MR. GATES: Good morning. I want to thank Governor Miller [Nevada] and Governor Locke [Washington] for inviting me to be here. It's a very exciting time in the world of technology. I believe there's an incredible opportunity to use technology in new and differen t ways. And so, I've titled my remarks what I call the digital nervous system. And this is about taking these new ways of communicating, and not only making government more efficient, but also reaching out to citizens in new ways.

Before I came down here, I had a chance to look into all the different things that are done in state government. And I have to say, it was amazing to me the complexity of what you all have to deal with. Your budgets are far bigger than the ones that I manage. On average, you've got over four times as many employees. These are really challenging, and I think fascinating jobs. It's a little too bad you don't have better job security and stock options, but otherwise a lot of fun things to take care of.

When I use this term “nervous system,” what I mean is the way that information is managed. If you think about keeping track of taxes, or keeping track of paper forms, or the meetings that people have, that's the nervous system. And because government is dealing with information so much, the efficiency with how you do that makes a big difference in the quality of service, and in the cost.

Now, digital nervous system means taking computers connected up to networks and the Internet, and using those to do this in a better way. And so, for example, taking all the information that's printed today and is there in your printing offices and making it easy for citizens to get to it through any computer connected to the Internet.

Citizens are interested in more information if they could easily reach out and get it. And I believe that if we do this right, they can participate in a more informed, and a more regular basis in the democratic process.

So, what are the pieces that enable this? It's personal computers, electronic mail, the Internet, the ability to send video information across the Internet for teaching or medicine, or just simply community-type meetings. Finally, the idea of electronic commerce, the ability to do business across the networks. These technologies are moving at a really unbelievable rate. Gordon Moore, the chairman of Intel, came up with the idea of what's now called Moore's law. That every two years computer chips become twice as powerful.

And so that's an exponential improvement. And in our life there's nothing else like this. It means over the course of 20 years, you get a million times faster. And so computers, the price of computing in the last 20 years, has become a million times cheaper. And in the next 20 years, we can say with great certainty it will become a million times cheaper again.

Well, it really changes the nature of how you think about a computer. Twenty years ago, it was mostly for tracking large databases. And so your tax departments, banks, airlines would have one very, very expensive computer with lots of people taking care of it to manage centralized information. As the price came down, it became much more of a personal thing. Individuals could own their own computers, create documents, look at different what-if scenarios through a spreadsheet. Now, with those computers being connected together, we have the most powerful communications medium of all time.

And so, this is why we say it is the information age. And the information age is changing business in a fundamental way. It won't just be business though. It will be the way we entertain ourselves, and the way we educate ourselves, in addition. In fact, the use of this technology in education, I believe, will be its most positive and pervasive impact.

In the field of entertainment, Andy Grove, the CEO of Intel, likes to ask: In what year will children spend more time in front of the Internet interacting with their friends and learning information than they do watching TV? And it's fairly clear that that date is less than a decade away. And so, it's a very rapid change in behavior. And the young people who are using these tools will move into the economy and show us how to use them even better than we are already.

This Internet is really quite something. You can hardly pick up a magazine without seeing the latest idea of how people are using it. I used to have a job where I could go home and read magazines, and it was really separate from my job. But now, there's almost no magazine I can pick up without somebody talking about the latest benefit or the latest problem with all this change towards more and more connectivity.

The Internet is quite an amazing thing. The level of investment, the new companies, the new ideas, even for the computer industry, this is kind of amazing. Today, computers are in 40 percent of all U.S. homes. And so far, half of those homes with computers are connected to the Internet. So it's only 20 percent of U.S. households today that are living an Internet lifestyle.

What I mean by that is that they exchange electronic mail with their friends and relatives. They are able to stay in touch with their kids who are off at school a lot better through electronic mail. If they want to do something major, like buy a car, they can go to the Internet and find out exactly what their dealer paid for that car. So, they're a little smarter when they go in to do that negotiation. Information of all types is out there, and they just take it for granted that they can go and get that.

In business, we're much further along. In business today, the majority of desk workers have personal computers that are connected up to the Internet. So there, we see electronic mail and the use of electronic connections as being very, very strong. In business, the companies that do this best will be the ones that'll be able to call up all the information about a customer very easily, and get everybody who relates to that customer working together, whether or not they're in the same location. They'll be able to see what a competitor does, and draw together the reaction very rapidly.

One interesting experience I had was, I asked for every paper form inside Microsoft to be brought to me, so that I could figure out how we were going to get rid of paper forms. And I was stunned at the amount of bureaucracy that had grown up in my company. There were hundreds and hundreds of printed forms for changing your payroll option, for signing up for different things. It was wild. And, in about six months' time, we were able to get rid of all but a few of those forms. And we did that by simply putting up electronic equivalents.

So now, if you want to see what your retirement plan status is and ask for a change, you can do that very easily with the computer screen. Even things like our United Way Campaign, we do electronically. Where we mail out a simple mail message, if you want to give your fair share, you just click, and we'll never send you another message, you're done. If you're still thinking about it, we send you messages fairly constantly to try and get you to think about it. And if you want to learn about the agencies and what they do, and be very intelligent about how you designate your giving, it's all there. We have all the background there -- what they do, what their budget is, what the opportunities to volunteer are. And so, we've been able to use that to make it not only faster, but get people more involved, and raise more money as well.

Of those thousand forms, it turned out there were thirty-six we couldn't get rid of, and that's because the government, the federal government in this case, still requires us to submit those things on paper. And I think in the years ahead, one of the great advances will be taking all the paperwork in government and allowing it to be replaced by electronic forms, which are so much easier and more efficient.

So, thinking about government, what can be done here for efficiencies? Certainly filing taxes and insurance forms, applying for permits, applying for business licenses, all of these things can be done very easily. I think back to when I was very young, one of the -- actually, the only job I ever had besides Microsoft was being a page, both for the state government and for the federal government. And what I used to do was just carry messages around from one place to another. And I think those jobs may have to change in the future, because a lot of that can be done electronically.

Now, when we think about government, it's also drawing the citizens in. For example, making it easy to see the crime statistics for your area, renewing your license tags, or changing your address for your driver's license, or finding out about recycling options -- where do you go and what goes on there -- or seeing property sales, property values on your street so that you can understand whether your real estate taxes are fair. Or looking at how your school is doing in terms of whatever testing is going on.

When you make all of this electronic, you eliminate waiting in line. You eliminate holding on the phone, and you just make things so much more acceptable, because you can type in simple descriptions and be directed to where that information is.

One of the new ventures Microsoft has is a joint venture with NBC where we put news upon the Internet, and you can always dial in and see what the latest developments are. And one of the things we've done is, we've made it easy to enter your Zip Code. So, whenever you see a news story, we'll append to that story the things that are relevant in your area.

So, for example, if we have a story about dangerous roads and how roads aren't being maintained, we'll show in your area what roads are in that status. Or, if there's any discussion about legislation, we'll show, along with the story, how your representative voted on that issue, and even let you click in and see whatever testimony or comments your representatives have made. And then, of course, it's very easy to do one more click and send an electronic mail message to your representative and say that you agree and think that they're doing a great job, or provide whatever additional advice you'd like to offer.

So, this technology can draw people in. It can take topics like budgets that are very complex, and hard to cover in simply a front-page article, and let people dive in and see as much as they happen to be interested in.

So, it takes all this information that's public and makes it truly public. The debate, the speeches, any type of investigation of policies. It's all there, and hopefully this will strengthen democracy because people will know a lot more.

I decided to give a few examples of how states are using the Internet. It was fascinating to go to all the different sites and see the innovative work that's going on. I'd have to say that we're just at the very beginning of being able to take advantage of this. There's an incredible amount more that can be done here.

One example, from my own state, is a requirement for many jobs to check somebody's background to see if they have a criminal history. And today, that's very paperwork intensive. In fact, it's often on the critical path in terms of getting somebody into a job. Because it's paper-based, the number of people who have to see the information is very large, which, of course, creates a security and a privacy concern. But now, as of August, there's a set-up being put together that allows all this to be done on the Internet.

So, if somebody has a very secure password, they can go in and immediately get the results. Here we see one of the computer screens that you get if you're using that system. So, it's faster, cheaper, and it really gets the job done. People who say, well, geez, I don't want to go through that effort, it's a lot of trouble now, that will not be an excuse because it becomes so straightforward.

Another example that I thought was very instructive is what's being done in Wisconsin. Exchanging electronic mail with constituents, the legislators are all set up to do that. Exchanging mail with each other on a very easy basis. Even their calendars are now available so that they can work together to schedule meetings, committee meetings, or whatever else they want to do. And all the legislation, what's going on in the committee hearings, is all there to be able to look up.

One thing that I think will drive a lot of efficiency is what they call their vendor net, where they put out all the information about what things the state wants people to bid on. And so here's the page on the Internet that does that. They have a vendor information center that tells you a lot about how this works, and what's going on. You can get all the common questions answered here, and so how you do business with the state, or who's buying what, the general procedure questions. These are, I assume, the most common questions.

One of them I was kind of surprised to see here is -- this says, what if I haven't paid my taxes? It says, well then, they'll just deduct it from what they're supposed to pay you. That seems to make sense. And all the information that you'd get in print is right here.

So, if I go ahead and sign up for this, then I'll be a vendor, a listed vendor, that can be notified of all the different things that are going on. What this means is that the state collects the registration fee, and so this vendor net can be totally funded, but also I get informed whenever there's a situation that might be interesting to me. And so, any time I can go in -- let's say, Bill's Contractors here, and I've got my little password. I can go in and look for different kinds of bids.

Here let's say I want to provide computers, and so when I enter that, it goes out and finds all the state bids related to computers. It looks like somebody is still updating the mainframe. That's too bad. Those are the big computers. But here we see some personal computers. And there's a particular bid.

The nice thing about this is, I can see the full description of what they want here, and I even see an electronic mail address. So, if I have a question about whether I could substitute something, what would you think about this, I just click there and can type in a message and somebody can fully process that.

So this is an example where the state is going to get more people bidding, vendors are gong to find it much easier to work with the state, and it's just overall a huge win for everybody that's involved in the thing.

Another example that I found out there that I thought was interesting are some of the things that the State of Florida is doing, information for citizens, employment opportunities, licensing, really a very large site, that they've been able to put together.

Let's real quickly go back and look at that. And what I'm doing here is connecting out to the Internet. And so here we see the home page. And we can see there is a lot of government information, and things that citizens might be interested in. Here at the top level you can see a page that has all the phone numbers, if you want to call somebody you can look at up easily, things like government services. If I scroll down here I can see job vacancies.

Now, at this point these are just jobs in the government itself. But, over time these job sites, I think, will be expanded to include all the jobs in the state, and make it easy for people to match. And so we have a very rich page here that lets me pick what kind of occupation I'm looking for, what kind of minimum salary and go through and understand all the different job opportunities there.

Another thing I can look at is what's been put together for children. And a lot of material is here as well, about child support and pages that people have put together, education. We're seeing what they call the safety center, where they've taken what would have been printed brochures and made them interactive. Parents can sit with their kids and step through things like, here we see what do you do after an accident, subscribe to that, what do you do about strange animals, what about safety when I use my bike. And it's kind of fun to step through these things and learn the information in an interactive way.

Just one more thing on this site I thought was interesting is what's put up there, for licensing and consumer protection. Under licensing you can go in and find out about the state of your driver's license. You can even change your address electronically. And all the brochures, the handbooks, have been put up on line. In fact, the Spanish handbook is there. All that different information is easily accessible.

And, finally, let's look at consumer protection. Now, one of the things they've got up here is all the restaurants that didn't pass their food inspection, things that people might be very interested in. In fact, restaurants might care a lot more about passing, when they know that this is all there.

Here we've got a site that's been put up by the insurance commissioner, and we can see the automobile insurance guide is here. Well, I can actually bring that material down onto my computer and so I could either read it off the computer screen or print it out or mail it -- forward it to a friend I know who might be interested in that. And so great accessibility to information that is already there.

Now, there are some difficulties in making all this happen. I've painted a very positive picture and I am very optimistic about this. But, let's talk through some of the things that hold it back. The personal computer, I've said it's improving at an incredible rate, and every desktop will involve a computer connected up to the Internet, using electronic mail and productivity tools.

Now, these machines have been very difficult to manage. And so the industry has made it a top priority to make it very simple to use the machine, to make them less confusing, and to have a lot less support staff, that has to come to that machine and make sure it's up to date. In fact, the industry has made a lot of breakthroughs that will bring what's called the "cost of ownership" of the machine down rather dramatically.

Another big issue is the speed of the networks that connect all these things together. Under the new telecommunications regime, states are in the primary position of deciding what the new rates will be, what the incentives will be for building out high-speed networks. And some states have actually taken a leadership role in making sure their facilities are connected with these great networks.

This will be very critical, because the quality of the network will really be a major element in determining how competitive that state is. I'd say after quality of education it might be the next thing that a business would look at in deciding to go to a particular state. Laws about electronic commerce are very important, enabling people to use digital signatures, getting rid of the need to use paperwork.

I followed closely the deliberations you had on the taxation issue, and I think the decision you've come to is a very good decision that, while making sure that the states continue to control taxation policies, that there aren't new taxes put onto the Internet, as we learn how this should be done and people work together to make sure that it's done in a consistent fashion. Because the Internet, being a global network, makes it very tough if there are different approaches being taken by all the different governments. And the Internet is in its infancy. There's a lot we're learning about it. It's important that we allow the innovation to flourish there.

Perhaps the most difficult issue of all, about this, is that the computer has become so valuable and so helpful and such an important part of an education and a great job, that we wish that immediately we could bring these benefits to everyone. And so a lot of people speak out about the dangers of the “haves” versus “have-nots.” Who's going to have these computers and who's not? Is it going to increase the differences between homes that can afford this and school districts that can afford it, and leave other people behind?

And I think there is a real danger there. And this is a big, big issue for society, in terms of deciding how much to devote in the way of resources to schools and libraries. I think the strongest analogy here is reading and literacy. A long time ago we decided that having libraries was a very basic thing, and every community should have a library and schools should be there to teach people literacy and all the basic skills that can create equal opportunity.

Now computers are becoming part of that. And so there are lots of innovative experiments going on. I've gotten involved both on the school side and on the library side, because I think libraries have a special role to play, since people of all ages should be able to come in and sit down and use a personal computer. And it's been wonderful to see how librarians have responded to this new challenge. It brings more people into their libraries, forces them to learn new things. But, where this has been done they've been incredibly receptive.

Now, to close this information gap it is going to require lots of cooperation between the private and public sector. And it's going to take a lot of experimentation, and it may take most of the next decade to get this done. But, I think it is a very, very high priority for us to all put a lot of thinking into.

So I want to end my comments on a very upbeat note. The information age is just beginning and I think a lot of positive things going on in the economy reflect the efficiencies of that these new technologies provide. There are many new jobs being created in these areas, and they are jobs that are very attractive. The opportunity for efficiencies in government, just like in business, is pretty amazing. And you're going to see these technologies constantly improving.

Some time in the next 10 to 20 years, you'll actually be able to talk to your computer and have it understand what you're saying. So it won't just be the keyboard and the mouse. And the wealth of information that will be out there, the ability not only to have text pages, with images like I showed you here, but for everybody to get video there as well, just opens up new things. And so it's a whole new world, and I know I speak for our entire industry saying that we look forward to working with you, to making sure this is a big benefit in state government.

Thank you.

GOV. MILLER [NEVADA, CHAIRMAN]: Thank you for that fascinating information. We'll take a few questions now. Mr. Gates is on a tight time schedule, as you might imagine, but he's agreed to take a couple.

GOV. ENGLER [MICHIGAN]: I've got a real simple question, I'm real impressed at taking 1,000 forms, in 6 months, down to 6. I'm just curious, the grounds keepers, the maintenance folks, those who wouldn't normally be using a computer, how did you get them transitioned over? Does Microsoft have a mandatory training forum for anybody who ever -- no matter what they do for the corporation they have to get certain skills? And do you set up stations, because obviously the 56,000 employees in the state government, we have an awful lot of them who don't have a computer with the kind of job they do for us. I'm just curious.

MR. GATES: That's a very good question. What's done for employees who don't have desk-related jobs. Could we take a personal computer and set it up so it's very simple, it's got a touch screen, so you're hardly using the keyboard at all. And when they put their employee badge into the slot in that computer, it immediately knows who they are. And so, it lets them look at the records that they care about, where do they stand in terms of their vacation, or their payroll information.

When anybody starts a job at Microsoft, the first thing we teach them is electronic mail. And one thing about electronic mail is that you only get the benefit of it if you get a vast, a very high percentage of people connected up. If you want to send mail, and you realize some of the people you want to communicate with aren't on electronic mail, then there's no efficiency at all. And if you just start with the people who have desk jobs, that takes care of a very, very high percentage of this. But, eventually, you want to have those easy-to-use kiosks to let everybody come on and connect up to the system.

GOV. GRAVES [KANSAS]: Bill, I think all of us fully agree with the notion of getting paper out of government. Having kind of come up through the ranks of the bureaucracy, how well do you think the American legal system is keeping up with the very unique challenges that the paperless system creates? We can create documents and do things now with technology -- but how do you know what's real and what's not real?

MR. GATES: Well, even in the paper world, the opportunity for false documents is there. In the electronic world, with digital signatures, if the system is administered properly, it is far more difficult to create fraudulent, counterfeit paperwork than it is in the paper world itself.

Now, states are passing laws relating to digital signatures. There's good progress there. One political issue that comes up on this is encryption. Very powerful encryption technology is how you protect information and make sure it hasn't been tampered with. And there's a little bit of a political issue at the federal level about allowing citizens to use very strong encryption to protect these documents.

I'd say that the United States is actually not the leader in this. Some governments outside the United States, like Singapore, New Zealand, Sweden, Denmark, have moved a lot faster to make it possible to take their legal systems, for example, and have that be done online, so you can see court cases, and the filings, and what's going on electronically. And it will certainly come, but there's still an unbelievable amount of paperwork that our system requires.

GOV. GERINGER [WYOMING]: Thank you, Bill, for creating the opportunity that the rest of us have been able to exploit, in fact, through discovery, enhance our own opportunities.

As I was watching your browsing through the state's home pages and the services provided, it reminded me of when we started two years ago on the same effort, how few there were out there, and how many have just exploded recently. It's a phenomenon. I believe I read the other day that there are 500 new Web sites per day that are placed on the Internet. One thing that we've done is, to add to what you've said, is we've added those who are most notorious at being behind in child support. We've added the deadbeat dads, the 10 most notorious deadbeat dads on our Web page. It has really enhanced payments.

I have a couple of questions. They're rather diverse, so I'll ask them both, and you can respond however you wish. The first has to do with the quality control and remaining current. You've talked about authentication. Anything that a government entity places on its Web page or provide through availability on the Internet has to have that air of authenticity, and needs to be maintained for currency. And that is a little more difficult electronically, although it shouldn't be, but it seems to be more difficult to maintain that so that the public is reassured that what they're getting is the real thing. So, I'd like your comments about quality control and authenticity.

And then, in a completely different area, entertainment and sports seem to be the driver for much of the development of technology. That's where the real dollars are. When it comes to making government or education pay its own way, it almost never can. You have to have that piggybacking, if you will. If it's not being done through entertainment and sports, it doesn't seem to have the access into the community, yet you need that for other reasons. I wonder what you might see as driving that in the future?

MR. GATES: Well, in terms of making this pervasive, there's no doubt that people are going to be moving to using computers more and getting up on the Internet primarily because it's fun, and because they get to stay in touch with friends. It will also let them deal with their bank, pay their bills, pay their taxes in a better way. So government is simply taking advantage of the fact that there will be these mainstream applications. Nobody is going to buy a computer just to interact, at least at the citizen level, interact with these pages.

There's some wonderful stuff going on by the entertainment companies. The ability to get in-depth information about sports figures. One of the most popular sites on the Internet is the ESPN Sports Zone site. Another set of sites that are very popular are the news sites, CNN, MSNBC, and a number that are out there with that information.

Anybody who has investments loves the Internet because you get these stock tickers, and you can be notified whenever there's interesting information that's up there. And, pretty soon, we'll have a bill payment thing where you actually save money by paying your bills electronically because there's no paperwork, it's easy. That will be straightforward as well.

I'm a little disappointed at how slowly tax payments are being allowed out on the Internet. In terms of authenticity, when you go to an electronic address, and each state has been assigned an address, you know that it's coming from the state government. And so there's no doubt on the part of the citizen they are interacting with the state. The most difficult thing is authenticating who's at the other end, who is the citizen. Is it really the person who should be able to get at that information?

And a lot of governments, other than the United States, will actually issue what's called a smart card, and that's a high-tech ID card, to all their citizens. So, if you want to get your medical payments, or your social security payments, you'll use that smart card. In the United States, it's unlikely that the government will step into that role. So, it's more likely that we'll piggyback what the banks, the credit card companies will do, or perhaps piggyback something like driver's licenses, to get people unique IDs that they don't share with other people.

But once you get public kiosks out there, so that anybody can browse the information, then the next thing -- the question is, what do you do with the information only a few people should have access to? And the technology is going to make that very easy. The cost of the smart card, and the fact that every personal computer will have this smart card slot, should make that issue go away.

GOV. VOINOVICH [OHIO]: Bill, I was writing down when you were speaking, and obviously you accessed something to determine what states were doing with technology. Is there an organization or a service that you know of that really keeps track, a comprehensive list of how states are using technology that we could reference?

MR. GATES: As a commercial organization, we track which states are doing interesting things on the Internet. And, you know, I understand there's a special conference that you guys have talked about doing on the year 2000 issue. I'd also say, either as an adjunct to that or as a separate thing, it would be interesting to have states get together and look at who is doing what on the Internet. You know, what are the leadership activities, what are some of the problems. And Microsoft would love to sponsor something like that, and get together with other industry people, because I don't think there's enough dialogue about this.

And one thing we would bring to a meeting like that is some of the things being done outside the United States, because, as I say, in certain areas, a little bit to our surprise, the United States is not out in front of what could be done.

GOV. VOINOVICH [OHIO]: It sounds like a good idea. We have a center on best practices, and we're trying to make it as relevant as we can to problems that we have now. Perhaps we could work with you to put something like that together in the next six months to a year.

MR. GATES: Great.

GOV. LOCKE [WASHINGTON]: Thank you very much, Bill, for addressing us this morning, given your very, very busy schedule.

When I attended your Microsoft CEO summit, you talked a little bit about the nervous system as it applies for managers, and that was in a corporate setting. But, for so many states with department heads and top-level managers who are trying to understand the specific statistics for what the phenomenon means, you were talking about the use of the nervous system to really get at, you know, production levels, and what's the root cause behind it.

Could you share that, even though you don't have the technological capabilities, tell us what you mean by that and how that can really help people manage and get to certain problems.

MR. GATES: Okay. The idea is to think through all the processes and how you want information to flow. Take the state budget process, you know, could you get online all the information about the various proposals and how those work? And, instead of people not knowing what's going on, or not knowing how it's coordinated, they just go to a state government intranet site, all the employees who are involved in that budgeting, and they can see a very rich set of information that they can dive into at a detail level. They can model the different alternatives about what's going to happen. And so, you can take that budgeting process and streamline it pretty dramatically.

Now, that's just one process. State governments have so much information to deal with. You know, state governments have more databases than even very large corporations do. And every one of these things -- every one of these databases, you have a process about how often does the information change, what kind of reports do you want on that information. As soon as you get the employees using electronic mail -- that’s the first step, if you're not there, you're not really on first base. But as soon as you get that, you'd be surprised how you get bottoms-up from the organization lots of ideas about how to use these networks and to put information online in very smart ways.

And so, it won't have to be a top-down process. But it has to get started by getting the infrastructure in there to do electronic mail, and having a few pilots that really open people's eyes to what it's like to have things online. Quick decision-making, less paperwork, those are the symptoms of what you get out of this. But it really requires thinking through all the information, and I think people will be amazed at how putting these systems together is quite inexpensive because the building blocks, the network and the personal computers, you're already paying for those.

Now, what we're saying is, use them in a more profound way to change the information flow, which I'm calling the nervous system, of how people work on a regular basis.

GOV. THOMPSON [WISCONSIN]: Thank you, Mr. Chairman. And I think the center for best practices is an outstanding organization, and I hope that you take it up and carry on with it. And I think it's a wonderful idea that you and George have come up with.

Bill, I really want to thank you, first, for being here; secondly, for promptly mentioning Wisconsin and some of our innovations. But my question, I think, is something on the minds of most governors. Anyway, it is on mine. We are investing just a lot of money in the states, and we're all trying to do the right thing. I, for myself and the State of Wisconsin, am putting $500 million in the next two years to hook up every school, every library, every nursing home, every university and high school, grade school in the State of Wisconsin, put in the newest technology. And we're investing a half a billion dollars.

My concern, however, is that you are so bright and are moving so damned fast, and changing things, what happens? What is the next two years? The problem we have as states is, we invest the money and then the technology changes so rapidly that by the time we've invested $100, $200, $300, $400, $500 million, the new technology has bypassed us by generations in a year or two. And, even though I think it's the right thing to do in Wisconsin, I'm always in the back of my mind worried that you're going to come up with a smaller computer, something wholly different, that's going to make that $500 million obsolete, and everybody in Wisconsin will say, why did you do it? Why didn't you wait for Gates to come up with this new technology? So, I'm asking you, what's there?

[Applause.]

MR. GATES: Okay. I can assure you that there's no breakthrough where in one year all of a sudden things will be dramatically better. It's very evolutionary. Every year the machines will get about 40 percent faster, and the software will get about 40 percent better. What typically goes on in the commercial world is that people pick either a three- or a four-year cycle, and they budget to upgrade the PCs on that three- or four-year cycle.

Now, the most expensive investments, building out the network that you talked about, that will not become obsolete, as long as we run new wires, you run optic fiber, the same fiber you put out today, the new equipment will be able to run more and more data through that. So you won't have to go back and do what's very expensive, which is digging those ditches and putting that fiber out there. So, any new wiring that is put in, people will put in fiber, and that is a future-proof investment.

GOV. THOMPSON [WISCONSIN]: Can I take that to the bank?

MR. GATES: Sure.

GOV. THOMPSON [WISCONSIN]: All right.

MR. GATES: The most expensive part of this, I hate say, though, are more of the human costs, training people, and getting the systems, moving the systems where they have been into the new approach. And there, you know, the benefit of the training, as long as you retain the people and get them enthused about using it, where it just becomes part of their everyday job experience -- that's a one-time expense that shouldn't have to repeat itself again, and again, particularly as the machines get easier to work with.

And so, it's mostly the hardware capital that you have to think of as an ongoing expense. Designing one of these digital intranets that I talked about, where you get rid of paperwork, you get everybody in state government connected up, you let citizens see all the things going on, the equipment that's there today does that very well.

And you can buy today's equipment and feel very confident that it's not going to wear out, that it will be capable. Now, when we do come along with a machine that you can talk to -- I’m optimistic enough to believe in less than 10 years we will -- people who have to type at a machine will be jealous of the people with the new machine. And so that's when you get this three- or four-year replacement cycle, which is ideal.

When you go out to schools, you see machines that are six and seven years old. And that's a problem, because all of the new software that's being developed really requires machines that are more like three or four years old.

GOV. THOMPSON [WISCONSIN]: So these schools that are bonding for 10 years, I've even seen 15-year bonds for technology, and I'm very alarmed about what they're doing. They're committing themselves to an awful lot of debt for junk.

MR. GATES: If it's for the computers themselves, and if they're not able to refresh them at well under five years, that's a mistake. If it's for the networks, then you could take a 15-year cycle and feel very good about that.

GOV. THOMPSON [WISCONSIN]: Let me ask you just one last question, and it relates to education. In my budget this year the philosophical dialogue that we had related a difference between some who thought we should put more computers in laboratories, and send children there to learn how to use a computer. My approach was that we need to put more in classrooms, so that children can use them to learn.

One project we came upon to try and exemplify that was an Internet progressive novel. I wrote the first chapter of a -- I'm calling it a book, maybe those have read it won't -- called Envy in the Desert. And we have now two versions during that last school year, one written by high school students in Reno, progressively, different high schools, the other written by high school students here in Las Vegas, different chapters.

But, what ways -- number one, do you agree that, from an educational vantage point, we should be putting our emphasis in trying to get them in the hands of children all day long, as opposed to having them go down the hall once a day to learn how to use it? And how do we break through that message, what other examples or what message would you give us in that regard?

MR. GATES: That's a very good question, because the nature of computer use in schools is changing. In the past, people thought of it as a machine to give drills, or simply teaching somebody to use the computer itself. And that was all they were trying to do. Now, they're thinking of it in a much more profound way, which is that it's a learning tool, and whether you're studying history, or English, or science, that the computer lets you get out there on the Internet, find other kids with the same interests, try out some new things.

And so that's causing the shifts that you talked about, away from it being a laboratory device that you can only go to, and you're timed how long you can be on it, to wanting each student to have access all day long. The ultimate here, which has been done in only a few hundred schools, is called the laptop program, where each student has a laptop computer. And it's amazing because they have a sense of ownership. They can take it home and work as long as they want. It's their computer to take care of. And the teacher can then assume that they're all out there trying out new things and they can come back and see those things in the classroom.

Now, unfortunately, that is a very expensive approach. And so we're going to have to move there step-by-step. But, that transition from the laboratory into the classroom, and getting that ratio to move toward the ideal, which is this one-to-one, that's absolutely the right track to push people along.