Online Extra: Bill Gates on His "Spot"

Microsoft's chairman has high hopes for this new ultratiny technology: This thing can be a very good-size business

Microsoft Chairman William H. Gates III unveiled his new Dick Tracy-watch at the Consumer Electronics Show in Las Vegas on Jan. 8. The new gizmo gives users personalized, up-to-the-minute information such as stock quotes, sports scores, local weather, news headlines, horoscopes, calendar info, and even one-way instant messages -- all on their wrist. The data will be beamed over FM radio airwaves to the gadgets, wherever they are. Consumers will pay $120 to $300 for the watches and perhaps $99 more a year for the data service.

The watch is the first product to roll out using Microsoft's new Smart Personal Object Technology -- or Spot. Microsoft (MSFT ) expects to follow the watch with a travel alarm clock that will cull traffic data and your calendar info to suggest an appropriate wake-up time so you won't miss your first meeting of the day. Also on the drawing board: key-chain fobs that provide the same sort of data as a watch but might be more appealing to those who don't want a big watch face on their wrist.

Gates sat down with BusinessWeek Seattle Bureau Chief Jay Greene to talk about the potential for Spot and how Microsoft is pioneering a new business. Edited excerpts of their conversation follow:

Q: How involved have you been in developing Spot?

A: A lot of it has just been brainstorming about the user interface, such as how much do people want to customize this thing, and getting a basic education about watches -- how many watches do consumers buy? Is the watch market different in this country than in other countries?

I'm really big on the alarm clock form factor. And I've been pushing very heavily for Spot to be used on a handheld computer [so that users could get data, such as stock quotes, even if their handheld isn't connected to the Web].

I sent a ton of ideas, about a quarter of which they are going to do something about -- at least in this first round. But one of them is, say you have lost your watch. Well, you just go to your PC and make the watch make as much noise as it can. Then it will just start beeping away, and then you can go find it.

Q: How important is Spot toward the goal of ubiquitous computing, where there are smart devices everywhere?

A: It will really make people think. [If] you can get the instant message on your wrist, people will start to think, "Gosh, this information is everywhere." And it's not just text. We can download a program that understands smiley faces and whatever you want. You could even have some specialized symbols that are just for you. So I think it's a big milestone in that.

This will help set people's framework for this idea of having devices with different screen sizes. When people say the phone and the PC compete with each other, that's not really true. There are some things that you can do on the phone that you couldn't do on both.

Over the next three or four years, we'll get all of these devices to be the best they can, and you can pick what you want to do on these different devices. Nobody is going to say that Spot competes with the PC or competes with phones. It's a pager, and it [let's users get at] all sorts of personalized information. It's also the coolest watch you've ever had because you go into a new time zone, and it knows.

Q: How does the Spot stack up in terms of other innovations that have come out of Microsoft Research?

A: Well, Microsoft Research has contributed so many innovations to so many products that I will get myself in trouble very quickly if I start ranking or comparing. This is kind of unusual in that it's a whole new product concept that was completely incubated in Microsoft Research.

The processor we have here makes the original PC look like a complete joke. This thing has 10 times the memory of the original PC. And it has more processing power than the original PC. It's just interesting to see somebody react to it who hasn't been involved in the project and have them go, "No, you can't really do that. Does it work? No -- it's got to be too big? Where does it work?"

Q: What do you think the short-term and the long-term revenue potential is for Spot?

A: This thing can be a very good-size business, both in terms of sales and profits. Once you have a one-way network that's broadcasting all this information, your additional costs for getting a person up on a new device to receive all that broadcast data, sports, news, and weather is zero.... The network costs are many tens of millions of dollars just for the U.S. But then as you get more subscribers, you're taking advantage of that network that you already have.

If there are many millions of these things, we'll make a lot of money.... I feel very comfortable that there will be millions of them in the first several years that it's out there. Almost everybody involved is really optimistic. We just think it is so cool. This will be a very good business.

Q: How much do you think consumers are going to pay for this Spot service?

A: We'll do something on the order of $99 a year for a subscription. We're still working on exactly how we do that. We need to make it work for gift-giving because a lot of watches are given as gifts, and consumers will want to be able to include a one- or two-year subscription with that.

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