Silicon Valley Speaker Series: Consumer Road Show 2003

KEN DIPIETRO: Good afternoon, everybody. I hope you enjoyed your luncheon, have enjoyed your afternoon here at the December Valley speaking conference hosted by Microsoft.

My name is Ken DiPietro and I run Human Resources for Microsoft out of Redmond, and I was in the vicinity for a couple of days and was recruited to come and introduce your next speaker and to participate a little bit with you in the speaking series. So it is a pleasure to be here with you, although quite episodic.

Today, John O'Rourke is our Senior Director of our Consumer Strategy, and he's going to come and share with you the company's vision for technology in the marketplace and how we, Microsoft, address the needs of mainstream consumers, consumers that are some of you as well as who you represent in the marketplace.

John's responsible for shaping Microsoft's marketing and business strategies in the consumer marketplace as well as defining our consumer strategies, coordinating and integrating those initiatives across our whole portfolio of what we would call consumer product groups within the company.

Prior to joining Microsoft in 1992, John was a financial analyst, saw that that wasn't really something that spoke to his heart, and quickly moved into product management with Microsoft's publisher group. Then he's got an unbelievable collection of experiences here. He took over the responsibility for a lot of different marketing efforts for our full family of productivity applications, including Office, Word, Excel, Access, PowerPoint, Outlook, Publisher, FrontPage and Works. Then John got bored and moved into the gaming arena as the Director of Marketing for the Learning and Entertainment Productivity division of Microsoft, as it was called, which developed and marketed all of our software for home productivity, education, reference and game areas.

Then, most recently, he was appointed director of Worldwide Marketing for Xbox and helped introduce Xbox into the worldwide global marketplace and established it as the number two ranked videogame system in North America after one year in the market.

He holds a Bachelor of Arts degree in business and an MBA from the University of Washington, and it is with pleasure that I introduce John to you today as your speaker and host for the next set of activities. (Applause.)

JOHN O'ROURKE: Thanks, Ken. Thank you very much.

Good afternoon, everyone. I want to start off by just a little audience participation to make sure that you're not falling asleep after the wonderful lunches that you had. I'd like to have everybody in this audience raise their hand if you are a consumer. I'm glad to see that there weren't any hands that weren't raised, because that would be a very interesting person that you would be.

The talk is really to talk about Microsoft's consumer strategy. And I've titled this really getting more out of your digital life, because when I started at Microsoft ten years ago, technology for consumers was really mostly about productivity. I mean, there was a PC in one room in the house, and it really was, you know, in the office and it was for work brought home, and maybe for some enthusiasts who were doing some fun consumer type things. But it's come so far in that time and that's really what I want to spend time talking with you about.

From a strategy perspective, what Microsoft does in the consumer area starts with the individual, understanding what it is the needs are of the Gen X consumer, the Gen Y consumer, the Baby Boomer, the parents, the student, understanding what it is that consumers are doing and what it is they want to do in their everyday lives.

And all of you in the audience today, many of you probably, actually are both consumers and as well, you have the hat of being a professional. You have both a personal and a professional life. And sometimes they're very, very discrete, and other times they are totally inter-wrapped, where one minute you're doing something related to work and the next minute you're doing something that has more to do with your personal life.

And if you think about that, you've got your personal, your professional life and then there's everything in between that, and all of it is wrapped up, and that's really what you have to think about from a perspective of what do you need to deliver to consumers, how is it that you can enrich their lives through technology.

Now, what I wanted to start with is in thinking about the consumer and talking with them and reading about them, we've learned a lot about what's going on with the lifestyle of consumers, and there have been some big changes over the last ten years. If you look at, for instance, the census report and understand what people are doing with their time, there are some huge changes.

Everyone is commuting more. You probably experience this in the Bay area. The census report would show you that just in the last ten years, almost 14 percent more time is spent commuting. Now, some of that has to do with the fact that the roads are just more congested, but it also has to do with the fact that people are moving farther and farther away from the city centers, out into the suburbs, and commuting in and as well commuting from one suburb perhaps to another suburb as enterprises and organizations move from the cities to the suburbs.

And that commute time presents both an opportunity and a challenge, which is what is it that you're going to do in that time? You can certainly drive and just listen to the radio, but because your life is also getting more and more busy with less free time, you're going to want to take advantage of that time somehow. And that's an area where technology certain can help. It's an area where cellular technology and cell phones have been fantastic and they're great for communications, but it's not the only type of communication that you get. You also get text messages, which certainly when you're driving maybe it's not the safest thing to be text messaging others, but the ways that we can merge those together is a really exciting thing, and we'll speak to that in just a little bit.

A couple other things that are happening as you're traveling more, in traveling from city to city, visiting friends as the prices have gone up and gone down, people are really breaking down the barriers and not just staying put in one area anymore, and this provides again both an opportunity and a challenge. Certainly, you want to have some of the tools and some of the information with you no matter where you are, and you want to be able to move from place to place. And wouldn't it be fantastic if you could carry all that information with you? And I'll speak a little bit about, from a consumer perspective, how Microsoft really wants to break down that barrier.

And lastly, you've got less free time and you're somewhat living in the shrinking world, which somewhat relates to the fact that you're traveling a lot more. But the boundaries, the physical boundaries, are really being broken down, both literally in terms of when there are changes in the society, but as well, just the ability to get to know and to work with and have conversations and build relationships with people that aren't in your neighborhood or don't go to your school have really changed, and really in many ways been driven by what's happened with technology.

I mean, if you think about it, I don't know if you know teenagers, but instant messaging, people are certainly having conversations with people that they're meeting online and they may be a thousand, five thousand miles away, having an interesting conversation that's not just text now, it's become sharing information, perhaps sharing pictures, creating blogs together; it's just unbelievable how it's changed.

But there are a lot of things that still say the same, particularly for the consumer. Family and friends matter. If you look at the census report, what you'll see is that spending time with friends and family was the number three activity, what people did with their spare time. And it remains the number three activity - hasn't changed - actually, a slightly larger percentage of the time is spent with friends and family. Now, you could think that maybe this has to do with 9/11 and the chance just to sort of really hold sacred your relationships with your friends and realize that that is a very, very important part of your life and defining who you are and what it is that you care about.

Related to that is also the fact that play is very important. Again, if you look at the census report, you'll find that of the activities in the top ten, four of them have to do with recreation and playing, whether that is staying healthy or going off to a ballgame or listening to a concert. Having the chance to blow off some steam and to enjoy life is very, very important and it absolutely makes it into the top ten of what people are doing.

There still is lots to do, which remains the same as the how you do it that's changed over time.

And lastly, self expression; I mean, you can even go back over time, and the ability to let people know who you are and what it is that you're about can be as simple as the clothes that you wear, or perhaps in certain generations it has to do with the tattoos or the piercings that you have. But you're also seeing that the way that you express yourself is also going digital and you'll see it in the way that people have perhaps phone covers or customized rings, or in instant messaging it is the persona that they take online. The ability to express who you are is vital in all societies, and it's gone from just being a matter of what you wear but what you can do and how you show it through your digital technology.

Now, there's also a lot of trends from a digital perspective, and you in the industry are probably aware of many of these, but I just wanted to cover them off really quickly.

One of them is just that there's more and more capability that's coming to us in the forms of processing power and storage. I mean, Moore's Law continues to be upheld and the processing power grows and grows and so does the storage, and this provides for us an incredible foundation and opportunity to build upon.

One of the trends that's really being capitalized on it is the fact that there is more and more digital media being created and consumed by consuming audiences. And when you think about this, digital cameras have grown over 50 percent every year for the last five years. And why? Well, they're incredible simple to use, you can just point and click, take a great picture.

I mean, I went to Italy about two months ago and I brought along my digital camera and it had a CF card in it and I took 300 pictures. And what was fantastic about that is I'd go, take a few pictures, at the end of the day my girlfriend and I would have a chance to look through and really relive the memories from that day instantly, and it was incredibly gratifying. But it didn't just stop there, because I had all of that media that I could then share with my friends and my family, so that they could also enjoy that experience.

More and more connectivity. Broadband continues to grow, and high bandwidth provides incredible opportunities for the industry to build upon. As well, wireless and hotspots, as they begin to grow up, begin to expand and move about and become more available, also presents an incredible opportunity.

For instance, just a couple days ago when we were coming down for a meeting, we had about an hour and a half between the time we were at that point and when the meeting was, so we stopped into a local Starbucks, picked up double lattes, got that caffeine going. But at the same time, I fired up my laptop, recognized the hotspot, was able to get on in a matter of minutes so that I could download some more files, talk to people at work and as well have a nice instant message conversation with my girlfriend at the office. And it was great, It was all enabled by this greater connectivity.

And the last thing is that there are more and more connected devices. And these are smart devices, many of them with processors in them, many of them with storage capabilities, and this is providing an incredible opportunity as well and a challenge.

And the way we like to think about it is the lifestyle trends and the digital trends are really creating this unbelievable digital lifestyle opportunity, and Microsoft as well as the whole technology industry really has an unbelievable opportunity to take advantage of it. I mean, the potential is absolutely amazing.

Now, with all of this opportunity, when you talk to consumers there still is some room for improvement, and I'd sort of like to go through what I think of as sort of the top five digital wish lists, the digital lifestyle wish list.

Now, many of you probably have cell phones and some of you that have newer ones maybe perhaps this isn't as much of a big wish, but just as early as three years ago I had a cell phone with all of my contacts in it. The challenge was every time I added a contact in my phone I'd have to remember to also go back and add that into my contact at work. Or, if a number changed, I have to remember, OK, now which one has the most recent one, is it my Outlook contacts or my phone that has the right one? Well, wouldn't it be great if I had the same contacts and the same calendar on my phone as I actually do on my PC? And now you have that capability with devices like the Windows powered Smartphone.

The other thing that I just love is my music collection. Now, I have about 1,200 CDs that I've just sort of got through presents and purchased here and there, and I just absolutely love my collection and I've actually been digitizing it. I love all of that music, but I would love to access to it when I'm at the gym, when I'm in the car. When I go on the road it sure would be fantastic to have all of that information with me when I'm visiting my brother and sister and be able to listen to my music and my tastes.

Digital cameras I spoke to a little bit, but this is certainly an area where it's absolutely taking off, and the ability to take photos is something that people are diving in with both feet. But wouldn't it be fantastic if you could not only take these photos, but it was easier to share them with your friends and your family? Wouldn't it be fantastic if the technology actually made it easier for you to share it with people, whether they had a PC or whether they had a phone or other devices, if you had the opportunity to just break down those barriers between the devices and it was the software that was intelligent in helping you do that?

Broadband: You've got to love it, but wouldn't it be fantastic if it could be used anywhere in the house, if you could access that power and that speed anywhere in your house? Well, luckily thanks to Wi-Fi, literally millions of people are beginning to enjoy that but it certainly has a lot more opportunity for growth there to make it easier, to make it secure, and this is again another area for advancement.

Television: How many here watch television? Wow, some of you that don't. Wow, you are incredible, that is great. Your parents must be very proud. I love television, but the thing is my lifestyle has gotten so busy that my favorite shows aren't always available to me when I want them. Well, wouldn't it be fantastic if I was able to watch the television shows that I want when it was convenient and when it was most appropriate for me. For instance, I'm a huge West Wing fan. I'm also a guitar player, and that's the only time that I could get guitar lessons from this guy that teaches me guitar lessons, so I'm in this challenge of, 'Gee, do I enrich myself by learning more guitar or do I actually get a chance to watch my favorite show?' Well, now that I have, actually, a Media Center PC, I'll get my Starbucks coffee in the morning and I watch West Wing in the mornings with my girlfriend, and it's great.

The last thing, and some of you may be aware of this, or run into this challenge, which is at work you probably have your calendars, and you have it when you're next meeting is with your colleague or with another organization. But, as I mentioned, the lines between your personal and your professional life certainly sometimes get broken down, and you'll have your dentist on there or maybe a haircut or maybe that you have something else personal that's on your calendar.

Well, my sister has this same thing. Her husband is working, and she's a stay-at-home mom, and he has that information but they have three kids and they have lots of soccer games. They have lots of recitals, and she keeps that information and tracks it on another calendar program.

Well, wouldn't it be fantastic if her husband and my sister Peg could actually look at that same information so that he could know, 'Whoa, I can't actually go out to dinner with that client that night because it's my daughter Francesca's piano recital and I've really got to go see that.' And I know that and I don't have to think about calling Peg and thinking it all up. The technology does it for me.

But I think the biggest wish of all consumers and what we hear is that I just wish all of this stuff worked the way my real world works. I wish that I didn't have to work the way the technology worked, I wish that it worked the way that I want it to, and I wish all of this stuff worked better together.

Well, at Microsoft we really have a vision that this is the time for the entire industry to really capitalize on that wish and deliver against it, and the way that we think that will all come about is a sort of vision we call seamless computing. And for the consumer, it really is about realizing the potential of that digital lifestyle that you have.

And the way it's all going to happen is really three areas. The first of them is creating connected systems which break down those barriers. Now, let me explain what I mean by that. Let's take music, for example. If you have a lot of music that you love on your PC, you now have the capability where you can put that onto another device and take that with you and listen to it. And that's great, and that's a capability that's available today. But in the future, wouldn't it be fantastic if you had all of that music - all of your favorite music - in one particular area of the house, but no matter where you were, you could listen to it? So you're off in the garage and with a click of a button you're accessing all of that entire library of music and listening to it, perhaps in the garage, or if you're having a dinner party and you want to listen to that favorite playlist you just created of Bach's best guitar concertos, wouldn't it be great if you had that access as well?

Well, we really see that the ability to do that is not that far away, and that there's the opportunity for Microsoft and the industry, and through great devices and software to make that happen.

Lastly, if you think about devices like smart watches, this is a watch that we actually announced last year at the Consumer Electronics Show. It's built on Smart Personal Objects Technology. If you think about watches, and many of you probably have them and use them, and it tells you what time it is. But the fact that it's telling you time, there's also really rich information that you may care about that is very related to time, such as the fact that I have a flight leaving here at 3:00. Well, as I'm talking here, there's going to be the capability in the future for me to get an alert sent to my watch that says, 'Ah, your Alaska Airlines flight has been moved back 40 minutes, you now have extra time,' in which case I can slow down this presentation and take a little bit bigger, deeper breath and enjoy it a little bit more. So that is an incredibly exciting opportunity and really speaks to what connected systems could be about.

The second is about information driven software. Now, what exactly do I mean by information driven software? Well, there are many, many different types of information. A picture is different than a song is different than a contact is different than a Word document. They're all different, and they all have different uses and the way that you use them in your lives is going to change.

And if you think about - let's take photos, for example. Right now, what you can get with Windows XP is some of this intelligence. How many of you use Windows XP? How many of you use the ability for the XP photos? For instance, I just got back from Thanksgiving where I'd taken a whole bunch more digital photos. It was me and four of my brothers and sisters. I took about 30 different photos and I wanted to share them with them, so I took the best 20 and I grabbed them and I right-click and I said Send Mail and what was really cool was XP said do you want me to make these smaller? And I was like, yeah, that would probably be good because I have a 4 mega pixel camera and they were each about 2.1 megabytes, so rather large files. And rather than just clog everybody's inboxes I said yes.

And what was great is it took those 2.1 megabyte files and shrunk each down to about 40k. I was able to send them all off to my friends and family, they were able to see the pictures, remember real time what that experience was like, and that's the intelligence of the software recognizing, hey, this isn't just a file but this is actually a picture so I'm going to do something smart as relates to that.

If you think about smartphones, this is one of my favorites, you can get your e-mail and your contacts and your address book on here. But if my friend Erin sends me a message and says 'Look, we need to talk about the presentation, call me, I'm at my cell phone, my cell number is,' so and so and so and so, and I don't have that in my contact, when I open up the e-mail the number that will be there and the smart phone recognizes, hey, that is actually a phone number so rather than me having to write it down and then punch it in, I just go down and click on it and it will automatically dial it for me, because it recognizes that piece of information is a phone number, so treat it as a phone number and give me all the capabilities I want because it's a phone number.

Another area where this is really important if you think about spam. I mean, that is a type of information, and what's really valuable there is who is it coming from. Is it somebody that you know, is it somebody that's on your list? If it's not, wouldn't you like to be able to block out those filters? And spam technology is getting smarter and smarter, and the software is really what's enabling it so that you'll only ever get the information that you want to see and from people that you know about, or perhaps it can be smarter and recognize, oh, it's coming from Erin, and Erin has been established actually as a friend of Pam, so when I get mail from Pam although she may not be already in my list, because she's a friend of Erin and I have that relationship established somewhere else it's smart enough to recognize that and present the mail to me from Pam.

When you think about this, what's incredibly cool is we'll show you Media Center in the future. We'll actually show you the demo in about five minutes. Well, imagine that you're sitting in your living room, you're watching your favorite show and you're watching it on your Media Center Edition PC, which is getting e-mail and getting information into it. And right now, you've got that turned off because you're watching your favorite show, West Wing , but you suddenly get an urgent message from your mother that says, 'Need to get in touch with you quickly; it's about Dad.' Well, if you had set that up, for instance, as a rule for information coming from my mother, I want to be broken out wherever that is, and it pauses the live TV, raises a little alert and says you have an urgent message from your mother, and you could go off and read it or you could call her or do whatever you want, or you could continue watching the West Wing show, you have that option. But that is where the power of the technology comes; it's the intelligence that's happening in the background and that's really exciting in the future.

The last thing is rich experiences, rich interfaces, new experiences. How many of you just would love to have everything you do be based on a command prompt? I mean, how would you like your phone to be based on a command prompt? There may be certainly great uses for it, but we're graphical people, we're visual people, and the GUI and the advancements that it's made are vital.

But if you think about the horsepower that is available to us today - I mean, think about the PC and some of the things you can do with games. I mean, there are games out there that are absolutely blurring the lines between reality and what is happening on your PC. The lines have just gone away. Imagine harnessing all that power and bringing it so that the experiences on your phone or the experiences on your PC could be so much more rich? Rather than going through a file structure to find your favorite photos, you're actually virtually flipping through a photo album. And it's not just any old photo album of all your pictures, but it's information aware photos. You've gone through and said find all the pictures of Erin and Pam together, and then an intelligent search engine that has facial recognition capabilities has gone through your photos and actually searched them for the images that look like it has Pam or Erin in them and brought them up to the front of the photo album. Or perhaps it's date driven or event driven: all the weddings I wanted to look at.

And that is what the power of software and these devices and the processing power can really bring to life for the consumers, and that's why it's such an incredibly exciting time.

If you think about this, I've mentioned this a few times, but Microsoft strongly believes that software is the magic ingredient to connecting these systems, to really making the information be the driver of what the experience is like, and really delivering the rich interfaces and the new experiences that people are going to want.

It's really going to be the thing that, if you think about it, it makes technology work on your behalf and under your control and really it works the way the real world works. That is the opportunity we have in front of us. That's really the realization of the digital decade, and I think we're well-suited to take advantage of that.

Now, in looking at the major digital lifestyle experiences you have, Microsoft really sort of thinks about all the things that you do, and has focused on three main areas where we see that software and devices and technology can really enrich your digital lifestyle.

And the first one is about helping you get more done. And if you think about this, this is where PCs really started, in the home, helping you do some of sort of the productivity side of the things that happen at home, whether that's writing letters and moving us from a typewriter to a PC, or doing homework or managing your money. Certainly, Quicken and Microsoft Money have just really changed the way that people manage their finances and gone from just more than an electronic checkbook, but integrating your stocks, integrating your savings and your whole approach to financial management. And education, this has always been a huge reason why families have adopted technology: to help with the education of their children and their families.

From that, you really evolve to another key area in the consumer area and that was about staying in touch with your friends and family. Now, it started off really either through writing letters or through e-mail, but it's evolved to be so much more than simply that type of communication.

Cellular has absolutely taken off certainly, but the ability to keep in touch with people and families has gone from just simple one-to-one communications, and now you have instant messaging where you can have real time communication and you can have it more than with just one person, but you can have it with multiple people.

And with products like MSN Messenger, I can have my favorite picture up there so it represents whether I'm in a good mood or a bad mood. I can change my particular on-screen persona so that if I'm really in need of caffeine I can change my name to "John in need of caffeine," and whoever is on the other line knows what the mood is that I'm in and that can be reflected in our conversation. And you can hook them up to Web cameras so that we can actually be looking at each other while we're having those conversations.

And lastly, it's think about communities. And many of you are probably parts of multiple communities, whether it's your family, maybe it's your school chums, maybe it's your soccer team, maybe it's people that you go golfing with. You have communities and technology can really help you set those up.

The last area, my favorite, is all about having more fun. With all of that more traveling that you're doing and your busy lifestyle and keeping track of the kids, what it is that you need to do at work, we all want to be able to blow off some steam and we all want to be able to have fun. It is again something that appears in the top of what people are doing with their spare time.

And if you think about this, it's really changed from how it used to be even just five years ago. Games have always been incredibly popular, but the type of experience you can have from a games perspective is fundamentally changed. And we'll actually be showing you a game from Xbox called "Project Gotham" that is live-enabled and it shows you how that game experience can evolve.

Television and movies: huge. It's the number one thing people do in their spare time, but the way that you experience it is evolving as people's lifestyles change, and we'll talk about that in the new version of Media Center Edition.

Your memories. Your memories are not just static photos anymore, but now you can do things like combine music and voice and images into a collage and actually send a multimedia experience to your friends and family. With something called Video CD and Photo Story, I can take all of those photos from Thanksgiving, combine it with a little bit of music and say, 'Hey, this is when the wine got flowing, this is when the turkey came out a little bit overdone, this is when we went through charades and I had that incredible time trying to get the song In-A-Gadda-Da-Vida right,' and I can share that experience and send it out on a CD that my sister, who lives in Connecticut unfortunately couldn't join us, and she can really enjoy that overall experience.

And lastly, music. It's just something that is absolutely in everybody's hearts and minds. It defines not only who you are, but you use it to create mood. Sometimes you'll listen to perhaps soft classical music. If you need some energy at the gym, maybe you'll get the cranking punk rock, whatever it's going to take. Obviously it's very, very personalized but it's something that's part of everybody's lives.

Now, our approach to delivering these three areas of the digital lifestyle are built upon the great devices that so many of our partners have worked together with us to deliver to the market, and really at the heart of that is the Windows powered PC.

Now, what's great is the PC is no longer just the beige box anymore; there are so many choices that you have. You can get a Tablet PC. You'll get the chance to see in the product fair out there, the Tablet PCs, and you'll be able to see what you can actually do with it that's incredible. And we'll talk about particularly for consumers what a Tablet PC might do for you. And there's the Media Center PC, which you'll see a demonstration of shortly, but you also have a whole bunch of other connected devices, whether that's your videogame system, your Xbox, which now has the capability to take your photos and music from your PC and bring it to the Xbox through a program called Xbox Music Mixer. Or whether it's your SPOT watch, where you can go onto the Web and choose exactly what information you want sent to your watch, whether it's your sports scores or your stock quotes or the weather. And you've got your devices such as your smartphone.

On top of those devices, what really helps bring home the experiences is really the software and services that are built on top of those. And in the consumer area, Microsoft has actually been developing great products for over 20 years. I mean, whether it was starting with the very first version of Flight Simulator, which certainly was helping people have a lot of fun back in those days.

And if you think about flight sims, it's an incredibly - very, very well-received game. People just love it. They've always wanted that chance to see what it's like to fly, but perhaps they don't have the opportunity or they're a little bit of afraid of heights, it can be delivered to them. And it's gone from being something which was certainly at that point and definitely a rough simulation, to where you could almost say it is virtual reality on the PC today. It's unbelievable.

You've got Office, which you may think about as, 'Oh, Office, that's something I definitely use within the workplace,' but it's absolutely used very often among consumers in the home. Whether that is for doing work brought home or whether you're using the productivity capabilities such as the Outlook client for your communications, or whether it's sending letters or tracking your finances, Office is certainly a very, very powerful tool.

In the area of helping you get more done, there are products like Encarta, which are great for your kids and helping them learn, or Money, which helps you manage your personal finances.

Now, on the other end of the spectrum, in the areas of helping you have more fun, you've got products like the Digital Image Suite, which is going to help you take those 300 photos that you captured on your trip to Italy and not only get rid of the red-eye and perhaps remove that annoying person that you didn't want in the photo, but you can do incredible things in helping your archive and organize all of those photos.

I mean, I captured 300 photos in just two weeks. Now, over the year I'm probably going to capture over a thousand photos. The ability to find the photos that have people in them and look at them the way that I want is absolutely enhanced through a product called Digital Image Suite.

And the last thing is MSN, and MSN is really a core product that is being designed really to take advantage of the capabilities of what people want to do with their PC. As a matter of fact, at CES in January we'll be announcing that there will be a new version of MSN, MSN Premium, that is really going to be delivering on all the experiences that people want in that communication program, taking advantage of broadband capabilities, really being optimized for the broadband connection, the fact that they're on more than people that are using dial-up, they're sending more information, they're browsing more Web pages and show exactly what it can be to break down some of those barriers between communications and memories and games.

So with that, what I'd like to actually do now is move from the PowerPoint part of the presentation to the really fun part, which is bringing up some product managers to show you some of the amazing products that we have today in the marketplace for delivering those digital lifestyle experiences.

I'd first like to bring up Tom Laemmel. He's going to demonstrate for you Windows XP Media Center Edition 2004.

TOM LAEMMEL: Thank you.

JOHN O'ROURKE: Thanks, Tom.

TOM LAEMMEL: Okay, so why don't we look at some of that seamless computing that John was talking about. I think I have to press a button here, huh? This may look familiar to you. It looks like the standard Windows XP desktop. I'm actually running Media Center 2004 off of this Toshiba laptop machine. Now it comes also on the HP laptops and over 40 OEMs actually are delivering Media Center machines, including Dell and Sony.

A press of the green button on the remote control, and I launch into the Media Center user interface.

Now, this is for some people a new way of using your computer. For a long time, computers were sort of a one-on-one experience, you and the computer. Over the past few years, people have been certainly archiving photos from their digital cameras, they've been listening to music even on their PCs, but now that you've got a remote control and an easy way to go through doing some things like you could do before. You could do slideshows on a regular PC, but now this makes it a lot easier to have friends and family gather around. And this is, for instance, my daughter - not in Holland - but this is just upstate in Washington State, about an hour or two north of the campus.

If I want to go through faster I can click through. And the thing is, this is something that my mother would be able to do, because she's quite familiar with the remote control and using a VCR. That's our family pet. (Laughter.) It's sort of exotic. And when you're traveling, so here we are, actually, a few years ago in Switzerland.

What happens here: I go back, hit the green button. I'll go back, a total immersion of the digital media experience by giving you easy access to all this, maybe your own content, maybe borrowed content, maybe content that's out there on the Internet, and I'll show you in a second.

It's now a social thing, not a one-on-one thing. And it's no longer a distance, right, it's not longer you don't have that distance from your digital media.

One of the things that's new in Media Center 2004 is Online Spotlight. Once I go here, I'm actually no longer on my PC anymore. I can listen to music, but if I take you back here to My Music. The great thing about Media Center edition - John was talking about his, what did he say, 1,200 CDs that you have - so maybe if you're like most people, you've got 50 or 500 CDs. Here, I've got 47 on this one. Media Center gives you that nice graphical way of getting to access all your music. I can play it here, shuffle through my music.

I've got -- I'm proud of my 500 CDs. Online Spotlight, though, gives me access to some of the like, for instance, Napster. It gives me access to some of the online services. And Napster has over 500,000 CDs that I can access.

And the difference here, and the important thing is, that this is the new Napster, by the way, the relaunched Napster. They've gone the extra mile and done a Media Center version, which makes it easy to use, once again, with the remote control. And I can go through, for instance, if I want to find some music here, one of my favorite things to go search for here and there. Here, they have this interface for going around, and I've found a band that's really easy to search for. Anyone can find a band with a shorter name, let me know.

So now it's going to go through and search their 500,000-plus library of music, and it will bring it to me, I can then pick which ones I want to play. And now, when I'm playing the music here, I could either download it and I can do that also on the remote control or I can stream it straight off of the site. And when I go to play it, the playing is -- let's see if I want to -- yeah, we could have done -- now it's going to show me, let's say if I want to play from this album here, look at all the different tracks that they have, and then -- all right, so they have some -- just we probably don't have time to listen to all of them, so we'll just listen to that one.

Now that I go through, it will actually go down and stream it. If I loaded it locally, it would show up under My Music and I can play it there.

Now, here's the neat thing. When I go back it plays the same way, you know, here "Mysterious Ways" is what's playing right now, as if I was doing it locally. If I was listening to my own music locally, it would also show up down there locally.

Now it doesn't much matter where it comes from. I'm either renting the music or I have the music. And if you extend that to things like videos, so now if you want to get the Bruce Almighty video, US$3.99, you rent it, it's good to watch anytime within a month. Once you start watching it, you can watch as many times as you want within 24 hours, available Movie Link or Cinema Now. You no longer have to drive down to Blockbuster or Hollywood Video if you don't want to. And that line is blurred there.

Or, if you've got a DVD, you can play a DVD. Maybe this is something you have locally in your own collection, all accessible to all of your digital media with Media Center Edition.

Now, the next logical step is you would expect this -- so who recognizes this oldie but goody? Yeah, very good. Yeah, the robot is a dead giveaway.

The next logical step is that you would want this. This is a device that begs to be connected, right? It's connected now. We've got connection to the Internet. And being connected to the Internet means that when I go to TV, I can go and get my guide data. So this will actually keep on as long as I don't go to the next experience, I'll see what's going on with that.

So now I get all this information through the guide, right? That's because the Internet is constantly repopulating that, feeding that so I can pick the shows I want to record.

So I'll also need a TV connection too if I want to actually start watching something like NFL's Greatest , which is what's playing right now. Now I'm switching, now I'm going out again, right, I'm no longer local and this is to be expected. You can also obviously pause live TV and do all that sort of stuff with the Media Center machine.

You would want this to be connected to the TV, you'd want to be connected to the Internet, you'd want to be connected to other devices. John was talking about portable devices. Wouldn't it be nice if you could then take this stuff that you've archived, depending on the digital rights, whether it's stuff that you rented, whether it's stuff that you purchased or the stuff that you already have that's yours, like your photos or your videos, your home movies, and move it to another device. You'd want this to be able to be projected onto other devices and displays in your home, that connection to your home network or connection to other devices. And we certainly see the Media Center as being able to fulfill that role, maybe a glimpse into the future of stuff that we're working on and things that people are doing now already like connecting up to their existing home network. As wireless becomes more prevalent, that's certainly the direction that we're going in with the Media Center experience, a totally immersive experience, a blurring of the lines between what's yours and what's out there and then a further blurring of the lines between what's local here and what's on other devices and on just other displays within your home.

And that's it. I think it's time for a game. (Applause.)

JOHN O'ROURKE: Thank you, Tom.

TOM LAEMMEL: Thank you.

JOHN O'ROURKE: So with that you can see that is not your typical PC. You certainly can't get that experience at a DOS prompt. You need the rich graphical experience.

And speaking of rich graphical experience, next I'd actually like to bring up Leslie to do an unbelievably awesome demo of Project Gotham Racing, so, Leslie, please take it away and switch over to the Xbox.

LESLIE MCBRIDE: Okay. So I'm Leslie McBride, and I'm a product manager with Xbox games marketing. And what I'm going to show you here is Project Gotham Racing II. This is the sequel to the best-selling racing game on the Xbox. And this is not only a racing game where you're rewarded for driving fast, but actually for how you drive fast.

So let's jump in. Can we dim the lights a little bit?

So, you win respect in this game with kudos, a special point system where you're rewarded for driving fast with speed and flair. With Project Gotham Racing II we have a revamped kudos system, an entirely new Xbox Live experience and the sweetest rides in the most famous cities around the world, so players can actually have the thrill of performing at the wheel of their dream cars.

So enough talk, let's race.

We have ten cities that you can race in across four different continents. So we're going to jump into Barcelona here for a street race. But before we do that, let's pick our ride. So the first thing you'll see here is that the cars are held in a garage, which gives you a real sense of ownership of your vehicles. There are over 100 cars, which range from classics like the Pontiac GTO to really high-performance vehicles like this Enzo Ferrari here, which is my personal favorite, so we'll go ahead and race with this car.

So what you'll notice about this game is we have amazing graphics. As we get going here, check out the way that the smoke comes up from the tires as we're burning out, the actual storefronts and the landmarks. And then as we round the corner here, check out the shadowing and the lights reflecting on the windshields. This is an entirely new graphics engine.

So as I'm racing here, you'll see I'm not only just trying to win, but up in the top corner you can see I'm trying to get some kudos, which I can get as I pass some of these other cars. They don't have to talk while they're driving.

So there are over 15 ways to get kudos and they range from overtaking other cars to picking a perfect race line through a turn or even bumping up onto two wheels as you race.

And then this game also has unprecedented Xbox Live support. So for the first time ever you can actually race seven other players in real time from around the world and that's never been done before. In addition to that, you can download and upload single player races for a single player Xbox Live experience.

So speaking of racing with style, what's style without some good music to go along with it? We have the actual radio stations and DJs from the cities that we're racing in.

So it's a whole new revamped kudos system, an unprecedented Xbox Live support and these awesome cars from all over the world where you can race. This is Project Gotham Racing II. Let's see if I can do a nice spinout here to finish on. (Applause.)

JOHN O'ROURKE: Thanks, Leslie.

I always have learned over the years with my time on Xbox is the best thing to do is to always end on an Xbox demo and never follow one, but however I do have just a couple last points that I wanted to say before we get a chance to take some Q & A, so if we can switch this over to the slides.

So I wanted to just summarize in talking about the digital lifestyle opportunity. And the first thing is I think from seeing just the products that are demonstrated here, and then talking through some of the capabilities, that when we take advantage of the processing power and the hard disk storage capabilities and the power of the software, that this is really not only an exciting time for consumers, but a really exciting time for the industry. This is a very exciting time for everyone, the partners that are here down in Silicon Valley and around the world who are helping deliver amazing experiences to the consumer, whether that's device or services or really working closely with us. It is very, very exciting.

And you see that there are a lot of exciting products that are available today. Please, I hope you get a chance to step next door and see in the product fair area some of the great products that we have. I believe there are eight stations for a chance for you to see not only Xbox games but the new Tablet PCs and many other great products from Microsoft and our partners.

I wanted to just sort of emphasize here that this is an unbelievably enormous potential for the industry and this can't be done without the help of our partners. It really can't be done without the industry working together to help taking the power that's in the devices as well as the power that's in the software to help connect those and deliver those experiences.

If we want to do this right for consumers, we have to really work together to make that happen. One of the realities of the consumer marketplace is there is no IT manager in the home. It needs to be something that your brother and your sister or your family can figure out and can make work and deliver, and that is really a challenge and an opportunity for everyone in this room and for the entire technology industry is delivering on that vision, making seamless computing come to life, help break down those barriers.

Let's make the things that we do be information driven so that it can actually be intelligent, and can streamline a lot of what our experiences are going to be. And let's do it in a way that is unbelievably rich with new experiences that are exciting and that are really eye-popping. I mean, you can just hear it yourselves when you were seeing the demonstration. When it's rich graphics it draws you in. When somebody crashes into the wall, it's exciting. And I think we can bring a lot of that excitement and that engagement to what the experiences are like through those capabilities.

And lastly, you know, obviously we believe that software is the key that's going to open up the door to all that unbelievable possibility. Really it's going to open up all of the opportunity and living the digital lifestyle that all of us want that really will revitalize the industry and provide a great ecosystem for the industry, our partners, and deliver great experiences for the consumer.

So I want to thank you very much for your time. I think we have some time to take some questions. Thank you very much. (Applause.)

I'd also like to bring up Aaron Woodman, who's going to help me answer these questions, because, as I mentioned, I did not get a notification on my watch saying that my flight is coming a little later, it is running on time, so we'll sort of divide and conquer as we go through these questions. Yes?

QUESTION: (Off mike). Is there a possibility to see the different views from like, let's say, inside the car?

JOHN O'ROURKE: Yes, actually with the push of a button you can come behind the car or above the car or you can sort of go look at what I call the airsick drive mode, which is behind the wheel, so there are lots of ways to go through that and you'll get a chance to see that actually in the booth next door.

QUESTION: All right, good, thanks.

QUESTION: I'd just like to understand a little bit more about the recent announcement on Wednesday where Microsoft's going to be opening its IP portfolio. How important is that for you for seeing your vision of working with the consumer electronics industry going forward?

JOHN O'ROURKE: Well, I think certainly opening up the IP portfolio gives us the opportunity to work together and to break down a lot of the barriers and really deliver on the seamless computing vision. And I think the goal there was really to strengthen the ecosystem and to enable it so that together Microsoft and our partners have the opportunity. The specifics of how that's going to be are really going to be through the bright minds that are both at our partners and in Microsoft in figuring out how together we can work to deliver those great experiences, and I think that is a huge opportunity for the consumer marketplace as well as the enterprise.

QUESTION: The Windows XP Media Edition of the demo, is that a standalone product or is it an add-on to a stock XP, and do you lose anything if you go to a media edition as opposed to a standard product?

JOHN O'ROURKE: The Media Center comes with the PC, so it is full-blown Windows XP Professional, and then it has the Windows XP Media Center Edition that is part of that and it comes only with PCs but it comes in many different styles and designs. So as Tom was mentioning, you can get it in a PC design or in a laptop such as the Toshiba here. As well, we have partners that are actually working on designs that you could expect to see sitting in your AV rack in your living room connected to your large plasma screen. We've seen designs that have them, for instance, hooked into a rack.

QUESTION: So you can't buy the media add-on, as you call it, over the counter?

JOHN O'ROURKE: Correct. You buy it with a PC because of the tuner cards, and in order to deliver a really great experience, making sure that all the capability that's necessary for that are built into the PC.

QUESTION: What do you see as being some of the important announcements or themes of CES this year, both from Microsoft and maybe the industry generally?

JOHN O'ROURKE: Well, the question was what do I see in terms of what's going to be exciting happening at CES this year.

There are two things I want to mention, that which is, one: come to CES, because it is going to be an unbelievably exciting show this year. The show certainly continues to strengthen and get more exciting every year. And it's moving beyond just being simply, quote, what you might think of as consumer electronics devices to really being a digital lifestyle trade show, where PC technology as well as consumer electronics and much, much broader experiences are all coming together.

What you can expect to see from Microsoft? I wish I could tell you, but I'm really sort of holding that off so that we can get you there Wednesday night to see Bill Gates keynote when he can unveil how seamless computing is going to be really brought to life not only in the coming year but as well over the next three to five years.

QUESTION: (Off mike).

JOHN O'ROURKE: The question from the industry in general is probably I guess you can ask me on the 12th of January, after I've had a chance to run through the halls and I'll really be able to give you a good answer on that one.

QUESTION: Speaking of the seamless computing, I like the idea of having my information accessible from anywhere, but I don't really want to have five different devices. Is Microsoft doing anything to help me so I don't have to buy a PDA, I don't have to buy a cell phone, I don't have to buy a Media PC?

JOHN O'ROURKE: Well, you know, the question was what is Microsoft doing to help so that you don't have to have one of every single device.

Well, you touch on a point that's really important in the consumer marketplace, which is we're all different, both in terms of our capabilities and what it is that we own. And when people are going out and looking for things, we have to think about what it is that they currently have as well as what it is they're going to be acquiring in the future.

And so from a perspective of the devices that I have, is I have my Windows powered smartphone and I have my Media Center PC at home and I have a digital camera. Those are really my three devices, which are for all the experiences that I really need and I care about. Because I use this as my music playback. It's got a little card built into it and I can just plug right into my Media Center Edition PC, bring over the music that I want from my Windows Media Player and so I can use it as my phone, my calendar, my contacts. I can also use it to listen to music.

My digital camera I use it to take my photos and I really am using the e-mail and the Photo Story that's on the PC, those capabilities to share those memories with my friends and family.

But you're going to run into experiences with other people where music is vital to them, it's the most important part to them and communications is just secondary. They might be taking advantage of some of the portable music players from our partners like Creative Labs that are creating great devices for fantastic playback, like there's a MuVo device that's about the size of a cigarette lighter, which I think they have 256 megabyte versions now, which will hold about two or three hours of music, which is just fantastic for when you need that to go to the gym or if you're a big runner.

So it needs to absolutely be flexible based upon the lifestyle, and that's why I think there is so much opportunity.

So I don't know if I exactly answered your question, but the thing is you can get great experiences and not have to have one of every device. It depends a little bit on what you're looking for.

QUESTION: As Microsoft moves more towards integration into the home and sort of away from the traditional PC desktop, people are starting to put more of their files online, their content. Is concern an issue amongst folks about security? Your average consumer doesn't understand concepts of firewalls, e-mail servers, et cetera. What is Microsoft planning to do to help educate the more mainstream America market on security risks?

JOHN O'ROURKE: Well, there's sort of a two-pronged approach to the question of what is Microsoft doing to help address some of the security issues and the challenges that exist with people having their information with them and in other areas. And there is certainly work being done within Microsoft, because this is an area of absolute importance to us, and there is work within the Windows group to determine at a platform level how is it that we build in that security, how is it that we make it so that it is adaptable because there are potential threats that are coming that are looming, and it's a dynamic environment against that.

And so, I know the Windows team is really spending a lot of time thinking about some of those issues, not only as they relate to enterprises but as they relate to consumers as well. And so you can expect to see more and more advancement come within the Windows platform to help address those specific questions.

I don't have anything to announce today as it relates to what's going to be available today to address some of those issues, but there will absolutely be something we address in the CES timeframe as well as beyond and it's going to be certainly something that's always evolving.

The second question about as itc relates to just sort of education and it is absolutely an area where that's part of it and we're working with our retail partners and on Microsoft.com to help people understand what it is, why it's important to have a firewall, why it's important to have antivirus software and help educate.

So there is a two-pronged approach to how to do this, certainly do the work within the platform and the services and the applications to enable that but at the same time work within the ecosystem to help educate consumers around all those questions.

KEN DIPIETRO: I think we have time for one more. The gentleman over here.

QUESTION: Could you talk a little bit about your SPOT watch concept? It was announced almost a year ago, so when are we going to see the SPOT product out there in the market and why did it take so long?

JOHN O'ROURKE: Well, what I can tell you is I'm wearing one of the smart watches with the MSN Direct capabilities. This is actually a Fossil watch. And it was announced at CES about a year ago. The specifics of when it's going to be available in the market, what I can tell you is that keep your ears open because there are going to be some announcements coming relatively shortly about the availability for the watch. There are beta tests that are happening and it's very exciting and we're receiving some great feedback on how the watches are working, where the opportunities are to really take this whole idea and concept really to the next level.

And so with that, I'm just going to sort of have to tell you to wait and see and you'll be pleasantly surprised.

I unfortunately have to run off to catch a flight and we're going to leave Aaron here to answer a couple more questions before we take off. I'd like to thank you very much for listening, for applauding, for smiling during the tough moments. I really appreciate it. (Applause.)

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