Bill Takes A Bite Out Of Apple

Microsoft's chairman on the Vista launchand why he won't be buying an iPhone

Microsoft's new Windows Vista may be the last of a dying breed. It is almost certainly the last major software launch for Bill Gates. On Jan. 29, Microsoft Corp. (MSFT ) staged event after event in New York City leading up to Vista's midnight release. Gates, Microsoft's chairman, had flown in the previous night from the World Economic Forum in Davos, Switzerland, to face a conversation-packed day that included Jon Stewart's attempts to pry loose his personal password on Comedy Central's The Daily Show.

In a wide-ranging interview with BusinessWeek Senior Writer Steve Hamm, Gates discussed more serious topics, such as the future of software and Apple's (AAPL ) new iPhone. Edited excerpts of their conversation follow:

Recently, Apple Chief Executive Steve Jobs seems to be usurping your role as mind-share leader in the PC industry. What do you think about that?

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. But 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 10th of that.

They do the hardware and software together, which is sometimes useful and sometimes not. We're much more about enabling partner innovation. You might say, hmm, that's why the Windows PC has 95% market share. But Apple does good stuff.

Would you buy an Apple 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. The phone space is one where we think software will be the critical element. If there's anything good about the iPhone, it's software. How many companies in the world can do really great 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.

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.

People are talking a lot these days about software as a Web-delivered service. I've even heard people say, "Oh, this is the last Windows of this type—a big, monolithic, piece of software." Is that true?

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, too, and that's our Live [Web-delivered software] initiative. You're already seeing things along those lines, like Office Live.

But, 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's what lets them build on top of what we've done.

This might be one of the last major launches for you before you go off and focus on philanthropy. 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, [Microsoft CEO] 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.

    Before it's here, it's on the Bloomberg Terminal.