MR. GATES: Thank you. Well, welcome to Seattle.

It's been great hearing about all the energy people are putting into this conference. Obviously everyone here is very dedicated to improving education. And this week I think has been a milestone in terms of the political attention being paid to the cause of education, whether it's the President's new initiatives, or the Democrats' response to those initiatives, it's very exciting that education is going to receive the additional focus that it deserves. It's certainly the most important area in terms of the strengths of the country going forward.

I myself am a big believer in this cause, both in terms of the products that Microsoft works on building -- I want to share with you where we're going with that -- but also in terms of my personal philanthropy, trying to help out with model programs, and really advance the great educators who are showing the way with new approaches.

It sounds like a strong statement to say it's a new era for learning, but I really believe that the tools are about to cross over a threshold that will allow them to be a huge benefit for students and teachers working together.

Now, technology and education goes back a long way. Even when I was a student, people talked about CAI -- computer-aided instruction. They talked about rolling TV sets in the classrooms, and what an incredible thing that would be. And many of those early claims about using the computer simply to do the drills and the testing didn't end up having an overwhelming impact. But during these last 25 years, miracle technologies have come into play. In particular, the microprocessor chip that's doubled in power every two years, and the incredible software that runs on top of that has created tools that are far better than we've ever had before. It's fair to say the PC is the best tool mankind has ever had to allow for rich communication and rich creativity. And the role of this device, a full-size screen device, where you've got the entire processor industry building great new applications for it, its role has just begun. The miracle advances that have allowed us to have these powerful PCs, those are continuing; the advances in the chips, and the disks, and the screens, and the networks, and all the things that go together there.

The very first computer that Microsoft wrote software for back in 1975 today you wouldn't recognize it, because it had such limited capability. You could flash the lights, use the paper tape. The total memory was less than 1/1000th of what we have in today's machines. And so the power really is there with these new machines.

Once the PC came along, we had the advance called graphics interface. That was a huge struggle in the industry -- many people disagreed with it. In the late 1980s, it looked like it might not succeed, but by the early 1990s, whether it was Windows or Macintosh, it had become the mainstream approach.

In the mid-'90s, the next big thing to come along was the Internet, the idea of being able to connect up all these machines at low cost. And the idea of the benefit of this, and the critical mass you could achieve, and the phenomenon around that, really emerged out of the universities in the United States and spread into the commercial market. And so by 1996-1997, everybody was saying, "Hey, we've got to have a Web site, we've got to hook up businesses, politicians, schools." Everybody was saying, "We can use this as a way of sharing information."

Now, most of that was just about essentially taking what you would have printed on paper and putting it up on the Web -- the calendar, the assignments, it's all great stuff to have there, but that was definitely the first generation. We got the global connectivity, the ease of hooking all these machines together, and lots and lots of people building content that put it into the mainstream.

But the Internet, combined with a rich PC, is just at the beginning. There are many things we don't have today, and people overlook this for many reasons. They overlooked it because they were so excited about what we do have. They overlooked it because there was kind of a gold-rush atmosphere around start-up companies that really clouded the idea of what were the fundamental advances that were really needed.

On the Internet today, you go to a Web site, you read the information. If you want to put a note on that information and share it with somebody, if you want to do creativity around that information, that's very hard to do. In fact, if you want to go and get numbers from different Web sites, you end up writing them down on a piece of paper in order to bring them into your creativity environment of the Office software on the PC.

As a user on the Internet today, you don't have that much control. People can send you junk mail, they can instant message you at times when you're not interested, and yet if you want to go find information, see if a flight plan has changed, see if something new has developed, you have to go and do that yourself. The information is not brought to you.

And so this lack of control means there's a lot of time wasted on the device. Finding different kinds of information is not as easy as it should be. Text search works, but when you get into numeric data, or really wanting to find the best information, it's not categorized in the right way. And we're still very limited in terms of using the keyboard as the only way to get at this information. Our handwritten notes can't be shared on the Web. We can't use speech to navigate. And so, the natural interface that's been a promise of computer science for many decades has yet to come. So, a lot that can be done in the next generation with the PC and the Internet coming together.

The kinds of applications that are going to go on here are really quite phenomenal. You know, people today in dealing with photos, it's still sets of slides -- hard to find, hard to annotate, hard to share. Well, that's changing. All those photos will move to the digital form. Music is now moving to the digital form. Some are controversial because of the ease of exchange. But people are going to move there because of the ease of organizing music the way you want, telling somebody about something that you like, even getting involved in the creativity stuff is so much better in this digital world.

And the ability to collaborate at a distance, to share information, will be dramatically advanced in this new generation. Today, when you pick up a phone and talk to somebody, you just have that voice exchange. If you want to share a drawing, a plan, a budget, if you want to look at something together and try and solve a problem, you don't have the screen to help you. And yet, if you go to the screen, today, you can't talk with the person. And so the world of the screen and voice are separate. We bring those together. Every new PC will have a microphone. Whenever you contact somebody, you'll be able to have that screen to share and edit things together. So whether it's two students, two teachers, whoever it is, at any distance, you'll be able to collaborate together using that screen.

There's a lot of underlying technology that is necessary to make this possible. To go from an Internet that's just reading HTML pages to an Internet where programs are communicating with each other, you know, finding information, finding the best price, finding if there's something that's changed that you ought to know about.

The plumbing that does this is a term called XML. It's a very important advance. It's something that really will impact the design of all the software, the development tools. It's not something that users should directly be exposed to, just like this idea of HTML and tags, or TCP/IP -- those are the plumbing things we use for today's Internet. This gets added to that list, but it is critical. There's actually a very interesting initiative called the school's interoperability framework, where we took an initiative several years ago to say, "Hey, let's use XML for school applications, to exchange information about students between, say, a rating system, and a financial system." And that's really caught on in a big way. It's a great example of an industry-specific XML effort that's been driven forward and really achieved critical mass. You know, it's to the point now where every school should be demanding those applications and seeing the benefit of that information exchange.

XML will be for so many things. When you want to buy equipment, not having to go through a complex paper-driven process, when you want to sell used equipment, to be able to meet the requirements for how you go about those things and do it with low overhead until the digital approaches came along, it simply wasn't possible. And because of the tools around XML, that will really take place. So this is something you'll be learning more about, particularly in terms of the scenarios that it enables.

Microsoft has bet its future on this in the same way that we bet on the original PC, the same way we bet on graphics interface, the same way we bet on the Internet. This is the fourth big bet in the 25-year history of Microsoft, and one that we're really a leader in driving. The new version of Windows, the new version of Office, all our different products reflect this commitment.

So where is the PC going? I think people are greatly underestimating what's going on with the PC and the importance of the PC. First of all, people talk about small-screen devices like the cell phone. Those are wonderful devices, but they are purely complementary. You're not going to do your homework, or fill out your tax return with a small-screen device. You're not going to plan a trip, you're not going to make a big purchase, you're not going to watch a movie or organize your photo album. It's true that when you're moving around and, say, a plane flight is delayed, you'd like to be notified on your small-screen device for a trip that you planned off of the PC, but that's complementary. And, in fact, the small device's value is strictly based on an approach where we can share the information automatically between the different devices, where the use doesn't have to go through extra steps to move that information around. You know, which things do I care about? Well, you should do that once and it should show up on all your devices.

Our strategy in this XML world is called .NET, and that's because we want to reach out to all the different devices connected up to the network. But, it's a full-screen PC that runs all the different software that the software industry is creating. And it has that local power for photos, and music, and editing and searching. That's where the center of action is today, and that's where it will continue to be, where people get the unbelievable flexibility. The new PCs will be faster, they'll have larger storage, they will often be connected on these wireless networks. Wireless networks are a very important advance in every place that computers are used, but I think particularly so in school.

The idea that one of these new networks, which is called an 802-11 network, can be set up literally for less than $100 per device connected, and with only a few thousand dollars to wire up an entire school. That means that anywhere you go you can carry the device around and you're hooked up. People are doing this at home, people are doing it in businesses. This will be very, very pervasive. And it means that you're always connected, you're always able to go up to the Internet, you're always able to get your messages, whatever you're doing.

The PC will continue to be the center of empowerment, where the rich software is done. We'll have a personal assistant that runs there that makes sure you're being notified of the things you care about only when it's appropriate. So if you're in the middle of planning lessons, you would -- the threshold for a message to come in and interrupt you would be much higher than if you're just doing casual browsing, or if you're just carrying your portable device around. The threshold of "should you be notified of a new message" would be even higher. So we can put the user back in control, and we can create an interface that's far richer than we have today. An advance as important as graphics interface was about a decade ago.

Microsoft, the way we bring these PC advances forward is by working with the hardware industry and by doing huge advances in the Windows software itself. The last really big advance in Windows, gigantic advance, was Windows 95. We're on the verge in the next 12 months of putting out another big advance that we call Windows XP. And this uses the base technology that we've had in our professional version of Windows, and brings it into every copy of Windows. And so we're very excited about what this can do, and I'd like to ask Mike Coleman from our Windows team to come out and give us a little glimpse of what we'll have in the next 12 months with Windows XP.

Hi, Mike.

MR. COLEMAN: How are you doing?

All right. So I'm really excited to be here. I got my first taste of technology back when I was going to high school in Albany, and so I've seen the PC grow up. And Windows XP is just going to be a super advance. We take the things that made Windows 95 and 98 a great operating system -- the application compatibility and the ease of use. And we're going to marry those things with the features that made Windows 2000 a great choice, and that's the power and the reliability.

So what I want to show you today are some of the great experiences that we're going to enable. And I'm going to start out here with a PC and this is a shared PC, and this is one of the experiences that we've done a great job with. So if you imagine that I'm a student in the classroom, or maybe a person in the household, and I've walked up and I see that Cory is logged in here, and she's working on a report here, she's reading her email, maybe playing a little solitaire on her study break. Today if I encounter a PC like that, I have to make a decision about what I'm going to do. Am I going to log her off and shut down all her applications, do I need to save her report, where is she at in her whole process?

With Windows XP we actually enable a feature called "fast user switching." And what that does is, with a quick keystroke, I'm able to move all of Cory's processes to the background. Her applications are still running. You can see here that her email is up, and she has three programs running in the background -- those were Word, and solitaire and Outlook Express. When Cory comes back to this PC later, she can hop right back on and she's right where she left off. I didn't have to do anything that would interrupt her workflow. I'll go ahead and log into my account now, and you can see that we have password protection, so in an environment where you want to preserve the integrity of that machine, we can do that. So we'll put in my password, we'll hit enter and my user environment comes up. Notice that it's a little different than hers -- I have a different background image. Each customer, each user can have their own experience on the PC.

And I want to show you a few things that we've done with the new user interface that Bill was talking about. It was really important to us that we cleaned it up, streamlined it, made it really easy to use. So areas where there was some clutter before possibly, on the desktop where people would save a lot of shortcuts and data, we by default give you a clean desktop to start out with, and you can add the stuff that you want to be there. If you come down here and look at this new start menu, we'll click on that, you can see the applications that I use most are here on the left. And we're going to go ahead and maintain the list of the most frequently used applications. And so the way I use the PC is reflected in the start menu. You can see that the picture and the name are carried over from the front page, and then up here we have links to the two most common applications, those being email and the Internet.

I'm going to show you how we've done some work to rearrange the way information is stored on the PC and the way we can do things. You can see here that this is the My Documents folder, and I have a nice view of all of my documents based on the type of application. So when I'm managing multiple types of documents, be they PowerPoint or Excel presentations, they're all stored right there for me. Also notice, over here we have this list of common tasks. So as I click a file, you can see the tasks change based on the type of file I've selected, or if I select a folder. This makes it super easy for people, when they first approach a PC, to exploit all the functionality of the PC.

I want to show you another way that we manage some of the information on the machine. If I go ahead and come in here and I select all my Word documents and I hit enter, what Windows XP is going to do is, it opens those documents -- look at the taskbar on the bottom. Normally, those buttons would get smaller and smaller, so they would be kind of difficult to read. With Windows XP as we open those up, we consolidate all of that information onto a single button. The idea here is, let's keep the user environment simple. Let's keep it easy to manage. If I come up and I need to find one of those documents, I can just click on it, the whole list is presented to me, I can bring the document I need to the front. I can right click and I can close the whole group.

(Applause.)

MR. COLEMAN: Thank you. It's actually one of my favorite features, too.

If you read a lot of email, you know, you can sometimes have 30 or 40 email messages open, that works great for Outlook. So you see the documents here arranged by file type. I can also arrange those documents by the date they were modified. So if I was looking for a document that I recently worked on, here's the stuff I worked on earlier this week, here's the stuff I worked on last year or two years ago -- obviously, I haven't been working much in the last couple of years.

So, we're going to go ahead and close out My Documents folder down. And I want to show you sort of some of the stuff that we've done on the user interface again, streamline it, make it easy to use, and bring down all that rich functionality. I want to take you into a couple of the experiences that we're going to make really nice with Windows XP. I'm going to power up my digital camera here. Digital media and content creation is super exciting for students; they like to get out there and capture their ideas. They're at an age where their ideas mean a lot to them, and they want to be able to express those ideas in a variety of ways, and digital photography is just one way they might choose to do that.

I've got my digital camera here. I'm going to go ahead and reach behind my machine here and plug this in. And, you're going to see that a wizard is going to fire up automatically. So one of the first things you'll notice is, when the camera is plugged in --

(Interruption to feed due to earthquake.)

MR. COLEMAN: I wasn't so sure myself. All right. So where were we? I'm not plugging the camera back in, folks. Anyway. So before we were so rudely interrupted, and let me just start out by saying, Linux can't do that, the Macintosh can't do that. Windows XP rocks.

So what you saw was, to refresh your memory, I plugged the camera in, and beyond the earthquake, a wizard came up on the screen, and what the wizard would have done is, it would walk you through acquiring your images off the camera, step-by-step, allowing you to choose what you were going to name them, and where you were going to store them, allow you to rotate the pictures if they were horizontal and needed to go vertical. The wizard was then loaded up to my pictures folder, which is what you see here. So I wanted to show a few of the things that we've done in my pictures to organize the digital media a little more effectively. One of the first things you'll notice here is on the file folders. You'll see the pictures, and those are actually thumbnail views of the media that's stored below there. And that's a common theme throughout the OS -- if I step back and show you the My Music folder, you can see that where we've encoded digital music we've done the same thing with the album art. So when Windows Media Player 8 goes out and you're encoding your music, we'll go to the Internet and bring the album art in for that, as well.

So coming back here, we'll select the pictures that I brought in off the camera, and we'll go ahead and pick a few of these. And one of the first things we're going to want to do after we acquire our photos is probably take a quick look at them. So we have a built-in slide show view, so that's going to run through automatically, or I can go ahead and manually click that through, close it down. So the pictures look pretty good, and it's very easy to display them to my friends and family when I come over. But, maybe I want to email one of these files to a friend. So I'm going to select this wishing well picture, and if you look at the file properties down here, you'll see that this is about a half of meg in size. Now, if this was going over your local area network, or your wide area links, depending on the speed, you could get a lot of congestion. The other thing is on the other end of that when you receive the file it's going to take a while to download.

So what we've done here is we've got a new feature in Windows XP that if I select that photo and choose to email it, it's going to know that it's a picture and it's going to say wait a minute, why don't we go ahead and offer you a chance to optimize that. So I can come in here and adjust the level of optimization. I'm going to shrink the size down a little bit, leave the quality at the default, click optimize, and you'll see a mail message will come up with that as an attachment. We went from about half a meg in size to 40K, that's a 12X reduction in size for the file having to go over the network, and then if we open that up, you'll see that the picture quality is still very, very good. If I had wanted to send the original to maintain the original size and quality of the image, I could have done that, as well.

So those are some of the things that -- you know, I've shown you how we can acquire, and manage, and organize the digital photos, how we can distribute them over email, a couple of other features that are built right into the shell, again, exposing those common tasks, publishing the files to the Web. So I could select some files, and send them up to my MSN communities, or other Web service. I could also take those files and I could order the prints from the Internet right there. So we can partner with a number of companies to where you send up the digital picture and it comes back to you just like a photo print that you would have ordered from your local drugstore or your local Fotomat. So that's sort of the digital photography experience -- acquiring, managing, and sharing your images.

The next thing I want to show you is an experience -- that can be done in a couple of different ways. The first is remote support. So in the education system you have your district technology coordinators, and they're typically supporting dozens, if not hundreds, of schools, and they have to sometimes do that remotely. Well, with Windows XP we actually have technology that allows that. It can also be used to allow peer-to-peer collaborations. So I'm going to walk us through us through a scenario where we're a couple of students, and I'm going to need a student for that, so I'm going to go ahead and bring up Steven Van Roekel. And I'm going to help Steven get through a couple of tasks here on a PowerPoint presentation he's working on.

Steven is a sixth grader at Lakewood Elementary. So earlier, Steven had sent me an email, and I'll fire up my Outlook Express here, and go into my Inbox and open it up. And this is a remote assistance request. And so while I fire that up, it's going to send a notice over to Steven, and while that's going on I'll explain to you that in addition to email we can do this via MSN Messenger, so if two students are talking real time in a chat they can request assistance, or we could just save the file log. So Steven is going to go ahead and click yes there. That will establish a connection between our two PCs. You'll notice hat when I responded and said yes, I can go ahead and help Steven, he still has to instantiate that session.

So here's the help and support, we have real time chat in there, Steven is using, so he's going to send me some chat here. So I have a picture that I'm going to send over to Steven. We have a file transfer utility, if I click the "send a file" button I can browse for the file I want to use, come down here, we'll send that file over. Again, everything requires a confirmation, so as I send stuff to Steven, he has to accept it. So now he has the file that he requested. Now, you'll notice that I can't actually do anything on Steven's screen. As I move around here I don't have the ability to control it. I want to go ahead and help him insert that picture into PowerPoint, so I'm going to ask if I can take control of his machine. Again, confirmation there where Steven has to allow me to do that. So now that I can control his screen, I can move this over to the side, bring PowerPoint up, and again, this is a scenario where we're just two students helping each other to get a task done. We'll insert that picture from the file, double click that, there we go.

There are a couple of other things that, if at any time during this interaction, again, for security, if Steven was uncomfortable with what was going on, he could click the stop control button on his tool bar there, and that leaves the session up and running where I could still have a chat with him. So we still have the ability to chat, I can still view his session, but I can't actually control it. If he had been really peeved at the picture I had sent him, he could actually click the disconnect button and that would shut the session down entirely. So through this entire process the person being helped had full control of what was going on.

So that's a scenario where we've shown some collaboration between two students helping each other. It could also have been a district technology coordinator helping a teacher troubleshoot a PC, or even in the home environment it could have been a family member helping another family member across the country over their phone lines.

So those are just a couple of things I wanted to show you about Windows XP. I wanted to show you how great it is for multiple users using the same PC, so in a family environment, in a classroom environment, I wanted to show you the fresh user interface that we've added to it to make tasks easier, and to streamline the user interface, the great experience with digital photography, and then collaboration and help and support. So thanks a lot, you guys have been a very patient audience today, and I'll turn it back over to Bill.

MR. GATES: I'll fly through these slides, and leave a little bit of time for Q&A, because I'm definitely looking forward to that. Part of the idea of the role of technology is to allow people to pursue curiosity and allow people to work together in very individualized ways. Depending on the topic, the way that someone is motivated to be interested in that topic, the things that really bring it to life for them, or make it understandable to them vary a lot from student to student. And so having all of the information out there on the Web, the latest information, and new ways of collaborating around that really can make a huge difference.

As Microsoft is moving forward, doing tools for what we call knowledge workers -- people in offices -- we often think of students as the ultimate knowledge workers. Their whole activity is centered around finding information and sharing information. And so all these things we're doing about being able to notify each other, being able to see videos of different things, search those videos to find the part that might be of interest, the work we're doing to annotate these different things and let you search through those, these have profound impact for students as well as knowledge workers. And so the brilliant thing for us is that we can do these products in a special way for students, but most of that R&D applies across the entire range of knowledge workers.

One of the programs that we've been very involved with, it's been a huge success, is the laptop program. Of course, getting the resources to be able to do that in a school is a significant challenge. Today it's percentage-wise not in a lot of schools, but it's growing dramatically year-to-year. It's 125,000 students in this country. And there is a change in the dynamic between having a PC that you stand in line to use, where the people are less adept and less confident of their use of the machine, always worried about those time limits, and they don't get the time at home to really get help from their friends and get to the level of comfort that maybe the other students have. When you have the laptop that's yours, and you can take it with you, use it at length, that is more than a quantitative change in how people think about these devices. We do think in the years ahead that the cost of these programs will come down, but they're still going to require a lot of cooperation from the schools, the parents, and various people in the local community to get those out to bigger numbers.

One of the big changes that's about to take place with the PC, I think is really the most unexpected and most profound advance in the last 20 years, and that is that we are going to get PC screens that are comfortable enough to read very long documents off of the screen. This is something that we've been studying in our research group for a long time, it's been a goal, because when we go to meetings we take notes on paper, yet then when we go back we have to send email for those things. When we're in a meeting, and we have a long document, we're taking notes on that and we can't share those with other people. If somebody sends a piece of email that's a long thing, you end up printing it out, and you do your edits on the paper.

Well, what would it take to have something where you were comfortable to use it in digital form? Well, the answer is that it takes three things. It takes a pretty incredible screen, which will be an LCD color screen, a much higher resolution, the dots per inch has to be about 130 versus what some screens have been. The new screens have this capability and they won't cost a premium over today's screens in two to three years. The second is you have to have great software that lays the information out in the right way, with the right white space and the right clean presentation, and the right fonts, a lot of learning there that we've done, and had to make some breakthroughs. And finally, the hardest thing is you need a device that you're holding in your hand. If it's a screen in a fixed position after you read for five or ten minutes, just subconsciously the fact that you have to point in that same direction is fatiguing, and it breaks down the immersion in reading the material that you really want to have.

And so what the form of these devices will be, they'll be screens that you can detach from something on a desk, or you can detach from the keyboard in the portable form factor, or just a pure tablet form factor that never has a keyboard. These tablet devices will start to come out next calendar year, they will be somewhat more expensive than a typical portable computer in the first 18 months they're out. But, subsequently this will be a standard feature of all these machines. So what we'll have is reading, and annotation and note taking will all become a mainstream scenario.

It's a lot like what happened with slides. You know, there was a long time when people used PCs for word processing, but slides they still carried those things around and reordered them, put them in the tray and all that. Today in most environments you don't find that at all. The same kind of dramatic change, but far more profound will take place with reading and annotation and note taking. It will be done digitally. Students can take notes in class and share them with each other.

Now, again, these devices won't be super inexpensive at first, but as this change comes, the ability to spend less on text books, to customize the kind of material that appears, to have things be done interactively, those profound advances will mean that literally within five years we'll have many, many schools that are working without the actual paper text books and working in this approach. At Microsoft today we actually have these prototype devices, and people fight over who gets to use the 30 different devices that we have, because once you hold it in your hand and start using it, it's one of those things that you never want to go back.

Part of the vision, of course, in education is connecting everybody together. Making it so everybody can see what's going on, so that sharing is easy, and creating a Web site that facilitates that requires no work. We were going to do a demo of the Encarta class server. Some of you saw that in the technical track. This is a product that we're very excited about. It's a product that comes out in April. And it literally is designed to make creating homework assignments, to review tests, to have the students see what's going on, have the teacher be able to not have to author in some complex way for all the different things that go on inside the classroom environment.

And it's the first product we've had that's really dedicated to the education market in this way. And, we've got it out in beta test right now. We've got a lot of people giving us very good feedback on this. So, we're excited with where that's going, and we'd love to have more people participate in helping us guide where that process goes.

The school of the future, what does it look like? Well, I mentioned the idea of the Web-based curriculum. I mentioned the idea of the students pursuing their curiosity online and gathering things and sharing those things. I think that the student ID card will be a smart card. Instead of having passwords, when they walk up to a kiosk, they simply put their smart card in, and that identifies them for their email or any administrative things that they need to do.

The school itself, of course, should move away from paperwork in terms of all these administrative ideas, buying, selling, working with parents, organizing things, you know, doing personnel reviews, the digital approach is very advantageous there. And that's where this school interoperability framework that I mentioned comes in where all the applications by using these XML standards can work together in a rich way.

So, there's a lot of challenges in education -- getting the resources, the training, getting these things in place, changing the ways that things have been done, I don't think any of us underestimate the fact that none of those things happen overnight. But the trends are very encouraging here. The tools being applicable to the key problems that teachers have, the tools coming down in prices and the increased attention that's being paid to this area. Certainly the people at Microsoft who work in this area love the way that the products are going to make a difference, they love the relationships that we're building, and the fact that we really can learn a lot about where we should go as a company to help out with this vision. And so we really look forward to working with you and making the new digital tool era a reality.

Thank you.

(Applause.)