’REILLY: That’s sort of explicit use of this idea, i.e., I’ve got to go get some piece of content that was contributed by the community. What about more implicit stuff? For example, in IE 7 don’t you have some of the anti-phishing stuff is really collaborative, intelligent? I use the phrase harnessing collective intelligence sometimes, and that’s kind of an aspect.

BILL GATES: Right. The whole notion of reputation becomes extremely important in this world, and so the idea of the reputation of a Web site, the reputation of an active control, the reputation of an application you download, we need to take all the experiences people have and so when you’re going to get a control you can see did people like this, and so that reputation just shows up in the user interface. In fact, if you’ve set up your system so that you say, hey, I never want to be the pioneer of this, it will make it so you never make the mistake and get something that literally hasn’t been used by millions of users. So that Web site reputation comes through in this phishing capability, and will literally flash red to you if we have indications of it being a phishing site. And so the Internet gets smarter as you get these collected experiences as feedback, and then we reflect that in a very simple way in the interface.

TIM O’REILLY: So how much is that part of your strategy? We talked yesterday a little bit about Outlook and how it seems like there’s this enormous potential to sort of blow away really the crude offerings of the social networking sites, because at the end of the day Outlook for many people is a reflection of their real social network, rather than this kind of, hey, are you my friend, will you be my friend; you can actually tell who you communicate with.

BILL GATES: Well, I think we’re not going to turn Outlook into MySpace.

TIM O’REILLY: I’m not talking about MySpace, but –

BILL GATES: You’d actually like it to be this idea of your contacts, who you communicate with. There’s a lot of rich data that Outlook sees that can help you in your communications, and that definitely is something we want to do driving forward. The idea of making it easy to see schedules, see multiple schedules, the traffic kind of activity you had, we have some of that in this next version of Outlook, but we could go a lot further in the idea of the communication network.

TIM O’REILLY: And you have some of that in the live contact feature in Messenger as well.

BILL GATES: Right, so that if someone updates the contact, then it automatically can come down onto your local store.

TIM O’REILLY: So, still on this Web 2.0 theme, it seems that data rather than software APIs is potentially a new source of lock-in. I was in conversation with an insurance executive recently, and he was saying that they’re starting to be held up by telematics data providers, where they’re saying, hey, this is in the U.K., these guys, you know, we’re setting our rates based on where you drive, how fast you drive, how far you drive, and not on where you live anymore, and the fact is the guys who are aggregating this data have us by the short hairs. Similarly, I think, if you look at all the mapping sites, they all say data copyright Navtek, and Navtek in Europe actually has cars labeled Navtek onboard, and kind of an echo of Intel Inside. What do you think of that idea?

BILL GATES: Well, I think that I don’t think the valuation of Navtek will exceed, say, Dell or somebody like that. Every one of these things you do get competition. I think in that case we’re a licensee of Navtek for the kind of directional things, but I think the magic of software in terms of taking satellite photography, working with city planning departments means that they have to be careful not to push their prices there too much, because there’s a lot of kind of automatic analysis that can get done. In fact, right now they kind of drive around to see what’s going on with the roads. You could have a community capability where you took the GPS data of people driving around and started to see, oh, there’s a new road that we don’t have, a new route –

TIM O’REILLY: Find the best route, the fastest route.

BILL GATES: And so that data eventually should just come from the community with the right software infrastructure.

TIM O’REILLY: Oh, absolutely, I agree 100 percent that Navtek is really at risk from that kind of true Web 2.0 application that just gathers the data from the people as they go about their lives.

So coming on to this business model a little bit, you guys have a history of knocking competitors out of the ring. I mean, Lotus, WordPerfect, Netscape, these guys call came on, were the champs, and they didn’t get very far. But ultimately they had the same business model as Microsoft, you know, they were software companies selling software to corporations or end users. But it seems to me that you’re starting to face competition from people who have just plain flat out different business models, Google with advertising or Apple with iTunes, which is a combination of both hardware and selling data associated with that hardware. How do you see that changing the software business?

I was recently at an investment bank seminar on the end of the software business as we know it. There are a lot of people who are thinking that there’s a lot — (laughter) — there’s a lot of challenges to the software business model as has been practiced. You obviously have a lot of stake in that. (Laughter.)

BILL GATES: Microsoft has done more to bring software prices down than any other company, and so this idea that having a way of getting very high volume at very low price, that’s been key to all the things that we’ve done. The idea of an operating system that you put tens of billions of dollars in selling for $50, that was a fairly new concept that volume helped with that.

We always have had competitors that offer free software, and yet in terms of integration, support, security challenges, we feel very good that the kind of integration, richness, relationship we have will drive that there.

TIM O’REILLY: So at the end of the day you could cut off Netscape’s air supply by basically giving away software that they were thinking they were going to make money selling?

BILL GATES: Well, actually they were giving it away. (Laughter.) There’s a lot of these so-called sites where the other guy really knocked himself out, honestly.

TIM O’REILLY: Well, I would agree with that. (Laughter, applause.) But at the end of the day, I mean, you do have people now who are really in a very different game.

BILL GATES: You always have smarter and better competitors. And you’re absolutely right, the advertising model has come along, we underestimated how big that would be, we have many areas like that where we’re saying, okay, let’s embrace what’s been done well and go beyond that. We have others like what we’ve done with Xbox where we’re kind of out in front on it, and that too is kind of a new model for us. We lose money when we sell the hardware, but if people buy a variety of content, participate in those live services, then it ends up actually being a pretty good business for us.

And as you said, Apple has got that model with the iPod where they’re making the money — but an interesting model where they’re making the money on the hardware, and the iTunes is simply a facilitator for that kind of business model.

TIM O’REILLY: I also think one of the things that’s really interesting about iTunes is it’s an example of a paradigm I refer to, using actually language from a guy who used to work for you, Dave Stutz, called software above the level of a single device. I mean, here is an application that’s designed from the get-go to span a handheld, a PC, and a Web site as a single integrated application. It’s not just things glommed together after the fact. I mean, it was a first generation of full handheld to cloud consumer application it seems to me, other than communication app.

BILL GATES: Yeah, it will be interesting to see their willingness to embrace a variety of devices, because, as you said, their profit model is driven by selling the iPod, and so if you look at what they’ve done on the phone, they’ve actually restricted that in a way that you won’t see us doing because we have a different business model, which is more volume oriented and embracing more devices. And that’s great, in the marketplace those two things will compete.

You’re absolutely right, though, that everything we do now we can’t be device centric, we can’t say, okay, just do this experience on the PC. We have to be user centric so that even today moving from one PC to another, the idea of how your state roams and things are automatically set up for you, it’s not as good as it needs to be, and then, of course, you bring in your experience with the TV set, the phone, the car, all of those things. And so all of us have to step back and think, okay, what is the calendaring experience across all these devices, what is the get your sports score experience across these devices. If I say I love a certain sport on any device, then automatically it ought to configure that for me. If I buy a new phone, I shouldn’t have to go through a long process if I’ve already had a phone; even if I borrow my friend’s phone, once I authenticate, boom, right, the things I care about ought to show up there automatically. And so that’s a service that we’re working on, I’m sure others will do the same.

TIM O’REILLY: So when we’re talking about cross-device support and also using the word experience, that gets us into the territory that was sort of exploited by Macromedia, now Adobe, that’s been their watchword. How do you see the competition shaping up with Adobe, particularly in the phone arena?

BILL GATES: Well, when it comes to having these presentation libraries like what we’re doing with the subset we call Windows Presentation Foundation Embedded, one of the fantastic things is that you as the user can have multiple of those on the phone, and you don’t even have to think about it, you don’t know it. If you’re browsing to a Web site that you uses one, great, you have a nice experience; if you browse to a Web site that uses another, that’s fine as well. So there’s no notion of —

TIM O’REILLY: But isn’t this a bit more complicated market in that there’s a bunch of intermediaries who decide what’s going to be on the phone. It’s not really like the PC market where the user decides. At the end of the day don’t you have to go make a deal?

BILL GATES: Well, I think as people like ourselves and Google and Yahoo! are creating very rich mobile phone experiences, both for consumers and in our case also very much for businesspeople as well, the phone companies, because they compete with each other, are going to want to let those experiences show through. And so, yes, there’s a lot of discussion about what kind of branding they should have and what kind of branding we should have, but if you have breakthroughs, as you have speech recognition or image recognition that can take a photo of a receipt and it automatically understands that, then, hey, people are going to get that software evolution on the device. It’s just too competitive for anything to hold back those kind of software advances.

TIM O’REILLY: Well, you have to know that, I mean, we’ve been hearing talk about sort of two-tier Internet where people are starting to say, hey, we want to charge for particular classes of services, and that’s starting to get into the territory of the phone companies saying, wait, this is our revenue, we want to collect for this, what are you software guys trying to get a free ride.

BILL GATES: Well, they have huge capital investments to make. And it’s fantastic if they see the opportunities to go in and build the next generation Internet whose bandwidth lets you do individualized high definition video and then once they do that, that will be a challenge to the cable companies, who will come in and necessarily do the same thing and find their own uniqueness there.

So I think getting this right competitive framework, getting the telcos to go for that new level, I think that’s very, very important and it looks like —

TIM O’REILLY: Well, they’re not doing a great job here in the U.S.

BILL GATES: – it looks like it’s happening, yes, that AT&T is putting the money in, and thinking about this next generation of video where it’s very interactive, very personalized, even so-called tail video, your local sports thing, the lecture you like, all of that is integrated in to a rich experience.

TIM O’REILLY: So moving on to another topic, I’m a publisher, and so I care a lot about how people are going to read in the future. You’ve promoted a lot the idea of Tablet PCs and reading devices. I’ve thought much more, because I have the Safari service, that the future was much more in building databases of content, and we’ve talked about this recently at summit called Reading 2.0, and there was a great post afterwards where somebody said, what will the books say to each other in the library of the future, the idea of books that are effectively growing, you know, all these things that we’re talking about for Web 2.0 it seems to me also relate to content. You know, Wikipedia is a great example of a book that’s driven by a community that’s continually growing. How do you see that playing out with the handheld device book reader approach?

BILL GATES: Well, I think in terms of usability, there’s often magic thresholds that you get to, that really change behavior dramatically. We got there with music, that people understand the flexibility of digital music is way better than on physical media. We’re clearly moving there with movies, this HD-format battle is the last battle, so people had better enjoy it, because it’s all bits on the Internet from hereafter.

We’ve believed in the idea of getting reading so that you have a device that’s thin enough, light enough, cheap enough, high resolution enough so that you want to read off of the screen, and therefore all the benefits of being able to annotate, remember what you’ve read in the past, have videos and animation in that, so that that just becomes the standard way you do things.

One of the domains that we’re particularly optimistic about is students, where we take textbooks that the teacher could not customize, were not very interactive, could not sort of put the material into different context, and we get that into digital form.

TIM O’REILLY: That’s interesting; I’d love to work with you on that. We have an initiative called Safari U which lets people remix any of the books in Safari for textbooks.

BILL GATES: No, that’s great. Clearly for the teacher to have that flexibility they’ve got to have the right tools, the rights issues can’t stand in the way. But I think, say, ten years from now we’ll look back and say, wow, textbooks, why did we put the money into that, now we’ve got this universal tool that every kid just uses instead.

TIM O’REILLY: So jumping back to Web 2.0, I want to come up with one other last question, and that is the speed of software release. You know, Cal Henderson when he was building Flickr was pushing builds out to the Net every 30 minutes, and that’s sort of extreme programming at a whole other level. But at the same time, even people like Google and Amazon, they just slipstream in new features, it’s kind of like the perpetual beta. How does that play in a Microsoft world where you have these big periodic releases? I mean, are you going to adapt to that world or do you think they’re wrong?

BILL GATES: I think it varies substantially by the type of software that you’re talking about. If you take, say, our SQL database that the MySpace guys talked about, we are not going to release that more often than every couple of years, because the amount of testing that we need to go through, compatibility, transaction compatibility, working with the latest storage devices says that we need to have that be an incredibly stable platform for our customers. Likewise the kernel or the operating system, the scheduling algorithm, the file system algorithm, that’s going to be always on more of a two or three-year cycle.

The browser we need to be unbelievably agile with. I don’t know if it’s nine months or 12 months or what it is, but it’s much more like that than what we’ve done for these last three years. MSN Messenger is a great example of that where it’s the biggest, globally biggest used instant messaging system, because they put out releases, generally about three major releases a year in that case.

TIM O’REILLY: All right. So there’s this question of is there a business model issue there, like Office Live wasn’t part of the main Office stream, it’s kind of over to one side. Is that because you need people to be able to upgrade?

BILL GATES: Well, no, Office Live is about taking SharePoint, which is our collaboration breakthrough, and saying instead of buying a server and setting that up and thinking through the authentication where you have to learn Active Directory, instead we’ll do that for you. So we’ve got a free version and a subscription version. So Office Live is more about revolutionizing at this stage the server side of Office with the client side just being able to connect up to that in a rich way.

TIM O’REILLY: All right, I just really think, before we finish, we should take some audience Q&A.

QUESTION: I have a question.

TIM O’REILLY: Hey, Mark?

QUESTION: How are you doing, Bill?

BILL GATES: I don’t think you need a microphone. (Laughter.)

QUESTION: Twenty-one years ago, we were in a conference like this on the CD-ROM, and the issue of lock-in has evolved and changed, but it’s still the key technique used. We just saw a stark example of that with MySpace. Those are using your technologies, which is great. The BBC guy said, well, I’ve got my space and that was he was referring to his stuff. And then he dragged this down and he wanted to share a show, he dragged it down into a profile record, which is part of the Microsoft suite of technologies.

So, one, would you tell the MySpace guy to open up? And two, would you open up and make sure we could access the profile records that are built into your contact system so we can move our data between systems? You’re not the only system, and I know Tim wants to move it between systems, we all want to have open APIs on everything. (Applause.)

BILL GATES: Well, absolutely. You know, I think that what the MySpace guys have done is quite amazing, I think they’ve set their priorities right, but I definitely think that we can help them if they want to provide those APIs. eBay and others have shown that we can provide you with those open APIs in such a way that it enhances what you’re doing, it doesn’t take away from that. And they’ve gotten to a critical mass now where I think that’s a huge opportunity for them.

The contact store that we’re looking at there is the standard Windows API for the address book, and making that address book rich and shared across applications is one of the big things we’ve got in [Windows] Vista.

You know, there’s this constant change where things that were up in the application, private to an application, catch on enough and now are shared across applications. The presence information is one of those things, the address book buddy list, calendaring; those are things now that are moving from an application level down to a sort of shared system level, and we just need to make sure we get the right APIs so that’s easy for people to do.

QUESTION: Beautiful, thank you.

QUESTION: So when I hear you say maybe we’re going to release a new version of IE every couple of months, that really worries me, because – (laughter) – the Web is a platform, but for us where we deliver our applications using IE, IE is a platform. And so unless you do that in a way that ensures that the users have a choice as to whether they download the new version or not, and system admins can control that choice, you know, we have enterprises with 100,000 users, we’re going to have a lot of problems with that.

BILL GATES: Yeah, I think this is a very key point, and I think Dean when he comes up can touch on this as well, the browser as part of the platform. And so there’s really two super important things; one is that when we think of IE you’ll see us be more explicit about the user interface portion, which is the piece that will be revving very rapidly, and the sort of platform rendering piece that will be far, far more stable.

A second thing that you touched on is the ability to run side by side and being able to use administrative policy to decide for different desktops which versions are out there, is it the multiple versions, and having compatibility there.

We are very immersed in this idea of the browser as a platform, it’s one of the great assets we have that people have built on top of it and tested on top of it, and so you’re kind of showing the tension that rightly exists between neat end user features and runtime pieces where compatibility is so important.

TIM O’REILLY: It’s also the issue of you can have extensibility in a kind of user space even in the browser, without necessarily changing applications.

BILL GATES: That’s right, and that’s why we need to be more explicit. The term IE today talks about sort of the Trident rendering piece, and all of the other type work, which will evolve much more rapidly.

QUESTION: We’ve been with Microsoft and had very good emphasis on consistency. And for people who are left handed like you and I, Bill, the Tablet has not been with Windows XP the best user interface for people who are left handed. As we move to more Web platforms like “Atlas” to serve up data to many different platforms like “Origami” and like the Windows Mobile and things like that, often we see people who are serving up and companies who are serving up data who would like to see that kind of multiplatform support basically built into the “Atlas” platform. And is that something we can come to expect in a platform like “Atlas?”

BILL GATES: Yes. The variety of screen sizes that we’re going to have is just going up. The cost of a flat panel display is coming down, so desktops will move from 15-inch to 20-inch, even we think to 30-inch type displays. “Origami,” on the other hand, is off on a 7-inch display. And one thing that browsers and Web sites don’t do well today is shrink down appropriately or go up and actually use that display space in an effective fashion.

And so part of the WPF work we’ve done is to make it very easy to use this template approach where depending on these ranges of screen sizes, you can present somewhat of a different layout and presentation there. There’s still a lot more to be done there, but you’ve got a very good point that dynamic layouts using the screen will, browsers are actually really quite poor today.

TIM O’REILLY: I think we really only have time for one more.

QUESTION: All of us in the room who don’t work for Microsoft probably compete with Microsoft either on Web Services or applications. What are you doing to help business models for those of us that compete and collaborate with you, or do you not feel that’s your responsibility?

BILL GATES: Well, it’s certainly our responsibility to make sure that the software industry thrives. It was the success of DOS, the success of Windows, and now in this broader Live platform world, creating new opportunities for software companies is key to us. As you say, many of those companies, there will be some overlap in what we do, and we’re very used to that and wanting to still give you the very best tools to go out, and if you can beat the things we do, more power to you, that’s really fantastic.

We are doing a lot of things, for example, in the ad market that will be one of the ways that these different offerings can be made available. We’ve got to push the limit there, Google is out in front, but we have some things we think can make presenting ads, personalizing those even better than what happens today. We have a lot of different services that we’re going to build that will take some of the things you would have had to do and just make those simpler.

So I think giving people the opportunity to specialize, and that means you can find a customer segment that you’re doing far better than we are, where we’re just doing the horizontal platform.

TIM O’REILLY: So do you want to take one more?

BILL GATES: Sure, one more.

TIM O’REILLY: Great, just one more.

QUESTION: I have a question about the business networks and the ecosystem around them. Are you going to be with all the changes with [Windows] Vista and other things you’re advancing, are you going to be changing the pricing and the licensing models so that those of us who advise companies that are starting up can actually understand and visualize how we would scale up to the MySpaces of the world needs on your platform from an economic standpoint?

BILL GATES: Well, if you have any concern about how we’re licensing those tools, we should sit down and talk to you. Believe me, the cost to MySpace of those tools is a rounding error for them in terms of their development budget, their marketing budget, things like that. The tools are just there to enable, they’re not going to be something that’s all that expensive. In fact, with SQL nowadays there’s this whole spectrum of the free version of SQL all the way up to the enterprise type version that once you get to their size, yes, you probably do want that kind of scalability.

So making this stuff very economic for people, absolutely, the hardware prices are down, the communication prices are down, the packaged software pieces should not ever be an impediment to building these amazing Web sites.

TIM O’REILLY: All right, well, I think we’ve got to wrap here. Listen, can I get you to come to our Web 2.0 conference in November? I’d love to continue the conversation.

BILL GATES: Well, by then you might have to call it Web 3.0.

TIM O’REILLY: That’s true. Let’s see what makes sense. (Laughter.) Okay, thank you very much.

BILL GATES: Thanks a lot, Tim, good job.