Remarks by Bill Gates

Innovate '99

April 14, 1999

ANNOUNCER: Ladies and gentlemen, please welcome Eckhard Pfeiffer and Bill Gates.

(Applause.)

MR. PFEIFFER: Hi, again. I think our final keynote speaker really needs no introduction. But obviously I'm going to do it anyway. Bill Gates has proved himself in so many ways over the past decade, as a visionary with a unique ability to articulate his vision to the broad computing public worldwide, as well as the world's most successful business leader, and more recently as a thoughtful, globally best-selling author.

He's also, of course, one of Compaq's most important partners. And I might add he has a great track record of attending Innovate.

In fact, Bill, if my memory is correct, this is your third time at this event, which means you're only one Innovate behind me.

I cannot understate the importance of the partnership we have built. For nearly two decades, Compaq and Microsoft have defined standards in computing platforms, operating systems, and application software. Our front-line partnership is rooted in long-standing relationships between Microsoft and three prominent IT companies, Compaq, Digital and Tandem.

From the desktop to the Internet, we're working together to give you the tools you need to build a competitive advantage. I cannot think of a better person to close Innovate.

Bill, it's yours. Thank you.

(Applause.)

MR. GATES: Well, good afternoon.

It's a great privilege to have this chance to speak at Innovate '99. There are some very exciting things taking place in the marketplace today. In fact, I think it's fair to say that the rules of business are changing faster today than ever before. And in the next 10 years, this will have a profound effect on the winners and losers. It's not as simple as saying that everybody has got to have a Web site and do electronic commerce. It's a profound change in terms of how information flows inside companies, to partners, and to customers.

It's a profound change in the way that information is created, and how knowledge workers are empowered. It's built on an incredibly strong foundation, the foundation of the PC standards and the Internet standards. Those standards have really redefined the computing universe over the last decade. And as people talk about what's going on here, I think they still underestimate the importance of these changes. As people move into this new world, it's a new way of living, a new way of doing work.

In the book I just finished, Business at the Speed of Thought, I talk about this using some new terms. I talk about the Web lifestyle for somebody who, as part of their daily activity, is using the Web many times a day, simply taking it for granted. Even the things they don't buy across the Web, they're using the Web to be better informed, to find out from their friends what their experiences were, to find out what the comparisons look like.

Today, if you take a strict definition of this, only about 5 percent of people in the United States are living this lifestyle. It's tended to be people on university campuses, people at high technology companies. Even taking a very broad definition of saying, anybody who does email once a month, you still get less than 30 percent of the population. So, we've got a long ways to go with that.

A companion idea, though, is that the whole workplace requires a new approach, a Web workstyle. This is a style where your knowledge workers - which are a huge part of your investment, and a huge part of the competitive differentiation - where they are far more empowered than they have been to date, where they're not working with paper forms, they're not working with printed information trying to record numeric results. Instead, they have the digital tools through the network and through their PC to navigate the information, to look at it in different dimensions, to send those views around to other workers to talk about insights that might cause a change in business strategy.

Because these workers have been starved for information, their expectations have been very low. And yet, as we start to allow these new systems that show them what's possible, we're going to see a bottom-up movement, just like we saw with the PC, where people will demand to work in this more efficient way. The Web workstyle is about an organization that's got all of its people empowered in this new fashion.

Now, this can't happen solely as a bottom-up phenomenon. It requires leadership in a company, leadership to build what we call a digital nervous system, taking the information that has been mostly on paper, mostly in meetings and phone calls, and say, which of that information should be easily accessible in this digital form. Now, only by stepping back and saying, what's critical - project management, customer databases, sales analysis, budgeting, human resources - and seeing how those systems can be reconstructed can a company get the full benefit of what's possible here.

And no company today, I think, is even close to getting 100 percent of the benefit. The amazing thing is that in pursuing efforts that will bring down the costs of PC networks while, at the same time, promoting better tools that will let people use them for greater business value, we can actually lower costs and improve value very substantially at the same time.

In adopting this new approach, there's a few principles I think that are very important. First is to not think of the Internet in a simplistic way. It's a breakthrough in communications. It allows anyone to connect up to anyone else based on what they're interested in. The phone didn't do that, mass publications didn't do that. And it speaks to the fundamental mechanism of capitalism, matching buyers and sellers. It speaks to the issue of distance, can you find people with skill sets who might be in a completely different country, and not only locate them, but also collaborate on a real-time basis using this network.

The nature of competition will be far more intense, the need for physical distribution networks, the way that things have been priced in a combined fashion, all of that will be changed and changed fairly quickly for business to business type transactions. It's very important that a company immerse themselves in this, look at what the competitors are doing, look at the best practices, really have a set of metrics for how they're going to go forward with it.

The Internet - although the term stays the same every year there are some big advances that are taking place there. There's a philosophy I think that is important about empowerment. If you think of the simple jobs in companies, the jobs where people have just been using terminals in the past, the importance of those jobs will certainly go down, because they've been about taking information off of paper and typing it in, or taking a phone call and looking something up on a computer screen.

Well, those activities will move to self-service. Somebody like FedEx took a million inquiries about packages, turned it into five million with far more detail, 24-hour availability, but without any manual work. And the people who used to do that work can now get more involved in more in-depth inquiries, helping to figure out pricing schemes for customers, or solving tough problems that they're having. They can move the value-added of those workers up by giving them the right tools.

From an IT point of view, there's a huge demand here to take the systems that have presented information in a fairly fragmented way, information by division or by product that didn't include things like every phone call with a customer, every contact, every insight about that customer, and to reshape those in a very customer-centric fashion. And instead of solving that problem internally, and solving it from the Web site as two distinct efforts, by far the best approach is to say that all the front ends of the past are no longer going to be used. And, instead, the Web site will become the center of the business.

The internal views to that Web site may have additional information, how you think about that customer, how you categorize them, but you want the single view so that when they come in, face to face, when your sales people go to see them, when the call over the phone, you've got a common base of information, exactly what they're looking at when they come in and see the personalized presentation that you're providing to them on the Web.

Now, this new front-end view does not require ripping out all the old systems. It's very simple taking a Windows and Internet approach to use tools that reach out to those existing databases, and yet bring the information into a form that's very web-like, where you can navigate through links. Over time, as those applications are rebuilt with the new tools, they too will move onto the mainstream platform. But those can be disconnected activities that let you move very rapidly to get the rich views that are central to internal activities, and sharing with partners and customers.

Another principle that may sound kind of negative is the idea that bad news must travel fast. I remember when we put in our electronic mail system, I started getting messages which were nice. Where people would say, hey, we just won the ABC account. And, of course, when you get a message like that, it's almost required to send back a reply and say, hey, great work. That was a good idea. Keep that up. But after I had gotten a lot of those, I really wondered, I multiplied out the total amount of business we were doing based on those messages, and I'd say, gee, I hope we didn't lose all the other accounts. Because I didn't get enough email about business to allow us to stay in business. There must be something else going on out there.

And so I thought, well, why is it you never see mail about accounts that you lose? I guess, in a sense, a person who sends that thinks they're asking for you to send a piece of mail saying, hey, that's not a very good idea, we should have done better there. But you really need a balance. You need both. In fact, I've made it a requirement at Microsoft for every piece of good news about accounts, people send along a couple pieces of bad news. In fact, I often get mail that starts with the phrase, in the spirit that good news should travel fast, here's some information.

The wonderful thing about this, though, is that if you hear about new requirements, if you hear about things that very demanding customers are asking for in a very early stage, you can respond. You can win that account back 90 percent of the time. You can change your strategy, change your priorities, and be in tune with the marketplace. And it's not just the technology marketplace where companies are going to have to use that feedback loop in a much better way.

A lot of what's wonderful about the digital approach is how it enables feedback loops to work for you. For example, when you get rid of all those paper forms, and you put up the screens, on every one of those forms, it's easy to put a place somebody can click and give feedback about how they think it could be better, more flexible, richer, not ask them to enter so much information. And so, very quickly, you get iterations that bring those things to be the best they can possibly be.

In a digital nervous system environment, an executive like myself can put together a pool of employees, asking them if they understand the goals, how enthusiastic they are about the work, what do they think about their leadership. Send that out, and deciding whether it's anonymous or attributed, and within 24 hours have a lot of great feedback from that group involved. So you can really keep with the pulse of the organization.

Every 10 people who come to our Web site, we poll them to ask what did they think of the Web site, how could it be better? And so, digitally, we get the guidance of the marketplace, the guidance of all that feedback to tune those strategies. And that's far better than simply trying to make intelligent guesses about what's going on.

So what are the pieces that go into this? Well, they're the pieces you're investing in today. They're state of the art PCs, like the ones that Compaq builds. They're great email systems. Now, you may need to invest more in making sure the email is incredibly reliable. Certainly part of this vision is that it becomes a totally mission critical function. In fact, we've had a lot of customers now work with us by measuring workstation reliability for email and other functions. And we work together to optimize those figures, to drive them higher and higher, getting them to be higher than, say, the voice networks, which people often rely on in a mission critical sense.

The applications, the databases that count for companies will vary from company to company. Certainly specialized applications are part of the picture. But, what I'm talking about here is eliminating the boundaries between those back office activities, and the front office activities. Having sales visits, customers comments, account status, all of that brought together in a rich view that sorts information from the line of business applications, but also includes all the activities of the field and the knowledge workers. That kind of synthesis has never been done in the past. It's bringing those two worlds together, taking advantage of these new tools.

I think many of the speakers here at Innovate talked about e-commerce taking off. I think in a way those charts that talk about the amount of business being done on e-commerce are very misleading, because you can drive very large numbers into those charts simply by taking a buyer and a seller who would have done business anyway, using paper, and putting that across the Internet. We jumped the e-commerce numbers by $10 billion a year, it was a 20 percent increment, simply by changing the way we worked with our distributors. But, that wasn't a deep change, you know, that was still the same product being matched up in the same way.

What is far more interesting is the collaboration, internally and externally, and the new sales that never would have taken place without that. We see that in stock brokerage, we see that in the book business, we see it even more rapidly in business to business. Business to consumer gets all the press, and that's typical, but the imperative for the efficiency, getting the bills to be electronic, the approval process to be electronic, going purely paperless, the strong need there is much more for business to business transactions, where everybody is connected up, and everybody needs to do it in this new way.

You know, Microsoft has gone to the point where there is no such thing as a purchase order and an invoice. If the vendor wants to file a purchase order with us, I the most extreme case, they'll take their PC with their browser and simply pick the form off our Web site, take what they would have printed out and mailed and simply typed that in, so it comes in electronically, like everything else.

Now, when we benchmark where we are on this, I said earlier, we're at a very early stage. Only 29 percent are involved at all, by the most generous metrics that can be determined. And as you get outside the United States those numbers drop quite a bit. A factor of four or so for the activity in Europe, and even larger than that in Asia and other parts of the world. Now, I firmly believe that this is a global phenomenon. In fact, this is a phenomenon that's making the world a smaller place, taking all the services and products that never would have been economic to provide, and allowing them to sell into a worldwide business. So we're going to see the rapid growth. One of the things that I think really holds us back are breakthroughs that we can make in the software, breakthroughs that reduce the number of commands and make it far simpler. Because we're all so involved in this, it's always good to get a level set of how people are thinking about it, by going out and talking to the man on the street.

So we asked a consultant to go out and do that for us, and really poll people, what do they think about the web and all the computer things going on. And I think it's very educational, so let's go ahead and take a look at that.

(Video shown.)

MR. GATES: So we've got a long way to go to make it easy enough to get it out there to the broad market. Microsoft's role has been clear from the very beginning of the PC industry. We decided to focus on building the software pieces that would allow this all to come together. And the key products you know very well, Office, BackOffice, Windows, and our network presence, which is branded MSN. It's through those products and the incredible advances that we'll make in them that will make it easy to achieve this full vision. We work in standards groups that are very key to driving the Internet forward, and we work through partnerships, and there's no partnership more important than the work we do with Compaq.

Across the different products we have a number of very important initiatives. Simplicity, reducing the things you have to learn to work with these products. Bringing together things that have been disparate. Today, finding information in the file system versus the mail system, versus the Web, it's all quite different, and yet we can boil that down to a few commands with a shell innovation that we've done. Continuing to drive the Internet forward. Standards that are going to allow you to put video and audio on your networks, without any concern that that's going to slow down your more critical transaction type traffic. And that will enable things like personal video conferencing, or sharing editing sessions of documents, which is already there in the software, to become commonly used.

I mentioned the importance of interoperability, where you want to take all the databases and all the information from the applications and create these new, rich views that you use the latest tools in the Windows environment to present. So interoperability, even as our R&D budget has grown dramatically, its share of that budget has grown to be over 25 percent. And finally, scalability, a very key initiative and one that relies on taking software advances, and hardware advances, and bringing those together in a very exciting way.

On the software side, it's support for clustering, making it easy to program against the cluster, doing the automatic load balancing that we've now got built in for Internet connections, and supporting transactions. We had a serious question with our transaction software, whether to make that an extra cost add-on. Revenue-wise that would have been great, but it would have prevented developers from exploiting it. They would have wanted to have a configuration that worked without it. But, transactions are fundamental to being able to take the cluster and have total reliability, because if anything goes wrong, hardware or software, you simply back out that transaction and shift over to another system, and then you continue running without any problems. So making that part of Windows, and getting developers to take advantage of it in their new component software designs, that we felt was very important. And of course, the directory that makes it easy to manage these operations across all the different systems is very critical.

We're very excited about the hardware pieces that we will fully exploit here. The 64 bit processors with the Alpha work that Compaq has done in a leadership position there, that's very important, because you don't have to go out to the disk nearly as much, you simply have very large memory. We'll be able to take more processors and put them together, using different bus approaches that Compaq is investing in. And finally, we can cluster those all together. The net effect, if you multiply each of those things, really compounds to a system that goes way beyond what even the highest end system can do today. And yet, that capacity will be used, because of the huge number of transactions across the Internet.

Compaq put together a plan where they can take these systems and put together services behind them to guarantee uptime 99.9 percent, using today's version of Windows NT. And as we move up to the next version of NT, we'll be looking at moving that up to an even higher level of guaranteed reliability. The partnership we have here actually was the work of a very strong partnership with Compaq that we've had literally from the day that Compaq was founded, pursuing portable computing, 386 computing, high end server computing, really driving forward a lot of the key firsts that the industry has seen in the last few decades.

With Digital we had an alliance that was very much based in the field strength that they had, the great work they were doing helping customers put our products together, and that's come together now as part of the overall relationship. And then finally Tandem, the work there speaks to this issue of how you take all this power and deliver it in a way that can be used as a very high end, reliable system. So our objectives have been intact. And having Compaq integrate all of that is a fantastic thing for us. We're each specialized in what we do, and yet the combination of our skills has really had a huge impact on the marketplace.

I want to emphasize that although you see this very often in terms of products, in terms of the field activity it's equally impactful. One stop shopping for the worldwide life cycle support, a kind of assurance. The single point of responsibility, the optimization, all of that really speaks to the idea that you want solutions and we each have elements that go into that.

Now the next milestone for us is Windows 2000. We've been working on it for a long time. It represents a big advance with a major focus on this cost of ownership and the directory we've got built-in. The idea of mirroring the file state, automatic updates to the software, part of that is so that you don't have to go out and visit different machines. And you can be guaranteed that the configuration on the different machines is absolutely the same, so you have that system lock down.

We still want to preserve everything that's great about the PC, the flexibility to have applications, to have rich peripherals, to have portability so you can take it with you, take it home, take it to the customer site, all of that, and yet give people the best of both worlds of what it would look like to have central management as well as both PC capabilities.

The easiest way to see why we're so excited about this is to actually see a quick demo of it in action. And so, I've asked Doug Groncki, who is the product manager for Windows 2000, to come and give us a quick look at some of the highlights of Windows 2000.

Hi, Doug.

MR. GRONCKI: Thanks, Bill.

I'm really excited to be here today to show you Windows 2000. I use Windows 2000 today, an early release of beta three on my desktop, on my mobile PC and, in fact, when I started preparing this demonstration for you, Bill, you weren't even going to have to come. It was about an hour-long demonstration. I was going to show you all about storage management, IntelliMirror, and everything we're doing with Windows 2000. But in the time that's allotted for me, we're going to focus specifically on the Active Directory, and specifically on the value that the Active Directory is going to give your IT administrators, to end users and to developers.

Now, one place that Microsoft and Compaq have worked particularly well together over the years is with Microsoft Exchange. Compaq is the single largest reseller of Microsoft Exchange. And with Windows 2000, we're shipping a new tool called the Active Directory connection manager, which you see here, which allows me to manage the relationships between information that's stored in Exchange and information with the Active Directory.

Here you can see that I've specified replication to be bi-directional, that means changes that you make in Exchange are reflected in the Active Directory, and vice versa. This happens automatically. No overt actions by the IT administrator need to take place to update that information in both stores. So, if we switch to the Microsoft Exchange administrative console, you can see that there's a lot of information that's stored here about the user. What I'm going to do is open a user called Doug Groncki. We'll pick on myself here, and we'll change my address to 1 Microsoft Way to 2 Microsoft Way, and we'll change the city to be Redmond. When we click okay here and we minimize this window, we can switch to our Active Directory administrator, and if we take a look at that same user, you'll see that the information that we changed in Exchange was automatically replicated to the Active Directory. So, now his address is 2 Microsoft Way, and the city is Redmond.

Very simply here, with one simple tool, enabling your IT administrators to continue to use that investment they have in Exchange, they can use the tools that they know today while they're familiarizing themselves with the Active Directory. You don't have to re-enter all of that data, and that data becomes an enterprise-wide resource when it's stored in the Active Directory because it's going to be more accessible to applications and services and to your end users.

Now, we don't stop there. We do a great job working with Exchange. We also do a great job working with other legacy directories, such as NDS. So, what I'm going to do here is, I'm going to open up Eastern Marketing organization, which is synchronized with Novell NDS. And if I open up a user called Jerry Condon, let's change his description from being in accounting to being a consultant.

We'll click okay, and when we switch to a new tool called the Directory Synchronization Manager, which maintains the synchronization between Novell and the Active Directory, we've got some interesting technologies that we've put together here that we've proposed to the IATF. IATF has a way to synchronize different directory stores. So, what I'm going to do is, I'm going to right click onto synchronize now. And it's going to have that information from the Active Directory that I just changed, and it's going to force that information to NDS.

So, I'll minimize this, and we'll switch to our NetWare server. And if we take a look at that same user, and we look at his properties, you'll see that now instead of being in accounting, he's now a consultant. So, very easily we're making it possible for you to manage all of the users and resources in your organization.

Now, the point here is that the Active Directory really isn't about replacing your existing systems, it's going to work very well in your existing environment. And synchronization with Exchange and other directories is really just the first step towards consolidation. We're going to be doing some great work with Exchange on this going forward, and also with other industry vendors, such as SAP, Baan and FileNet.

Let's switch back to our Windows 2000 server here, and let's take a look at some of the work we're doing to simplify management of all the desktops in your organization.

MR. PFEIFFER: This is focused on TCO.

MR. GRONCKI: With IntelliMirror and the group policy editor, the administrator now has the ability to essentially manage all of those PCs. So, in one location, you can see here that we're managing policy on the headquarters. This could apply to a thousand or ten thousand different PCs and users. And what we're going to do here is, we're going to take a look at all of the applications that we've made available to the users in this group, such as Excel, PowerPoint, Word, and Visio. These applications are assigned, they automatically appear on the user's start menu, and upon first execution, they're installed.

We also have applications like Front Page and Office 2000. These are published to the As-you-move program applet. So users no longer have to know cryptic paths, like product/encrypted/something/other in order to find all the products they need to install to do their job. We do it centrally here with IntelliMirror.

Now, to reduce help desk costs, we give the ability to the administrator to specify templates to prevent users from doing things with their operating system that might generate help desk costs, such as running programs from the run menu or in the system settings, mucking with the registry using registry editing tools. We've disabled them here. And we've also specified that users can only run allowed applications. So, we've specified a list of applications that users can run, such as Word and Visio. And these are the only applications that users will be able to use.

Now, all of this policy is managed centrally here in the Active Directory. Let's switch and take a look at what this looks like for an end user. You're looking at Windows 2000 Professional right now. And I'm going to log-on using my Internet name, DougG@streetmarket.com. And here, when I go to the Start menu, you'll first notice that the run command isn't there. That's been disabled by the administrator. When I go into accessories and I click games, and I try and launch one of these games like Solitaire, a message pops up telling me that this has been disabled by the administrator. That way your users aren't going to be hanging out and playing Solitaire when they're supposed to be finishing up that month-end report, right?

And also, the applications that I assigned with Group Policy already appear on my Start menu. So, when I click on it, the Windows installer service kicks off. It goes off to a network location, the best location, in fact, to install this application. So it identifies all the components it needs. And, in a just in time fashion, installs that application to the user's desktop.

Now, we even do some smart things here like checking for slow links as well, so that in case you're connected and there isn't a lot of bandwidth, you won't be wasting a lot of time. And in just a couple of seconds here, you'll see that we have Visio fully functioning and up and running.

Now, the benefits of the Windows installer service and IntelliMirror don't stop with application deployment. It also helps with repair of applications as well. You know, I'm going to take the role of the typical end user who has no idea what an EXE or a DLL is, and I'm just going to start randomly deleting files from my program files. So, we'll delete these. We'll click yes to all, and we'll even empty the recycle bin, because we really want to free up some disk space here.

Now, today, you now what's going to happen is, this user is going to call up the IT department and is going to say, you know, help desk, I've got a problem, my PC is not working. He's not productive. The IT manager or your help desk technician has to take time and go to that desktop and actually repair it. This is an expensive process.

So, with IntelliMirror, we have the ability to repair that application on the fly. When I click on Visio, it recognizes that key parts of the application are no longer available, and it goes back to that network location, and it reinstalls itself on the fly. So, we'll just give this a couple of seconds to finish up. And there you go, a fully functioning version of Visio again.

Now, the Active Directory doesn't stop there. It makes it very easy for your applications to roam with you and your settings as well. We also make it possible for you to redirect the contents of My Documents to a server, which you can see here, so that anywhere the user goes in his organization, if he has multiple PCs or is working in a different office, those documents are available to them because it's stored in the directory.

And, in addition, we make the directory a resource for end users so they can search and find information they need. For example, let's take printers. How do you guys connect to printers today? I'll bet it's the same way I do. You walk down the hall and you find your printer, and you hope there's a little yellow Post-It sign there with a network path to the printer, and you hopefully write down the cryptic path on a little piece of paper, and type it in correctly so you can connect.

Well, with Windows 2000 we change all that. You can quickly get a list of all of the applications, all of the printers that are available on the directory. You can search for only those in building six, and only those in building six that can print double sided pages, or I can print in color, and simply restrict that list, right click, and connect. So, we make it much easier for you to find the resources you need to do your job as well.

Now, let's switch back to Windows 2000 server and take a look at some of the work we're doing to make that the directory and asset for your developers as well. We're going to go back to our start search menu, and we're going to search for people this time. In this case, we'll search for the user Doug. We'll pick on myself a little more. We'll right click and choose action. Now, something a developer has done here is, they've extended the context menu for this user to launch an application in his context, in this case an organizational Web chart.

So, what this is going to do, it's going to build this Web page, and it's going to pull information out of the directory. You can see this quite clearly because in the URL that is passing to the server includes some LDAP information where it's asking the directory for some information, and it's doing this all with open Internet standards.

And quite quickly, it brings me up my application. Now, you can see here's a picture. I had longer hair in those days. I didn't have to get on stage in front of lots of people. I'm a product manager, I'm in the headquarters, I'm in building six, and my manager is Ed Moose. If I click on organization, you can quickly see if I have any direct support. If I choose map, suppose you have a meeting with me in building six, and you want to find out where I'm located. I can simply right click on the map and choose zoom, and I can quickly zoom in here, and you can find that I'm in office 2120, right here.

Now, this doesn't ship as a feature of the product. Believe it or not, Microsoft doesn't have maps of all the corporations in all the world that we ship as part of the product.

MR. GATES: We could use Terra Server for that, but okay.

MR. GRONCKI: With a little bit of work, you'll be able to do the same sort of thing that we've done here, and when I click on org chart what it's going to do is, we've built a little application here that builds an organizational chart on the fly based on information in the Active Directory. You can see that I report to Ed Moose. But, Bill, since I'm doing such a great job with your demo here, and conveniently you've made me an administrator, I'm going to give myself a little promotion here, and we're going to go into the headquarters unit, and we'll open up the user Doug Groncki, and instead of working for Ed Moose, we'll change this so that I now report to you, Bill. I'm going to be doing all your demos going forward.

So we'll choose Bill Gates, we'll click apply and okay. We'll go back to that application and when I refresh this, on the fly the application changes. You can see that my manager is now Bill Gates, and when I click on organization chart, lo and behold, I report to Bill now.

(Applause.)

MR. GRONCKI: So what you've just seen here is how the Active Directory is really going to be a great asset for you to integrate all of the different directories and systems you have set. It's also going to help you reduce cost of ownership or all of your PCs. So it's going to be great users, and your developers alike.

MR. GATES: Thanks a lot, Doug. That's super.

(Applause.)

MR. GATES: The vision for Windows is to scale from the very, very low end, with Windows CE palm type devices, things that will have wireless connections, and be used essentially as little screen phones that you can take everywhere, and scale up to these very, very high end clusters, that have the right fault tolerance. For both database and Web servers, having the very top performance, and price performance, is something we're very confident will get delivered through the mainstream. The beauty of the collaborations, the beauty of the incredible R&D that goes in from companies like Intel, Compaq and Microsoft have really made the PC the place where the advances are driving forward.

Now, one of the things that customers look at is this scalability with particular applications. Late last year we had a big milestone with the shipment of SQL Server 7.0. And you can see here what kind of difference it made taking a system and running it against the SAP, Baan or PeopleSoft benchmarks. With SAP we went from 1000 simultaneous users to over 2400. And with work we're doing, we feel confident we'll get over 8,000 out of that later this year. With Baan, the improvement was even more dramatic, and likewise with PeopleSoft. So it's these application oriented benchmarks that are certainly one of the ways that we look at our progress, and we measure how we're doing here.

We also look at the uptime. We've had these three examples where people actually deployed SQL Server in the beta version. Took it out early so that we could gain confidence with it, and all of them had better than 99.98 percent up time. Pennzoil is an SAP installation, Barnes and Noble, of course, is a high volume Web site. And TerraServer, a very special server that we worked on with Compaq, where we have a terabyte of storage and we've actually taken the satellite imagery of all the face of the Earth and we're bringing that up there.

That's really the only place we could find where it was easy to have a terabyte of data. A terabyte is a lot of data, and it was a great experience to really understand how the backup and restore tools would work when you have such a huge amount of information. Now, as you're collecting statistics on your Web site, if you really want to analyze all the different clicks by millions of customers, over time it's possible you'll be dealing with that kind of database, or if you want to do the most advanced data mining capabilities, you can get up into that range. And so having that as a guaranteed performance scenario is very important.

Another key element for us is Exchange. We're moving forward very aggressively on that. Compaq has been fantastic in terms of integrating that in and having a very large set of people trained to work on this product and help people get all the elements together. It's interesting that on Compaq servers we've now got customers who have over 20,000 users connected up to a single server. Depending on your geography and your network you may not choose to configure it that way, but that's even with the current version of Exchange, and that number will more than double as we get the next version of Exchange out that comes with Windows 2000.

This week we're announcing an extension of the capabilities of Exchange, through a partnership with Compaq and Lucent, and this is the voice mail unified messenger that Lucent has. That will be included in the Proliant Alpha servers that Compaq makes. Now, that integrates in with Exchange, because you can see your voice messages in your mailbox, see those together, and you can actually dial in and have your email read out to you. So you no longer have this dichotomy between voice mail and electronic mail. This is a solution that really brings those together under the Exchange database.

The next version of Exchange is very focused on the knowledge management scenario, making it so that you can search all the different stores, whether it's database, files, Internet, any of the things where you have information and call those up by any of the attributes of that information. One of the tests that I put in the book about a company managing its corporate memory in the best way is that you should be able to sit down in 60 seconds and call up any historical document that might be valuable to the project you're working on. Well, that's been fairly complex to do. There's really no system that out of the box delivers on that, and that's one of the many things that we're tackling here with the next generation of Exchange.

The rate of innovation, I would say, is actually accelerated, if you look at the number of start-ups, if you look at the R&D spending by the leading players here, if you look at the volumes in the marketplace, it's moving things forward at a very exciting pace. The advanced collaboration that I talked about, that will include both real time collaboration through the screen sharing, and video and audio, the advances that will let you put that kind of traffic on your network, and not just your wired network, also the campus wireless network.

It's going to be very inexpensive to put in transmitters, just a few thousand dollars to get a 2-megabit network that's everywhere on your business premises. And then people can take their portable computers, or new form factors, palm sized or tablet sized, carry them around to meetings, and always be connected up. In fact, the whole image that people have had of the PBX being a fixed function device, with the phones on the desk, that really goes away as you get these small screen devices and tablet PCs, that are connecting to the PBX back end over that wireless network, as well as connecting up to all the data servers and intranet capabilities.

Another area we're very excited about is the set of standards being built around XML. We're optimizing our database and our tools to make it easy to deal with these standards. And in every industry there are groups that are defining medical records, retail records, all the different semantic definitions of schemas that are necessary to have interoperability at the highest level. Those standards are drawing on previous work, like EDI, but they're doing it in an Internet framework. It's not batch-oriented, it's far more flexible, and the tools are going to be there to make that a very powerful way of sharing data.

Speech will come into the interface, initially in the next few years in narrow domains, where you're simply calling in for your schedule, calling in for your mail, or making certain types of reservations. And then later, as a general input method that will even in some cases replace the keyboard, general dictation. Even before we have general speech, we'll go back and we'll take the portable PC and create forms of it where the keyboard is detachable and you can simply take that screen in a tablet sized format, use it to do handwriting which will be recognized to make annotations.

This idea is an idea that has been talked about for a long time. And it's only because of the hardware advances and the software advances in the last few years that we and many others have been focused on that the time is right for doing it. The battery life, the screen resolution, the tactile interface, and the recognition software have matured really incredibly over the last three or four years. And finally, we have these smaller devices that will come in many sizes, some of them that don't have wireless connections and some that do. But, all of them providing you a rich information on a small screen.

The ultimate horizon in great interface is taking the computer from being such a dumb device, and teaching it to see, listen and learn. The cameras that would be used for this visual recognition are very inexpensive now. And it's a small matter of software to see if there is someone at the computer, help verify that it really is the person that's supposed to be there using it. Even a little bit, recognize their gestures, and see what commands they're giving, see if they're confused about the interface that they're dealing with, and have a far more natural interface.

Having the computer do the speech synthesis, we're already seeing that in some products. The encyclopedia has that, we've got the handwriting recognition actually being used in a very popular way in Japan, because the keyboard is so tough, that the trade off there of using the handwriting, even with today's machines, is a very good tradeoff. Learning is the toughest of all of these things. In fact, that's one where it's hard to even measure the progress that's taken place. But, it is a frontier that we and many others are investing in, and should be built into the machine.

Now, these rich recognition mechanisms will be part of the operating system. You don't want to have to have every application recreate the very rich set of information that's required to build up the context and do this well. In fact, over half of the operating system five years out will be the software that drives these natural input areas. And that's why you're seeing the increases we're making in R&D and a very major focus on that area.

So there's some incredible opportunities here, opportunities as the devices get better, opportunities as the tools let you build applications in months, instead of in years, opportunities to get the mind set around this digital nervous system. And we're very excited to be working in partnership with Compaq to help each of you make this a reality in your company.

Thank you.

(Applause.)

MR. PFEIFFER: Thank you, Bill. Thank you very much. Thank you for your insight, your vision. And most of all, for the great partnership between Microsoft and Compaq. And like at each Innovate event, here is the memento that will always remind you of Innovate '99. Thank you very much.

MR. GATES: Thanks.

(End of event.)