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Bill Gates' Vision for Vista

The Microsoft chairman talks about the prospects for his new operating system, the tech industry, and his future after Microsoft

It was a day designed to whip the software-consuming public into a frenzy of anticipation. Microsoft (MSFT) staged event after event in New York City in the hours leading up to the release of its Windows Vista operating system at midnight on Jan. 29.

The day started off with aerial dancers unfurling a giant Vista banner on the side of a building in Manhattan's Chelsea neighborhood. At noon, Microsoft Chief Executive Steven Ballmer answered questions fired at him by the media at the posh Cipriani 42nd Street restaurant. And, in the evening, Ballmer and Chairman William Gates III shared the stage during a three-hour launch-event extravaganza at the Nokia Theater in Times Square.

Gates had flown in the previous night from the World Economic Forum in Davos, Switzerland, and faced a dozen press interviews during a conversation-packed day that included appearances on NBC's Today and Comedy Central's Daily Show. He was keyed up and happy during an interview with BusinessWeek senior writer Steve Hamm. Gates discusses—among other topics—delays in the new operating system, the role of Windows competitor Linux in bringing technological innovation to the developing world, and why Microsoft has more impact than Steve Jobs.

Edited excerpts of their conversation follow.

Is there a single feature of Vista that you personally find most compelling?

Well, as people get into the product, they'll see more and more. They'll see the whole new look and how that can make them effective. If they use it for a while, they'll see that search lets them have tons of files, and photos, and music, and navigate that stuff really easily. If they're being creative, they'll see how the movie maker lets you do HD video editing and burn DVDs very easily. It just depends on what you're interested in.

If you've got kids, the parental control might jump to the top because this is the first operating system to have that. Being able to see an activity log of where a kid has been going on the Internet is a good thing.

I know you've been asked this plenty of times before, but why did it take so long—more than five years?

Well, we haven't been idle. During that time, we had many Media Center releases, many Tablet releases, lots of things like desktop search. We had a security-oriented release called XP SP2. But, we also had to invest in the layering of the operating system, so that we could be more agile in the future, and have things at the higher layers, like the browser, release on an every-two-years, or even in some cases every-year-type basis, whereas the deep things like the scheduler, the file system, you don't want to change those more than every three years or so, because they affect compatibility. So you want stability in those pieces. So we invested a lot in layering and security.

People are talking a lot these days about software as a service. Microsoft has its Windows Live projects and things like that. But I've even heard people say, oh, this is the last Windows of this type—a big, monolithic, piece of software. Is that true? Is the Windows of the future going to be very different from Vista?

There certainly will be major new releases of Windows as we get things like speech, and vision, and more advanced capabilities. The fact that an operating system connects out to Internet services, that absolutely is the future, and that's our Live initiative. You're already seeing things along those lines like Office Live, and even in this next year we'll have some new Live services.

When you carry around your machine with you, say you're on an airplane, you're not connected to the Internet, but you still want all the richness of a desktop application. You want more empowerment, so your PC has got to run without the Internet and it's got to run with the Internet. We have a lot of work to make things user-centric, so that as you go between your different PCs we connect through the Internet, so all the stuff you like shows up there.

As far as I can see into the future, there will be a need every three years or so to take the world's most used, most important piece of software and take it to a new level, because that's what lets the hardware partners and the application partners—where we have 10 times as many applications in Windows as anywhere else—that lets them build on top of what we've done. So they don't have to duplicate the advanced capabilities. They can just focus on their unique thing.

You have been involved in many, many major product launches at Microsoft, but this might be one of the last major Microsoft product launches for you, before you go off and focus on philanthropy. Do you have any reflections on that?

Well, I don't think I'll get reflective until I'm very close to transition. That's almost 18 months away. I will get a chance to shape the key decisions for the next version of Windows and Office, and that's going to be a lot of fun. So you're right, this is the last major launch that I'll have this kind of central role in, but there's still plenty of time to do some neat things.

Are you going to miss this?

Sure, a day like today is a lot of fun. Hopefully, I'll have a day in the future where I'm launching a malaria vaccine, and that will be fun. When I go part-time, Steve Ballmer will pick a few projects for me—maybe something to do with search or Tablet PC. We have more than a year to decide that. So there are some launches that might be appropriate to roll out the old guy and have him say a few sage things.

I want to change the subject and ask you how do we get computing capabilities and powers to the next billion people in the world? What are your latest thoughts about that?

There is some great progress on this. Microsoft actually worked with the [Bill and Melinda Gates] foundation to get Internet-connected Windows PCs in all the libraries in the country. That was such a success that we went down and did that in Chile. We're about halfway through doing that in Mexico. It's gone very well. There are some new countries—Latvia, Estonia, Botswana—where they're putting the computers in. So that means that any kid who can reach the library is equal to any other kid. Even adults come in and use the PCs to do job searches and things like that. This whole phenomenon of the computer in a library is an amazing thing.

Our India group invented this idea of a PC having multiple mice on the same PC, so kids can collaborate together. It's called multipoint. We're figuring out how the cell phone, which is cheap and pervasive, could light up your TV set. You'd use the processor in the phone and have a cheap keyboard. That's called Phone Plus. It's in an incubation stage.

You always have to be realistic about these things, though, in that in a lot of developing countries you're not going to have the electricity, you're not going to have the teacher training, and the devices can be stolen. Unless you get the teachers and the curriculum involved, and figure out the network connectivity, it won't all come together. The network connectivity is way more expensive than the hardware. So it's great for people to try out different things in this area.

What do you think of the [Linux-based] $100 laptop proposed by the One Laptop Per Child organization?

Well, cheaper is always better. So we should have a zero-dollar laptop. The hardware is not the hard part, though. I wish it was, because then you've got Moore's Law, you just keep getting more computing power for less money, and time is on our side. The key thing is the educational system, how you draw on the teachers, how you get the network there. And there are a lot of costs in computers, printers, and electricity. They break. They get stolen. And so we've got to make sure we don't force governments to buy a whole bunch at once. We let them try out what works for them, and shape what works for them.

So you don't think that the $100 computer will go into mass distribution?

I think there will be PCs at every price point. I don't think there's one magic design. I think when you've got shared use, where you've invested in the training and the network and all that, you should have a fully capable machine. I think for certain things we've got to get so you're just leveraging the cell phone, which somebody is already buying, so they're not even having to make a PC purchase at all. We've got innovations like a PC where you can just pay a monthly fee and use it. So I think that's part of the mix. Some of these cheap hardware designs will be part of the mix. I don't think that's the magic thing that changes everything, because there are so many other elements that any successful project has had to bring together.

Microsoft for many years has been both the market-share leader in the PC industry and the mind-share leader. Recently, Apple (AAPL) Chief Executive Steve Jobs seems to be usurping your role as mind-share leader. Do you agree with that assessment? What do you think about Jobs' role in the industry?

Steve has always been a huge figure in the industry, and, in a sense, bigger than life, more visible than I am in some ways. I don't think anything has changed. He's still much more of an impresario than I am. Microsoft is better known. We have more impact. Remember, there are tons of countries where Apple's PC share is tiny. The best case is the U.S., where it might be 5% to 6%. In many countries it's not even a tenth of that. There have been others who have been viewed as usurping us—like Marc Andreessen at Netscape. There was the guy at Sun who was viewed as usurping us. There was the guy at Borland. Jobs and I are two of the few who go way, way back.

Apple has a different approach than we do. They do the hardware and software together, which is sometimes useful and sometimes not. We're much more about enabling partner innovation. If you believe in partner innovation, you might say, hmm, that's why the Windows PC has 95% market share. But Apple does good stuff, and I'm glad Steve's part of the industry.

Well, a lot of the action right now is in consumer stuff, and that's where he's standing out.

The consumer side will always get covered, and the business side just doesn't get as much coverage. Now, in terms of changing the world, making the world more efficient, actually the business side is pretty darned important. The beauty of the Windows PC is it lives in both worlds. In fact, its share is even higher on the business side than the consumer side, and even there it's very high. But, even look at us, [gaming console] Xbox 360 gets more attention relative to its percentage of our business than that ratio would suggest. It's the same with the things we do with phones, or Zune [Microsoft's portable music player released last fall]. Phones actually are interesting because they cross the business/consumer boundary.

On Zune, it's the very early days, but it didn't leap off the shelves. Are you disappointed at all with that?

No. We set what we thought was an aggressive target, which was the ability to sell a million devices the first year we were out. That's a lot for a new device, but it's not a lot compared to what Apple is selling. Clearly, Microsoft is saying this is an important category, and that we're going to keep doing neat things. The big screen, the Wi-Fi, those are foundations that we can do a lot more with. So even the people who have got their devices today, they'll be getting a lot more out of them as we do new software capabilities. We're on track to do the million devices, and then we'll take it from there.

We've had some products that were incredible from the beginning and others that weren't. But Microsoft has a history of just improving and improving things, and bringing its software expertise to bear.

Steve Jobs's most recent performance was with the iPhone, a big rollout. Would you buy an iPhone at $499 or $599?

Well, of course, I'm the wrong person to ask. I like to dial numbers with one hand, and maybe I'm the only one.

I know you could afford the price, but do you think it's a little steep?

Well, the marketplace will do a good job of judging that, and they can always change the price. The phone space is one where we have been focusing. It's one of those places where we think software will be the critical element. That's just more and more true. Why do people like Xbox 360? Software. Why do they like iPod? Software. If there's anything good about the iPhone, it's software. How many companies in the world can do really great software? We do it with an incredible research group, the willingness to take on the toughest software problems, and just stick at them, and to have a variety of hardware partners, and the biggest application software base.

We're unique in this world of software. Will Nokia (NOK) step up to a world where software is super-important? It's not clear. Will Sony (SNE)? Well, they're trying, but so far it's been tough for them. And if you look at the whole traditional consumer-electronics set of companies, most of those are going to be more supplying components and hardware systems. The software industry, which we're a major part of, is going to be driving the magic in those things.

So the key trend to look at is the importance of software, and then say who really has shown the ability to do strong software? In some ways, just we have. If you define it more broadly, yes, Apple has done a few things well. Google (GOOG) has done a few things well. But, the leaps in software, and the kind of long-term investments we're making make it clearer than ever that we picked the right business, and the right place to contribute.

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