MR. GATES: Well, good afternoon. I'm very excited to share with you some thoughts about preparing for the digital age. Over the last several years, I've sat down with many CEOs and other business leaders and talked to them about the changes they see coming in business. And we all see that the rate of change is very, very rapid. And Microsoft sees as one of its roles to share best practices, to talk about how the tools of the PC, the software and the Internet can come together and allow companies to seize this as a major opportunity.

Now, part of the way we do this is through our products. But another way we do it is by being present in every country, being able to work very directly with you. And we've had incredible success because of our long-term commitment in every region, particularly in Latin America where, year after year, no matter what, we've grown our staff and grown our partners in a significant way. That's been going on for over 15 years. We're now up to 24 new offices. We added a number in Central America even in the last six months. So, we're really getting very broad coverage. We're also spreading the word.

We work on a very leveraged basis training developers on the latest technologies. In Latin America, we trained over 55,000 developers and IT administrators in the last 12 months. And that was focused on things like SQL Server 7, or the upcoming version of Windows. We've participated in seminars with over 25,000 companies, talking about knowledge management and how they track information in their companies.

And we're working together with the Ministry of Education in over 14 countries to do really unique programs to not only reach out to the universities, but to the high schools as well, and get kids at a very young age and tap into their incredible curiosity and capability to take these tools to places we never would have imagined.

Another key element is the support we're providing. We've more than doubled our technical account management team in Latin America, and these are the people who are a single point of contact, 24 hours a day. Whenever there's an issue, they're the ones who orchestrate the resources to get all the problems that you have solved in a very rapid fashion. This is part of our development as a mission critical enterprise provider. And we really had to step up to that. We really thank those of you who have given us feedback about that. And we feel like we're making incredible progress there, and appreciate the trust that you've shown.

One of the things I say in the introduction to my new book is that business is going to change more in the next 10 years than it has in the last 50. I think that understates the importance of business leaders stepping back and thinking about how they operate, how they relate to customers, how information flows inside their companies. Many businesses will find the competitive framework very, very different. Their opportunity to sell over the Internet to a global market will make the competition more intense than it's ever been before. And the traditional model of a company where you have lots of clerks, lots of paper, fairly slow decision processes, the companies that stick to that will be the ones that do not thrive in these years ahead.

Well, why is it now? Why is this the period of such rapid change? The PC came along now about 20 years ago, and it was revolutionary in a fairly simple sense. Instead of creating documents with paper and pencil, instead of doing business models with paper and pencil, instead of trying to track information with paper and pencil, today people think of the PC as the tool to get that done. The creative process has been changed.

However, these PCs were isolated. Even if they were connected to a network, there was no easy way to reach out across the boundaries of companies. And it's really the revolution of the Internet that's finally come along and changed all that. The vision that we articulated a long time ago, which you probably remember as "information at your fingertips," talked about all these machines working together. But like many advances in communications, until you get a critical mass of machines all using the same standards, then there's really no benefit whatsoever. And it was in 1995 and 1996 that the Internet achieved that early critical mass. And once that happened, the growth really skyrocketed. In the last four years, over 50 million people in the United States have started using the Internet.

Now, if you compare that to any previous new technology that came along, if you compare it to radio, that took 38 years to get 50 million users. If you compare it to TV, that took 13 years to get 50 million users. So, it's really unheard of to see that kind of skyrocketing usage.

On a worldwide basis, we've gone to a little over 160 million users. So, about a third of the users are still in the United States. Now, the people who are using the Internet are actually using it more heavily all the time. That's why we see the traffic more than doubling, and the amount of business being done there is going up at a rate that's so fast that the people who follow this market have a hard time measuring it.

So, now we can't just think of the PC as a productivity tool. We have to think of it as the ultimate communications tool, communications inside your company, communications with your customers, communications with your partners.

The very heart of capitalism is the idea of buyers and sellers finding each other, being able to pick the product that meets their needs the best. And it's very difficult for a buyer to find out what products are available. If you think of the investments that have been made in distribution channels in physical stores over the years, it's a huge part of what goes on in business. It's a huge part of the competitive framework. Somebody who has a distribution channel has an advantage over somebody who doesn't have it.

Well, the Internet really changes that. As long as you're connected up, and you can use the PC, you can find all of the sellers who are there on the Internet. And these powerful search engines allow you to specify what you're interested in, and you will immediately find everyone who has an offering in that area. So, even products that are very obscure, or low volume enough that they couldn't be sold through traditional channels will now thrive because everyone will be able to find those products.

Electronic commerce is furthest along in the United States. Here we find that people are buying books, people are buying stocks. In fact, about half of the retail trading now is online. It's gone up very dramatically in the last six months. People who are making purchases, even if they don't buy over the Internet, they will turn to the Internet to be informed. So, if you want to buy a car, you'll go up to one of these sites that talks to you about the latest models, and the ratings, and the safety, and exactly what the dealer paid for that car. So, when you go and decide what you want to buy, you not only make a better choice, but you know exactly what price would be fair there.

Some of these companies have achieved very high visibility. Amazon, in the book category, is quite phenomenal, not only because the business is growing so rapidly, but because today Amazon, which is a very new company, about three years old, is more valuable in terms of stock market valuation than all of the retailers in the entire country except for three. Wal-Mart is still worth a little bit more than Amazon, but if Amazon kept growing at the current rate, they'd be worth more than anyone, even more than Microsoft, in just a couple of years' time.

And so, it really focuses people on the fact that a lot of buying will switch to the Internet. Now, for books, you get every book out there, you can look it up by author, you can see what other people thought about it. I buy a lot more books today because of Amazon and its competitors. And a lot of people who would have joined book clubs in the past are saying, hey, that's not necessary. It's just so easy to do now. I'll pick for myself what I want to buy every month, and it's delivered directly to me.

At the same time, we have business to business. Most of what you read about in the press in terms of Internet electronic commerce is selling to consumers. And in the long run, all consumers will be involved in this. But that's going to take a lot longer than it is for businesses to be involved. So, even though business to consumer will always get the big visibility, it's business to business that is happening more rapidly.

Most business to business transactions will be done electronically in the next two or three years. If you have somebody managing your cash collection, somebody managing your portfolio, if you want to apply for a business permit, all of those things you should be able to at least check the status and do it electronically. It's very easy to move from a paper system to an electronic system, in the customer service, the ability to get detailed information is far, far better.

The idea of using the Internet in this new way really is so profound that I decided that we really needed some new terminology, some new terms to talk about it, so in writing the book, Business at the Speed of Thought, I created three new terms.

For the consumer, who's using the Internet or the Web, those are synonyms, on a regular basis, I call that the Web lifestyle. Why is it a lifestyle? It's a lifestyle because as soon as you use the Internet for a few things, you want to use it for everything. If you're using it for your trip planing you want to use it for your taxes. If you're using it to learn about some medical advance, then you'd like to use it to stay in touch with your relatives and send photos to them and stay up to date. And so as soon as you start acting this way, living the Web lifestyle, then you just take it for granted. You're using it many times a day, getting the news, getting up to date, and in fact, you never go back. If you ask somebody who is doing this today, are there problems, could it be better, they'll give you an incredibly long list of how frustrating it sometimes is. But, if you ask them, well, would you like to give it up, they'll say, no way, I could never go back. And so it is sort of a one-time thing.

In fact, the people who live the Web lifestyle are evangelizing it, promoting it to other people. They're kind of enthused, they want to show other people. And that helps spread it out. If you're using electronic mail to communicate, you want to get everybody on, so you can just rely on that more and more. So this Web lifestyle is being lived today by a small percentage of consumers. A lot of kids who are graduating from college are living the Web lifestyle, because in U.S. universities you've got to use the Internet as part of your college activities. You use it to sign up for courses, you use it to submit your homework, to do your research, to order a pizza. It is just a fabric of how the campus activity is done.

The equivalent term to cover what you do at work is the Web workstyle. And this is a workstyle where you've given up paper forms. If somebody gives you a paper form to fill out you say, why would I fill it out that way? It's information I've already entered before, I can't get advice, the form isn't up to date, there are going to be errors, somebody is going to have to type that in, why can't that form simply be on my screen. And then I can always check the status and do it in an efficient way. In fact, if I don't like that form, every screen can have a place that you can send electronic mail and tell somebody how they could make that form better. And so you have very rich feedback that drives those systems to constantly improve.

So this Web workstyle is also at the very beginning. The percentage of workers who are operating this way is fairly small. They don't allow sales numbers to simply be on a piece of paper, because as soon as they're on a piece of paper, you can't dive into the number and look at it by product, or by geography, or by time scale, you can't mail around the way that you're looking at that data to another worker and collaborate with them. So the Web workstyle is also something where once people adopt it, they won't go back.

Finally, if we think of this from the point of view of the company, with the company -- or government -- saying, I would like to have information flow in this new way, that's where we come up with the term digital nervous system, a company that really thinks about all the processes, and what is the key data, you know, the customer information, the project information, the profitability analysis, how can that be done in the most efficient fashion. Now, creating this approach is not something that can be done one application at a time. It's a single infrastructure. It's the PC with electronic mail, networked together so that you're connected to the Internet. But, it's not just the classic back office information, it's not just the billing systems that you want to have on here, it's all the communications, including the ad hoc communications between the different workers as they're planning new things. All of that strategic thinking should be on the system, the customer interaction, all of it aimed at allowing your business reflexes to be far better than before you had this kind of approach.

There's many key principles that go into this. The first is that you have to believe that the Internet is a fundamental change. And I've seen many companies actually get their executives to go out and buy things on the Internet, so they'll have that deep exposure to what the Internet can provide and what it will mean to their business. Every executive should go to their own Web site and see what's there, see what's missing. Compare it to their competitor's Web site, can they handle transactions in a better way than you can, do they talk to prospective employees or investors in a better way than you do? That Web site becomes your primary communication vehicle, far more important than your corporate brochure or annual report, or ad campaign, that Web site will represent what you are and what you believe in to all the different audiences that you have out there.

You really need top down leadership to make this work. At Johnson & Johnson the CEO decided he was going to communicate on electronic mail. And he was in a meeting, and somebody said they hadn't heard about a new policy, and he said, well, didn't you see it, it was on electronic mail. And the guy said, no, I don't read electronic mail. And the guy said, well, you'll never hear from me again. That was the way he you know, he was saying that this had become a fundamental system for the company.

The CEO of British Petroleum was told by his IT department that they had electronic mail. So he decided to test that: he sent a message out, and of the 60,000 employees 10,000 never got it, and 20,000 of them couldn't read the attachment, because they had such a variety of electronic mail systems, that really weren't hooked together very well, and they weren't being maintained as a key system. So he decreed that they'd go to a single standard. They happened to pick Exchange. And they not only managed to save money managing that system, but just the cost that they saved in terms of overnight delivery packages where people were sending mail around inside the company on paper, that alone justified having that system, not to mention the idea of staying very much in touch.

Now, in this world a lot of the jobs that have been necessary, just entering in information, or letting the customer call in and ask a question, those jobs will not be necessary. So you want to convert those jobs into more contribution than they are today. You want to empower those people so they can really help customers with complex problems. Again, that means giving them information, letting them call up what the policies are, what the history is, and make sure they record everything that they're doing with those customers. So every worker is a knowledge worker. There are no more of these rote jobs, because the digital environment takes care of those without any manual labor.

Customers should be at the center. When they come to your Web site, you should make sure that, depending on what kind of customer they are, they see the things that you want them to see, they see the status of their account, they see the things you would like them to consider doing in addition, in terms of your business with them, and so those views, those rich views are critical. You want to make sure that those rich views that the customer can see over the Internet are also available internally. And so when you create this Web site it won't be a separate system from your current IT systems. Your front-end interfaces where you have information today, most of those will be obsolete. Even inside your company you'll be browsing, effectively, the Internet, and seeing a little more information than a customer would see about themselves.

A final principle is that bad news must travel fast. And that sounds a little negative, but inside a company it's human nature that bad news travels slowly, while good news travels fast. I get electronic mail all the time where somebody says, we won this account, isn't that great. Well, I immediately reply and say, congratulations, this is wonderful. But, I do find myself wondering, if they lost the account I don't think they would have sent mail. And, in fact, what about all the other accounts, did we lose every other account? And, you know, I don't know. And yet, when you actually lose, that's far more actionable than when you win. When you win you sort of think, hey, we must be doing the right thing. We've got a good plan, let's stick with the plan, let's just go forward.

The thing that really tells you that you need to reconsider your strategy, how to make the product better, how to reallocate resources, to do better support, or to solve problems more quickly is when a customer is unhappy, or when something new happens in the marketplace. And getting a broad set of people in the company to know that that signal is coming from the marketplace, and consider where change is necessary, the faster you do it the better, you can catch it when it's still a very early problem, and very, very easy to solve, so you don't lose that customer, or so you get that product plan in shape. And so business needs to have feedback, and part of that feedback, the most actionable feedback is the bad news. So designing these systems so that that information is shared, very rapidly, not in a way that anybody is afraid to share the information, but that everybody has it and can act on it, I think is another key principle that needs to be included.

Now, when I tell companies about digital nervous systems, they often ask, how can we rate ourselves? Some of these companies already are getting rid of paper forms, they're not printing their sales results out on paper, they're using electronic mail. But, they ask, are we achieving the full potential of this kind of system? And so I've created almost a diagnostic in the book that goes through and asks questions that somebody can answer to see how far along they are. Many of these are very demanding.

One question is, how good is your corporate memory? The measure here is, can somebody in 60 seconds sit down at their PC and find an earlier document that might relate to a project similar to the one that they're working on. If they can do that, call it up and print, or search that document, then they'll take advantage of that corporate memory. But, if it's harder than that, if they have to dig through files, or ask around, they probably won't do it. And so it's a very demanding test, and actually this is one that Microsoft itself won't have implemented until early next year. Today we can find it, but it's just not easy enough, and using the next version of Exchange, we have this capability, this kind of index capability, document management capability built in. And so we're looking forward to that, because I think we'll benefit from things we've done well in the past, things that we can learn from far more when we have this digital corporate memory.

A similar question is the elimination of paper forms. I talked in the book about wondering how many paper forms Microsoft has. The one that really got me interested in that was this form that I was filling out about adding new people in a department. Now, it was a very complicated form about, was it transferred from another department, and were the salary levels changing, and were there certain titles, and certain offices, just a mind blowing form. And I'm sure somebody thought they were doing a good job when they designed this form because if you didn't do it this way, you'd probably have 10 or 11 forms that you'd have to fill out, because the information was all relevant.

Well, I had a hard time filling the form out, so I thought, there must be a lot of people wasting time this way. And so I asked to see all the forms we have throughout the company. It turned out there were hundreds. And so I immediately decreed, as only a CEO is allowed to do, that there would be no more paper forms. People later told me, okay, we have to keep a few, because the government likes paper forms, and we're not in a position to tell them that we can get rid of those forms. So there's still 40 or 50 forms left. But, if it's a company that we're doing business with, we no longer issue an invoice to them, they can't send us a paper  invoice when they want to bill us. If they have a system that's still generating paper, what they need to do is take a PC, go to our Web site, call up the electronic form there, and take the information from paper and type that in. So all of the inputs to us come in digitally and we don't have any paper in that process whatsoever.

I think a great example of an organization moving towards this approach is the tax authority down in Mexico, which is the equivalent of our Internal Revenue Service. And they have created a system that has at least the large taxpayers at this point able to file online. And actually because they picked the leading taxpayers, it's used by over 4,000 companies that represent over 50 percent of the total tax revenue. And on a typical day, there's over 3,000 forms that can come in here, and there's a new phase coming that will actually extend this out to about 10,000 businesses, and even let citizens who want to file their returns do it this way. So, there are fewer mistakes, less fraud, faster turnaround. You know, people get a response back in a day instead of five days. And this system went from design to production in three months.

You know, think about the computer systems of the past, where it took years. It would take three months just to have the committee meet to do some design, you know, and do a little diagram and go out to start to find a consultant. That would take three months. In this case, it was three months between the plan to do it, and actually having the forms up and running. And then the feedback loop was going, all the taxpayers can say how those forms could be better.

It was built on standard PC technology, Windows NT, Exchange, SQL, and the development tools that are out there. And having done this application, we've learned how to make the tools even better, so the next time somebody wants to do a system like this, it will be even simpler.

Another tough issue for companies is exchange of information, and that's not just with other companies, it's the internal systems. There are so many different software packages, and as you merge with different companies, and have different divisions, you're not going to end up with just one way that the information is presented. You've got to get the data moving around inside the company.

In the case of Asindar, who really is a best practice here, they wanted information in the office environment and in the factory floor environment to be completely integrated. They wanted to have immediate visibility of what was happening on the factory floor, and better product quality control through tracking that simply wasn't possible before. And this project is another wonderful example because it's one where the costs went down in this case, no longer using a mainframe, while the flexibility and the power of the system increased very dramatically. And one of our partners, Ingdepsi, who is the ISV here, did a great job using the building blocks and building a real-time mission critical environment around SQL Server.

Another key question is, what about self-service? Are you giving customers the ability to come in and check their status? You know, what's going on with my order, what other options do I have, what is my history? Are you making that very, very simple for them. And this approach, you know, customers aren't going to view it as optional in the future.

Certainly a pioneer in this area has been Banco Bradesco. Banco Bradesco has been willing to be a pioneer as every new generation of IT capabilities have come along, they've been out front with that, and the Internet is absolutely no exception to that. They believe in being first to market, and they got their online systems up and got into the feedback loop very early. In fact, a couple of projects here are very forward-looking, so we put together a little video that captures what's possible, and I think it's a wonderful example. So, let's take a look at that.

(Video shown.)

MR. GATES: The opportunity to reach out to customers in new ways is very important. We also think it's critical to capture customer feedback, and the Internet makes that very easy. A good example here is one of the leading hotel chains in the United States, which is Marriott, and initially their Web page was just static text. You could dive in and see the different hotel properties, you could find out what the options were. They gave you a database search that let you find out, for instance which hotels had various options available in Phoenix. And you could send email to their customer service operation that they would make sure they got that feedback. They also set it up so that they could get meeting planners to get all the in-depth, detailed information they need, even the availability of different sites.

Now, this Web site generates for them over 7,000 pieces of input that they take back to their employees every month. Often this will be input about how they've done a good job. So, it's great for the morale of the employees. Often, the input will be in places where they need to do a better job, and that really guides them in their training activities so they meet their very high standards of customer delivery quality.

Marriott is a good example of a company that's made all of its top executives buy a PC and get onto the Internet and do a lot of different things, so that they could start to think, when our guests are in the room will they expect some of these capabilities, and how could we provide that sort of capability. So, even the hotel room environment will have Internet access in the years to come.

I think in this new business environment, companies will find that doing things inside their company, although still often important, won't be as common because it's easier to find partners, because it's easier to collaborate with partners, they'll often do things with outside companies that would have been inside before.

Xerox is a great example of this. They have their own way of managing information, and they use their own software. In fact, they were using workstations instead of PCs but they wanted to have the same tools that their partners had. And so they moved to an Office-Exchange approach. They connected everything up over to the Internet. And they actually found that the support costs were far less.

They found their employees could use home PCs and do work at home. And so they eliminated their isolation. They gave their sales force and technicians the latest portable machines, and now they're able to connect up with their partners, and it's seamless for the customer what's being done by them, or what's being done by the partner.

I've mentioned this idea of reflexes, or responding to a crisis. For this one, every business has to think in its own unique environment what a good example is. Would it be currency rate changes, would it be government regulatory changes. In the case of Merrill Lynch, which is the largest stock brokerage here in the United States, there were several things that hit them all at once, the Asia crisis meant that their sales activities in Asia were affected, and they needed to get information much faster to their financial consultants. Their consultants were spending too much time with paperwork tracking down research reports, tracking down stock quotes, instead of talking to customers. They found that over 50 percent of the time was overhead for those financial consultants. And they have 15,000 of those people, and that is the heart and soul of their company.

And so they decided they would dramatically increase the customer time those people would have by using a PC-based system. And so now the time to react is down a lot, the ability to call up customer data when they call in is far, far better. And they're also now sharing their technology with clients, sending them some of the same software so they can have the same rich views of the information.

So, these are just some examples of the questions that I think will help show the opportunities that are out there. Now, as I talk about this digital nervous system, you know, people sometimes wonder, wow, that must be expensive. Well, the fact is that companies are already making 80 percent of the investment they need for this. They're buying the PCs, they're networking them together. The only thing they're not doing is making sure that this infrastructure is so reliable, and that they step back and think about what new processes could take advantage of it.

So, the building blocks are what you know today, PCs on the Internet, reliable email, the productivity tools, the databases, and the line of business applications you select. And, in fact, the cost of ownership of managing these large networks will actually be going down at the same time that these new approaches are increasing the value of that system. It's been a major focus for us with our new products to reduce cost of ownership. We've had a major focus on that, and, in fact, as I talk about Windows 2000, you'll see that we think we've made some breakthroughs there.

Now, Microsoft's role is a very focused role. We chose when the company was founded not to be a chip company, or a hardware company, or a consulting company that actually writes applications. We decided we'd really be good at building standard software and supporting the needs that go around that. And so, for everything else we've reached out to partners. The building blocks we offer are well-known to all of you, Windows, Office and BackOffice are our primary products, and we're also now creating services on the Internet under the MSN brand. Those will be our top four products five years from now, even as we add dramatically new capabilities to every one of these things.

We have initiatives that span all the work we're doing. Over the last few years, you've really heard us talk about the Internet and how we're building those standards into our products. We've got more people driving Internet standards and participating in those committees than any other company, because there's still a lot of work to be done in areas of security, voice, video, XML which is a way of standardizing business data so that it can be exchanged between businesses and applications. A lot of very exciting horizons there.

Interoperability is also key to us. When we go into a large company, they're often shutting down some of their larger systems, but not all at once. They need interoperability with the places their databases have been so that they can make an evolutionary change. And so, reaching into the mainframe databases, being able to support all the communications protocols, connecting up with UNIX systems to have common log-on and security, having our development tools allow you to target these different systems, all of those things have been huge investments for us driven by customer feedback.

Really, the two things that I'm driving as the top part of my job now are these last two things, scalability and simplicity. Now, scalability refers to the ability of our systems to process transactions at an even higher rate than the most expensive systems would have been able to do in the past. Also, coming along with that, though, is a need for incredible reliability, much higher than even mainframes have been able to achieve, because these transaction systems have to stay online at all times. And finally, simplicity, making it easier to get at the power that we've got built into these products.

In the area of reliability, that focus is really starting to pay off. We've got a lot of partners, most notably Compaq and HP who are two key sponsors of this event, who are offering 99.9 percent uptime using the current version of Windows NT. Now, we're working with them, taking advanced clustering techniques, hardening the software, new ways to go even beyond this to get the kind of reliability that stock markets or phone exchanges or things like that require, as part of their operations. So we've made a lot of progress, but we're doing even more.

In this performance area the results are also quite amazing. Here it's easy to dimensionalize, because in the database benchmarks, the Web benchmarks, the mail benchmarks, Windows NT is pulling ahead in every one of those. And yet, we'll move even faster in the next few years. We take the power of the individual chip, where the clock speed is going up, and we get all that benefit. We also are moving from 32-bit memory to 64 bit. And so, instead of having to go out to the disk, it's all in memory. That's also a huge speedup. Then we take these individual processors, that are so powerful, and combine more of them together. Today you see that on two processors, or four or eight processor systems. Some of our partners are now coming up with 16 processor systems. Over the next year or two you'll have 32 and 64 processors. So those individual systems with all those processors have very amazing speeds.

Then we connect those together into a cluster, so you have one set of systems that's doing the work. For example, if you build a Web site, this clustering approach is fantastic. It can take over bigger loads just by adding to the cluster, and if there's any problem whatsoever, all the other machines in the cluster can keep running even when one system goes down. And that's why our reliability figures for Web sites are far greater than for the expensive systems, because people use more systems in the cluster, and that means the chance of losing operations is almost zero.

Now, Microsoft has a lot we're doing here with partners. We have particularly close relationships with Compaq and HP to make sure that their hardware advances and our software advances fit together. Building the idea of transaction management into the operating system was a key element here, because that's what allows an application to say that if the work isn't done completely, you can automatically go back to a clean state, and so if you want to transfer the work to another cluster, it knows exactly where to start. There's no uncertainty there that could create problems.

Systems management and the directory, these are really key pieces that come with Windows 2000. The bottom line here is that this PC model, which is high volume, and has many companies investing incredible R&D across a clear standard will win out over systems that are done top to bottom simply by one organization trying to do all the pieces. And so the PC model has been moving up and it's our commitment to get that to go even into new territory.

Just one product slide, this is such an important product, I couldn't stop myself from putting one in here about my enthusiasm for what we've done with Windows 2000. I've shown in each category, scalability and reliability, easy management with the directory, building a better platform for applications. There are some major, major elements. This is the biggest release that we've ever done. And under normal criteria, we could have made this release some time ago. But, because we're driving to have such a high level of reliability and quality here, we're going through very extended beta testing. In fact, the commitment we've made is that these customers, they're the ones who are really going to tell us when it's ready, and so we're going through successive releases, getting their feedback and making the improvements they ask for. A big milestone here probably is next month where we have what we call Beta 3, and that should get us very close, but it's really up to the feedback we get that will determine that.

I've asked Chris Capossela, one of our program managers, to come up and just take us quickly through some of the interesting scenarios that are newly enabled with this next generation of Windows.

MR. CAPOSSELA: Hi, Bill.

MR. GATES: Hi, Chris.

MR. CAPOSSELA: Hi, everybody. I'm very excited to be able to show you Windows 2000. And I'm going to try to keep my segment reined in, because the translators may have a hard time keeping up with me. I've got two machines in front of me. One is running Windows 2000 Server, on our right, and one is running Windows 2000 Professional. And we're going to see what we've done to each one of these programs to make them much, much better than they are today. Let me make sure you're seeing the computer that I see on screen. There we go.

This is Windows 2000 Professional, and I've created a fictitious business scenario where I work at a real estate agency, and we're going to see how we use these two systems together. Now, this is the machine I take with me on the road, and if I click on the Start menu, Bill, you'll see that I have the Run command, and if I look at my programs menu, I have access to Microsoft Word. Well, our administrator, now has incredible control over the way my desktop and thousands of other desktops behave, in our organization. So let's start out on the server I'm going to switch over, and let's see how an administrator would change my desktop from what we've just seen.

The key technology we've added to Windows 2000 on the server is a technology that we call the Active Directory. And this lets us keep track of printers and people much richer ways than we ever have before. The first thing you'll notice is the Active Directory lets me create my organization using a hierarchy. So I've got all the people in headquarters, including yourself and me, I've got people inside of headquarters that work on marketing, and people inside of headquarters that work on operations, or finance. So if I want to make changes to just the folks in the finance group, I can do that, and it doesn't affect anybody else. If I want to change everybody in headquarters, I can do that as well.

Let's go ahead and work on all the folks in headquarters. I'm going to get rid of that run menu, so I lock down that desktop a little bit more so they can't run anything that they want. I can just right click on the remove run option here, and just click a check box, and just like that, the next time anybody inside of our headquarters logs on, that run command is gone from their menu. I haven't had to visit their machine at all.

If I click on software installation, I can change what applications they have access to. Here you see, of course, they have access to Microsoft Word, and that's assigned, meaning it shows up on their start menu right there. They're going to use that all the time, I want it right there. FrontPage is something that they might not always use all the time, so I've published that, and they don't see it right on their desktop, but they can get to it from the control panel. Let's roll out Microsoft Excel to all of the people in headquarters. I'm going to right click and choose to create a new package. Now, remember, we're doing this as the administrator on our Windows 2000 server machine. And by the time we're done, whenever somebody logs in again they're going to see these changes. I'll choose to create the Excel '97 package, and I think Excel is something that these folks are going to use aplenty. So rather than publishing it, like we did with Microsoft FrontPage, I'm going to actually assign it.

Now, these packages are actually pretty amazing when you think of what they do. A package basically lets me as the administrator, answer all the questions that my users would typically answer. So rather than them having to decide where the files go, and what components they want to install, I'm going to answer all those questions for them, so they don't spend any time fiddling with their software, and instead they're spending all their time on real estate.

So let's go ahead and assign this application. And it's going to create this package in the Active Directory for all these folks. I'm going to let it do its work, and let's switch back over to our desktop machines. This will be finished in a couple of minutes, and we'll see what it's done.

Meanwhile, let me show you why, as a real estate person, I'm excited about Windows 2000 Professional, working on the desktop. The first thing, Bill, is my favorite thing. This is support for a new style of peripheral devices called USB, or universal serial bus. What I have here is a video camera that has no power cable, unlike today's video cameras, and it has a standard USB connector. Now, there are over 100 different USB devices out there, and we're seeing more and more innovation from our hardware partners. Just about every new PC and laptop supports USB. It has hubs in the back of it. And you can also get these additional USB ports that plug in and give you lots and lots of connectors, you can actually go up to 127 devices connected to your machine.

MR. GATES: Do you think it will work?

MR. CAPOSSELA: I hope so. I'm going to go ahead and plug this in. I mentioned lots of devices, they do keyboards and mice, and scanners, which of course are my personal favorite. We do video cameras, a whole bunch of different devices coming out for USB. I'm going to launch Microsoft NetMeeting, which is a videoconferencing software that we make, and you can see here I'll click on current, and very quickly, if I'm a real estate agent, this is live. So we can do a little videoconference, maybe put it right on top of our monitor, if we had a big monitor. And I can talk with my clients all over the world. So USB is a great, easy way, a standard way to connect any peripheral to you computer, and we're really excited about it.

However, there's a new class of devices that are gaining a lot of attention, and people are very excited about them. We call these personal companions. And this particular personal companion is a palm sized PC. This one's from Compaq, and you'll notice there's no keyboard. There is a little stylus, a little pen that I can use the tap on the screen. And the critical thing about personal companions, they work by themselves and do useful things, but the really exciting thing is when you work together with the PC and they're much more than the sum of their parts.

Here's another personal companion, this is a digital camera, and as a real estate agent this is critical for me. I take pictures of houses, I may take pictures of counter tops that I think a client is interested in. Let's go ahead and turn this on, no cables whatsoever. And I can point this to the audience, it looks like it's pretty bright, so I'm just going to flip this over and point it to us. We can smile, nice. This isn't going to look good. Let's go ahead and hit play. And now you notice there are absolutely no wires whatsoever. There's an infrared port on this digital camera, there's also an infrared port on this Compaq palm sized PC. And just about every new PC also comes with an infrared port.

So I'm simply going to hit the transfer button, and I'm going to point my infrared ports to each other, hit the button. Windows 2000 recognizes that the camera is sending over all the photos, and sure enough, there it is. With Windows 2000 we automatically put this in a new folder called My Pictures, which is very similar to My Documents, and it basically lets you quickly see thumbnails of your pictures, maybe zoom in on them, or see them full screen, you get the idea. It's very, very easy to work with this new style of devices and get the full benefits.

Well, now that we've got this picture in here, we might want to print it out. Believe it or not, adding a printer to a system today is something that people tell us is a very tedious task. We've probably all done it. You basically take a piece of paper, you walk down to the printer room, you take a look at the network path that's usually taped onto the printer, you write that down, you walk back to your office, you type that path in and you're up and running.

Because of this Active Directory that we have with Windows 2000 Server, that process becomes much, much easier. Let's go ahead and search for printers, and I can search for printers that are located in my building, building six. Hit enter, and now I have the location for all those printers. I only want printers that can print double sided, or that can print color, hit enter and now we've whittled it down to one printer. Rather than needing the network connection, I simply right click on it, choose connect, Windows looks into the Active Directory installs the appropriate driver, and that's it. The printer is done. It is much, much easier with the Active Directory to do things like add a printer.

I mentioned I was a mobile user. As a real estate person, I'm constantly going out and seeing houses. I'd like to take this laptop away, but the critical thing for me is to never leave my information in the office. I've got a folder here that's pointing to this server, my files on the network. I love the benefits of using the network to put my files up there. Other people can get at them, they're backed up all the time, and you can see that I have a Chris Cap's folder here as well as a Becky and Katie and other users. Well, I want this available when I leave the office. So, I'm going to right click and make available offline.

Now, Windows is going to go ahead and copy all of the folders and files from this server machine down to my desktop machine, and it's going to keep those synchronized for me, and make them appear like I'm never disconnected from the network.

So, let's close this window. Let me right click on our network connection and choose disconnect. I'm going to disconnect from our little local area network here. Give it a second for that to happen. If I point down here, I can see that, yes, indeed, we're now offline. But that file and that folder is still there. If I double click, you see all the other folders are gone, Katie's, and all those other folks, just the one I made available offline is there. If I'm working on the road, I can double click. There are the documents I have. I can right click and maybe create a new text document. I'll call it EFC99. So, now I've got a new document living on my machine.

Let's close this down, and let's go ahead and reconnect to the network using our new user interface for making any kind of connection. Now, we're going to go ahead and connect back to this machine. It looks like we're back up and running. Let me just right click, and choose synchronize. If I had waited a few minutes, Windows would have already automatically done this for me. But I'm going to go ahead and synchronize myself. Double click, let's give it a second to refresh. Let's synchronize one more time. There we go. There's a Chris Cap's folder, along with those other users. We're now back on the network, and that document that I created is back up there for everyone to see.

So, we're doing this with files and folders, but this works just a well with Web pages, with databases, with email, and even the programming interfaces that developers write to. It's critical that I have the power of the mobile computer.

Okay. The last thing I wanted to show you on the client here was some of the multi-language support that we've added. Bill, you know we've been localizing Windows for years, certainly in all of the languages that are represented here. But one of the things that people are telling us is that more and more, they're communicating with partners who are coming from different countries, sending them email and documents in different languages. And they need their version of Windows to support all the different character sets that might come across. So, as you can see, I'm working with just the U.S. or English version of Windows. But now, built into the base product is support for 60 different languages, and 12 locales. So, if somebody from Turkey sends me something, or if somebody from China sends me something, I know that I can print it and see it. I might not be able to understand it, but I can print it and see it.

Now, we're not limited to just seeing the information. Of course, we can enter information in these locales as well. In English, I can just go ahead and type "peace." But if I want to enter that in Arabic, I can come down to the task bar, change to Arabic, and my Arabic is a little rusty, but type in the characters for peace in Arabic as well. Close that down.

Now, I see that our work on the server is done. Excel has now been rolled out. So, we're going to stay right here on the client, and I'm just going to go ahead and log off as Chris Cap. I'm sure I'd like to log off. It's going to make sure we're all synchronized with all the different things that we want available offline.

And now let me log back on. Now, every time I log on with Windows 2000, we look into the Active Directory, we look into the Active Directory on the server, and it's pulling down all our new settings, applications, data, and preferences. I'm doing this all on one machine, Bill, but keep in mind if I were to go to somebody else's machine and log on as myself, again, it looks into the Active Directory and makes sure that I have all of that information available to me while I'm on that particular machine. All of those things follow me around the organization, so that I have my computer on any computer.

And I click on the start menu, lo and behold, the run command is completely gone. And if I choose programs, there is Microsoft Excel. Now, no one has visited this machine, no administrator came out to tweak with it. They just worked on the server. When I choose Excel, that package that the administrator added to the server, is going to run. And the administrator has already taken the time to answer all of the questions that I, as a user, would normally be answering. Where do I want the files to go, what components do I want, do I want the maximum install or the minimum install, et cetera, et cetera, et cetera. When you multiply that by thousands of users across a large organization, that's an incredible time savings that we give you, obviously, with the Active Directory.

Keep in mind, we're seeing Excel being rolled out to everyone at headquarters. But as an administrator, I can choose to deploy one Excel package that has all of Excel, maybe for the finance folks, but the HR folks maybe they just need the base, you know, just the minimal install to get their work done. And I can set those different packages up on the server. And the different users are going to get the version that I want. So, without me answering a single question, what we call hands-off install, Excel is up and running very quickly.

I've shown you how to add an application, but we use the same technology to remove an application, to upgrade an application, and it's even fantastic at repairing something that's broken. A scenario we hear about all the time at our real estate company is people delete files that they don't know are important files because they're trying to free up hard disk space. So, I might come into the Office directory, and there's excel.exe, and I don't really know what that file is. So, I'm going to go ahead and delete it, because I never created it. And now I've freed up a little hard disk space. Let's empty the Recycle Bin just to be sure, Bill. Excel.exe is now gone from my machine.

In today's world, when I run Excel or try to run Excel in this state, of course, we get a very ugly dialogue box that says, "Cannot find excel.exe." And that typically is going to generate a product support call or a help desk call inside my organization. With the new installer technology, of course, we're much smarter. Excel is able to repair itself, look into the Active Directory, find the missing .dlls or the missing executables, or the corrupted files, go up there and fix it. And I, as a user, in about 30 or 40 seconds, I'm back up and running. You don't call anyone, nobody needs to come to my desk.

So, as you can tell, I am a pretty excited guy when it comes to these products. This is a very quick look, but we think customers are going to really be excited, too.

MR. GATES: Thanks, Chris.

MR. CAPOSSELA: My pleasure.

(Applause.)

MR. GATES: Just to elaborate on one thing you saw there, that idea that you can have your files offline and work on them, but those same files are being copied up to the server, that's what gives us the best of both worlds. It gives us the world of PC computing, where you don't have to wait for the network, the network doesn't slow you down. But it also gives you the environment where if that machine ever breaks, if you take a new machine and connect it up, as soon as you log in, you have access to your information, because it was replicated up to the server, you're off and running.

And so whether that's upgrading to a new system, visiting someone else's system that you want to do work on, or that your system broke down, you have no problem there just having the information come down. So, at first it's a little slower while it's coming down, but the full capability without any support or administrative involvement.

I don't have time to touch on all the upcoming advances. This is a time of very rapid innovation. I did want to mention some of the really top ones, though. First, is this concept of the tablet PC. That's taking the portable PCs, which this last year have made incredible progress in getting small and powerful, and building them so they can run without a keyboard, and they have a wireless network. That means you could bring them to a meeting like this and take your notes, look at your messages, and have something where the quality of the text on the screen would be so good you'd often read right off the screen, instead of having to print as much out.

Smaller devices, like the ones that HP and Compaq are making, we see those as having to fit in and be easy to synchronize data. They are improving very rapidly. We're getting the size down, we're getting some wireless data options available for those. And so, knowledge workers will be using those heavily.

I mentioned XML standards. This is a hot area. Everything we're doing with our tools is around these XML standards. Finally, we're getting standards that aren't just about technical level issues, but are really about business objects. What is a purchase order? What does a medical record look like? And, that standard will be the most important one in computing in the years ahead.

Speech recognition, a lot of good progress there, but still a little ways off before we get the quality level people expect. Advanced collaboration, including the knowledge management workflow, that's coming with the next version of Exchange that ships on top of Windows 2000. And then, finally these high speed networks, so that scenarios like working together on a document, even when people are a thousand miles away, those will be very common, and you won't have to establish a voice link. The voice data will go across the Internet just like the screen sharing or the video.

So, those are things that we see in the next several years, all of them reinforcing the importance of having environment where the information is in digital form.

In closing, let me say that I think the successful companies of the next decade will be the ones that use digital tools to reinvent the way they work. We're certainly very excited about this, and we look forward to working with you to making it a reality in your company.

Thank you.

(Applause.)

MR. SANTIAN: Thank you, Bill.

We have time for a few questions. Anybody, do you have a question you want me to address?

QUESTION: (Inaudible.)

MR. SANTIAN: What is the most important challenge Microsoft will face in the near future?

MR. GATES: That's a very good question. I think being able to deliver the power of these systems while keeping them simple is the toughest thing. It's easy to add new features, it's easy to add new commands, it's easy to add new error messages, but in order for people to really use the power of the systems, we're actually going need less commands than we have today. And it takes a certain inventiveness and creativity to do that. And if we don't do it, people won't get the fundamental capabilities that are built into these systems. And if we don't do it, people won't get the upwards compatibility that they expect. They'll find a need to start over and do it a different way. So I'd say, in terms of my job, driving that into the company, really rewarding the people who push us towards better simplicity would be at the top of my list.

That's not to say I'm downplaying any of the other issues out there. There are a lot of things people want to do with their software, and the feedback loop is really making sure we keep those priorities well in mind.

MR. SANTIAN: Somebody else? I have plenty of questions here. Yes, please.

QUESTION: (Inaudible.)

MR. SANTIAN: Okay. How is Microsoft helping customers with the Y2K issue?

MR. GATES: Well, Y2K is a very big issue and it's taking a lot of resources and energy from everybody to really check through their different systems. And in the case of the PCs, there are software updates that need to done for full compliance. Now, most of those changes don't really affect the mission critical systems. They typically are not something that's going to have a huge impact. We have come up with a tool, our systems management tool, that scans machines and looks for anything that needs to be updated. We have made these updates available through our different programs. We have a Web site that's very complete in this respect. So in terms of your PC software, we're there to help out and make sure you get things in good shape. In terms of the larger systems that are often a problem, at this point it's probably too late to switch over to a PC-based approach, and you need to find people who have the expertise in the larger systems to go through and scrub all of that code. So that's going to be the biggest issue for our industry, certainly in the eight months that are left, to make sure that everything has been checked.

MR. SANTIAN: Thank you. We have another question here, which is our position against Linux?

MR. GATES: Okay. Well, there are a lot of different versions of Linux. Part of the beauty of open source is that everybody goes in and changes the source code. And what that means is that the different versions are not completely compatible with each other. There's no central organization that's controlling what's going on there and testing how those different things act. And so that's part of the reason why free software has never been a significant factor in the commercial market.

Now, we are seeing that this idea of hacking around with source code is attractive to students and different audiences. And we are seeing customers who would like to have more access to source code. So we're looking at our policies to see if there's a way we can continue to have the incredible testing and compatibility that we have and yet have more accessibility to those things. We don't see anybody on the commercial side really moving to Linux in any significant way, because reliability is such a key issue, and there's so many rich features, whether it's graphics interface, systems management, rich device drivers, things that we've been working on in Windows that just don't come out of the non-commercial environment.

MR. SANTIAN: Any other questions?

QUESTION: (Inaudible.)

MR. GATES: Well, I think there's a lot of good progress. Certainly when you have political leaders starting to get it on their agenda, you know the time is really coming where the focus is there. You know, I always highlight education as the number one issue. The first thing to do is to make sure that anyone who graduates from a university in your country has been using the Internet and that they're just so comfortable with it they're going to drive it out wherever they go to work. That would be the very first thing. A second thing would be having the right deregulation in the communications environment, so you're encouraging the phone companies to build high speed connections like DSL, or the cable companies when you have them build cable modems, so you get that infrastructure.

Then you want the leading businesses and the government to be model examples, driving this forward and getting it so people can recognize that there's a big change taking place. And then finally, do anything you can to broaden that out to the small and medium sized businesses. And in every one of those areas, as countries are diving in, Microsoft is interested in helping out. I'd really say that's the short list of issues that are going to determine which countries seize this thing faster than any others.

MR. SANTIAN: Bill, any final comment for the Latin American community?

MR. GATES: Well, I'm really pleased that we get an event like this. In my discussions here, I find out a lot of things that I take back to the product groups. I think there are some wonderful leadership examples in Latin America. We got a chance to highlight them with the customers who spoke here, and there's lots more. So, it's part of our job to share those and work with you, as you have those same interests. So I just want to thank everybody for participating.

MR. SANTIAN: Bill, thank you for coming. And I hope to see you next year.

MR. GATES: Great.

MR. SANTIAN: Thank you.

(Applause and end of event.)