MR. GATES: Thank you.

Well, it's a real pleasure for me to be here at Indiana. It's not often I get to follow the Dalai Lama on a lecture circuit. I don't think we're going to overlap in any way.

Well, seeing all this red takes me back to my college days, actually at Harvard they call it crimson, not red. But it sure looks the same to me. I want to clarify one thing, which is that I'm actually not a college dropout. I'm on leave from Harvard, and I could go back anytime I want to and finish that French class that I didn't do, and they might even give me a degree.

Actually, the reason that I left college was because of the urgency of an idea that a friend and I had about how computing could change. We saw that the miracle of the chip, the computer on a chip, would really change fundamentally what computing was all about. Change it from something that was simply a tool of large organizations to keep databases and print bills into something that was a tool for the individual, and change it from a tool of computation to compute deep mathematical problems to a tool of communication, to let people share any of their ideas at the speed of light with other people around the world.

And that dream was written down as the founding vision of Microsoft, a computer on every desk and in every home. Because the exponential improvement in hardware, and the opportunity created to build innovative software on top of that, created a whole new industry. The PC industry today is very large, and it has quite a different structure than the computer industry that came before. It's far more competitive, far more specialized, and far higher volume. In fact, the key to the PC industry has been standards and low prices that have driven to record volumes every year in the last 25 years.

What that's means for software has been incredible. We can now afford to invest tens or hundreds of millions of dollars in creating software packages, and yet sell them at very low prices, often under $100. The magic of this, of course, is volume. And the PC industry represents that principle better than any that I can think of.

Well, people can say, it's been 25 years, has the industry achieved its original vision? And the answer is, no. In no way has the computer had even 10 percent of the impact that I expect in the years ahead. In the next 10 years, we'll see more change than we've seen in the last 25. So, it's a very exciting time. It's a great time to be entering into the job market, because companies are taking new approaches, and so people who seize on these changes will be able to get ahead in a way that you wouldn't be able to if there weren't these changes.

I titled my talk this afternoon, the Web Lifestyle. It's the idea that once you're taking the Internet and all the information that's out there on the web for granted, you'll use it for an incredibly wide variety of things. You'll want to learn that way, find new facts, get the latest research. You'll want to organize, plan things with friends, and you'll want to share your political ideas. You'll want to connect up with relatives and send pictures around. You'll want to find out what's the latest in sports, or what the latest forecast is.

And it will become the world's marketplace. If you want to find a book, if you want to plan a trip, if you want to see what the best price is, or certainly find out what the best merchandise is, the web will absolutely be at the center of that. We could say that today we all live the telephone lifestyle. It's almost a silly thing to say, because we take the telephone for granted. Of course we use it for an incredible variety of things, just like we use the automobile, just like the TV is there, and we know that it's there. It's nothing remarkable.

Well, computers of all sizes, and the use of the Internet just 10 years from now will likewise be completely unremarkable. And, it will transform virtually every business there is.

I think it's particularly interesting that universities in the United States have been at the cutting edge of this. The Internet protocols, a lot of the Internet usage came fro the university environment. In fact, many of the key protocols I was using as a student more than 25 years ago. But it's the drop in the price of communications combined with the microprocessor that allowed it to flourish in these last five years, and allowed it to become obvious now that the information age has really started.

The adoption rates are really fantastic. We've gone from just students primarily in 1994 not to almost half the population having some experience of the Internet. The traffic is growing because individual people are doing more, including sound, and pictures, as well as text. And if we compare this to any previous revolution, how long did it take radio to get 50 million users? That took 38 years. Even TV, that took over 13 years. And in the Internet, it's only taken four.

And so, not only is the change profound because it eliminates distance, it eliminates the difficulty of finding information, it is happening at a greater rate than ever before. Previous changes you could wait a generation for people to adjust to it. This will happen during our generation. It will go from completely unknown to being used in virtually every job many, many times a day.

Well, how far are we on this? Take stock trading, that's come quite a ways. Over 25 percent of all retail stock trading is done with the orders entered now on the Internet. But, in most other areas, we're simply scratching the surface. For travel reservations, about 10 percent of people go to the Internet to get the information, but then still only about 1 percent actually book their travel that way.

In advertising, it's a growing business, but very small. And in a car purchases, although, again, the information source is important, because you can find out what the dealer paid to buy the car, you can find out what your used car should be worth, or what a reasonable loan rate is, still only 2 percent of the transactions are closed this way, where you indicate what you want, and then they come and deliver it to you. You don't ever have to go anywhere to do that shopping.

These numbers will increase very rapidly, as will the numbers in all areas of commerce. So, that's why you're seeing almost a gold rush right now. New companies are being started up. The valuations of anything associated with the Internet often seem sky-high. And yet they fluctuate incredibly. People feel like there's something very big here. They just don't know where the payoff is going to be. But that's good. It means the level of investment, and therefore the pace of innovation, is faster than ever before.

Just in the last five years, over 20,000 new software companies have been started, and that's to go after the opportunity. On campuses, it's pretty far along. These numbers are all strictly focused on the United States. Most students have access, even out of the dorm. A lot own a PC, and share them with people who don't, hopefully. And, people are using the Internet now as the standard part of student life.

I think there's a huge advantage that the U.S. is getting this into university activity faster than other countries, because it means when all of you go out into the workplace, you'll take it for granted, you'll say, hey, how come we can't use these tools to do things in a more efficient way, because the new jobs are going to all be defined around the use of information.

I have some great examples here, one that I don't have on the slides is that one of the people working for me actually woke me up to how quickly the Internet was catching on. He went back to Cornell where he'd gone to school, and within the three years since he'd left, he saw a radical transformation. And so, that really got Microsoft thinking back in 1995, wow, this is important, we'd better focus our strategy here. And so we spent several years with that as a very key priority coming a long way.

We have people applying for schools online. We've got people staying in touch, handing in homework, getting course notes, signing up for things. UCLA, this personal home page, I think, is a great idea, where you can decide what information you want to make public, and it's your way of finding out what the records are, what you're signed up for, even you can get in and see your results, what the requirements left to do are. And that part of it is private to you.

Here at Indiana University, the campus-wide access to email, making that now a central part of how things are done. I think that's a very important step, and your involvement in the next generation Internet, Internet II, shows that there will be a chance to lead the way, because that's a much higher speed Internet, which starts to support video not in a sort of choppy small format way, but in a very high quality way, as well as massive amounts of data.

I mentioned that the Moore's Law of the doubling in power of the microprocessor every two years is sort of what led me to feel something really dramatic would happen. That improvement is continuing. In fact, if anything, the pace is going up. We've got the speed of the processor really the sky is the limit there. We're going to have 1,000 megahertz chips, we're going to have 64-bit memory. We're able to take not only the faster chips, but more chips in a system, and then we cluster those systems together. And so, the overall performance is now going beyond what very expensive mainframe or UNIX type computers could do in the past. And so all the way down to the cheapest PC, that's as inexpensive as five or six hundred dollars, all the way up to these clusters that can handle any problem that any computer has, it's all one architecture, all one set of tools, and approaches. It's very volume oriented. That's what the PC is all about.

Perhaps more profound, though, is that the storage of these devices, and the quality of the screens will really change the way we interact with them. Today the screens aren't good enough that you'd want to sit and read a textbook off the screen. For a multimedia encyclopedia, the payback of the rich navigation, the sound, all of that makes it worthwhile so, instead of doing the print encyclopedia, to do it online. But a lot of documents haven't gotten there yet. Well, it's just a matter of a few years before the screens get good enough that people will switch.

The PC will be more and more a tablet form factor that you can carry with you, you can pick up wherever you go. As soon as you identify yourself, do your log-on, or use your smart card, or whatever the identification technique is, the information you care about will be brought up onto the screen. There will be lots of different sizes of devices that are complementary to the PC, where you'll be creating and editing documents. Your TV set will let you see your mail, let you play games, let you interact. Anything you want to do, that will be connected up to the same network. It will have the power to do games far better than the standalone machines have today.

When you move around, you'll have new cell phones that will let you look up information, see your appointments, see your messages, even in your car. We have a thing that's coming out in a few months called the Auto PC, where you can talk and give commands, like show me this address, or give me the directions, or select the following radio channel. And without taking your eyes off the road, the computer will hear what you're saying, and hopefully respond with the right thing. These technologies are early. In fact, for the last 20 years people have talked about doing that and it's only recently that the power and the error rate have come down to make that possible.

There will be lots of new applications for the PC. Photos won't be done as much on film, or even if they are, they'll be converted to digital very quickly, so you can manipulate them, mail them around, put them in an album, and so that will be a standard PC application.

Looking at music, this is a big thing right now. There's a format called MP3, it's fairly controversial, because the digital format is so convenient people have started using it before the mechanisms to track copyright usage are there. And so, actually, there's a lawsuit now where some of the music companies are a little worried about this. But no doubt music will move to that digital form and give people that incredible convenience of organizing the things the way they want, having it with them wherever they go, and not having to always put things back into the CD like they used to.

MR. GATES: (In progress.) It's actually kind of interesting that, you know, we actually call stores record stores. You know, one of -- one of the young kids at Microsoft was saying, why do they call them record stores? Well, of course, this kid had never seen a record before, and probably never will. And even the CD will be the same way, because it's just inconvenient to have to deal with it physically. The phone, that's getting integrated in, so that if you're out on a website thinking of buying something, do you want to talk to somebody, you'll just be able to click, they'll come on and it will be very high quality, they can give you advice, and there won't be this dichotomy between the world where you talk to a human and the world where you talk to computers. You can use the computers to look things up, consider things without bothering anyone, and then if you want human assistance great. They will be there either just talking to you, or even in video conference type format, and so it will all be seamless.

One of the big challenges is making these machines simpler. That's become now Microsoft's top priority. There's too many commands. If you look at the program menu in something like Windows, there's all those utilities, all those commands, and we seem to get more all the time. And its' come to the point where we have to get rid of the majority of those, and to start to simplify the problems people run into. The error messages you get from the PC are pretty darn cryptic. This is one that's sort of the extreme. It's not in the next release, but it's still my favorite. It says, the DHCP client could not obtain an IP address. If you want to see DHCP messages in the future, choose yes, otherwise choose no. Now, if there was any confusion about the meaning of yes and no, this is incredibly helpful. But, as far as the rest of it goes, they seem to be assuming you know why something is going wrong, and you might understand why you'd want or not want to see those messages, which even an expert should not be exposed to that.

So whether it's moving to a new PC, or having your diskette full, or having your mail not work, all of those are things where we can take the power of software and the extra power of the chip and use that on behalf of the user. In fact, we can even connect up through the network and have somebody help you out at all times, so these frustrating experiences should be a thing of the past.

We've put together a video that really shows in the home environment how tough it is to get these things to come together. So let's take a look at what the present state of the art is like.

(Video shown.)

MR. GATES: So we've got a long ways to go, a lot of opportunities for better software. One of the things that the new software will do will move us away from strictly using the keyboard and the mouse to being able to use speech, handwriting, and even having the computer see, so it can tell what gestures you might be making, tell how you might be reacting. It can understand who's using the machine and do its best to help you out. And so this takes advantage of that extra performance, in fact, all computers in the future will be able to see, speak, listen and learn.

Well, how do you do this? Well, it turns out it's a very tough problem because, take speech for example, simply looking at the wave forms is not enough. At that level, the information is incredibly ambiguous. Our speech group calls itself the Wreck A Nice Beach group, because the wave form for recognize speech and wreck a nice beach are absolutely the same. And the only way you can tell the difference is you have context, you sort of know what the other things the person is saying. And so you have to have a high level model of the sentences, the grammar, but also common sense about specific information that helps you get high recognition rates in the way that humans do.

The same is true for handwriting, people often can't read their own handwriting, but they have enough of a memory of what they were writing about and different things, that they manage to put it together. So what we're saying here is that we have to give the computer common sense. That's proven to be very difficult to do, but we've achieved some milestones very recently that make us optimistic that handwriting and speech will be part of the interface in the next three to five years. And there's a lot of areas of research here that play into that.

One example of where you really need this kind of capability is in Japan and Korea, where their alphabets are very large. Someone who writes Japanese needs to know on the order of 10,000 characters. And so the keyboard doesn't work very effectively. What's been done as a bit of a crutch for that is that you type in the characters in katakana, then you pick amongst the various Kanjis. That's the name of their alphabet that you're referring to. But, if you don't remember how to pronounce the Kanji, for example a place that you've never seen before, an address that's never been read to you, the way you do it today is you actually take your mouse and you pen out the appearance of the character, and we recognize that. It's proven to be very, very popular, because of this difficulty. So in China and Japan, the move away from the keyboard will actually be more rapid than anywhere else. Although I think it will be a standard way of interacting everywhere.

It takes a lot of researchers to pull this together. It takes collaboration with the great universities, it takes special projects, it takes a long-term time frame. These are projects that got started about six years ago, and yet the people involved were given no sort of commercial deadline about when they had to have this stuff up and running. And a few companies in the computer industry have had that kind of time frame to give back to the pool of things that will really drive us up to these new levels. And so it's really super to see that all coming together.

So the bottom line in all this is that this web lifestyle really is going to impact everything. It will change education. It will change buying. It will change even how you find jobs, how you participate in those jobs, and in most ways it's all to the good. It provides more flexibility. Some of the challenges, like privacy policies, making sure kids only have access to what's appropriate, those need to be worked on. In fact, the coordination of the laws around the world, when you have this global network, become far more complex. But, I feel we will be able to address those things. Software innovation, hardware innovation, there's going to be a lot of companies that do some amazing things out of this, and we're really just at the beginning of something that can be quite incredible.

Thank you.

(Applause.)

MR. GATES: Thank you. At this point, I think we can go ahead and take the rest of the time for any questions people have. I think the spotlights are highlighting a couple of microphone that are out there, and if people just want to come down and stand by those, I'll point to a microphone and answer whatever you're interested in.

QUESTION: Hello. I'd like to introduce myself as Eddie and welcome you to Indiana University. I'm a finance major, and I was wondering, how would you suggest people best invest their money in order to reap the rewards from the web lifestyle that we'll see, and this question isn't only concerning Microsoft, but other companies, maybe Internet, or such as that?

MR. GATES: That's a very good question, and one that a lot of people work full-time trying to unlock the secret there. And it's tough to say that you should just invest in Internet stocks, because unless you know something that other investors don't, you don't really have an edge. In fact, in many cases, it's hard to know which ones, but certainly some of those Internet stocks are very overvalued. And I've always shared a view that a friend of mine, Warren Buffet, has, which is that technology companies are challenging investments, because the rules change so often that you can't really say where a technology company is going to be in 10 years. Even Microsoft, which is certainly the strongest, I would say, of all the technology companies, we're going to have to renew ourselves and reinvent our products probably three or four times in the next 10 years. And so, Mr. Buffet has found great success in investing in companies that don't have those uncertainties, companies like Coke or Gillette, where he can say, okay, 10 years from now will people still shave, probably. Will they still drink Coca-Cola, probably.

And so, because it's such a risky area, if you do have an insight about a company that's good or got something excellent, the payback can be very, very high. And our stock, you know, I've always told people, geez, it seems very high. Well, I said that when it was a fifth of what it is today. So, my ability to predict stock prices is not my particular expertise.

I do think there are going to be some incredible successes out there, but you really need to do your homework on what the dynamics are. Is the company taking a long-term approach? Are they just being started up to be kind of a flash in the pan and hope somebody will buy them out? So, there's a lot of money to be made and lost in the investment area.

All right. Let's move to the left.

QUESTION: I was wondering, there's a real concentration in terms of expanding bandwidth. I was wondering, is Microsoft involved with any companies providing maybe building a new Internet backbone structure, or maybe purchasing a company that presently owns Internet backbone structure?

MR. GATES: Well, our relationship to these companies is a lot like our relationship with Intel or other microprocessor makers. We really need for them to do a great job, to get the bandwidth up, and get the price of that bandwidth way, way down. We, ourselves, are not directly involved, because focusing on what we're good at, which is building the software, I talked about all the great interesting challenges we have there, and that's what we're going to stay focused on. We have done some things, like we made a billion dollar investment in ComCast, which is a cable company, and that was to help them invest in putting in more optic fiber, so they could do high-speed connections.

I'm personally an investor in a company called Teledesic that's looking at launching about 300 satellites in low orbit that will allow anyone anywhere on the globe to connect up to the Internet at very, very high speed. So all of Africa, all of rural America, will be able to get video data feeds for medical advice, or culture, or whatever they want to. So, that looks like a pretty exciting opportunity.

So, Microsoft is very neutral, not picking a winner, not owning it itself, but working with the phone companies, the cable companies. In the case of business connections, there's no doubt, the prices are going to come down very quickly. The hard part is connecting up homes cheap enough that people are really going to want to do that. Because using the phone line today, it's a bit slow, and you have to dial up. It's not nearly as good as something like a DSL or a cable modem, where it's always connected, and at high speeds. We need to get that so everybody can have it. I'm afraid it's going to take most of the next decade.

Let's go to the left again.

QUESTION: Well, since you're the most powerful man on the face of the Earth --

(Laughter.)

QUESTION: -- I was wondering if we're going to have pay roaming charges when we get onto Teledesic?

MR. GATES: Okay. Well, Teledesic hasn't launched a single satellite yet. They'll be excited somebody wants to know their pricing structure at this stage. They'll be very low cost for rural users. For people who are in the city, you'll want to connect up with fiber, because the satellite, when it goes over a city, it can't serve everyone in that city area. And Teledesic is not designed for voice communications. It's incredible overkill if all you want to do is voice. There are people who are actually about to go operational, people like Inmarsat, Iridium and PanAmerican with voice satellite systems where you can talk anywhere on the globe. This system is for video, you know, it's basically the Internet in the sky. And, I don't think they'll charge roaming charges. But, then again, they'll have to charge something.

Okay, let's go over to this side.

QUESTION: Microsoft gained its market position largely on the idea of open hardware architecture, computer on a chip, and all that. Recently in this last few years, there's been an increase of new adventures that are going to for open software in the sense of a free operating system, and these kinds of things. Do you see the market changing to adjust for that in a similar way that happened 20 years ago with open hardware, open software kinds of solutions, and how would Microsoft respond to that?

MR. GATES: Well, the hardware is not free, I'm afraid. That's actually good news, because it means that companies like Compaq and Dell and HP and Intel, and many, many others, there are a lot of fantastic companies in the hardware business, they can pay their employees to do R&D. They can do support. They can do all the logistics to get these machine done, and yet bring their prices down. So the hardware industry is dramatically larger than the software industry.

The specifications that PCs are built on, a lot of those are open to anybody who wants to do it. In the same way, the Windows API is completely open. You can go to any bookstore, and there's sort of a ridiculous number of books that explain how to do things, what's going on inside Windows. And so, in the same way that people build PCs, people could do a clone of Windows. We actually keep the price pretty low, and we keep innovating fast enough that so far we've done very well, and it's been attractive because there's a lot of neat things about our implementation.

But there's nothing in the world of software that stops new people coming in. There's new operating systems being built all the time, things like Java OS, Linux is probably one that you're referring to, which is built on a sort of open source code model. I happen to think that it all comes down to innovation. If somebody can come up with an operating system that you can talk to it and it understands what you're talking about, and there's only a few simple commands, and it works very reliably, whether that's free, or whether you have to pay $50-60 for the thing, I think that's what will win.

So the competition is much more -- keeping the price low is important, but it's much more about innovation. And so, when I looked at Microsoft employees, and I say, yes, I think we can pay you this year and five years from now, it's based on a belief that we can come up with software that is innovative enough that people will want to buy it. So, that's a great incentive for us to work hard.

Next.

QUESTION: Mr. Gates, I appreciate this opportunity to ask this question. I'm in the electrical generator business, and I get quite a few people calling up recently here with concerns about the Y2K problem from electrical generation capabilities, to their bank account being frozen, and what-not. I would like to hear your opinion on that, please?

MR. GATES: Well, there's a lot of things on the horizon that people are worried about in the computer industry. One of those is this Year 2000 problem, where a lot of computer programs, particularly ones written in the past, may get confused when they compare dates, and think that a date that's in the future is really in the past.

Most PC software doesn't have that kind of problem, although there are, sometimes, the way the information is presented, you have to do an update of the software. The biggest problem is going back to the old products where people don't have the source code, and so they can't go in and find where the date manipulation is being done. So, most companies have come up with a plan to get their people or their consultants to come in and look at that.

There will be some problems where those things don't work quite right. I don't think they'll be catastrophic. I think people are taking this seriously, and most so-called infrastructure things like elevators or airplanes, the software isn't sitting there comparing the year, trying to see if some date is before some other date to decide how to work well.

But, you know, some billing systems probably will get messed up where they haven't been fixed well. And there's a lot of energy going into this, which people worry could slow the industry down.

QUESTION: Mr. Gates, I have a more general question for you today on your opinion of where the PC might be going, the next revolution of the PC or maybe some future technology that would replace the PC?

MR. GATES: Well, the -- you know, it's largely a matter of definition when people talk about the PC being replaced. People will always want to author documents. Knowledge workers, which students are sort of the most extreme example, they want to create documents. And so there's always going to be a device that we use that way. I call that the PC. Now, the form of the PC will change from the large device it is today, with the CRT, to be this tablet, and the user interface will change from being mouse driven, to be pen driven and voice driven. And so it's fairly revolutionary, in terms of how you look at it. And there will be all these complementary devices, like the TV set, or the computer in the car.

I think of that, you know, as still being a PC, that knowledge workers, no matter where they are, will want to use. In fact, we'll make sure that we're upwards compatible, so people don't have to throw away what they've learned and their files, and their software as they move up to this better form factor. So change is coming, and if you look at it the right way you can call it revolutionary, but from a compatibility point of view, it will be evolutionary.

Over here?

QUESTION: Mr. Gates, today during the lecture you gave us some glimpses of the future of computing, how can we as consumers take advantage of this, without having to buy a new PC every six months?

MR. GATES: I don't know anyone who buys a new PC every six months. I get a new one about every two-and-a-half years, and that seems to do very, very well for me. When you have innovation, it's a good thing. If PCs were standing still you wouldn't be envious of a new PC. But, you only get envious if it's doing something you want to do. If the PC is far more effective at helping you find information, then that's great. Will we be able to keep up this pace of innovation? Well, that's a challenge. Microsoft spends over $3 billion a year on R&D. There's is certainly a concern that government regulation, and the interest of the government in regulating the activities of people like Microsoft, or Intel, Autodesk, Cisco, any of these companies could take the steam out of what's been really the innovative driving part of the economy.

IN terms of new machines, you know, every three or four years companies have depreciated their machines, and buy new ones. And I think that will continue to be the cycle for some time. But, it's a good sign if we're getting people to be excited about the new things. It's important to remember the price of the PC has come down dramatically. The original IBM PC, which is kind of a joke today if you think about its power, that was a $5000 machine with a reasonable configuration. Today the $600 machine is 10 times better. So there's no part of the economy that's doing better in terms of improving its products than the PC hardware and software business.

Go over here?

QUESTION: Yes, Mr. Gates, I had a question for you from a pamphlet some people were kind enough to put together for your little speech here. I was wondering what should we make of the accusations that -- no wait. Considering that Microsoft is currently undergoing federal antitrust litigation, and 20 state level litigations, do you consider Microsoft to be a very positive influence on IU students?

MR. GATES: Well, I think, you know, there's a lot of products that are in the marketplace that people can choose to use, and I think a lot of these products are fantastic in letting people get out to the world of information on the Internet, letting people express their ideas in new ways. You know, when I was a student everybody, you know, had typewriters and had to use all this Wite-Out, and it was a real pain. I envy students having the tools that they have today. And yes, I think Microsoft has been part of creating those things.

I think, when I go into classrooms, even with very young kids, third, fourth grade, and see their enthusiasm about being able to master the computer and reach out and do things, it's fantastic. They're often getting ahead of the teachers in their ability to get comfortable with it, and use it in new ways. So Microsoft and the PC industry, by standing for high volume and low price, have made a huge contribution. None of these things would have been possible with the computer industry in the way it came before.

In terms of the litigation, you know, we are anxious to tell our side of this story. And, you know, the lawyers will have that opportunity in the months ahead.

Next?

QUESTION: Yes, Mr. Gates, first of all I'd like to say thank you to you and Mr. Paul Allen for inspiring me to get into the computer industry. I now have relatives asking me to fix their air conditioners.

(Laughter.)

QUESTION: Secondly, you -- you were talking about simplicity before. I've noticed being in this industry some of the competitors, for example, Apple would have us believe that someone could sit down at an I-Mac and go, the simplicity comes with a price, I have found though. To the end user the price is having to pay someone $100 an hour to fix it. The price to a technician is having less control over the operating system, and not being able to get into the guts of it and tweak it. So do you think there's a happy medium to this? And is there going to be someday a machine, an operating system that is simplistic to use, with things that go behind the scenes that will be invisible to the end user, but at the same time a technician will be able to get into it and tweak it if he needs to?

MR. GATES: Well, that's a very good question. And it's certainly something we've got as a top priority. I look forward to surprising people with the simplicity we'll be able to create. One of the things you're referring to there is the fact that the very open model of the PC, with all the plug in peripherals, all the different systems you can choose from, sometimes that creates complexity, where things don't work together, you get things like IRQ conflicts, or you're overloading the BUS, or the driver doesn't work right.

Trying to strike the balance between allowing companies to add value to the PC and come up with new things, and yet forcing the right kind of quality testing so that when it all comes together it works super well, that's a tough challenge. And there are some new ideas we're bringing to that, working with partners, that I think will move towards the ideal that you talked about. At the same time I'm sure, you know, Apple, they'll be moving in the other direction, taking their system and trying to open it up more, and provide more capability there. Although, on one side we're a competitor to Apple, because we provide Windows, we're also a provider of software applications for the Macintosh. So I think, you know, their approach is a valid approach, the Windows approach is a valid approach. But, there is substantial room for improvement, which we're hard at work on.

Okay, I guess a few more. Go ahead here.

QUESTION: Thank you for taking my question, Mr. Gates.

I've compared notes with my friends, and we found over the past decade that your applications have not increased productivity or usability or stability, even to the point that some applications have full-scale games built into them. I was wondering if Microsoft has noticed this trend, and has started any work increasing the usability of an application, other than just adding new features?

MR. GATES: Well, certainly, the power that you've got in something like a spreadsheet, or data mining software, or in the PC in terms of something like the multimedia encyclopedias, there have been huge advances, which are very measurable in terms of their impact. You can run this experiment. Think of, say, a small business that tries to operate without a computer versus a small business that operates with a computer. Their ability to track their customers, understand where they're making money, put together brochures, so the productivity impact of the PC, as Alan Greenspan said, is the primary driver that's created the economic strength that we've had I the last decade. So, I can say with great confidence there's been a huge improvement in the applications and their power, it has a very positive impact.

At the same time, I think it will be possible to deliver a lot of that power without forcing people to learn as many commands. It's a great thing for us because that new generation of software, there's a lot of people who'll be interested in updating to it as we make those breakthroughs. And so that's why it's worth it to us to constantly increase our R&D, hiring the smart people, and work on these problems, which are very tough problems, but they will be solved.

MR. : Okay. This will be the last question.

MR. GATES: Okay. I guess you're the lucky person.

QUESTION: Thank you.

I have a two-part question. Number one, what kind of technology is Microsoft using, are they using the 1,000-megahertz processors, and what-not? And also, what kind of -- like, is Microsoft going to be going towards like the medial industry to help surgeons, and doctors, whatever, to make the health industry better?

MR. GATES: In our laboratories, we're very careful to use the same hardware that our customers use. In fact, as we're doing new versions of the software, we like to use the machine that was popular three or four years ago to see how our performance looks on that machine. At the same time, when we go to build our software, we have a distributed build system that uses a network of literally hundreds of servers so that we can build NT, which is tens of millions of lines of code, we build it every night, and then we start doing automatic testing all night long. So, when people come in in the morning, they get a report, how did the stress test go, how did the driver test go. And so, we bring a lot of the most expensive machines combined together in this network in order to tackle that challenge.

In terms of medicine, we're not involved in doing vertical software. So, for example, we won't be doing gene sequencing software, or health diagnosis software. We work in partnership with companies who focus in that area, and I think medical software is a fantastic area. There's a lot of room for new people coming in. In fact, other than information technology, I think the idea of taking the understanding of genetics and using that to create new drugs to help on all the world's major diseases, including build new types of plants, things of that nature, that whole genetic revolution, other than the information revolution, is the most exciting thing going on. And they're among our most demanding customers, and they're asking us for lots of things because they're very heavily using our tools in a general way. And so, we will be helping them, but without doing special applications.

MR. : Please remain seated as the platform party leaves. And also please help me thank our very special guest, Bill Gates.

(Applause and end of event.)