Silicon Valley Speaker Series: Thinking Outside the Box: Distributing the Power of the PC Throughout the Home

MIKE TOUTONGHI: I want to welcome you to the Silicon Valley Speaker Series. We're going to talk about extending the power of the PC throughout the home. As Daniel said, my name is Mike Toutonghi, I'm the vice president for Microsoft's eHome Division.

So, the eHome Division, just a little about us, we were formed officially in February 2001. As Daniel mentioned, I was actually working on these kind of technologies and working in the home space prior to that. But this is an official committed effort that we've really started as of this year. And if you've heard of the Microsoft Home, which is another home focused initiative that started about nine years ago, this was something that we put together to read the vision and ideas of how we could apply PC power and technology to benefit consumers in their home. That's another part of the eHome Division. And we think of that as kind of the leading edge of the kinds of things we want to deliver to consumers. And we're going to talk a little bit more about that later today.

It's our responsibility to research and develop core technologies that will enhance the Windows platform and deliver value, relevant value to consumers, not just on PCs in their home, but throughout the home in general.

So, at a high level, our mission is to extend the PC's capabilities to deliver simple, whole, home entertainment, communications and convenience to the everyday consumer. So, you're probably familiar with Microsoft's broad vision statement, the fact that we are working to empower people through great software any time, any place, and on any device. And this is very important as a part of what we think of every day when we're working in the EHome Division, because if you think of the home as an environment where you can have many different devices, different locations, you know, you sit down in your entertainment room, or your family room, and you want to have a different kind of experience brought to you through different devices than you might if you sit down at your desk.

In 1995, Microsoft was very focused on the desktop. And back then, our high level corporate vision statement was a PC on every desk and in every home. Well, since that time, we've branched out into three major businesses. We have a very successful and growing server and enterprise business. We still have a thriving desktop business, and we also have what we consider a very exciting and emerging business in the consumer space.

So, just to give you an idea of some of the things that we'll be talking about today, we've put together a little video clip which takes a fictional character named Jenna, a student, through some of the ways that she might use technologies that we're working on delivering to consumers on a PC throughout her daily life. So, let's just take a minute and see what Jenna does with her PC.

(Video shown.)

MIKE TOUTONGHI: And that's about it.

So, this is very much a vision piece, but it's important to note that a lot of what she's doing include technologies that, in fact, we are working on, and we're working to bring to consumers. The core message there is, we're working to integrate experiences, integrate devices, integrate networking, and to make the experiences simple and deliver to consumers what it is they want to do rather than focusing on the consumer themselves piecing together all the different pieces to make an experience happen. So, a lot of what Jenna did there was, you know, very automatic, speech recognition, very simple little bit of typing here and there, but very much focused on the experience, and not on the specific technologies that were brought together to make that experience happen.

So, what we're doing is, in understanding what it is we're going to bring to consumers, we're looking at trends and usage, and we're running focus groups, and we're really doing our best to listen to consumers, talk to partners, and to understand what it is consumers want to do with the PC, but also, in their home, in ways that they would like to use technologies that are becoming available today.

What we're seeing is that PC's usage is extending, definitely extending beyond productivity. So, right now, people are using PCs to view photos, it's a very high volume task people are using PCs for. Also to manage to do lists, to work on personal calendars, and manage information that has more to do with their personal lives than productivity and work environment.

People are also in very high volumes listening to music today over their PC. People are, in fact, taking that music and burning CDs from it, storing it in libraries, and that type of thing, and then we're starting to see a very high growth area where people are using PCs to view DVDs, and also as we'll see in some of the data we have later, to view videos that might have been downloaded from the Internet, or other forms of digital video.

So, we're seeing that online digital music in general is very much on the rise, use of online digital media. Homes that have broadband connections, while broadband is still somewhat in a very nascent marketplace, for homes that do have broadband, we're seeing the usage of digital media in those homes generally double over homes that have narrow bandwidth connections.

And what we're seeing as far as growth is that while there is still incredible growth in music and audio and that kind of media, we're seeing even greater growth, although smaller overall volume of usage, in video.

Another important trend that we're seeing is that consumers are starting to use the PC outside of the traditional area of the den. Now, while it is the case that in many of the homes where they're using the PC outside of a den, it's due to space limitations. Another very important reason that this is happening is to bring the PC and the experiences that it can deliver closer to the family.

Another area where we're seeing high growth is just general use of digital devices. So, for example, DVD players, I think everybody is aware is a category of device that is very much on the rise in its adoption and penetration. It's also the case that we're seeing significant penetration of digital television, digital cameras, a very high growth device category, and digital camcorders.

So, at the same time as that's happening, we're seeing home networking start to really take off. Right now, we've got about six percent penetration, six percent of households actually have a home network, which is, in fact, if you look at the growth, quite significant. At the same time, 68 percent of home networks were actually installed for personal reasons, not something focused on productivity or work.

And then, if you look at six percent of home networks, actually as a number of for penetration, you're also seeing a similar number for the penetration of broadband. What does this all mean for consumers?

Well, in focus groups that we're running, the consistent message that we're hearing is that this is fantastic, it's great, you know, consumers are now having access to a plethora of technologies, and they can choose from all sorts of different devices, and Internet connectivity, and services delivered through that Internet connectivity. At the same time, there's a very real risk that consumers will soon be in what we think of as technology overload. How do they use all of these devices together. How do they get the value of out of these technologies that they actually want? What is it that they really want to do?

And so to figure out in more depth what it is consumers want to do, we've been running a series of focus groups to understand where we should direct our energy and our resources. And we hear a consistent theme through these focus groups, which is one of consumers are very interested in entertainment, they want to have the entertainment and media that they're interested in when, how and where they want it. They're very interested in communications. I mean, these are obvious answers, but it's clearly the case that consumers don't feel that they're getting enough value out of the technology that's available today in these areas. They want more personal communications, they want simpler communications, they want their communications to be integrated across their different devices.

Imagine a world where your address book is your address book, whether you're using it on the phone, or you're using it in e-mail, or you're using it at home, or in instant messaging. It's just an address book. They also want to have these experiences in a very convenient, simple, and intuitive manner. So it is the case that the very early adopters, the power users can take a lot of the different products, and a lot of the different services and kind of bring them together to get experiences that might deliver the value they're looking for. But, for the broader marketplace, for other people in the home besides the consumer electronics experts or the PC experts, the kinds of experiences that people want are still somewhat out of their reach.

So we're really excited about one step that we've taken in delivering this value. We believe that Windows XP is the best operating system we've offered to date. We believe that as far as the PC experience is concerned, it's very simple, it's a very robust, industrial strength operating system, and it has three primary focal points. One is to really enable a simpler connected home, to make it easier for that six percent of home networking penetration to grow, and for people to actually take advantage of the built in, simplified networking in XP, to get the kind of connectivity in their home that we're seeing people ask for.

Also digital media, XP delivers a much richer, more robust, and interesting platform for the consumption of digital media. It ties into digital photography and makes it very easy to integrate your camera with your PC experience. It's also a very simple place to put music and video, and to consume music and video. We're still at the stage where we haven't really bridged that with the world of consumer electronics that people use every day in the home. We also focused in XP on making it a better platform for communications. So if you think of the real time communications and instant messaging, and video phone, or video messaging technology in XP, these are things that consumers have been asking for, and we believe as a platform XP does a great job in delivering these in a PC oriented experience. What are the next steps? What do we have to do from there?

Well, broadly, the eHome vision is one of total connectivity. We don't want to limit the value that a PC can bring to a consumer, to the PC, or even to a PC centric home network. What we want is to create a world where there are no more islands of functionality. So you have your consumer electronics stack in the entertainment room, or you have your PC and your PC network in one or two rooms in the home, instead we want to bridge devices throughout the home, provide total connectivity, so that we can start delivering value that takes advantage of that connectivity. And we'll talk a little bit about what those kinds of experiences and that value is in a minute.

We also want to focus on personalizing experiences. Regardless of the kind of device you're using to have those experiences, we want to make sure that when you say you're interested in this person as a contact, that person follows you around, or you're interested in this kind of music, that that is actually something you can take advantage of regardless of where you are, regardless of what device you're using. At the same time we want to make it very simple to have access to your connected environment throughout your home, and throughout your life.

So what are the challenges in entertainment, for example. Again, there are a lot of exciting new products available on the market. Clearly, digital audio, digital video, digital photography, the world of media is going digital. And this makes some things easier, and it also, while we're in the early stages of that, makes the usage and the value that consumers can get out of that a little more complex than what they're already used to using.

Personal video recording, video on demand, very exciting services that are now becoming available, and it's important that we integrate the world of entertainment for consumers so that these things can come together in a way that allows them to extend through the PC, through the world of consumer electronics, and in a way that consumers can really simply, and intuitively have access to it.

For communications, we want to evolve communications, we want to integrate communications. It's not just about the phone. People are using instant messaging in increasing numbers, people are using email, people are using voice over IP, video conferencing, and all of these kinds of communications should be much, much simpler to have access to in a very integrated way. It's important to have universal messaging, to have a way for a message to be logged, you'd have access to that message regardless of whether or not you have your PC or your cell phone, or your PDA, or another device as the device you'd like to have access to that information on.

Then at the same time we want to be able to make it so that communications can follow you around and take the form of the -- take a form of a device that you might have access to at the time. So for example, if someone is trying to locate you, and they try to locate you through, say, instant messaging, or try to call you through your phone number, wouldn't it be great if whether or not you happen to have your cell phone, or your PC, or your PDA, or if you were sitting in front of your TV, regardless of the kind of device you happen to be using at the time, you could be notified that you have a call, and you could connect to that call. If you were able to do a video call, maybe video would be one of the things that you'd be able to experience. If not, maybe just audio. If not, maybe just text. And then critical to the success of any of what we do in this space we believe is convenience, control, and really that translates into simplicity.

So our goal in all of this is to simplify the experiences, to make them easier for consumers, all consumers, to have access to, and to enhance choice. So to create an ecosystem of devices where consumers can choose a device that's most relevant to the kinds of tasks they want to perform, or the kinds of experiences that they're most interested in. For services, to offer a variety of choices to consumers through these different kinds of devices, and for experiences to be built that can cross different kinds of devices, bring together services, and deliver to the consumer not just a specific kind of technology, but really the experience that that consumer is looking for.

We also want to simplify purchase, installation, and use of connected products. We think that we've made a significant step forward with XP in making it simpler to set up a home network, and connecting devices, but it's very important that we take that next step, and that we work with partners across the industry, device partners, service partners, companies across the industry working together to make this a simple world for consumers to go down to their local consumer electronics store, or PC store, purchase a product, bring it home, and it just works with the other products in the home. It's very important to focus on standards based interoperability, to have open protocols, to work on interoperability at multiple levels, and to work towards an open retail model as much as possible with devices and services available to consumers.

But, primarily this convenience and control message is really one of simplicity, it's critical that we simplify experiences, and that we keep that simplicity across the services and devices that consumers will use to have access to this functionality.

So how do we get there. As I said, we've taken some really significant steps forward with XP. We already are delivering rich media experiences in the context of the PC. We have some level of integrated communications experience in the context of the PC primarily. But, it's very important that we take those to a wealth of devices, and that we also extend the PC's functionality so that it can automatically serve and control. There's a lot of smarts there, we'd like to use that smarts to benefit consumers in other areas, and on other devices.

So once we are able to actually do that, the next step then is in working with the industry to create a rich ecosystem of devices. Now, we don't think that it's going to be next year's device, or the year after that, or the year after that, or even a lot of devices, next year and the year after that, and the year after that, that are solely going to be responsible for this ecosystem of devices, and because of that we consider it very important to seamlessly and securely bridge the world that we're working towards creating with the world that exists today.

So existing consumer electronics equipment needs to be part of this equation. Today we have an average penetration across the U.S. of 3.2 televisions in a consumer's home. Significant penetration of receivers, and others kinds of consumer electronics devices. And if we tell consumers, everything you have in order to benefit from this must be new, we don't think that's actually what consumers want, and that's not what they're telling us they want. So instead we're going to work on bridging the devices that exist with the world that we're creating over the next two, five, 10 years.

Once we do that, it's very important that we take services that exist today, and new services, to create extensions, enhancements of those services, so that we can have robust personalized services that are delivered throughout this ecosystem. TV, music, and video on demand are clear examples of services that consumers are telling us they want, news and information, enhanced communications services. And for example, you could think of, once we get to this point and we have a network in the home, and devices and PCs are connected, with smarts at the center, that people can start looking at new services to offer. For example, home monitoring, or home automation kinds of services, things that really couldn't take off in the environment we have today, even home security would be a service that could just be offered through this environment.

To illustrate some of what we're going to do there, I would like to switch over to our Microsoft Home and talk to the manager of the Microsoft Home, Jonathan Clark. And Jonathan is going to show us a little bit of what we have done in the Microsoft Home as examples, and kind of a proving ground for some of the experiences that we're working on to bring together device control, home networking, and a variety of services delivered through this environment. So, here we have Jonathan Clark in our Microsoft Home.

And, Jonathan, take it away, I assume you're going to be showing us some super exciting stuff.

JONATHAN CLARK: Thanks, Mike.

So, here we've got the Microsoft Home, and I thought maybe I'd watch some videos here. So I'm going to go up and bring up our video list on the screen. And as you can see we have a list of videos here, and we've got them kind of all aggregated together from all our different devices on our network. So we've got both satellite movies that are being broadcast now. We've got some over-the-air broadcast movies. Down here I've got Apollo 13, which happens to be one of my favorite DVDs. You can see our list is actually aggregating all the different sources here at home.

Let me go take a look at this movie here. I can click on Apollo 13, and it will automatically go off and load that video for us all automatically. Now, the interesting thing about this is, you can see all I had to do was choose something from the list. But also you may notice that I only have to use one remote control, I didn't have to pick up six or seven different remotes to make my receiver come on and everything else. Automatically this movie will just come up for me, and all I have to do is just use the single remote.

So, again, all I have to do is sit back, watch the movie that comes up, and I have full control over the whole system. If I wanted to pause it, I can just aim the remote at the screen and instantly pause it.

If we bring up our guides again and show you some of the other features that we have here in the Home. So far we've just looked at the video list, but we can also do the exact same kind of aggregation with our music lists, with both our CD content, digital music that we've ripped and put on our network, as well as our satellite music channels, et cetera. As we go up to the photo section here, you can see we also can get slide shows of different photos from our recent trips.

These might be digital pictures we actually took with a digital camera, or they might even be just 35 millimeter film we got delivered on CD-ROM.

So, you can see once we have the smarts behind this kind of system, and a network of devices in the home that we can leverage, we can also get some other kind of interesting things. So, here I've brought up an overall plan view for the house, we can tell where there are people moving around, where the lights and the media are playing, and all that's possible because we have the smarts behind the system, and the home network that really supports this ecosystem of devices.

MIKE TOUTONGHI: Great. Exciting stuff, Jonathan, thanks.

JONATHAN CLARK: Thanks, Mike.

MIKE TOUTONGHI: So, again, this is very much a vision piece, and what we're looking at doing over time. Some of these technologies we're going to be able to rollout over the next couple years, and then other things that Jonathan showed you and that we've seen so far are going to be longer term efforts working with industry. For example, you know, it's probably going to take a little while before we have censors installed in homes that will really be able to tell you exactly where you are in a room and what room you're in and that kind of thing.

But even having a network in place, for those homes that, in fact, can have that as early adopters, those are the kind of things that once we're able to deliver the entertainment, communications, and control, along with a home network, will be made possible for the average consumer.

So, what are the challenges that we've got as an industry, that we have as a company and that we have as a division that we have to solve to bring some of this together? Clearly, bridging the world of consumer electronics and the PC is a challenge that we're absolutely focused on, engaged on, and working to solve today in eHome. Digital rights management is another very important aspect of really making the entertainment vision come true. You know, rights holders and service providers and content owners are going to be interested in playing in this world only to the extent that they're right, and their content is securely protected by digital rights management. At the same time, you know, we have that goal going back to thinking of the consumer as the primary target of offering value for this. We have that goal of simplifying the experience. And so, at the same time as we protect rights owners' content, we also want to make sure that a consumer can use the media that they're interested in simply, and have the security and protection of that content just happen automatically for them.

It's also very important to solve other kind of issues. Once you have a home network in place, if you really want to use that home network for media or other bandwidth intensive things that might put more demands on that network than just shuttling around data. It's very important to think of managing bandwidth in the home. So we have a lot of work to do to solve some of these problems. And we're going to solve these problems in steps. We're committed to working on these areas, we're committed to solving these problems.

Communications has some similar problems, similar to managing bandwidth. There are issues of qualities of service and that, of course, in communications you have other somewhat unique challenges that have to do with latency and that type of thing, especially when you start talking about voice over IP, video communications, but nevertheless there's a similar kind of problem to solve from a technical perspective, and it also requires participation of a number of companies working together, and partners working together to solve this problem.

In communications, it's also interesting to consider social models. We talk about making this simple for consumers. You know, in the Microsoft Home and prototyping team, they are heavily engaged in really gearing out what kinds of social models work for consumers, and in a home environment, where you have a family actually interested in using different devices for communications, if the phone rings today, the phone rings across the home. It rings for everyone in the home, and while you might have caller ID to see who is calling, it's not until you actually pick it up that you know who it's for.

Today, you know, if you think of communications on a PC, when you get an instant message, it's targeted towards you. You have to be logged in, you have to be on that PC. Thinking of bringing these things together so that in a home environment, you know, some kind of notification that could apply to anyone in the home, or that might be able to follow you around, there are some significant challenges there relative to kind of socially how people want to experience communications.

Similarly, just the idea of instant messaging, just the instant messaging use that people are starting to experience today is bringing up interesting challenges. For example, this is my PC, and in the middle of this discussion, would I want to have a little pop-up, someone instant messaging me saying, hey, I'd like to talk to you about something? Well, probably not. And there are interesting social challenges in figuring out when people would want to be interrupted, would they want to take a video call now, would they want to -- what level of interruption is this, is it an emergency, because if it was an emergency, maybe that would actually be acceptable.

It's also very important to protect privacy as part of this, in communications, in things that people are interested in. Across the board, people want to understand that they have some level of control over their own personal information. And while it's kind of in vogue, and it's nice to say that we've lost our privacy today because of the Internet, we don't believe that we actually have to give up, or that consumers have to give up all of their rights to privacy just to participate in this, and we think that by working together as an industry we can, in fact, deliver these experiences and still maintain as much privacy as possible for consumers.

And then back to the message of convenience, control and simplicity. It's very important to understand what experiences consumers want, not what devices they want to use, even though that's another aspect, but that follows. What is it that they want to do? They want to watch a video, they want to listen to music, they want to talk to people they care about. And then understand how we can deliver those experiences to consumers in the simplest, most convenient, most intuitive possible way to deliver the complete experience.

So what do we bring to the table? What is Microsoft's value add? We have a significant investment in our consumer efforts at Microsoft. We've got a breadth of investments across Ultimate TV, and Microsoft TV, Xbox, MSN, the Windows Media investments that we're making, investments in consumer technologies for Windows XP, of which eHome contributes a significant amount of effort and investment. In Microsoft research we have people working on these kinds of problems, especially in conjunction with the Microsoft Home and prototyping team to really understand what it is we can do with technology to make consumer's lives better. At the same time we have a lot of depth to the technology that we're developing in these areas. We have a digital rights management effort, which is comprehensive, covering many, many different types of media, and is designed to be distributed across a variety of devices, and a variety of services. The Universal Plug and Play initiative is an effort focused in bringing together smart devices, to help them connect and communicate with the world of PCs.

It's clear that we're working on -- that we have to work on extending that to also very much include existing devices, that's what consumers are telling us. The .NET developer platform and tools is a way of providing developers with a distributed platform to target that spans all of the devices and services that we can bring together to create these experiences and deliver them to consumers. Digital media development platform, advanced communications technologies, whether that's wireless networking, 1394 support, enhanced in Windows XP, and continually enhanced as we work on that, real time work, IPV6. The message here is we have a depth of technologies that we're focused on delivering to consumers in order to make these experiences better for them. And critical to success here is strong industry partnership.

Probably as much as any other company in the industry, Microsoft has significant deep partnerships with companies across device manufacturers, service developers, software developers, ISVs, IHVs, and these strong industry partners are what is going to help us be successful in this space. And so we believe that as a company we're bringing a great deal of value to this area, and we're very focused on solving problems in this space. And working very, very hard over the next couple of years, and the next two to five, ten years, to deliver products to consumers that will enhance their lives in their home, and throughout their environment.

So just to recap, consumer trends, the PC is now being increasingly used as an activity center, not just a productivity center. Digital media consumption is on the rise, and we see that as a message that consumers want more of that, as well as a significant opportunity. Again, lots and lots of digital devices offering different kinds of isolated experiences. We need to work together to bring these experiences together for consumers and deliver what they want. Consumers are telling us they want entertainment, communications, and convenience, they want it simpler. And the eHome vision works to bring this together in a way that will allow us to focus on delivering the right technologies and the right products to consumers. And we see Windows XP as, again, a great step towards doing that. We still have a lot more work to do as an industry.

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