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Gates: "This Is Big. Don't Doubt Me"

A pen-based, tablet PC has been a quest for Microsoft Corp. Chairman William H. Gates III since he and high-school chum Paul Allen first dreamed up Microsoft (MSFT) a quarter century ago. Microsoft, Apple Computer (APPL), and others have tried and failed over the years to make a go of the business, in part because the technology wasn't up to snuff.

Undaunted, Gates & Co. is taking another run at pen computing on Nov. 7 with the launch of a special version of Windows XP designed for the Tablet PC market. Gates sat down with BusinessWeek Seattle Bureau Chief Jay Greene to talk about the allure of the Tablet, why he's so committed to making it a viable product, and how the technology has improved. Edited excerpts of their conversation follow:

Q: Why does the Tablet PC technology appeal to you so?

A: We've been talking about getting the PC into your hands in a book or tablet-like form for so long. There are only a few things where we can take the magic of software and bring it to a lot more hours of the day. Just the fact that you have to go to the place where there is a screen [means] you don't get immersed in reading [things you otherwise would]. It just rules out a lot of documents. Why aren't people largely reading BusinessWeek digitally? You can get it quicker, you can search it, you can send it to friends.

Q: Do you ever worry that you're too close to this to analyze it objectively?

A: Even though I think the thing is incredible and it's ready for prime time, I have to wait and see. For anything like this, the first year is [about] getting a beachhead. That starts the process of getting the hardware and software better and better, so it's not an overnight thing. But there's a certain threshold that you have to have where the excitement feeds on itself. And I think we've got that.

I anxiously await the reaction that users have. The fundamental question will be: How would you feel if I took the Tablet away from you? And how would you feel if you didn't have the reading, the note-taking, annotation, all those things? I'm anxious to get that data.

Q: How soon after the launch do you think you'll know if the new Tablet effort is on the right track?

A: Well, I'm so biased, they'll have to come with a sledgehammer and tell me that I'm wrong. But there will be the question of whether the capacity of the early hardware partners gets used up. And you'll ask software makers, "Are you going to take your applications and do neat things with this?"

And you'll just talk to users. You'll be on the plane, and you'll see someone with a Tablet. Are people going up to them and saying, "Wow, what is that?" And after they see it and get to hold it and play with it for a little bit, do they say, "Gosh, that thing is less than $2,000? Wow!" Or do they just say, "What's this all about?" And then go sharpen their pencil and do their thing. So there'll be tons of data in the first six months that the thing is out.

Q: Was there ever any opposition within Microsoft to proceeding with this?

A: If I'm enthused about something and have 20 or 30 people working on it, people can say, "His hit rate is high, and 20 or 30 people is not a huge trade-off against many other things." But as that group grew past 100 and got to be about 200, there was some good discussion on it.

But then again, it all comes down to my saying, "Come on, this is big. Don't doubt me." We're in the business of doing risky things. And having the patience to see them through. And this is a perfect example of the kind of thing that only Microsoft would do.

Q: What do you think your biggest contribution to Microsoft's Tablet efforts have been?

A: One is the long-term commitment to the concept that note-taking, reading, and annotation were going to be things that the magic of software could apply to. Then we needed the magic of hardware to come through on its part to figure out the timing.

I met with our guys working on handwriting recognition every year for seven years now. And we just kept making it better and better. I stay in touch with a lot of products. But I think I probably stayed in closer touch with this one than any other in the last few years.

Q: How much did you need to do to get other groups at Microsoft to support the Tablet?

A: That was a role that I was unique in playing, telling people, "Hey, this is going to happen. This is a when, not an if, question. Don't tell me you don't believe in Tablet. Tell me I'm being overoptimistic about this. But don't be cynical about whether this thing is going to hit the mainstream."

Q: Seven computer makers are going to make the Tablet at launch. Are you happy with that number?

A: For the first nine months it's exactly what it should be. There are a few people who we need if the volume demand is what I expect. There are three or four we need to step in. We did superwell because we got Compaq, now HP, superinvolved. We've got Acer superinvolved. We got Toshiba a little bit later, and they got involved. Fujitsu has been in this area for a long time. So we have plenty involved early on.

But if Tablet is to do what I expect it to, you won't have anyone who makes portable computers who doesn't make Tablets. I'm an extremist -- I think all of the so-called subnotebook portables should be Tablets. And I think the subnotebook category will take a higher percentage of the portable category. And I think the portable category will take a higher percentage of the PC category as a whole.

Q: What are the things you learned from Microsoft's first stab at pen computing, Windows for Pen, that that you were able to apply this time around?

A: In Pen Windows, the handwriting-recognition stuff wasn't that great. The pens weren't that great. The battery life wasn't that great. They were never good enough that anybody at the company ever decided, "I'm going to show everybody by just using this thing."

Q: You chose to put Windows inside the Tablet instead of a different operating system designed specifically for the Tablet. Why?

A: You can't come up with a new OS. It's just gospel here [that it has to be run on Windows].

[The Office people] felt some of the things I was asking for would be very hard to do, and there was a question of, if we were going to do an add-on pack Office [that would include handwriting features], who was going to do it? Eventually, I made the decision that even though it complicated the life of the Office people, that we would do an add-on pack. And so the minute you got Tablet you could send ink e-mail.

Q: Do you expect other software markets to emerge as folks have these devices with them throughout the day?

A: Certainly all kinds of vertical software and collaboration software will be affected. What kind of meeting software could help facilitate people who are in the meeting room or people who are at a distance or people who come to learn about that meeting after it is over?

Right now, other than just helping me make PowerPoint slides, software isn't helping in the pre-meeting stuff, the meeting stuff, the post-meeting stuff. And Office has that as a very big scenario.

Q: Does it open up other frontiers for Microsoft?

A: Yes. But just making Office better and better is a huge thing for us. Just huge. And think about it in terms of hours of the day. We want to help you every hour of the day that we can. When you are sleeping, O.K., we can't help you that much. But this whole thing of reading documents, sitting in meetings, and wanting to annotate things in context. It is the biggest expansion of where software can help you there has been since the PC came along.

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