Integrated Innovation: Software Magic
2003 Financial Analyst Meeting
July 24, 2003

BILL GATES: Well, good morning. I get a chance to kick things off and give you probably the longest-term view you'll get about the different things we're up to.

The simple summary is that we believe that we're just at the beginning of what we can do with software. If we take any of the different audiences we address—the IT audience, the developer audience, the knowledge worker audience, the way business processes are done, the way people deal with information at home—in every one of those cases we've really just scratched the surface in terms of the scenarios that software can enable.

We talk about that as software empowerment. Really, since the foundation of the company, that's been the value that's driven us forward. We're exhibiting our belief in that in a very dramatic way in this environment.

I'll talk about the increase in R&D that we're taking, going from this year to next year—a pretty substantial increase, over 8 percent—because of the opportunities we see. The model we're applying is our high-volume, low-price model. We are very focused on the business market but also a number of our investments relate to the future in the consumer market.

The kind of software value-added that we see ourselves as uniquely providing has to do with platform and application advances that require very substantial investments, things that could not be done by a software company with only hundreds of developers. And so we take those things on and make those the centerpiece of our activities, providing that work as a platform for other people to build on.

Well, there were many years where this industry experienced a boom that I don't think we'll see again in our lifetimes. The Internet explosion in the late '90s had businesses investing in IT equipment at a really unheard-of level. The rush to get up Web sites, the rush to do business with a little bit less paperwork; there was really an impetus here that drove people to put in new infrastructure—lots of desktop machines got put in, lots of servers. The importance of e-mail was recognized here and it was a real change in how people communicated. There were lots of software companies, and so a corporate customer would end up with a huge variety of software.

If you take the development platform, the middleware platforms that they built on, the kind of knowledge worker things around document management, workflow type things—the variety was really quite large. And each of those things was brought in for a particular purpose, where they thought, "Okay, this will solve a problem." They felt the very urgent need to go after that, even at the expense of all the pieces necessarily fitting together in the best way.

There was a huge wave of investment in ERP applications, people believing that they could get a lot of data out of those applications. And to a degree, this was very successful. The businesses are running just fine using these ERP applications. The investments were perhaps somewhat larger than people expected, and the way the information was siloed was perhaps somewhat more of a problem than they had expected.

So during these years the emphasis was on the startups, the people doing new things, and sort of the infinite possibilities.

Well, certainly at some point, sometime in 2000, March 2001, somewhere in there, there was a demarcation where people looked at what technology had wrought and looked at it in a different way. They looked at whether there was a profit model behind many of these activities. They looked at whether somebody was actually doing something unique, whether they would have the scale to be the primary firm providing a certain type of service. They looked at the reality of all the variety of this software, and learning it, writing applications to it, and how tough that was.

They looked at the fact that relying on a digital infrastructure meant that questions like "Was it secure from virus attacks?" was a very tough question that most IT departments really couldn't certify that they had the right things in place. Certainly the Nimda attack, the Slammer attack, all of those emphasized this idea that the more you rely on this infrastructure, the more you're at risk of having a problem there, because you don't understand all the different moving pieces there.

The reality of the crashes and downtimes, whether it's on an individual PC, when people are trying to pull the components together, or up at the server level, where it's critical to be up all the time, and the fact that the applications data really wasn't unlocked, that once you have the ERP system, the schema—the way that information is stored in the back end—is complex enough that it doesn't lend itself to direct browsing. It doesn't lend itself to deeper understanding, because the way that the knowledge workers view that information and need to consolidate it needs a layer of software that did not come with that ERP revolution.

Even e-mail, what you might think of as the simplest and least controversial part of the advances that took place there, even that, some people started to think about—well, how is it used? is it sometimes a distraction?—and certainly we've all started getting spam e-mail that doesn't add to our job activities.

I get a lot of spam, probably as much as anybody in the room. My e-mail address is well-known. Fortunately I have rules that move it all off into a special folder, but sometimes I go and look just to get a sense of what's out there.

Here somebody that's targeted me as somebody who's never graduated, (laughter) offering me a university diploma. That's a nice deal for me. Sometimes their targeting doesn't work exactly right. They've got me getting out of debt. (Laughter.) I guess I get to meet a lot of nice people as soon as I get out of debt, (laughter) which is very attractive there.

Finally, the one that's of most interest to me is the idea of the legal bills that Microsoft has faced. Here clearly it's going to be just pennies a day if I could just follow up and take advantage of the offer that exists here.

So it's kind of interesting what's out there, but it's becoming more and more of a load. The Hotmail® servers that we run, which are the free and subscription e-mail capabilities we offer, today over half of what goes through there is actually mail that's spam that people are not interested in receiving.

The debate about what came out of the boom and what these IT investments mean has really gotten fairly extreme. Some of the magazines have talked about: Was there anything really there in terms of unique competitive advantage, unique productivity? Has technology lost its special status?

Probably the most extreme was that a Harvard Business article questioned whether IT matters. It tried to draw an analogy between the steam engine and IT, saying that, okay, for a while the steam engine was novel, but eventually everybody could use the same thing and IT must be like that, and so just minimize what you're doing, try and not spend money on this thing, because it is not something that changes the dynamics of how a company operates. It doesn't drive product creation, tracking customer activity, doing things with less people, letting people collaborate across company boundaries. This person didn't see any of that benefit coming out of the people who use IT advances, particularly the latest software, in the best way.

Even IBM, who you'd expect would be, at least in this one issue, aligned with us in saying that the best work is ahead, talked in their on-demand positioning paper about us being in the post-technological period. And, in fact, the emphasis they had in what was purported to be a vision paper, was, "Yeah, it's kind of a mess and you can't do much with it, but give the mess to us; we'll take care of it for you. Don't even think about it. Just when you need it, we have this business model where you can buy it like you buy electricity. And the idea that it really is your brain, it really is the way the company will decide to do design and stay in touch with things, that's not necessary, you don't need to have that expertise inside your company."

Obviously we've put our money where our beliefs are in saying that we disagree with all of this. We fully acknowledge a lot of the harsh realities I went through and say that there are solutions to every one of those things. In fact, going back four or five years ago people talked about total cost of ownership, and we at that time decided we had to design our products to address those challenges. Some people thought there were shortcuts that could be taken to get around that. Oracle talked about the network computer and the magic that would provide or nCube servers, which would magically just do everything in the back end. Sun talked about essentially the same thing, moving the intelligence away from the knowledge worker and implementing the time-sharing type environment.

Well, in fact, those solutions not only had the drawback of taking away the empowerment of those workers, but also didn't address what the problem is. The problem is more about state management, and whether that state is on a client or backed up on a server, we've got to make it very easy to back that state up, to roam that state, to apply policies to that state, to make it so that the IT people provide exactly the freedom but only the freedom that's appropriate for all the people taking advantage of these tools.

And that's a hard problem to solve. It's one that we've been applying R&D dollars against. It's one that we've reached some very exciting milestones in terms of making advances there, and yet we see the piece that we still have to develop against.

Now, one thing somebody might say is, well, "With all of this slowdown in investments and what's happened with the startups, is Microsoft still getting the opportunity to provide software breakthroughs?" We've always been very reliant on hardware advances. We could not do what we do if it wasn't for Moore's Law. If the chip companies, Intel in particular, weren't investing in doubling performance every two or three years, we wouldn't get to tackle the next scenario that requires those capabilities. And whether it's workflow or business intelligence or video editing, photos in the home—every one of these things requires breakthrough hardware. And people sometimes forget that these scenarios were really out of reach with the hardware of just three or four years ago, and now they've become extremely practical.

So we need those advances, but despite the general atmosphere here the hardware advances are coming full speed. Whether it's the memory chips, the processor speeds, the move from 32-bit to 64-bit, servers that have not only four but eight, 16, 32, or even more microprocessors to take on the highest loads, those things are coming. In fact, they've enabled us now to provide the top benchmarks with the Windows® system running on industry-standard hardware.

And so that's a milestone we've waited for, for a long time. This is not just by combining many systems together, but a single system can provide the best benchmarks across all different categories now.

We have the empowerment that's coming through wireless. Wi-Fi is a major phenomenon, certainly inside of corporations and the home environment, that is becoming almost a common-sense part of how you enable photos and music and even the use of files and the computer screens at any place inside the home or in a business being able to take your portable or Tablet machine with you to a meeting. Those capabilities will be built in, and, because of Wi-Fi's use of unlicensed spectrum, there's no marginal cost to getting connectivity that way.

There's still some to be done here. Ultrawideband is just coming into place. That's the superhigh-bandwidth, short-distance wireless. The hotspot capabilities haven't come together to provide a clear high-quality offering. But we see every one of those things advancing full speed with the magic of the chips, the lower costs that are involved.

The LCD screens that give us high resolution and larger screen areas, the prices of those are coming down dramatically, so even having a 20-inch LCD will be a standard knowledge worker activity within the next three years.

Storage—no slowdown there, incredible business in terms of what's being provided.

And so everything is getting less expensive, more capable, and getting into form factors that allow them to be used in a natural way. When you have that device that you can just sit on the couch and use all of your activities, not just photos and music and e-mail, but online buying, desire to have kids software, desire to do your productivity activities—it becomes far more accessible.

And so our partnerships with the key companies in the hardware industry are very strong, and we're very excited about the advances taking place. Some are very dramatic, like the wireless or the screen advances. Some are more evolutionary, like the penetration of broadband, which goes up every year, but it will be several years before we cross over and get to 50 percent there.

So that leaves us with our special activity, which is software breakthroughs—software breakthroughs that take the harsh realities and say how can those be fixed. They won't be fixed with hardware: reliability, management, software updating, security, letting people collaborate in new ways, natural interface—every one of these things is a software problem. We don't just say that because we're a software company; there is no way to deal with these things without platform advances.

We can do these things in an evolutionary way; that is, we don't have to ask people who've learned Windows or developed Windows applications to completely rebuild those applications. It's simply the latest releases will have these capabilities built in or have add-ons that provide these things.

Web services: That's something we've bet our strategy on going back to over three years ago. We called that our .NET strategy, a lot of incredible progress there, including the industry standards, our own implementations and pioneering users that are getting the message out that this is the way we take the connectivity of the Internet and actually allow complex business processes, even across corporate boundaries, to be done in a very automatic way.

Managing desktops, managing data centers—a lot of people in the industry see this as a key agenda item. In fact, all the major providers have some initiative to help pull this together.

It really is a software problem to understand the hardware, the applications, and dynamically match those to see if something is running slow and give it more resources, to see if the system is down and bring up the backup for that, to have the company who wants the application to run simply to state what sort of responsiveness or quality of capabilities they want, and then the software goes to work to pull that together.

The foundation for that is in the Windows Server™ 2003 that just came out. The software that runs on top of that to provide this is what we call the Dynamic Systems Initiative.

We also have major advances in our management infrastructure. We certainly would do a mea culpa on the fact that we didn't build automatic management into the desktop and the server, and that's made it very complex for people to keep their systems up to date, both in terms of simple security patches and in terms of deploying the latest version of their corporate applications or Microsoft Office onto that broad number of desktops.

And so getting the cost and complexity of that to be very low, to make that very simple in both cases, is absolutely strategic for us, even as we have some of the more advanced management capabilities, providing separate revenue streams.

The way we monitor our customers to understand what they like, what they don't like—the way we use software to do that has advanced very dramatically. This started with Windows XP and the ability to report back whenever there is a software crash. It's far more sophisticated than that now, reporting back whenever there is an error condition, reporting back what people are using. All of these are, of course, opt-in tools for people to declare that they're willing to have this information come back and because we get it from tens of millions of people it's a really broad, valid picture of exactly what's going on there.

We're using that information to drive the work that we do. Whether it's the quality initiatives, the new features, understanding how our partners, our hardware partners, our driver partners, other people who do applications can make sure the PC experience is better.

We want it to be very clear that downloading new software onto that PC is something that doesn't disrupt the machine, that works 99 percent of the time; and we know we're not there today, but through that monitoring, through these advances, we can make that the case.

Unlocking business information, here we use the base advance of XML to say that a whole new generation of business intelligence software can be provided, and not just provided to the people doing the budgeting, provided to all the knowledge workers as part of the advances that we'll make in the Office area.

Trustworthy Computing, that's a piece that we've got to get right or all the other advances won't really matter. This is something we've really galvanized a lot of advances around. We've gotten the whole company focused on it. It's partly new tools, tools that didn't exist, to prove when software is correct, tools that analyze exactly how the tests are making sure that software works for the customer. That's a big investment for us but one that fits very much to the kind of thing that only we can do, and do well, and then take those lessons and put those into the software tools so corporate and commercial developers have some of those same benefits.

Electronic mail, there is so much more we can do with this to make it easy to share, easy to create a Web site just right within a piece of e-mail, to organize when you want to get that e-mail and work with other people.

One of the things we want to do is make it so that the e-mail that you want to get that's related to work and e-mail you want to get that's not related to work—so you have complete flexibility of seeing one or the other or working with those together, not having to have a different way that you fire up the application and work with that.

And so one of the projects we've been working on is taking Outlook®—the latest Outlook—and connecting that up to the MSN® mail back end, which is the Hotmail back end, so that it lets you see the information there, and other people in your family who you want to work on calendars with can connect up to that.

And so to show you the latest in Outlook and how that connects to the MSN connector, let me ask Raj Pai to come on out and show us how this works. Welcome, Raj.

RAJ PAI: Hi. Good morning. So I'll be showing you a new product we're developing called the Microsoft Office Outlook Connector for MSN. What the Outlook Connector really enables us to do is have seamless integration between my Outlook client and the MSN services of calendar, Hotmail, and contacts for our subscription users. This really solves a big problem, as Bill was mentioning, for corporate users who use Outlook at work to manage their work lives; however, when it comes to managing their e-mail and schedule and contacts in their personal lives, they have to use one or two or even three different applications.

With the Outlook Connector, we solve that problem and we really allow our users to communicate with their friends or their co-workers by mail or scheduling or even looking up their contact information from one client through Outlook.

We also want to give our users the flexibility that they need to access their mail how and when they want to. Therefore, the Outlook Connector supports full offline support and, of course, through MSN Web services they have full roaming from any place that they have a Web browser.

So I'm going to be showing you a preview release of the Outlook Connector, running against MSN test servers in Outlook 2003. We're going to be releasing the final release with the next version of MSN towards the end of this year.

So if you direct your attention to the projection, this is the new Outlook 2003 client and the first thing you'll notice is that I have both my work accounts and my personal accounts in the same view, so this is my work account and down here is my personal account.

And I can manage my Hotmail e-mail the same way I can with my work e-mail, including moving messages to folders, for instance, and even using new Outlook 2003 functionality like follow-up flags. So I'm going to go ahead and flag this message for my friend, who's requesting travel tips, for follow-up so I can get back to her later on. And as I'm making these changes they're persisted back to the Hotmail Web service, so just in case I access my account through a Web browser I'll see the same thing.

So this is functionality you just don't get with POP3 mail, especially with the calendar and contact functionality that I'll show you in a few minutes.

One of the coolest things about having my Outlook manage both my work and personal mail is that it allows for a whole slate of rich integration scenarios. For instance, here's a resumé from a friend of mine, who's interested in a job at Microsoft. Well, he sent it to my personal account but all the other resumes that I'm looking at are in my work account. I can simply drag from my personal account into my work account and immediately that's pulled from my MSN server and synched up with my Exchange server.

This sort of integration really stands out when I'm managing my schedule. For instance, here's a meeting request from a friend of mine who's interested in having dinner with me tomorrow night and he sent it to my personal e-mail account. Well, before I go ahead and accept that I'm going to pull up my calendar to make sure I'm actually free.

So here's my personal calendar. With the new Outlook 2003 side-by-side calendar functionally I can pull up my work calendar right next to it, so I have my work calendar here on the left-hand side and my personal calendar here on the right. Well, it looks like I actually am free for that dinner, so I'm going to go ahead and accept it.

And while I'm on this view, it's really easy for me to create new appointments in either my work or personal calendar. For instance, I could just block off my lunch for tomorrow. And when I click off on that, that's saved back to my MSN services immediately.

So if you notice here I have my flight tomorrow morning back to San Jose on my work calendar, and my wife is actually picking me up from the airport so I want to share with her the details of that flight. She doesn't have access to my work calendar because it's on my Exchange corporate network. However, through new MSN calendar-sharing functionality that we're releasing with the next version of MSN, she will have access to my personal calendar.

So what I can go ahead and do is copy it over to my personal calendar and immediately sync back up to the server so she can have access to it there, or I could, if I wanted to, have it on both calendars; I could go ahead and do a copy instead of a move.

So speaking about calendar-sharing, through the Outlook Connector I can also access the calendars of my friends who use MSN as a subscription service. For instance, my friend Rick has shared his MSN calendar with me. I can go ahead and pull up his calendar next to my personal calendar and my work calendar, so I can see that all in the same view.

This sort of rich integration really permeates the Outlook experience. For example, if I go to my contacts or my tasks you'll notice that I have a tab for both my work contacts and my personal contacts. And I have that same sort of drag-and-drop functionality. So, for instance, I have a few friends at work who I also want to have in my personal MSN account. I can go ahead and select these and do a control-drag to move it to my personal MSN account. And then if I switch back to the view, it's going to be there.

One of the coolest ways that I could apply this technology is if I wanted to sync my entire contact list I can do a select all and actually drag those contacts into my MSN mailbox.

We tried really hard with this integration feature in Outlook 2003 to really bridge the gap in the ways people manage their work and personal lives through software and through offline access; for instance, all the stuff I've done in this demo I can pull the network cable on my computer and do it on an airplane, and the next time I land and synch up, all those changes will be replicated back to the server and all my mail that I sent will be sent out.

So we offer users the flexibility to manage their inbox for their work and personal lives all in one place through offline or online scenarios and through the MSN Web services, through a roaming experience as well. Let's say I'm on the road and I don't have access to my Outlook client.

Thanks, everyone. That concludes my demo. I'm going to hand it back over to Bill.

BILL GATES: Well, Microsoft is writing software across all the different devices that people will be using to get information. We think it's extremely important not only that we do a great job for each device but that these devices work together. Things like being able to get your calendar on all the different devices, or your preferences for information—if you care about weather in a certain city or certain sports scores, you should only have to indicate that once. Your phone, your watch, your Tablet, your machine at work, your machine at home—every one of those should immediately understand that personal profile.

The watch, which we call SPOT—Smart Personal Object Technology—is coming out this fall with partners like Fossil, and it's pretty amazing to see in the test markets how people are excited that the news just comes down to this, there are instant messages that people send to them, and this is a very programmable device. The .NET runtime has been built into every one of these so we can constantly download new capabilities as people are demanding richer information interaction. For example, for the various sports we now have animated displays that let you track what's going on in the games, and we can just keep making those better and better.

Our efforts in the auto have been going very well. We're really the only company providing a complete auto platform. We have design wins with the car manufacturers that represent over half of car volume worldwide. There's about a three-year lead time between those design wins and when they get built into the vehicles, but again that's a case where the speech recognition information you want is shared across different devices, the communications profile, information profile, are all coming together on behalf of the user.

The Tablet form factor, Jim Allchin is going to give you a little bit of an update on that. It's been great to see the success that's had. The key form factors like the smallest—the NEC, or the Toshiba—many of those have been sold out. We had our CEO conference here this year in May and we were able to give every one of those CEOs the NEC Tablet device. They used it during the conference to take notes and send ink instant messages to each other, commenting on the speakers or whatever they wanted to talk about, and then they were able to take that back and show it to the people inside their companies.

That ink instant messaging is now a feature of our Windows and MSN instant messaging products, so if you have a Tablet I encourage you to download that and surprise your friends, because everybody can receive ink e-mail or an ink annotated document. Every Windows machine has the ability to display those. What's unique about the Tablet is its ability to create those things. We're also, of course, moving into the living room with Media Center and Xbox® and making those work together. We have a thing called Music Mixer that brings your photos and music onto your Xbox machine and takes the unique power of Xbox and lets you navigate those things and organize them. Music Mixer comes out this fall, which is a little bit of a new kind of title for a video game that exploits the fact that we have that powerful hard disk there.

The goal for Microsoft is to take the R&D activities and have those be synergistic—to take a few key bets like Web services, the XML activities, the management approach we're taking, some of our UI advances—and drive those across all the different products.

I mentioned that the R&D is going up again this year, going up about 8 percent, to $6.8 billion. Now, if you're thinking of the numbers we gave out before we made the compensation change, you'll see both the historic goal and the new numbers are restated, because there's a fairly significant change because the stock compensation piece is now both in the older figures and then in that current figure.

It's a serious number, $6.8 billion, and when you think about that, don't think about buying hardware or anything unusual; that is people, about 80 percent of them within a mile of this location, coming into work every day, finding out what kind of experiences our customers are having with software and then driving forward with the advances there.

We have a dedicated research group, Microsoft Research. I'm very proud of the work they've done, the relationships that they have with the universities. Fundamental advances are coming out of that group, things like Bayesian inference, speech, graphics, linguistic understanding. It's really fulfilled the dreams we've had for that, and so that's another group we're continuing to expand and invest in, in all of its different locations, the U.K. Cambridge lab, the China Beijing lab and then the U.S. lab that's located right here.

Some examples of things that pervade our entire product line: the Web services first and foremost, the idea of inking, inking on a PDA, inking using OneNote™, being able to move those notes back and forth and analyze those, the rich reading technologies where we're going to make the idea of looking at memos or periodicals far more attractive on the new Tablet form factors than reading off of paper. That also applies to the PDA-type device as well.

We're doing a new file system, which we call the Windows File System or Win FS. That's part of the next generation of Windows. A lot of that involves the file system understanding things like meetings, appointments, contacts, customer, movie, music track. That's called schema, where we describe to the system how all those things work. Those schemas are shared across all the different work that we do.

We also are defining a new way of writing software to the managed APIs. This is part of the .NET runtime, where you have far more secure software because of the way the API has been changed.

The last example is communications and collaboration. Again, all the devices need to participate in this; the way that you use your wireless handset, the way you use the PC screen, the way that in a meeting room you might have a large shared display that would have the ability to connect up to Windows as well.

We made a big step in accelerating our collaboration strategy with the acquisition of a company called PlaceWare earlier this year. And we're very excited about having Office connect up to that and making big advances in that. We see that phone calls that are made today, in the future the majority of those will actually involve the screen being part of that as well, and the PlaceWare software is key to that.

I would like to ask JJ Cadiz, who is a program manager in that group, to come out and give you a glance at what we've got with PlaceWare and hint at some of the new things we're doing.

Good morning, JJ.

JJ CADIZ: Good morning, Bill. Thanks very much.

Bill is actually going to go backstage and participate in the demo from behind the stage. It's my pleasure today to be able to talk to you about PlaceWare and how it can be used in one example of something that's commonly done within the financial services sector. Now, actually PlaceWare is already being used quite a bit in several financial companies. I did a little bit of research and found that two really good examples out there, in fact, are Captive Capital and TD Waterhouse.

Now, these places use PlaceWare for a variety of things, including one-on-one customer calls, training other sales reps, and also even town hall virtual meetings where they can get all their employees together and talk to them at the same time. There are a lot of advantages to using PlaceWare. One is simply just being able to enhance the customer calls you already make. So, anytime you have a telephone call you can use PlaceWare with those telephone calls. You can also replace a lot of the travel that happens within a company by using PlaceWare. A lot of companies are finding a lot of cost savings as a result of that.

Now, rather than showing you training, or sales, or town hall meetings, I thought it would be fun to kind of show you how PlaceWare might work with something that all of you are really familiar with, which is an earnings call, right? So, I have here up on the screen on what would be your right-hand side an example of how we might use PlaceWare for an earnings call here at Microsoft. So, you might receive an e-mail sometime in the future that says, for the next quarter's earnings call all you need to do is click this link and you can join a PlaceWare room for that.

So, I'm going to do that and show you how easy it is to get into PlaceWare. And after it comes up here, it's also going to show a telephone number that we're going to be able to use to dial in to the PlaceWare room. Now, while it does that, of course, this is our collaboration demo, so I thought it would be pretty useful to not just—actually, here's the phone number that you would dial to get into the room. I thought it would be useful not to just show you what it looks like from the presenter's point of view, but also to show you what it looks like from an attendee's point of view.

So, actually that's what Bill is going to do backstage. Now, clearly he often likes to dial into these earnings conference calls and listen in and see how things are going himself. Let's go ahead and bring up Bill's screen, and then see what he's—it looks like he's a little distracted right now. Hopefully he'll come back and stop playing bridge there, and actually come to the PlaceWare meeting. There we go. That's good. You'll need to give a little bit more warning though when that happens.

Now, once I'm actually within PlaceWare, all I have to do is bring in my favorite PowerPoint® slide deck to start talking about things. In that case, I have a PowerPoint deck here from the press release for our last earnings call. Now, once I bring that in, all I need to do is click over here on the slide, and we'll see how quickly it appears on both different slide sets.

Now, once I have my PowerPoint deck in here, I can walk through it just as I would walk through a PowerPoint deck if I had my laptop in a conference room. So, I can go through these slides here. I can even use a laser pointer to kind of gesture at certain points, if I want to. I can annotate the slides in a variety of ways. I can even use a highlighter to specifically call out a certain number; I can do that.

Now, PlaceWare has a lot of other features in addition to talking around PowerPoint slides. You can have chats with any other person in the room. If I wanted to chat with Bill, I could just press the chat button here, and we could send each other chat messages very similar to instant messaging.

You can see an image of kind of all the people who are in the room, and you can change your color to your different moods. So, you can tell the presenter to slow down, you can tell that you’re fine, and stuff like that. And the audience members can also ask the presenter, in this case me, a question. So, you might see Bill asking me a question during the demo using this button here. Now, I can also ask all the attendees here questions. And if I wanted to do that—let's say we're actually doing an earnings conference call—and I want to ask people, "What do you think of PlaceWare? Should we be using this for the earnings call?" I have to put the question here, and all the different choices, and press okay, and it would generate the poll. Now, I'm not going to do that here because I don't want to make you wait for me to type. But I do have a poll that I created earlier today. I can just click it, and then as answers come in, they'll be automatically updated here. So, I can say that I like PlaceWare a lot and then let's see how Bill's going to vote.

Go ahead and vote, Bill.

We knew that, right? Now, one of the things I was talking about earlier that you could use PlaceWare for is that actually you could just show people things, like you can actually do trainings of applications remotely using PlaceWare because you can show people those applications. You can show customers what exactly are the services that you're trying to sell to them.

Now, I'll actually give you a demonstration of how that happens. Let's say we're on an earnings call here, and we need to drag in an Excel pie chart. This is just something I made up yesterday. And, it's not in the PowerPoint deck, but if I wanted to take a picture of it, all I have to do is bring up the snapshot frame, and then go back to Excel, and we can actually position over it, and then take a picture. And as soon as we press the Snap button here, it will show up on Bill's screen.

And then once it's in here, I can actually gesture to it. I can highlight things and say, you know, here's the pie wedge we really need to work on for the future, and so on. Now, if I don't want to give you a snapshot, if I actually want to show people a live application demo, I can also do that by bringing up what's called a sharing frame here. A sharing frame works just like that previous frame I showed you, but it's actually going to send a live image, actually a live video of whatever I have that frame over. You'll see that even when I'm moving the mouse around here, you really want to do things, like we really want to call out this pie wedge. You can actually get the live demo of that happening. And in this way you can show any applications to either customers that you're talking to or salespeople that you want to train and such—you can do those types of things with the sharing frame here.

Let's go back to the main page here, and I think I saw Bill was asking a question when I looked up there. Yes, we've got one question in the queue here. Let's go ahead and take a look at the question. Now, if you're a person listening on the earnings call you might say, "Where can I get the official earnings release?" You say, "Great question. Let me point you to the page." Then I can, say, post that to everyone, because a lot of people might want to see the answer to that question. And what I can do in PlaceWare is actually create a Web page. So we all know that on Microsoft.com/presspass, create that Web site, and then I can say, "All right everyone, your Web browsers should now be taking you to the Press Pass Web site, and if you just scroll down a little bit all the previous earnings releases, or at least the previous one, is sitting right there."

So those are the major attributes of PlaceWare. I hope you'll be able to use PlaceWare in your companies, if you don't already, to work on one-on-one customer calls, during training demos and also large company meetings. And who knows, maybe in the future you'll be attending these conference calls using PlaceWare. Thanks very much.

BILL GATES: Thanks JJ.

One of the big focuses of the feedback information we're getting is in the area of quality, and another is in the area of value. We're now taking the tools we have to monitor these activities and providing them to our customers. So a corporate customer will be able to look and say, for the different kinds of hardware they have, what reliability expense they're getting, for their corporate applications, what sort of performance problems are coming up there. So we're taking what would have benefited us, and now passing that down through, as part of our software assurance ongoing relationship with these customers. A lot of innovation in those tools and a lot of value that comes out of that, as well.

We're also saying to ourselves that we need to take the products we have today and make them applicable for more scenarios. We need to make it easy to develop a secure infrastructure. It shouldn't be necessary for people to buy additional products or have lots of manual activity for their secure infrastructures. So public key capabilities, antivirus capabilities, spam capabilities, all of the different things that they've felt the need to adopt complexity, we want to make very, very simple. Software updating is probably at the top of the list here so that they feel like whenever we're fixing things they understand the nature of that improvement, and exactly what policy they want to apply to flow that through. For their Internet-facing systems, there will be a class of updates that they will allow to flow through very, very efficiently. And that will make sure that those security crises of the past either don't occur, or occur very, very rarely, and that the recovery time for those is trivial, compared to what it has been before.

I don't have time to go through all the different areas I'm excited about. I've listed here six big things that constitute the majority of the things I'm focused on, and where we have surprising advances in the works, management capabilities both built into the platform and value added. The integrated storage approach, the Win FS capability in particular, that draws on both our file system and our database expertise and says, okay, once and for all let's get it to work out—you just run it once, and everything you do works against that—rich search, having your information show up on all your machines. It's not different between e-mail and files; it's one rich metaphor.

Workflow, the idea of being able to draw out business processes in a very flexible way, being able to track what's going on and not have to worry about whether it's just a human workflow, or a software-driven workflow, but rather support the most important case, which is something that pings back and forth between those, and that humans have to be able to manage those in a very rich way.

I mentioned business intelligence: that builds on our XML platform. Model-based programming, it's the idea of very high-level specifications that get used to describe how software is supposed to be pulled together, and that it's not just something off on the side. We see that as literally part of the source code, and generating as much of the code from that model as possible. And then finally some things having to do with the natural interface. Our ink capabilities will have a dramatic advance next year in that. Our speech capabilities are constantly being refined, particularly as we get quality microphones as a standard part of the PC.

Most of those things I talked about you'll see intermediate releases between now and when we have "Longhorn." Longhorn is the next big generation; it's a big bet for us. We don't know the exact time frame of this. It's clearly many years of work that we're engaging in. We're very excited about the prototypes we've built, and some of the early technology proof that we have. We've got a major advance in the user interface, a major advance in the APIs. It has this new storage capability, it's got Web services as sort of a built-in piece of the platform, and it's very oriented around scenarios, making it easy to manage workflows, making it easy to manage contacts. For our consumer, taking the idea of the way you deal with photos and music and just unifying those into the single storage metaphor. Longhorn is not just a release of the Windows client, it's also a release where in the same time frame you'll have advances in Office, our server products, virtually everything at Microsoft is synchronized to build on this platform in, and take advantage of that.

So the summary is pretty simple. We have never changed our view about the magic of software. We're pleased that we get to integrate so many of these advances. Many of these are things we've been working on for a long time. There's a strong product pipeline coming through the integrated innovation, and we should be able to show people not only that we correct the things they think are tough about software today, but really bring in scenarios that they never would have expected, that we could solve and make it as efficient as we will. So that explains why we're driving that investment forward.

That concludes my remarks. Next up is Jim Allchin. So let me introduce Jim, who runs our Windows and server business. He's going to talk about the Windows client.

Thank you.

END.

Due to the varying sound quality and subject matter of tapes, the information in this transcript may contain inaccuracies.