Bill Gates Keynote
Consumer Electronics Show (CES)
Las Vegas, Nevada
January 10, 1998

GATES: Good morning. Great to be here at the Consumer Electronics Show. This is the show where you always see wonderful new products. This year, things like DVD and the great classroom displays have me really excited. Now, I think itÂ’s valuable to remember that not all the great new products here go on to big success. I know many years ago, John Sculley came and talked about digital convergence, a trillion-dollar market, and introduced Newton. That product proved to be a little bit ahead of its time, was probably tough on his career. Four years ago, I came and introduced a product called Microsoft Bob. Now, Microsoft Bob sold even less than the Newton. And so, I must have a more forgiving board of directors than John Sculley had, because here I am trying again with some great new products.

Yesterday, one of my fine competitors, Scott McNealy, was here talking about the ring market, digital rings. And everybody always says Microsoft is trying to do everything. So I think it's important to state that this is one market that Microsoft will not be involved in.

(Applause.)

GATES: We just -- we don't see the demand for the digital ring. We're going to try and do a lot of other things, but we'll let Scott have that one all to himself.

What is this all about? Well, this is the information age, and people want to be in touch. They want to make better decisions; they want to learn more. They want it to be very, very simple, all of their text information, and audio or video information. And the slogan Microsoft has used to talk about this is "Information at your fingertips." In fact, it was in 1990, when we first started talking about that. And we didn't realize at the time that a few years later, the Internet would explode and really make this happen a lot faster than even we anticipated.

It's been a great thing for the personal computer industry. A lot of the growth we're seeing now is because of connecting PCs to the Internet and doing new things. New things for businesses, new things for education, and new things for entertainment. So, the personal computer is becoming an information appliance. The software is getting better, and prices are coming down. We've got PCs for $999, even now some PCs as low as $799. And so the customers of those devices are doing very, very well, and the market is growing.

But I don't believe the personal computer will be the only tool of the information age. It will be one of the most important with its full-size screen, and its ability to run rich applications, but I think there are going to be a variety of form factors. People want information everywhere they go. They want it on a small device. They want it in their car. They want it combined with their wireless telephone. And so we are going to see quite a large number of devices come along that tie together. None of these devices will succeed if it's a stand-alone device. None of them will succeed if they don't move the information easily between each other and with the PC.

Now, these devices are advancing at a pretty incredible rate. We've got Moore's Law, which says that chips tend to get about twice as powerful every two years. We've got that law driving miracle innovation. And I think the consumer electronics industry understood this successful formula even before the computer industry did. That is, as you get a product that is in high volume, you can offer it at a good price. You can get lots of software variety, and as you get more variety, it draws people in. You get device innovation and so, it's a kind of virtuous cycle. All of these improvements feed on each other, and you end up with very, very large markets.

One of the new things, though, about these digital devices benefiting from software technology is that manufacturers can customize them more easily. They can tune user interface and provide unique features. And so the basis of competition tends to be even more on innovation and not just purely on price, which I think is a very helpful dynamic for the marketplace.

Now, when we build these products, we've got to make sure that they all work together. And I've made a little video to show some of the challenges of what it's like making these products work together. So, let's take a look at that.

[Video shown.]

GATES: Well, from that we can tell there's still a lot of work to do to make it all reasonable to use. I think with the advances in screen technology and chip technology, and by using familiar formats that people expect, we will have a large number of better devices. Now, software is a very special element here. Software gives you the flexibility to do unique applications, vertical applications, fun game-type applications, and there'll be a huge after-market of companies that are building those software applications. That's certainly been a central element of the success of the PC, and I think it will be critical to all these other devices as well. And so, evangelizing this, having the great development tools out there, and making sure these things are powerful enough is essential.

Another area that I think software has a lot of work to do is in the input area, making handwriting reliable enough that people want to use it, making speech input and speech output great ways of interacting with these devices. As we perfect those, which is certainly going to happen over the next three to five years, that will help grow the market for these devices very, very dramatically.

Now, a key technology that Microsoft is bringing to this is Windows CE. This was written from scratch to run on very small systems. And it's incredibly flexible. The people who license this can build their own user interface; they can tailor the package. It's got rich real-time support. And itÂ’s a companion to the Windows that runs on the PC. That means that it's easy to share data, it's easy to share user interface elements, and there are many categories of devices. Some people think of Windows CE along with our handheld PC, because that was the first device to come out in volume and use Windows CE. But, in fact, today you'll see several new form factors with Windows CE, and we see the variety being really immense: PC companion, vertical market products, entertainment products. We're doing a lot of developer events around Windows CE. In fact, we have a big one coming up in April. And so, for any additional information about the developer events or Windows CE, we've put together a special Web site that's on the http://microsoft.com site.

And Windows CE supports all the low-end processors. It's great that these processors are coming down in price, and the performance is quite fantastic. You know, a few years ago we used to talk about 20 or 30 megahertz processors for these low-power-drain devices. Now, we're talking 70-80, even 100 megahertz. And so it just enables much better applications. Things like speech synthesis and recognition require quite a lot of performance out of the processor. We're supporting the processors from the seven manufacturers I show here. During the course of next year, we'll add many more, because we've made it very, very easy to target new processors. And so, we're supporting everything that's out there. That's just another way that we give flexibility to people who want to build these devices.

Now, standards are going to be central here. Standards for the interface, standards for the application development, standards for how you exchange information with other devices. Things like schedule synchronization, name and address book synchronization, how you say what Internet information you want to go and get. Now, the Internet standards are very, very helpful here. We'll have a browser built into all of these devices, so HTML is central to our strategy. We've come up with ways of using TCP/IP, the transport protocol, both for two-way connections and for broadcast connections. And so that will be very key.

Also, this compact flash-memory slot that lets you add in new hardware functionality, you're going to see that that's on basically all of these new devices. And we're very excited about some things that people are doing there. And so, standards are going to be central to driving the volumes that we expect here. And volume is how you get that success loop really going.

Now, one thing that's been missing from the small devices is a way of connecting up. The only way you've had to date is to go back to your PC and do a synchronization. The devices have been too small, just haven't had the flexibility to tie into these wireless networks. But to achieve their full potential, they're going to have to connect up anytime, anywhere. And I'm just showing the variety of things, faxes, email, voice mail, calendar, Internet, that we want to make available through these devices.

Now, since our expertise is purely the software, we work with partners who are experts in the other areas. And in the area of wireless communication, the leader, of course, is Motorola. And so, over the last several years, we've been talking about our concept, and we're really pleased to have achieved a milestone with Motorola where we are going to be working together to provide a lot of their technology, in particular, their flex technology, to run in these devices.

And so I asked Chris Galvin, the CEO of Motorola, if he'd come and be part of my presentation today and talk about some of the great things Motorola is doing in this space. So now, I'd like to welcome Chris Galvin to come on out and talk to us.

(Applause.)

GALVIN: Thank you and good morning. It's an absolute delight to be here with Microsoft and at the CES show. And we are very excited about the concept of, together, bringing the Flex worldwide wireless standard, the global standard together with Windows CE, to create the potential for some spectacular new applications and platforms as we go forward. What to me is powerful about the combination is the legacy of the two companies. Both institutions have created platforms. Microsoft with MS DOS, Windows, Windows NT, now CE and more things to come, and Motorola's platform is different, yet powerful.

We essentially began putting information in motion as the first major business of Motorola, back in the 1930s. We put radios in automobiles. Then from a control standpoint, the same way that Microsoft gives the people to control their own computing, people said I'd like to talk back from that radio, rather than just listen, and we created the two-way radio industry. Later on, we took half of a two-way radio and created paging. And then we promulgated and essentially invented or made possible the cellular business. Since then, we have announced low-Earth orbit satellites, to make available a personal, portable telephone experience in every square meter of the surface of the Earth, and most recently with concepts like Teledesic, and Celestri, the ability to deliver bandwidth to virtually, again, every square meter of the surface of the Earth.

And so if you go back in Motorola's history, I will simply note that we combined things at that point in time, which is what we'll be talking about here. And that is the ability to make music and entertainment available on wheels. And just as a bit of history, that's the origin of the name Motorola. Motor car and Victrola were combined to created our brand name at the time, and now the name of our company.

But, today we're here talking about Flex, and CE. And, again, we're a company who has reinvented itself numbers of times over the last 70 years, and essentially we did the same with paging. Paging began as a service to alert firemen, and doctors, and volunteer people to come when emergencies were there. We then added tone, and then we added digital messaging, and then we added alphanumeric messaging. But, about seven or eight years ago people imagined that we had to reinvent the platform from a single application, to a multi-application concept, and so Flex was conceived. And in it was a provision for descriptions for adding significantly more content to this wireless standard. We had hardware and network protocols that we could license to many, many people. And, of course, we had a software overlay, so we could make available tools to software developers.

And essentially, today, what we're doing is talking about taking the best of Microsoft, Windows CE, with new applications, taking the best of a global standard in wireless, called Flex, where we make sure all the bits will be delivered across a common set of network protocols, and bring together then those interfaces, so that software developers can make sure that their creativity, in fact, gets implemented on these platforms. And together we'll create the opportunity to synchronize, via wireless, to provide data and selected personalized data to people, no matter where they are, no matter when they want it. And we believe this combination, between Microsoft and Motorola, is extraordinarily powerful, and together we'll create a set of experiences, that we think will be exciting, and fun, and fully realize the potential of both platforms, flex and CE.

We look forward to the future, and we're delighted to be here, and now back to Bill, thank you very much.

GATES: As I said, the very first Windows CE device was this handheld PC. And that's part of what we call the PC companion line. Today you'll see for the first time ever the two new members, the Palm PC, and the Auto PC. But, first let me give you an update on the handheld PC. It was shipped a little bit over a year ago, and it brought in quite a bit of rich connectivity. Serial, dial-up, infrared, it also provided a rich user interface. Using the elements of Windows that were appropriate, but not bringing over the elements that wouldn't work in that small form factor.

Probably the most exciting part of this is what we did with applications. We took our Word Product, our Excel spreadsheet product, even our PowerPoint product, and brought them down to run on the handheld PC. We've already released the second major version of this, the Handheld PC 2.0, and our partners, who are manufacturing this, are now moving those products, based on 2.0 into the marketplace.

This was a very successful launch. In the first 12 months, we sold a little over 500,000 of these devices. And, you're seeing here the large number of partners who got involved in this: Compaq, Hitachi, Sharp, Philips, Casio, HP, Ericsson, NEC, Novatel, LG, all of them bringing their unique value added to the device. And so some have unique features, and some are targeted at particular markets, but all of them are compatible in terms of learning the interface, sharing the data, and writing applications. Now, some of the ways that people are using these devices has really impressed us.

A lot of it has been use in the business environment. Boeing on their factory floor takes handheld PCs, and keeps track of what's going on. They can't have a large-screen device, but the handheld PC works perfectly. In the financial area, Goldman Saks now has it for their New York Stock Exchange trading. The Seattle Mariners take this when they go out and scout, and keep track of all the things they want to know about, prospective recruits for their team. About a month ago I gave a speech where a major from the U.S. Marines came out and showed how the handheld PC is a great communications device for the military, even in a battlefield type environment. And certainly, that and many of these other things we didn't anticipate, but when you build a powerful platform, these are the kinds of applications that emerge.

In fact, I've got a little video to show us a couple of other ways that it's being used. The Pittsburgh police, and at the Vale ski resort. So let's see the handheld PC in action.

[Video shows how handheld PCs help Pittsburgh police get immediate information to help stop crime even while responding to more than 1,000 calls a day. Police can access wanteds and warrants, motor vehicle registration and driverÂ’s license registration, and FBI crime computers, securely. Video shows how Vale uses handheld PCs to do real-time scheduling for ski instruction on the mountain. ]

GATES: So there's a variety of these handheld devices, including some of the latest advances. Now, we're seeing devices that not only have the wide screen, but also have color. And this one in particular has a plug-in card with a digital camera. And so, somebody like an insurance investigator can point this camera at what they're interested in, take the picture, and include that in a mail message that they send back with their notes very, very easily. So, the pace of innovation within the category is pretty amazing.

Now, every device that I've got here is either shipping today or ships within the next six months. So, we're not talking about a vision here, we're talking about something that's very, very concrete. And the variety to me is quite impressive. Some of the most unusual devices are vertically oriented. For example, here we have a device that's used in a restaurant. Kentucky Fried Chicken installed these in a number of their restaurants. And I'll show you, it's just a simple touch screen way of going in, picking whatever you're interested in, and they've set this up so it tries to up-sell you, get you to buy a few more things here. And as soon as you want, you can say you're done with your order, and it prints out the receipt for you, and you know that it's all correct.

Another vertical device that's been done is one that the transportation industry, particularly trucking companies, like. This is a GPS product with Windows CE built into it, and it lets them track their trip time versus what's expected there. And so, in some very unexpected places you will see Windows CE.

Now, over here on the far side, you're seeing our new form factor. This is the handheld PC, and we've got seven different manufacturers all doing things a little bit differently, and you can see they -- we call this -- I'm sorry, we call it Palm PC as opposed to the handheld PC, because it does simply fit in the palm of your hand. We've made it so you simple use the buttons on the side to click through the information, and most of the time that's all that you need to do.

Well, the way to really understand what we've got here, what we've done with the applications, the interface, the connectivity is to see it at work. These products are shipping in the next few months, and so I'd like to ask Dave Wecker to come on out and show us what can he do with this new handheld PC product.

WECKER: You know, I've been thinking about -- I've been thinking about the Palm PC and all those New Year's resolutions people are making about getting organized.

GATES: That's good.

WECKER: This is it.

GATES: Well, I hope it can help you.

WECKER: Well, something has to.

(Laughter.)

WECKER: He's not going to give me a chance. These are the first devices that fit in the palm of your hand that actually give you the power of Windows, lets you take your important information like your email, your schedule, even Web information, with you wherever you go. And wait until I show you the input technologies that let you scribble on the device and turn it into text, or just by recording information by talking to it. You can take the information and play it back whenever you need it.

Now, you know how disorganized I am. So, just to show you how it helps me, we can go to my calendar for CES, and sure enough it actually got me here on time this morning. And with a single tap I can find out what we're actually doing here, and hopefully why I'm here. But, at the same token, it's easy to use, I can tap on it. The familiar Windows interface is something that takes no extra learning after the PC. I pick it up and just use it. When I want to schedule new appointments, I can just jump to an entire year at a glance.

GATES: That's quite a nice display there.

WECKER: Well, it's such a high resolution, it's just easy. I bring it up, I tap on a day and I go to it, or I tap on the month and its unique clock face interface lets me see exactly when I'm busy and when I'm free on any day in the entire month. And we can just go back to today with a single tap. So, that's one example.

Another one, I was in the airport and I wanted to make hotel reservations. This device has active sync, which means whenever it's hooked to my PC, it gets all the information. It keeps itself up-to-date, no buttons to push. All my contacts were already on here. So I take it with me. I'm in the airport. There's the hotel. I make the phone call, make the reservation. Of course, the problem is, you call the hotel, the first thing they do is, they want to give you a confirmation number. And if you don't have the confirmation number, you're not going to get the room. So, here I've got the phone, I've got the device, and I have no pen in sight. Not a problem, I just record the information, and it's as simple as that. That's all I have to do.

GATES: Now, you're talking about how this works for business, which is great. But are there some fun things you can do with this device?

WECKER: Oh, I'm glad you asked. This is a great game machine. If we go down to games, you'll notice, I loaded blackjack on here. I was coming to Las Vegas, I had to load blackjack.

GATES: Does it teach you how to play?

WECKER: Yeah. Unfortunately, I'm still losing every game, but it does teach you. And with the high-resolution screen and the flexible audio, you can put just absolutely fantastic games on here. And that's part of the whole point of information at your fingertips, is it leaves you more time for fun things, like on my annual Super Bowl party.

GATES: Swell.

WECKER: My wife, Francine, actually emailed me confirmation that I could throw the party, well, maybe. And the problem is, I didn't get a chance to read my mail before I left Seattle. However, on the airplane, I could do it because the mail was already there because of active sync. So, I read the mail, brought it down, and this is the reply I'm putting together to her that she said, yes, I can do it, but, of course, I have to do the invites, I have to do the food, I have to clean everything up, and worst of all I have to have it all arranged before I leave CES.

So, this has got me worried. I mean, I have to get everything done. And, little things like I have to give this presentation, I've been busy. But it's not too bad. With the Palm PC, I was able to organize the whole thing. First, last night, I started putting together a task list. You know, sending the flowers are important. We won't talk about the other important items. But I noticed I have to send the invitations to the party. And that could be a real chore. There ares a lot of people I want to invite. Well, with Palm PC, it's easy.

We'll go back to the calendar, and this time I'll just go to the 25th, which is the day for the Super Bowl. I'm going to block out the whole afternoon. It seems reasonable for a party. And with handwriting recognition, and word completion, boom, I can easily put in the name of the party; of course I never can type well, but as easy as that, even as a lefty I can use the handwriting recognition. It's my own printing also. You notice, I don't have to learn a new character set. If I do want to use one of those simplified hieroglyphics, I can do that, too. Both are built into the device, easy to use. In the third case, if I want to use a keyboard, I just bring up the keyboard, and there's our appointment.

So, let's take care of the invitations right now. Easy enough, I open up the calendar, and from the calendar I can see all of my contacts. Now, I just check off whom I want at the party. It's as simple as that. When I hit OK, the email is already put together with the invitations to everybody who's supposed to go. It's sitting in my outbox, and the next time I connect from the hotel, it will synchronize, send my email, and everyone will get an invitation. As simple as that.

GATES: That's nice.

WECKER: Well, the only problem I have left is the food. And last year was a real disaster. Stale Cheetos didn't go over very well. So, this year I figured, in case Francine said OK, I'd go out to the Web and see if I can find some good food to use. And there's this great sight on MSN called Morney's Kitchen. And on that site, you can pick recipes, and when you do it creates a mobile channel right on the Palm PC with not only the recipes themselves, but also a grocery list. So I can check off on this form when I'm at the store and pick up the things that I need.

Oh, I'm sorry, Bill. I just got a page on my compact pager that says I got Super Bowl tickets. The party is off. And I have a phone call I have to make. So I'm going to take off.

GATES: All right. Thanks, Dave.

(Applause.)

GATES: So, that's the Palm PC, which is the smallest member of our Windows CE family.

The next member I want to talk about is the Auto PC. And this is a particular challenge because in the auto environment, you don't want to distract the driver. Quite a few wrecks have been caused by people who are trying to pay attention to dialing phone numbers. And so, we had to rely on some very new software technology, in particular speech, as well as using the buttons on the device itself.

Now, the car environment is very nice in the sense that you have more power. You don't have to worry about the power drain quite the way you do in these portable devices. And so we have a great color screen. Our user interface is really key to what we're doing here. Productivity is key, you want to be able to get messages, traffic reports, be kept very up to date, even when you're in the car. And you also want applications, navigation is probably the most important, but even things like letting you customize the way you use the radio, keeping track of names and addresses, all of these things are built in, and can share with the other devices.

Now, this is another one that just talking about it won't really give you a picture of why we're so excited. So, here I've asked Eric Lang to come out, and I can see he's in his simulated car already.

LANG: In order to get information, we need to stay in touch. What we've got here is the Auto PC, and I think it's a real winner. Like the Handheld PC, and the Palm PC, the Auto PC is a PC companion, based on Microsoft Windows CE.

Now, check this out, the Auto PC uses interactive CES technology, using simple voice command. This means I can operate the system while keeping my hands on the steering wheel, and my eyes on the road, like this.

[Mr. Lang gives a series of voice commands, going through a menu of items that would allow him to start the radio, or CD player, or navigation system. The last choice is an address book.]

LANG: Address book. There we go. I can keep the addresses and phone numbers synchronized, using my handheld PC, and infrared transfer. I simply set up the Auto PC to receive the information, then I send it over from the handheld PC.

GATES: So all the latest addresses and names moved over, just using infrared.

LANG: That's exactly right. They're all synchronized. As part of the PC companion family it's important that all the data can be maintained with one basic database. Once the information has been received, the Auto PC can use that information to get directions or dial a telephone, like this.

Next.

VOICE: Bill Gates.

LANG: Now, I can dial that phone number, using my built-in car phone, and the optional phone cradles from Aura Electronics. As you mentioned, there is also a great built in navigation system. Let me show that to you. Start.

VOICE: Radio.

LANG: Navigate. Using the optional GPS receiver, it locates where I am. Usually it takes a couple of seconds while it's inquiring the satellites, a little longer inside the theater. I can tell it where I want to go, either by giving it an address, or by selecting from the points of interest database. Let's go to the Las Vegas Art Museum. I bet you didn't know there was one here.

GATES: No, I've never been.

LANG: Well, this is a culture city. It tells me how to get there. Once I start the path, it reads me directions.

[Voice gives directions.]

LANG: There is also a high-end digital audio system. With up to six channels of sound, graphic equalizer, and other built-in audio controls that allow you to customize the sound quality any way you like. [He tells system to start the radio.] The radio also allows you to preset stations, just like your standard radio, but the difference is, that you can also add name tags to this, and refer to it later by name. What I've done here is I've dialed in a station, now I'll lock in that station, by holding on a number key. Now I've got a preset. After you have a preset, then you can add a voice tag, like this. So let's call that "classical"

[Mr. Lang tells the system to preset, classical, then tells it to start the CD player, and adjust the sound, and then calls for the wireless system.]

LANG: Wireless. The wireless system allows me to use both personal for and email and paging, and also traffic. As you can see here, we've got three personal messages and a couple of traffic ones. Let me show you how this works. You can imagine that while I'm on the road, I receive these messages on demand. And I want to listen to them. Select. Review.

VOICE: [From] Bill Gates. Subject: third-party apps. Show me an example of a third-party application.

LANG: And that's how it works. Now, obviously, the audio quality and the speech recognition is going to be much better in a car. We're getting a lot of echo and reverb inside this large auditorium. But, it is working. That's about all I have time to show you right now. But, I want to invite everyone to stop by for a complete demonstration in the booth. And be sure to check out the third-party application development ideas that we have going on for some very cool software and hardware add-ons for the Auto PC. Also, make sure they register to win their own Auto PC. The Auto PC we're giving away comes wrapped in a brand new Porsche Boxster.

GATES: Sounds like a nice car. I wish I was eligible. Thanks a lot.

GATES: I mentioned another important category for Windows CE is the digital television. Now, the age of digital television has not started yet. And there is a lot of companies working hard to make this happen, because it's a great new product and it's a wonderful opportunity for lots of companies. Digital television, when it comes, will be more than just a better picture and sound.

A better picture and sound are very, very important, but it's also a chance to take advantage of low-cost electronics, and built-in information access. A rich TV guide that let's you schedule things easily. Even interactive programming, to let you get more information about what you're watching. And interactive advertising, which will be a huge value to the advertiser to let customers who are interested respond and receive more information.

Now to bring these elements together, we need standards, and there's a lot of effort going on to pull those standards into place. One of the products that we've done, that I think shows the direction and has been very, very successful, is the WebTV product. This is a product now, with over 250,000 users, and it's just this year being introduced in countries other than the United States. We see this being used around the world. A lot of effort went into the user interface here. It's very seamless integration with the TV set.

Another thing we've done, though, is we've given people the Internet on their TV. And there was some question, you know, would people accept that, would they really want to use it. Well, the thing that's happened is actually pretty amazing, which is that WebTV users are online, working with the Internet over twice as much as online users. Our WebTV customers are out there more than 40 hours a month, getting their electronic mail, going to new sites, and I think it's the fact that it's right there fact with their TV, and the way we've done the user interface.

I've asked Steve Guggenheimer to come and show us the latest with WebTV, and also show us what digital television is going to look like.

GUGGENHEIMER: As you talked about, information access is very important to people, and you know, when you think about it, in 1998, almost 20 percent of the people in the world will access information off the Internet. Well, if we think about it, then it would make a lot of sense to bring that information access to the most prevalent device in the home, the television. And there's two approaches we could take to do that. The first is we could actually go ahead and ask everybody to hook a PC to their television, but I think as we saw in the video this morning, with Richard Simmons, that still brings some fear to people.

Another logical approach might be to start from trying to bring the Internet into the television experience, and allowing consumers to start with what they're used to. And that's exactly what WebTV did, about 14 months ago, in launching the original WebTV classic box.

So here, while we're watching TV, if I'm interested in getting information, I can simply click on my remote, and flip over into information access, or Internet access mode. Now, as a consumer, I don't know anything about URLs, or anything else, I'm just looking for information. And the thing that makes this work is inside of the WebTV box there is a chip, a very high-end graphics chip, that allows us to take any site on the Web and display it on a standard resolution television. It makes sure that the Web looks good. So we make sure we enlarge the fonts so you can see things, and the graphics, and the graphics download quickly. It also makes it so I can navigate, simply using a remote control.

So there are four buttons on this remote control and a go button. So, for example, if I want to go explore the Web, I simply click on the arrow button, you'll notice the yellow box moved, and I click go, and I can go out and explore.

So, as a consumer again, I'm not looking for URLs, or anything about the Web, I'm just looking for information. And if I happen to want the news, I can head down into the news area. And see what's going on out in the world today. So one critical capability is actually the brains inside of the box, to deal with web sites, and make them scroll only vertically, and deal with things like image maps. The other is to bring information together for the consumers. So we organize over 2,000 different Web sites into logical categories, so as a consumer, again, I'm just going out looking for information.

Now, when we go back home, there are other services that make a lot of sense to provide for the consumer. Email is the number one application on the internet today. And, of course, I'd like to, you know, communicate with other people in my family. Well, if we go into the mail area, of course, when we think about email from the PC direction, the logical thing we think of is the keyboard and entering information. And, of course, we can do that with an infrared keyboard here. But, again, if we think about this from a television perspective, what makes a lot more sense is to go into video email, and potentially hook a video camera to this device, and go ahead and take a video, and then display that and send that to family, friends, or whatever. And, in fact, here is one that came from Japan, to congratulate us on the launch of the WebTV product.

VOICE: Hello, we are the WebTV Japan team, here in Tokyo. Congratulations on the announcement of the new system, in the United States. We are also launching WebTV service in Japan by Christmas. See you then. Goodbye.

GUGGENHEIMER: Now, this is a good segue to start talking about the next generation WebTV product, which we released before Christmas this year, WebTV Plus. And with plus we've done a couple of things. First, we've added the input and the capability for video email, like we've seen. But, in addition, what we've done is we've added a tuner card in the hard drive. Now, with a tuner card, we can take the video as it comes in, digitize that, and then use our graphics chips to bring together the Internet, or the information capability, and the video capability. So now I basically have a video component that I can add information to, to provide a richer user experience.

Of course, if I want to watch TV, I simply just watch TV. But, if I go back, and perhaps I want to know what's on TV, I can simply go over to TV listings, and again, now because I can manipulate the video, I can have a video component up in the upper corner. I can go around and see what's on the television. And you'll notice that not only can I see what's on at this moment, but I can go off and see what's in the future.

Now, with the hard drive on the box, you've noticed we've downloaded a little bit of information, it begins in 24 minutes. But, with the video technology you just saw, I could actually download trailers for this. And as hard drive size increases, in five years and in ten years, we could get to the point where we can actually download a week's worth of programming, and really have television on demand.

The last thing I want to do is go ahead, scroll around and see what's on. Now, in this case, you'll notice, when I came to "Mars Attacks," we'll go ahead and watch a movie, that seems like a little bit of fun, the last thing we can do is actually tie together the video information and Web information, or Internet information, by bringing up links during the program. You'll notice that an eye came up while I was watching this program, and that tells me there is more information available.

So, if I want to, I can go to a Web site related to this program. Now, of course, I don't have to, but if I'm interested, you'll notice that it automatically goes over, and so now we're starting to see interactivity. Tying together information that's available on the Web with the information or the video program that I'm watching. We'll go ahead and let this come up.

Now, a lot of times you'll say, well, I don't want to leave my TV. Well, again, we have this video technology, the video component. If I go to options, I can always have a video window, or basically picture and page, so I have the capability to always have a combination of video, plus data. And this is basically the first step in creating the architecture, or the components, for interactive programming, information access, and bringing together these two worlds.

I think this is a logical place, then, using this as the building blocks, to talk about how do we evolve this box and this technology towards digital television. The first thing we need to do is to switch over to a 480 progressive scan signal, OK, a high-definition signal that we've actually been showing in our booth, over the last week. I'm not actually using the TV as the receiver for the signal. I've actually built a special tuner card that I have in the PC, over there, and that tuner card was built using very standard components. So it's extremely low cost. And one of the objectives we're after in trying to move towards digital television is ensuring there are low-cost computers.

There are some beautiful displays here at the show. And, of course, those are interesting, but they're also still very expensive. What we'd like to do is help build a very low-cost receiver and, in fact, take the technology that's on the card in there, and integrate it with this WebTV set-top box. So that we can not only drive this type of display, but also much lower cost, more mainstream devices by the end of next year.

GATES: Well, that sure looks good, that high resolution.

GUGGENHEIMER: Yes, I mean, there's a lot of discussion about what it is, but I encourage people to come by the booth, and really think about, you know, how do we get high volume quickly, so that we can actually move the world faster towards digital television.

As we move towards digital television, one of the other aspects we talked about was interactive programming. I think the crossover links from WebTV give us an idea of how we can start to mix and match video and audio. What I've done here is I've built a mock-up of how this might actually work, going forward. Taking the high-quality video we'll have, and taking the information and the bandwidth that will be available, there is a lot of opportunity for building very interactive programs.

And I'll tell you now that this is a computer that I've built. It's got basically the video stored on the hard drive. ItÂ’s in no way a high-video system. But, I want to show you some of the graphical things we might do, in terms of interactivity, or enhancements. So I'm going to go out and pretend like I'm watching the football game. And you'll remember before, we had an eye that stood for more information. It's a little bit different eye here. If I'm not interested in it, I simply let it go. But, if I'm interested in more information I can go up, and ask for it.

So here, as a consumer, now, while I'm watching the program, I can ask for the things I want, when I want them. So if I'm interested in statistics, I can go and get them, when I want them, as appropriate, so I navigate around. Another thing that's of wide interest is replay, right, because we hard drive capability, because we have more bandwidth for sending information, I could literally get access to every replay in the game. And so, when I want a replay, I can call it up as I want it. I can go back to old replays, I can pause, fast forward. So I have more control over the programming that I'm watching. And I can actually derive a better television experience for myself.

A couple of other options, of course, if I want to go shopping while I'm here, my favorite team is playing and I want to go out and buy a jersey, maybe I'll go out and buy a Seahawks' jersey, whatever jersey I want, add to the cart. And the Seahawks didn't do too well this year, so I might not do that. Of course, in this case, I'll charge it to you, since you're making me come out and work on a Saturday. It's part of the deal.

And so, we'll go ahead and send that off. And so it's going to go ahead and send the order out now, and I'll get the jersey depending on how long it takes to go. But there' are just a lot of things that are capable from a consumer's perspective. And statistics and replays, those are very standard things that we think about. But we can also start to get a little more creative. Again, as we have more bandwidth, and depending on how we use that bandwidth from a high-definition signal, we might have the opportunity to have additional configuring.

So, for example, I might want the standard program, but for 50 cents extra a game, I might order an additional camera angle. So I actually have two camera angles I can choose from for watching a game. Or, if I wanted to, I might choose the local commentator versus the commentator that the networks provide for me. I can get more of a local affiliate. So, taking the capability of the WebTV box, right, adding the high-definition digital components, and adding this level of interactivity is something that we think is really heading towards digital television, and is actually doable for the mainstream consumer in the near-term versus the long-term.

Now, one last thing, as you know, my roots are in the PC, and you spent some time there yourself, Bill, it would only be appropriate to say that at Microsoft we're very interested in ensuring that there's architecture across a wide variety of devices. So, where the WebTV is a very mainstream, high-volume product, there will be people that will also want to do things in more of an integrated fashion with more capability. So, we'll move over here.

With Windows 98, we're working to make the PC both work better and play better. And in terms of play better, what we're doing is adding the technologies to ensure it can do some of the basics in terms of entertainment. So, television, in terms of this machine, you'll notice I have an electronic programming guide, very similar -- we'll move up in time a little bit here -- to the one that I've been using on the other machine. And here you can see the program that's on.

And so, we're taking that same infrastructure of video components, and data components, and an electronic programming guide, interactivity, and we're making sure that infrastructure is available on a wide variety of form factors. So, in this case, not only could I watch television, but I can play DVD, I can play high-end games, I could do computing. So the consumer will have a wide range of devices to choose from. They'll have an architecture that's very similar across all devices, we'll help move to digital television in the near-term versus the long-term.

GATES: Microsoft is increasing the investment we've spent on Windows CE very dramatically, and one of the design wins that we very recently received is a five-million unit order for Windows CE to be in an advanced set-top box that TCI, the largest cable company here in the United States, will be offering. The Windows CE product will be in every single one of those set-top boxes. So, in terms of building rich content, and building rich applications, Windows CE will be a very strong target, and we're going to up our level of evangelization to make sure that the great applications come very, very early.

The price of these boxes has come down enough that TCI and other cable companies have the confidence now to place the very large orders to start that success loop going. And we're working as a partner with those cable companies to make sure that when those boxes get in place, that all the capabilities are exposed through great software applications.

Now, our contribution is not only Windows CE; it's also some of the work that went on with WebTV in terms of how the graphics work, how the user interface works, and so that was very key to us building this partnership. Another very important point is that this advanced set-top box, which will be a significant volume, is capable of doing higher resolution format, in particular the HDD TV format, which includes that 480P or 480 Progressive. You saw an example of how great that looks. So this is a major milestone for TV and using great software to bring it into new areas.

That would really be my summary of everything you've seen today. The consumer electronics industry is going to enter a phase of excellent growth. The software innovation that you get with the standard platform, the pace of the hardware innovation, the desire of all the players here to bring TV to this new digital level in a large variety of form factors with great small screens, new input techniques, really the sky is the limit in terms of what we're able to do here. And we're very, very excited to be a part of this, and look forward to working with all of you. Thank you.

Q&A Session: Thank you, Bill. That was terrific.

Now, we have an opportunity to ask some questions. If you have them, please write them down and pass them to the side, and people will pick them up.

Bill, I'd like to start off with a question. The other day, we had Vice President Gore address CES attendees, and he spoke about global warming and this treaty that the U.S. recently entered, and he talked about ways that we have to cut down on our emissions, specifically through cars and other things. What role do you see Microsoft playing in that, or the computer industry in general, as we move towards the next several years of trying to cut down these greenhouse gases?

GATES: I think the information tools will give people a lot more flexibility. You can live anywhere you want and still collaborate with people using not only electronic mail, but the kind of video conferencing capability that these new devices will enable. So, telecommuting will become a reality, being able to work with colleagues all around the world. And a lot of these devices are very low-power devices. In order to make them powerful in the portable context, the new chips are requiring less and less power all the time. And so, I think our industry can make a contribution there.

QUESTION: Thank you. There's a question which has been in the news a lot lately that says, if you are successful in portable mobile and other embedded applications, such as you have been in personal computing, what is your strategy to stave off Justice Department antitrust forces?

GATES: Well, success for us is measured by not only doing the strong platform, but really having the software industry grow up around that. Since Microsoft was started, the software industry is now 10 times as large. And those jobs have been created because, with a high-volume platform, there's an opportunity to do new software. The thing that we haven't done a good job on, and we've made a lot of mistakes, but one is that we just haven't made it clear to people that the PC industry and digital electronics is the most competitive business that there is. You know, prices are coming down. Even take the areas where Microsoft has very high market share, prices constantly come down. The R&D investment is constantly going up. And what the government at large cares about in the final analysis is customers getting a great product. And, you know, I think these industries are doing the best job of that of any.

Now, Microsoft, you know, we need to show great respect for the government. It's no fun being sued by the government, I can tell you that. But we need to make sure that we retain the flexibility to enhance our products. And so, I think, given the way our priorities work, we'll find a way to soften this thing up a little bit, and find a way to move on and do what we care about, which is software innovation.

QUESTION:Speaking of innovation, Auto PC is a great idea. How fast will beta testing and a consumer ready product make it to market?

GATES: Well, this is one that we believe the add-on product that you'll be able to buy in the after market through partners, particularly Clarion, who has been a lead partner on this, will be available before the end of the year. We're showing it for the first time publicly. We're putting the last touches on, particularly the reliability of that voice recognition, but I think we'll have it in the market before this year is out.

QUESTION: Okay. Microsoft has already become a hardware company via keyboards and mice. Does this mean you are going to other PC hardware peripherals?

GATES: Microsoft is overwhelmingly a software company, but we've got a fairly entrepreneurial group inside Microsoft that did the mouse. They don't actually manufacturer it themselves, they use outside companies to do that, but they do the design, and the software that fits in with that. And they've had a lot of success with the keyboard, of course, Feedback Joystick. Their big product for this Christmas, and one that I think will be a great category, is these animated figures. They did a Barney figure, and we sold many hundreds of thousands of those. That was quite a success.

Now, our focus there is still very narrow. We only do things that are add-ons to the PC, where the software element is the thing that we bring that's most important. But you're going to see a few new things like that, but no hardware systems. In that area, we work strictly with partners.

QUESTION: Just to show you that we didn't set up these questions, does Sun's TCI deal change Microsoft's strategy at all? Please be specific..

GATES: What Sun announced yesterday is that a subset of Java, not full Java, would be in a subset of these set-top boxes. Even this subset doesn't fit into the eight-megabyte set-top box. And so, Windows CE will be in all of them, and Java will be in some of them. If application developers want to target Windows CE, we'll be helping them with that. We have great toolkits for that. They can also, if they choose, target Personal Java. And, in that case, they can run in those boxes that happen to have Personal Java. And so the developers will have a choice there, and you'll just have to see, as the volumes roll out, as the richness of the platform becomes clear to developers, people will pick. We feel very good about the partnership we've got with TCI here, because we're providing fundamental technology that enables all the great things that they want that box to do.

QUESTION: Switching to the global scene, what will be the impact of the Asian financial and economic crisis on your business?

GATES: Microsoft takes a very long-term view of everything we're doing. When we start working on speech recognition, or artificial intelligence software, we know it's going to be five to ten years before that's having a major impact. So, the fact that those markets are slowing down and, in some cases, even shrinking right now, doesn't change our basic product thrust. It's not going to slow down what we're doing to add R&D and certainly, you know, the growth rates in those markets will change.

Overall, the PC industry, which we're primarily involved with, is very, very healthy. The lower prices, the Internet kept the growth rates of those industries up above 15 percent, even now that it's delivering over 80 million units a year. So, I'd say that although we're very aware of what's going on in Asia, and it will affect some short-term results, it doesn't change our strategy at all.

QUESTION: What do you see as the greatest threat to Microsoft?

GATES: Well, the biggest threat to any technology company is that you fall behind. You don't continue that high, rapid innovation that technology requires. Everybody knows that today's chips, today's screens, and all of today's software, every product I offer, will be replaced in three or four years. The only question is, am I the one who replaces it, or do I let somebody else come along and do it? And if I do slow down, I'll bet that the company that comes in and takes my place is some company we can't even name today. Somebody who's benefiting from the billions of venture capital that are out there. I wake up every morning thinking, wow, we've got to make sure we're still vigorous, hiring good people. And so that great software is at the core of what we do, and if we fail that will be at the core of what we will have done wrong.

QUESTION: The features of interactive TV through a computer are quite personal. How does that affect a family viewing experience and the battle for the remote?

GATES: There's a lot to be learned about how this all plays out, sociologically. It's been amazing to talk to the customers of the WebTV product. These are people, most of whom think of the PC as just too hard to ever get to. And yet they have friends and relatives who want to stay in touch with them on electronic mail, or they have a hobby where they know there's something very interesting out there on the Web that they want to learn about. And so, most of them, when they bought the product, they were really skeptical, would they use it? It was inexpensive enough, they were willing to take the leap of faith and try it. And they become very involved with it. It becomes part of their lifestyle. Now, you get households where it's popular enough that, you know, they fight over using it, and maybe they'll hook the WebTV up to their second TV set as well.

One of the key differences between the TV and PC is the screen is large enough for multiple people to watch. So things like multiplayer games need to be done well. And, you know, I'm sure there's a lot we have to learn about accommodating group usage.

QUESTION:Or they could always buy more new products.

GATES: Sure.

QUESTION:What do you think home automation must provide consumers in order to be more accepted than it is now?

GATES: Well, ever since Microsoft was started, over 20 years ago, I believed in home automation. Home automation did reach a great milestone recently, just about three months ago, which is that I moved into an automated home. We're still working the bugs out. You know, the lights come on sometimes when they're not supposed to, but it's very cool to be able to call up any music disk I want, to be able to sequence images on very high-resolution displays. And so, I think this is something that will come.

Now, it's going to have to be awfully inexpensive, awfully easy to do, because manually dealing with your lights, and even putting a CD in the player isn't that hard. So, I really am glad to see the connectivity efforts, the power-line modulation, the RF, that stuff coming along, because that's a real building block to eventually make home automation a big market.

QUESTION: Well, I fear time has expired. On that note, we'll have to end. Thanks, Bill, for coming out to the show. It's been terrific.

GATES: Thanks for having me.