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ANNOUNCER: Please welcome Chief Executive Officer for Microsoft, Steve Ballmer. (Applause.)

STEVE BALLMER: Only eight and a half hours later I'm back with you. I was standing outside at the break talking to some folks, and we all agreed it's a long day. I've been kind of watching each presentation myself, and in a sense you could say we have a little bit of a dilemma. We're so excited and there's so much going on, and we think that in a sense to have a feel for all of our multiple cores, so to speak, it's helpful to walk you through in each and every one of the businesses and the opportunities, and frankly some of you I'm sure are shareholders and companies who we touch on, compete with, where we basically maybe still only had five or 10 minutes on the subject, and they would have the whole Analyst Meeting on the same topic, whether that's security or some of the other stuff that we're up to. And certainly, I'd encourage, just as you had a chance to share feedback some of you with me and all with Chris and Colleen about what we should do with our cash, you have better suggestions on how you want to spend eight and a half hours or less with us, please share those with us as well.

There is a lot going on, and we're certainly trying to be as open and transparent about that as we can. Why? At the end of the day, I got—I get pushed. And increasingly, as I get a chance to interact with more and more of our outside investors, I get pushed a lot on this topic of shareholder value. How do you create shareholder value? Where does it come from? And when we talk to our employees, we talk a little bit about shareholder value for sure. We talk a lot about changing the world. We talk a lot about competing and winning.

When we're with this community, the emphasis is a little different, but it all comes from that same inner well. What bets do we take on? Where do we go invest? What things are really important, not just for today, but for tomorrow and the next day and the next year and the year after that. And certainly, I think that across the course of the presentations today, particularly to some degree from Chris Liddell and from Craig Mundie, something of the cycle of our business should be increasingly obvious. I've got asked a bunch of questions at the break about margin structure, and at lunch about margin structure. Is '07 the exception? Is it the rule? Is it this? Is it that?

And one of the things I'd highlight for you, and I'll—I'm going to make a few comments here at the end of the day. But, one of the things I'd highlight for you, which Bill and I have talked about a lot over the years, there's probably a greater discrepancy in our company and maybe our industry in kind of what next year's revenue and what next year's costs look like than in any other business most people have the chance to invest in or follow. There's always a way to get next year to look very profitable by failing to invest in the future.

And, there's always a way in the interest of long-term thinking to over-invest next year, despite whatever the revenue profile is going to be. And very little, unlike more operationally oriented businesses, there is definitely, you saw that in Chris' slide, some of our expense investment is about next year, but a lot of it is about long-term R&D. A lot of it frankly, is about the sales and marketing to launch and get into businesses that may not pay back for a number of years. And so, the degree to which you can actually think about us and measure us in kind of a classic operational way when expenses and revenue in any one year are more diverged than converged, I'm sure doesn't make it easier to think about Microsoft as an investment and where we're going and what we're doing.

In a sense, there's probably nothing on the slide that I used at the beginning of the day that makes us easy to understand. The technology and innovation, some of it is palpable and understandable, and you could say, "I relate to that. I would use that." Some of that —some of the stuff we do is kind of deep, back, dark, sort of backroom technology stuff, which may or may not be as easy to fathom. Some of the stuff is very long term. Some is quite speculative, and other is quite understandable.

I talked a little about the discrepancy between costs and revenue, which gets tied up in this notion of a long-term approach. I think Chris was very articulate in some senses on this notion that any business that we build successfully, we have not had an experience that says it has a poor ROI. The question is, how good an ROI? How long does it take? And, will we succeed? We've been fortunate. There is nothing that we have undertaken with a couple of exceptions like Microsoft Bob, that I'll cop to in advance, where I'd say we have decided that we have not succeeded and let's stop. We've either succeeded, or we're still telling you we're going to succeed.

Well, it's true. And, that's because we think we make pretty good up-front decisions on areas in businesses that are worth investing in. Even if the original conceptualization that we had, we wind up deciding is not accurate, we think that the businesses that we pick are very good businesses. And therefore, we should stick with them, and everything we've stuck with to success has really proven to be just an incredible source of revenue and profit and net shareholder value.

This live transformation is another thing that I think is hard for investors to understand, and it's not the technology, and it's not the market phenomenon that's complicated or hard to understand. It's just, is this thing additive, subtractive, are—is what you're doing with Live services offensive or defensive? I get this question all the time. Is this something that just protects existing franchises? Or, is this really about a whole new franchise? And my answer is, "Yes." It's all of the above. Almost every good investment we make, almost every investment we make period, I would characterize as having a growth aspect and a defensive aspect to it.

Our server investment, I think it's proven to be a pretty good growth investment, but it had a defensive and an offensive aspect to it when we got started. Certainly, even what we did with Office was both—had a kind of offensive, growth-minded aspect as well as a defensive aspect.

And this live transformation to me is simply inevitable, and therefore we engage in it, we're driving it, we're allocating more and better talent to what we need to get done in the area. We just keep putting more and more smart people to work in the area because we think it's so fundamental. And it's fundamentally both because we have good businesses that will be affected, and we hope to grow new businesses, but I don't think it makes it any easier as investors to comprehend.

And last but certainly not least is this notion of us being multicore. And that in and of itself I think as I said a minute ago at the beginning, I think that's a bit much for a lot of people. We really are, there really is a Sony that lives inside of us, and there's an aspiring Yahoo! or Google that lives inside of us, and there's an IBM mainframe software business that lurks inside of us, and there's a desktop software business where we don't have a lot of peers that lurks inside of us, and so on and so forth.

And I frame that somehow in the lens of the competition, but when we talk about multiple cores, for me my investment portfolio is 85 to 90 percent in Microsoft, and I think about Microsoft as just something I own. So I want Microsoft to be in all of the good, important, big-growth businesses in the world.

I'm not sort of a diversified investor who says, okay, well, you know, if I want to own that business, I'll buy that company. I own Microsoft, I'm a long-term investor, I want to create shareholder value for Microsoft investors.

And so we sort of think about the whole landscape of what's going on, and our core capability is being an incredibly clever software development organization that's trying to then go build multiple cores of capability and excellent performance. It doesn't make us easier probably to understand and to parse whether you want to make the investment or not.

You know, I sometimes come to the end of a meeting like this, and I'm very excited, but then I say, wow, we really didn't spend enough time on IPTV. I'm not at 4:35 going to spend a lot more time on IPTV, but IPTV is a huge growth initiative. It's huge for us, it's huge for our partners like Alcatel and Cisco. And you count the number of TVs, you don't have to get a lot of money per TV per year to start feeling kind of excited about the size of the opportunity. And it's going to take a number of years, because the world is not going to move all in the coming 12 months to delivering video streams over IP networks, but that in and of itself to me is just one of these wonderful growth initiatives that I'm glad we invest in and sustain as part of this kind of multicore thinking that causes us to want to think of a broad universe of opportunity as on our radar screen.

If you start with innovation, because everything does start with innovation, and everybody likes to define innovation differently, I'd say for a lot of people innovation is something kind of neat that three guys do in a garage over a weekend. And I'm being a little extreme here, but I think innovation is very broad in its form. And when I use the word I'm really talking about creating new and interesting things for users, for a variety of different kinds of users in a variety of different kinds of walks of life.

But doing innovation does start, and running Microsoft does start with kind of an almost unbridled optimism. If you're not optimistic, you can't make the kind of big bets that we do make. And we didn't write down here are the 120 bets at Microsoft and here's the size of each of them this year, and frankly speaking the cost of counting probably wouldn't get us there perfectly, because we have so much in the way of shared resources. But when I write down the list of things that we're betting on, it's large, not just in a financial sense, but in a customer scenario sense. And so I think not just me, the whole team you had a chance to interact with today brings a real optimism and a desire to bet big.

You know, I don't know if it feels good or bad after eight and a half hours, but we wrap up with our CFO, and I think most of you probably think, okay, here it comes, this guy is the hammer, he's supposed to talk about why these bets have been gone through with a green eyeshade. And Chris gets up and tells you, and we believe in our big bets, and Kevin Turner, we believe in our innovations and driving those. And it takes that kind of optimism and commitment to want to be here and create the value we create.

There's a temptation in a company that's so dependent on innovation, there's a temptation to let the whole culture be about innovation. In a lot of companies I think the temptation is to let the whole culture be about operations, getting that last little bit, getting it all the time, and I think you get a range and spectrum of businesses.

At Microsoft we do really need to support and nurture both an innovation culture and an operational culture, and I hope you got something particularly from Chris and Kevin Turner today about what we're trying to do, both to be razor-sharp—we don't want to spend a dime more than we have to on anything that we're doing, but we want to be expansive and innovative in the things that we do.

I think if you're really serious about innovation, and you're really serious about growth, you have to confront the question is it okay to get into some area of endeavour when you're not first. It's always best in our business to be first. There's nobody who comes to work here and says anything other than we want to be first at every new thing that comes along.

Of course, that's not going to happen. There will be times when we are not first; hopefully our batting average is always better next year than it was last year or the year before.

But are you prepared to get in and innovate and try to get growth in areas where you're not first into the market? And we certainly answer that with a resounding yes. And as investors you have to understand we think that is important for long-term growth.

It's best to be first, but if you're not first, are you prepared?

I got asked a lot of questions about Zune over the course of the last week or so, and people want to know why, what, this, that. I think it's probably fair to say there's no other company, for better and for worse, there's no other company that would be attempting to get into that business at this time. Nobody else has the optimism, nobody else has the financial resources, and you might say nobody else—well, let me just leave it at that. (Laughter.)

And yet I'm excited about what we're doing, and yet I know we have a long haul, I know it's not all about the device, that the device is just one of a set of tuners that we need to work with our partners to provide for our community entertainment services, but it's important.

The last thing that I want to just mention, because in a sense I might have drawn the investment curve that Craig and Chris had up just slightly differently: we have to build what our customers want to buy or what we want to sell—this is an expression I like to use—but we also have to sell the things that we've built. And that means when we have a new product we're launching or we're entering a new area, we have to put in the sales and marketing investment to get design wins early, even if we don't get huge revenue early.

Only with those design wins do you get feedback from customers and start the virtuous cycle that is so great in a real great innovative company between customers and the people who build products.

We're investing right now to really get into the high-performance computing business. Bob talked about it; we're making sales and marketing investments. We've never called on the seismic engineers at a variety of the oil and gas companies before, but we have people who are out there doing it. And they're not going to pay for themselves this year.

We're jumping into the business intelligence category with two feet. There are other people in that business. We've got to get out there and really tell our story. And there is a lag time even between the completion of first R&D and the time in these new categories when you make money. But we are prepared to also get in the market and sell, and in a way that probably lengthens out, and deepens perhaps to some degree the troughs that Craig and Chris showed in those investment curves.

But at the end of the day, it's about innovation in its many forms. We think for our company, with the breadth of things that we want to do and need to do in order to grow, we have to value all types of innovation. We have to be a company that is absolutely able to build and innovate on its own, but we're also prepared to buy innovation. If you look at our record of acquisition, we haven't bought too many real operating entities where the operation itself was big, revenue, sales force, et cetera. Probably the only ones you'd point to are Great Plains, and Navision; maybe a little bit you'd point to Visio. But we do buy technology when we buy Softricity, when we buy Whale, we're buying technology and innovative people like Blaise who you saw on stage who came with the Seadragon acquisition.

Some of what we do has to be on short cycles now, three months, six months. Some of the things we work on will take a number of years. We will never repeat our experience with Windows Vista again, we will never have a five-year gap between major releases of flagship products. But we will have people who are working on innovations that take more than a couple of years or so to do, we just won't promise them to customers and hold up whole releases. We will innovate and integrate more than we will engage in integrated innovation.

Large-scale and small-scale, it is romantic to write a lot about small-scale innovation, and we have a lot of amazing things that small teams of people dream up and do. But we will also support large-scale innovation, like you see in big products like Windows. Some products, new airplanes, new operating systems, may have a bunch of small-scale innovations in them, but we've got to be prepared to do large-scale innovations. We do innovation in line organizations and research groups. Some of our innovation comes from customer perspective in, and sometimes we're going to try to innovate with some clever new piece of technology, hardware, software, out. There's a great myth that at Microsoft innovation comes mostly top-down. Most of our innovation, in fact, comes, I would say, middles out, and yet we're trying to encourage innovation from the top, from the middle, and from even the newest kids just joining us straight out of college. Some innovation is very planned, but we still get bluebirds where somebody will surprise us with something, and we want to nurture that kind of freedom of innovation and expression. And some innovations may get to critical mass quickly; most will take some time. That's not a Microsoft unique statement. If you look at any of your favorite technology companies, in the areas in which they compete, it probably took them six, seven, eight years to really get to critical mass. The iPod may be the only example where I can point to that things happened much faster. From the time, you know, the guys who started Google started, to when they really got to critical mass, seven or eight years. And that's not atypical, and we will have cycle times that will hopefully be shorter at all times, but we're prepared to support slow burn as well as fast to critical-mass innovations.

We started a process over the last year to try to become, and this may sound a little bit like an oxymoron, more systematic about our innovation approach, and this is one of the things that we're certainly going to have well working before Bill Gates goes part-time in two years. He's always had a list. I've always thought of Bill—Bill has a checklist on almost anything under the sun in his head. He's always running through these checklists, and I've always wished I could just get the checklists written down. It would be a valuable sort of contribution. He does this socially. He does this at Microsoft. He does it with innovation. He does it with business. He does it with the Foundation. Lists, and he's had a list of important innovations he wants us to go do, new areas he wants us to move into. What we're trying to do is create a process for our company to create a real list of the important innovations that will change the world over the next 10 years, and we can decide then when, and how to start investing.

And we've kind of bucketized these. There's going to be innovations that radically change IT. There's going to be innovations that change the way business operates, that affect individual end users, and the way they connect to other people and information, that affects entertainment. There's going to be innovation that changes the way software gets built. Incredibly important here, not just our own developers, but the ecosystem of developers who create value around our platforms. And last, but not least, there is fundamental changes coming in the hardware, and the possibilities therefore not only in underlying technology, but user interface around that, that we sometimes just call the Live software ecosystem, voice recognition, natural language. You saw Shanen, with a little bit of echo, try to show you some stuff we're putting in the market as part of Windows Vista, but there's going to be evolution. Even the move from few cores to many cores—now I'm talking about, you know, chips, I'm not talking about companies at this stage; that's a huge change in the underlying operating systems development tools if we're going to continue to take advantage of the performance that the hardware industry can provide.

And we will have a list, and the list will be something that we review, and talk about, and think about every year. The list will inform our product plans, and our incubation efforts. Things will go on, and they will go off, but we're going to try to be very broad, but a little bit more systematic while we continue to try to also nurture the kind of unplanned small-group innovations that I talked about earlier.

To have this long-term approach, in some senses at the end of the day, the most important thing is the people. It's all about the people. We have been very fortunate. We have the best people in the information technology business. We have been able to recruit, and attract, and retain amazing people. We have a very low, three percent, unwanted attrition rate amongst our engineering group. People come here, they stay here. I addressed our college interns: we have 1,200 college interns at Microsoft, and our program is the envy of every other company in the industry. Some people don't even make you do a real interview, if you've had a college internship at Microsoft. We're hiring senior technical people in addition to college people more effectively than ever before. Our college recruiting numbers are up. We've got a little bit more competition. We used to have no competition; now we have some competition on college campuses. The same thing is true in industry hires, but we're just doing amazingly better now than we ever have before.

I went through a list of all the people we've hired in the technology ranks above a certain level a couple of weeks ago. Folks who have been CTOs, or vice president of engineering for startups, people from big computer companies, IBM, HP, folks like that. We see people who have come from a set of companies that are having hard times, but who ran engineering or architecture at places like Silicon Graphics and a variety of other important companies that have done very amazing work.

Through our acquisitions we're able to get amazing people to come and work at Microsoft, who have kind of the startup and entrepreneurial bug. And if you just go through, whether it's the list at the bottom, and some of these business people, but most of them are technology people, it's amazing. I'll give you a couple of amazing, from my perspective, examples. We hired a guy this year named Eric Zocher. Eric had been at Plumtree; before that he had been at Adobe; amazing talent. I didn't even know he was in our business, but it turns out his daughter is in school with my daughter, had been commuting to California, and he'd gone to high school with Kevin Johnson. But, he was a lead architect at Plumtree, and at Adobe. He's running our effort to do a next generation of development tools targeted at designers as opposed to code writers; just an amazing talent.

We hired this year a guy named Burton Smith. Burton Smith was the CEO and chief technical guy for Cray Computer. We brought a number of the best high-performance computing, supercomputing people in the world to Microsoft, on the back of hiring Burton. We brought this year a guy named Rakesh Agrawal. Rakesh was one of the leading search people inside IBM, and he came, and a bunch of people had come with him to join us. And the list goes on and on.

So I'm very proud not only of the people we have in place, but our ability to attract new people, and retain and develop the people that we've had. We've just gone through a round of promotions of a number of new people to vice president, to technical fellow, to distinguished engineer, and both a lot of homegrown talent, as well as people who we hired later in their career.

The Live transformation, this is a slide Kevin walked you through, I'm just going to bang the drum on this one. I'd say one of the most frequently asked questions I get from investors is, will you make this transition successfully, to which my answer is always, absolutely, yes. And then people say, show me the secret sauce, I want to see the secret sauce. Of course, we only want to show you so much of the secret sauce, or it wouldn't be secret. But, I do think there are some things that I'll highlight for you that Kevin talked about that do make what we can do different.

We are not the incumbent today in ad-funded businesses. There are a lot of issues that the various people in the world who care about the sale of advertising have with the way the online world is developing. There is room for somebody to do something disruptive to what people see as today's model, but it has to be somebody who doesn't have as much to put on the line as the market leader. Both in a business and technology platform sense, we see that opportunity. And that opportunity gives us the chance to partner with hosters and systems integrators, publishers and developers, in perhaps a new way.

We're going to have to out-hustle and out-execute people, giving them better online experiences. I got asked at lunch, do you have to be best of breed in search, in mail, and the answer is yes, we do. We have to have a great integrated experience, but what we need to do is be best of breed. Whether we start out being best of breed for 20 percent, and then we're best of breed for 100 percent, we do have to be best of breed for people in what we do. But, we have great people who know how to build great user experiences. We are closing in on market leaders in search relevance. We do know how to build excellent e-mail and communications experiences. And I do, and think it's fair to bet on our people and the quality of what we do.

The client platform, rich clients talking to these services will be important. AJAX is kind of an example, some of the things that we're trying to do with the Windows Presentation Foundation, that Adobe is trying to do with Flash is an example. People are going to insist on more help, as Ray talked about earlier, between clients, servers and services, and nobody is better positioned to add value at all levels than we are.

We've got a lot of customers we just need to land on our platform. A lot of people go to Windows, go to Office, go to other Microsoft products every day: How do we land them in our online experiences? Just take the simple calendaring problem. My wife and I would love to share a calendar. I have kicked her off the Microsoft e-mail system, and we're going to make those scenarios that cross your personal life and your work life super simple.

The next to last area, frankly, we're not unique, but I'll tell you we're dedicated. We have an absolutely relentless focus on advertisers. If you look at—I'll just talk to me personally as kind of a sample of one, I'm probably spending more time today with advertisers than I am with enterprise customers, and I'm certainly spending more time with telecommunications companies, who are critical to the partnership in online services.

And last but not least, a lot of what people do online they actually do from work. We do have a place and a position with people at work, and with the IT people who serve them. In a variety, then, of these ways, I do think we have a distinguished position versus any of the other competitors in online that we can build from, a technological approach, a business approach, and a go-to-market approach.

A lot of people basically wound up putting up slides that look like this about all the incredible opportunities we have for growth. So I'm not going to run through this, because I think everybody had something, but I do want to comment. I talked about how difficult I think it can be to understand us, because we are multicore, and you have to think about the various pieces of Microsoft. The other thing I think I could say is, it is precisely because we are multicore that I think we have an opportunity for long-term, exceptional growth.

The most important decision you make in the technology industry is whether to participate in the hot markets of the future or stay wedded to the hot markets of the past. Very few, I might argue no big technology company has ever really been able to be multicore, until we did. I'd argue that even the great companies generally wind up having a single core, and that core either dies, or gets humdrum, and somebody does the new thing. We're trying to be the company that also does the new thing. For years we were a "desktop" company, and people said you'll never be more than a—let me use the American colloquialism—one-trick pony. Today we do have two cores.

I don't think you'd look at any other company, I'd tell you IBM in a technology sense has a mainframe core, and the service thing is almost non-technology, but they're the closest. SAP has really a single core. Cisco has really a single core. EMC, a single core. Google, a single core. Apple, Apple is all focused in on a certain kind of experience. These are not bad companies. These are very good companies, but they were preceded by other very good companies that don't even exist anymore, let alone aren't delivering superior growth.

And if we're going to deliver superior growth, we have to be prepared to be multicore, multiple pillars of capability and multiple pillars of performance. We have to drive our desktop business. And you heard us talk about it. You heard us talk about emerging markets, additional licenses. You heard us talk about pricing and SKU mix. You heard us talk about Office and why it might get more popular. In the service area you heard us talk about a lot of things: the security business, the management business, the database opportunity, hosting, UNIX migration. You also though heard us talk about Dynamics and CRM, Unified Communications—Jeff talked about that. There's a whole big telephony market out there in businesses across the world. It's one of the largest markets in the world. And we told you in earnest over the last several months we're in that business. We laid out our strategy, we announced our partnership with Nortel. We're talking about billions of dollars of opportunity, just like IPTV or security, portals, search, business intelligence. I understand a number of the guys in that market are putting up good numbers. Well, we want to put up some darn good numbers too.

And, if it wasn't 100 percent clear, we will have high-end versions, so-called enterprise versions, of Windows, Office, our servers and our so-called CAL, or client access license—that will be the primary form of monetization of some of this value-add. Will we have all of our revenue in security? No. We'll probably sell a high-end client access license that gives you security capability. And so we think we have synergy on the sales and go-to-market side, just like we do on the technology side.

In the entertainment area, big opportunities, but it all starts with succeeding with Xbox, getting into the entertainment business and driving IPTV very hard. And in the online business, I talked in some detail.

In almost all cases, everything—every core we will have the opportunity for market growth. Most companies would kill to have the kind of market growth we have in desktop, servers, let alone entertainment and online. We have big share growth opportunities. We have the opportunity that we are exercising to get into adjacent businesses. We weren't in the management business really five years ago. We're not in the security business in a fullest sense today. So we will grow through the market, through share and through entry into adjacent businesses in each and every one of these cores.

Another thing I get asked a lot by investors is, "Who's your biggest competitor? Who is it? Who is it? I want to know the name of your biggest competitor?" And the press likes to ask this too, for the press folks in the room. And the truth of the matter is I actually think about this in a kind of business model sense more than I do in an individual company sense. We have commercial competitors where basically they sell you something and you pay them for it. And we have not met a commercial competitor where with time we couldn't figure out how to win, how to drive greater market share and make some money. And you see a list of some of the guys we compete with under that classic, "You pay me and I give you something" commercial business model, and I claim we're going to have some good success against any of the guys on the list whether it's Symantec or Adobe, whether it's what we're trying to do in the midmarket with SAP. We have a little bit of competition now with Cisco. Hopefully that will be more of a partnership like our SAP model, Apple, Sony, Nokia. We cooperate, but our Windows Mobile Devices are in the game.

Four, five, six years ago, we got the challenge of the open-source business model: What about open source? And in some senses we couldn't just say, "OK, well, we'll use that business model too." That's one we couldn't embrace. And so we had to come up with a formula, a formula that's essentially based, like Bob talked about, on delivering superior value and superior TCO in all scenarios. And four years ago people wanted to write our time of success was short. And yet we've been able to compete. We're going to have to continue to compete, we're going to have to be diligent about our competition, certainly for the rest of time.

And the question people ask in the context of services is, what about ad-funded business? And ad-funded business is different, because the customer doesn't pay you for what you deliver for them. Somebody else pays you to deliver something to the customer, which creates not just a different set of customer interaction dynamics, but also frankly creates a whole set of business model dynamics. And more than—if you ask me my personal priorities, more than anything else, really ensuring that we think through and that we have the capacity to embrace this business model and compete very successfully in this way, with this business model, is certainly very high on my personal priority queue.

How do we measure ourselves? In the long run, I think we measure ourselves simply by growth and operating income. If we ever did a super-major acquisition, I think we'd probably have to have a little different dialogue with you. But how does our operating income grow compared to other people in our industry? And when I say "other people," I don't mean just competitors—I mean competitors, I mean partners, I mean people who do different things. Because if the ultimate test for Microsoft—the ultimate test is, are we investing broadly enough in innovation to continue to tap into the new opportunities, we need to write everybody down—Motorola, HP, Dell—these are our customers. But are we growing as fast as they grow? Some of these are our competitors. Are we growing as fast as they grow? And it's not a year-by-year thing. "Oh, this year we did, last year we didn't."

I talked about this last year in my speech here, but in the year 2000 we were about 18 percent. We peaked at about 26 (percent). Over the course of this period of time we were about 21 percent with our investments last year. But over time I sit here and say our goal has got to be to grow not only our operating income, but in a sense we want to grow faster than the total value being created in this industry. And so when people say, "What is your financial objective?" —and I love to say, "It's always a 10-year objective." And people like to say, "Well, we don't know how to hold you accountable." And I said, "There's a lot—a bunch of other measures." And our guys talked about some of the business markers along the way. But certainly I measure myself, our board measures me, we measure our people, on how this picture is playing out. Are we getting into the important new areas? Are we driving value? Are we driving growth? And are we generating cash? Which of course we're doing nicely. And then we get into the whole dialogue which people, our investors, have had with me very clearly about what do we do with that cash, how much of it do we keep—do we keep because we have business opportunity, business risks, legal issues? And how much do we give back to our shareholders, and in what form? You know, we're in the middle of a major action on that, at least I would say in large part motivated by feedback from investors coupled with my views, Bill's views, the board's views of the kind of cash that we want to continue to keep in our business.

So we are going to continue to push ourselves—not just on innovation, not just on our patience, not just on our market presence, but on our ability to deliver operating income growth with very strong cash generation. And I think we have a very good record. Year by year, like I said at the beginning, it's hard to correlate a lot our expense investments and our revenue returns, but I think we're entering a very, a very good cycle—a lot of new things come to market with Vista and Office 12. We weren't in the security business; we're going to be in security business in full force. We weren't in business intelligence; we are in business intelligence. We are turning the curve on some of the key investments in Xbox. And the big question I suppose that will still remain is: What about online, where we have been very clear that if we can come up with smart long-term ways—smart ways in the long term to increase our expenses, to acquire customers and advertisers, would we do so? And the answer to that question is we would. We don't have particular things we're promoting at this time, but we want you to understand that even though as we enter this, what I think will be a very good cycle, where "cycle" means the next three, four years—not the next one year, but the next three or four years—enabled on the back of Windows and Office, we are going to continue to look for places that we can profitably and sensibly invest in our long-term future.

With that, I'll wrap. I want to thank everybody for what is now nine and a quarter hours of time. We're going to move to Q&A. I'm going to have Chris Liddell, Craig Mundie, and Kevin Turner come out and join me. And certainly, if I don't get another opportunity, thank you all for your support and your patience. (Applause.)

END

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