Remarks by Bill Gates, Chairman and Chief Software Architect, Microsoft Corporation
2004 International Consumer Electronics Show
Las Vegas, Nevada
January 7, 2004

ANNOUNCER: Ladies and gentlemen, please welcome CEA's president and CEO, Mr. Gary Shapiro. (Applause.)

GARY SHAPIRO: Good evening. Welcome to the 2004 International CES, the world's coolest technology show. (Applause.)

You know, tomorrow morning, when the International CES officially opens, you will see the most cutting edge products and technology from nearly 2,500 exhibitors. The International CES has a very impressive lineup of leaders who want to share their knowledge with you. Our keynoters include Fumio Ohtsubo, the president of Panasonic's AVC Networks Company, and senior managing director of Matsushita Electronic Industrial Company; Carly Fiorina, chairman and CEO of Hewlett Packard Company; and Gary Forsee, chairman, president and CEO of Sprint Company.

In addition, our industry insider series features some great people -- insights from Dell Computer's CEO and Chairman Michael Dell, Intel President Paul Otellini, Verizon chairman and CEO Ivan Seidenberg, and Real Networks founder and chairman, CEO Rob Glaser.

I'm also delighted that we have more than 130 top government officials, including SEC Chairman Michael Powell, several members of Congress, and ministerial-level officials from Germany, Japan and Korea.

You know, with more than 100 training and educational seminars, master classes and super sessions, CES is certainly the place to learn everything new in the industry.

Now, before I introduce our keynote speaker, I have one housekeeping note. When you leave this evening, we as your show sponsors and producers are happy to provide buses, shuttle buses, at the East Tower entrance to take you from the Hilton to the various hotels along the strip. Our staff, the CES staff in these wonderful blue shirts, will direct you to the buses on your way out.

Thanks for coming, and I look forward to seeing you tomorrow at 8:30, right here in the Hilton Theater, for the opening keynote that will kick off the 2004 International CES.

Once again, I am personally honored to welcome Bill Gates as our pre-show keynoter. (Applause.) Now, it's no secret to those of you who have been here before that I'm a fan of Microsoft in general and Bill Gates in particular. Last year, when introducing Bill, I described the jobs and the wealth that he created, along with the whole Microsoft Corporation. Two years ago I called Bill Gates a "mensch." Now, "mensch" is a Yiddish word meaning "a doer of great good things." I pointed to his foundation, which focuses billions of dollars on health and education. In fact, that word "mensch" is actually in a Justice Department filing -- it's probably the only Yiddish word there.

Three years ago I described how Microsoft epitomizes the spirit of the United States, basically a scrappy upstart that became a superpower through innovation and persistence. Tonight I want to share with you very briefly the special relationship between Microsoft and the CEA and the Consumer Electronics Show. Microsoft recognizes that the International CES is a critical venue to preview many of its products and technology. The company launched Xbox, Tablet PC, and advanced devices such as Smart Personal Object Technology, SPOT watches, and the Smartphone, all here at the International CES.

You know, CES defines consumer electronics, and Microsoft is a company that is a chief player in the consumer electronic space. We have a wonderful relationship, which I am sure will last for several years with Microsoft. Indeed, I am happy to welcome back Bill Gates as our keynoter for a record-setting sixth year.

Ladies and gentlemen, please welcome the founder, chairman, and chief software architect of Microsoft, Bill Gates! (Applause.)

BILL GATES: Well, it's fantastic to be here at CES and see all the energy around the advances taking place. It's really phenomenal all the things that are happening. You can just look at flatscreen TVs and say, wow, that improves the TV-viewing experience. You can look at the rise of broadband, connecting up these devices to all the information in the world in a very rich and speedy way. You can look at digital cameras, digital video and say, that's becoming mainstream. Every single one of these things is really fascinating and moving at an incredible speed.

One thing I love about this is this is a period where the reality is driving the expectation. In the '90s people got ahead of themselves -- the companies' valuations, the way they thought all the pieces would come together, but now those things are really being delivered and they are being delivered through solid products that stand the test of the marketplace, you know, exactly which products are the best out there. It's an incredibly competitive environment. It's an environment where the big winner is the consumer buying these products.

If we think across so many different scenarios, the way they were typically done a few years ago and the way they will typically be done a few years from now, it will show a dramatic change. Consuming music: from going to have to get the CD and playing just those tracks, to having the flexibility to organize your own play lists and have that music go with you wherever you go -- in the car, out running, taking a trip. Music flexibility is phenomenally changed.

Think of photographs: organizing them, editing them, putting voice to them, putting music to them. That is something that we will think of as commonplace in a few years. We'll simply mail around those kind of rich presentations and everyone will be able to appreciate some of the things that went on, that today they wouldn't have a way of doing that.

These scenarios demand all these advances to work together. And what is the glue that is going to make this all come together? Well, there's a lot of industry cooperation, a lot of standards and, perhaps most excitingly for Microsoft, a lot of software to make it all work. We talk about it as "seamless computing" experiences, making it so you don't have to do a lot of work to get your calendar to show up on the different devices, making it so that your e-mail is wherever you go.

I've got here a slide showing the various devices that we're developing software for, and you can see the variety is fairly phenomenal. It's this commitment to have rich software on all these devices that has us investing at record levels in R&D, substantial R&D growth in a period where many companies are cutting back that. It's because we see a role for software and making a better platform for our partners, people who want to build on top of what we do to deliver very special experiences.

We are developing software that's in the car, in the phone, of course in the PC, the set-top box, the watch. All the places where software can run, we want to make sure that we do the best we can to make that connect up and to make it seamless.

Now, we have to be careful about all the boundaries between these devices, the different user interfaces, the complexity, and a particular challenge here is making sure that we strike the right balance in managing digital rights and yet having the simplicity that you can move the content that you paid for around and have it available in the richest possible way -- a very tough problem.

We need to make sure that the industry standards, those of the Internet are advanced, that the new audio and media formats run across all these different devices. We can talk about this as overcoming boundaries, making sure that the boundaries between the devices aren't too difficult, the boundaries between you and the device.

Today we don't have speech as a way of interacting with these devices. Certainly in the car that is going to be for the driver the primary way to provide input. And so we've got to drive speech technology forward. We've got to put it into the mainstream. That means we can have it on all the devices. Once you train your computer to understand your voice in particular, then automatically your phone will see that profile and it will be there. Your car will see that profile. The types of things you talk about, the words that are typical, will change the training. And so even on an ongoing basis, without your having to do anything explicit, the experience will get better and better.

The same goes for information. Whenever you give a search command or whenever ads are presented to you, that should be based on how you browse things, not just on that one device but across all your different activities.

The boundary between work and home, think about coordinating your business calendar and your personal calendar. Well, that's a real boundary, one that tonight we'll show an advance to help break down the problem there.

So the theme of seamless computing, bringing the smart devices together with very rich interfaces, that's what we're dedicated to and that's why we're investing so much in the software and the partnerships that will pull this together.

Now, the hardware advances are very important. Hardware advances created the original PC. In the 1980s, people were stunned by the PC. We had built our company around the vision that that would happen, and so the software we built during that time caught on and it became a very strong platform. In the '90s, the hardware power took us to graphics interface. We got connectivity, and so the whole Internet explosion took place.

Well, now we have so many hardware things -- wireless networking. Why can we say that all your audio will be available on any speaker in the house, all of your video, your photos, will be available on any screen? It's because the wireless network will deliver it. And wireless networking is just getting cheaper and better all the time.

The large hard disk drive. Why can we talk about Portable Media Center, that is going to not just have your music on it, but it's going to have your movies there, movies for your kids, the movies you like, you just find it out on the Web, download it, off you go and it's available. That's because the hard disk capacity, battery life, cheap LCD screens, those have all come together.

Hardware connectivity through USB is another important element. The PC gets richer because we connect up to devices either through the wireless, through the Ethernet, or through that USB capability.

And we are constantly able to make a richer experience because of the graphics and CPU advances. Partners like Intel and others invest and do amazing things there, so as we think about how Xbox will advance in the future, how the PC will advance in the future, these interfaces will be richer, but they all have to be simple and consistent across the different machines.

So why do I say software is the key to this? Well, the interface that can guide you is presented by software. We are going to have the large screen up there. It's not just some buttons that on devices in the past you had to push without knowing what they meant. Here you'll have the screen and you'll be able to interact through that. So ease of use can be better if the software does it right.

We have a lot of experience on the PC, where we've done this very well or where we haven't made it quite as simple. We're also using that Internet connection now so that whenever somebody is frustrated with an interface, we can get that feedback and we can also use that to connect up and update the software on an ongoing basis.

Many of the types of software products I'll talk about tonight are not software products that you just buy one time and that's it; these are products that because of the way they are connected through the Internet, we are constantly improving, whether it's the software on the SPOT watch or MSN or many of the others, the relationship between us and that software user is very different in terms of learning what we can improve and delivering those improvements on a constant basis.

Broadband is a building block here. Getting at video, getting at music, getting at information really assumes that's there. So we are doing everything we can to make that attractive and push that forward. It's another theme in terms of how can we deliver new experiences and how can they be seamless, connecting back to all the work that we and other people do.

We want to make it easy to have that same interface on the devices you use at home and the devices you use at work. That boundary has always been a magic one for the personal computer. The volume of both of those markets have helped, driven it to be increasingly innovative. And the compatibility there has meant that software tools and software investments can leverage across that incredible volume. And so we want to preserve that and even strengthen that as you get the information sharing between those two different environments.

A lot of the software that we are showing tonight took many years to put together, teams working in a dedicated way, working with partners. And it's really exciting when that software comes together. You may have seen that we've got a series of ads that talk about people using Microsoft Office and how excited they get when they get their project done in a great way, because the software is there as a tool to help them do that.

Well, in the same way we have been working hard at Microsoft to get all these consumer electronic devices to connect up and do really important things. And we kind of captured this in a video -- it's perhaps a potential ad that we'll run. First, I'll show you a little bit of one of those Office ads to remind you what those are like, and then I'll show you this candidate ad, and you can judge whether it's ready for prime time or not. So let's go ahead and look at the Great Moments at Work, connecting consumer electronic devices.

(Video segment.) (Applause.)

BILL GATES: It was so exciting when that toast came out of that toaster. It's really a key, key scenario for people.

Let me talk first now about MSN. MSN is an area that we have been investing in for a lot of years. We think it's very important, because in order to let people communicate and get at the information they care about, better and better software will play a central role.

MSN is our software, combined with Internet services, that connects people to other people, connects them to information, and really lets them easily get at the things they care about most. But what's new, being launched here today, is MSN Premium and that offers a complete set of software tools to get the most out of broadband.

Now, that's a change in emphasis in two different ways. The first is it's a software value added independent from how you buy your broadband. Historically, access and software for the Internet were combined together in the narrowband world. Here with broadband, we are seeing a change and we are focused on what we can really bring to the equation, which is that software side, and then helping our partners who promote broadband access, often by working very closely together to make sure those two things can be easily put together.

So what are key features here? Communications -- that is a central activity, so much more that we have been able to do there. Safety and security tools for things like spam, parental control, pop-up blocking: These are things that really are important to make sure your time online is productive and your kids are exactly doing what you think is appropriate. And then we also have sort of a new theme here of bringing in premium information management services. This is because of the emphasis you heard on broadband. Because of that, the idea of video-type content, partnerships with people who do that, has been pushed to a new level, and that's really a significant value with MSN Premium.

Let me now ask Yusuf Mehdi, who runs MSN, a vice president, to come out and talk about MSN, what they got done, and give us a look at why that will make a big difference.

YUSUF MEHDI: Thank you, Bill. Thanks. (Applause.) Well, we are excited to launch the new version of MSN and give folks a little look. As Bill said, we're announcing the new MSN today. It's probably the most significant upgrade to MSN that we've had since probably the original release back in '95. There's a lot of great features in this product and before we jump in to show it, I thought we'd show some of the amazing amount of research we've done on this product to really get at what it is people are looking for on the Web. So why don't we go ahead and take a look at that video, Bill?

(Video segment.)

BILL GATES: Pretty helpful.

YUSUF MEHDI: What do you think? Is it sparking any good ideas?

BILL GATES: Yeah, that oven thing.

YUSUF MEHDI: That oven thing. We're working it up for the next release.

Okay, so MSN comes in two forms. There is the new MSN.com, our popular Web site, most popular Web site now out there on the Internet, and the new MSN Premium that you talked about, Bill, which is our premium service that has the best of all our MSN tools. I'm going to show you a little bit of both.

We're going to start out and look at the new MSN.com. I'll put it up here on the big screen. This is the new Web site that we have today. More people come and look at this Web site on any given day than actually read the top 10 newspapers combined, so it's a pretty popular page. And as you heard up in some of the research, what people are looking for is to get quicker access to information they care about, broadband content to assemble it together because there's a lot of content out there on the Web.

So some of the things we've done is, if I come down here to show you the left-hand side, all of the content channels are aggregated together so all of the key tasks that people want to get done we've put here at one-click button. Here in the center we have a lot of great content. You can see we have an optimized-for-broadband Web site. If we detect that you're on broadband, we'll serve you this page and there's a lot of information here, specific broadband highlights. And I'm going to come back and show you a special thing we're doing for broadband a little bit later on. And then a number of other content, and then, again, advertising integrated here in a clean way, so you can see the difference between the content and some of the advertising we want to drive.

And then at the top here we have a search, so if you don't find what you want here, we have a great search engine that is increasingly getting better as we do greater clarity of advertising, and I know, as you know, we're doing a lot of investment there to really goose up our search service. And then one-click access to the most popular things, like My MSN and Hotmail.

Now, a key problem for people on the Web is they said there's so much content out there, I want to personalize that information for me. I want to know my local weather and my local news. And so we've done a massive update to the My MSN. I think it's now probably the best-in-class page for anyone to come and personalize their page. Go ahead and take a look, I did one for you, Bill, just to kind of get a sense of it. And on the left we have got some of your news, local news, worldwide news. We have the Seattle traffic map here. With one click I can see what's happening in any given area. You travel a lot, so I have the weather for both Redmond and much of the cities that you may be going to look at soon. The weather looks pretty good here in Las Vegas. And stocks. And now, of course, we have even your e-mail, so we have Hotmail inboxes on the page.

Now, one new thing that we're releasing with this version is a My eBay module. This is the first time ever that eBay has extended their network environment outside of their own site, and they've allowed us to do that on MSN. This is the first of its kind. You're able to come in here and keep track of your bids on things that you're bidding.

Now, I went out and put your name up to see what's for sale for Bill. And I don't know if you know but there's actually -- I found one here, there's a signed photograph, and I put a bid on it.

BILL GATES: You're nice to do that.

YUSUF MEHDI: It's $9.99. I promise to go back and put a bid in for $100 or something later on and get that price back up there. But you can keep track of your stuff.

And now I want to show you the ease of customization. So a lot of times people say, oh, this must be hard. I want to show you here's something that can't be done on any other page on the Internet in terms of the personal home page. I can just grab this module, column drag and just drop it, and it will automatically move to the page, and I can do an individual module, so you can now drag and drop like a scrapbook. People can go and assemble pages anyway they want just by dragging and dropping. In fact, I did a couple here just to give you a sense of it. You can play with the colors and themes. Here's a finance page I did and notice the new graphics, the nice looking graphics, charts, stocks, tickers. There's an entertainment site, so if you want to know the times for your best movie theater down here in Redmond, or if you want to look at what's going to be on TV tonight, or if you want to keep track of the Sonics scores. So you can see very rich pages, you can have as many pages as you'd like. It's the ultimate way to keep track of your information on the Web.

And the last part here, which I'll show you in a little bit, is the MSN video area. So the ability to come and get access to high-quality broadband. I'm going to show that to you at the end because we have some neat announcements as part of that.

And it goes without saying that this information content as part of your seamless vision is being put out in a lot of devices. For example, we have the new Smartphone as you know, and MSN is just a click away here. I notice you've got the Smart Watch on as well with MSN Direct and you'll see MSN on a bunch of these other devices. So, we're really getting that around to places.

Now, I'm going to switch gears and talk to you about MSN Premium. MSN Premium is, as I said, it's our top-of-the line offering. It is a subscription service that runs on anyone's access, not just Microsoft's access, but it will run on Verizon DSL, it will run on broadband cable. It's priced at $99 a year and it comes with a number of great features, things like the Encarta Encyclopedia, a Money package for Mr. Pratayama in the video there so he can plan his retirement, of course premium communication tools like e-mail, and then a number of safety and security tools. And so, in addition to the smart technology that we have for spam protection and our best-of-breed parental controls, we have now included the full-blown anti-virus software from McAfee, as well as a personal firewall from McAfee. These would cost you $70 separately, they're part of the $99 price. It's some great protection there.

The other one is probably a big problem you have a lot on the Web when you search the Web. What is one of the biggest things that you notice that probably annoy you when you get around the Web? It has to be probably pop-ups, they tend to be one of the top things. And so we have a new, brand new, pop-up protection blocker in MSN. I go to a site here that has a pop-up and what happens up here is automatically it's found by default. If you can see up here in the right corner of the screen, the cursor, this is a pop-up that's already blocked. It just comes up and blocks it. And we do something fairly unique, which is we show you a thumbnail for a few seconds and then it will go away. So there may be an important pop-up there you may actually have wanted, because sometimes you buy a product and you get free shipping as part of a pop-up. So you need technology to know are these good pop-ups or bad pop-ups. Let's take a look here.

BILL GATES: That's a bad pop-up.

YUSUF MEHDI: That's a bad pop-up. You don't need perfect credit?

BILL GATES: No, not right now.

YUSUF MEHDI: All right. Let's take a look at another one just to show you again how it works. See how the thumbnail comes up, take a look at this one.

BILL GATES: That's a very bad pop-up.

YUSUF MEHDI: This is very bad, this is a spyware problem, the kind that get on your computer, take over, reset all your settings, and you can't get them off. And they're using some fancy stuff here in DOS.

BILL GATES: They fool you to make it look like DOS.

YUSUF MEHDI: They make it look like DOS. DOS is not on a comeback, it's a spyware program.

So that's a look at the safety and security tools. That's one part of the value proposition, the safest way to protect you and your family online.

The other part I want to show you now is what we've done around photos. So, I'm just going to show you one other feature, which is the amazing thing that we do for photos. Now, photos are a top four activity on the Web. People would be surprised to know that the number one attachment that gets sent around in e-mail is photos. That happens to be the number one way that people share photos. I want to show you how in MSN Premium we really just nail the scenario of sharing photos around on the Web.

Now, just to restate some of the obvious points, the problems with sharing photos today, a lot of people are on dial-ups, you know, like being on dial-up, you can't send high quality photos. Even if you're on broadband, your ISP probably blocks the amount that you can send, usually you can't send more than a meg.

I'm just going to go ahead and let's create a mail message here, and we'll go ahead and address it here. I took some of the photos you had on one of your trips to India, Bill, so I went ahead and grabbed a bunch of photos. I'll put these in the e-mail message here.

Now, the sum total of these photos is actually eight megabytes, but one of the great features of MSN Premium is when I go ahead and just send this mail, what it does is it automatically compresses all those photos, puts them into a lower res but still great-looking view, and then copies those photos up to a Web site, that you get provided for free by MSN Premium so that people can come and get access to the high fidelity versions.

So here's what the mail would look like that you would get, here are the photos, they look pretty good. These photos that were 8 megabytes before are now only 138k total. So this mail is only 138k, very fast, you can send it to anyone, whether they have MSN Premium or not.

If you want to look at the photos, I click on them, and here's a great new feature, which is that when we automatically just transport you to that server with the high-res images, and then you get a beautiful slideshow view, so you can actually look at the full fidelity resolution images if you want to do that, too. And with one button you can come down here and download all those pictures to your hard drive. So it really is the most powerful way to share photos and send them back and forth. (Applause.)

Now, one other way to share photos, too, because we really went after the scenario, is a lot of times you get a great photo, and you're just so excited you want to share it with someone right away. You don't want to have to wait, you don't want to have to send it in e-mail, and again, you want to show it to them. We can do that now within MSN Messenger and share photos very quickly.

Now, Jay, he's doing some research back up there and as part of that research we had him do, he took some photos with the Butterfly guy. I think they developed kind of a special relationship. I thought we'd just take a look and show off the MSN photo features here. So I'll do that. Now, Jay will grab a bunch of photos from his side of the computer on the messenger, put them in, and he's inviting me to do a photo swap. So I'll go ahead and click Accept. And what happens is now as he and I are typing we can see the photos. And the nice thing is we can talk about it and say, hey, look how great this photo is. We really had some fun, me and the Butterfly, et cetera, et cetera, et cetera. So you get a sense of just the powerful way we can share photos.

Now, the last thing I want to show you is what we've done to really nail the broadband content, and broadband service. And we have a new MSN video service. And the goals of MSN video service are to really make it simple for people to get access to high quality video content. And I thought who better to show it to us than Jay Leno himself, because he is basically an expert in the field of entertainment and video. Now, he's in Burbank, but let me see if there's a chance we can get him to help us out.

I'll say, let's get you out here to help us out with MSN video, let's see can you get out here to help us out and I'll see what happens. I'll see what I can do. I think he's going to work on something. (Applause.)

JAY LENO: Thank you very much. Thank you. Thank you, guys. Thank you very much. Thanks for having me. You know, I was in Burbank just about 10 or 15 seconds ago and this new instant transporting will be the next feature. I don't want to get people excited, we're still, what, about 8 to 10 weeks away on that. So let's just focus on why we're here today. I was just checking my SPOT watch. I traded my Pulsar in for this baby, it's fabulous. And one feature you didn't mention, Yusuf, if you stand on this it gives you your weight. Did you know that? You put it down, stand on it with both -- just do that, and then it will give you the read out, which is a fantastic thing, certainly.

I know Bill mentioned the flat screen TV, certainly the biggest consumer item of the past year. See, this is what's wrong with our country, Americans are getting fatter, our TVs are getting thinner. OK. We realize, we're too fat, the TVs are too thick, we both can't fit in the room at the same time. Rather than lose weight, we just get a thinner screened TV, basically is what we're doing, you see. This is the American mentality. (Laughter, applause.) In fact, I'm coming down the strip this afternoon in front of one of these huge Lincoln navigators, you know, the kids are in the back seat, they're watching a movie, on the DVD screen, and I'm right behind them. Now, I'm watching the movie on the DVD screen. When they change lanes, I'm changing. I wound up in Henderson trying to see the end of Big Bear basically is what happened.

And one last one, one last one, I can't let this one pass, I heard this on the radio. This is very annoying. This guy that comes on he said, test drive a Jaguar [British pronunciation] today. You know, it's not a Jaguar [British pronunciation], it's a Jaguar, OK. This guy is an idiot, I'm sorry. I'm not on holiday, I'm not on schedule [British pronunciation], it's a Jaguar.

But anyway, we're here today to introduce -- I introduced -- actually Bill and I go back, because we introduced Windows '95 together. What year was that, Bill? (Laughter.)

BILL GATES: We picked the name for the date, it was 1995.

JAY LENO: Yes, '95, right. Back then Bill was doing this computer thing out of his garage, I paid for lunch, he still owes me a $20, but I mean, we'll forget about that. But, who would have guessed back in '95 that this whole computer thing was going to catch on the way it did. It's pretty amazing. Do we have some photos of that? There it is right there. There he is, as you see. My hair was much longer then, a little darker. Bill, your hair looks exactly the same. The glasses are a little smaller. Bill, it's interesting, since Ben Franklin there's been a lot of advances in eyewear, did you know that? They have the Lasik surgery now, they have the contact lenses, have you thought about it?

BILL GATES: No, I haven't.

JAY LENO: Yes, well, you're weaning your way. The glasses are getting smaller, so you might be getting towards contacts, but it's just something to think about.

BILL GATES: OK.

JAY LENO: Just something to think about. And what do we have here, are we going to talk about broadband?

YUSUF MEHDI: Yes, we're going to go ahead and talk about the new MSN Broadband. It's part of the broadband demo, but we'll go ahead and show it to you anyway.

So one of the tough things for people on the Web today is to look at high-quality broadband video. It's very expensive to stream it and so the only way that most people can do it is to pay for a subscription service. We are actually going to offer it for free, in part because of the great Windows Media Series 9 technology that allows you to do high-quality streaming without having to have a fast connection. So here's the new service, we've got the broadband player here, we have the ability to come down and choose from a lot of content.

JAY LENO: What do we have here?

YUSUF MEHDI: Here's some news --

JAY LENO: There's Osama bin Laden. I have a plan to capture Osama bin Laden. We send over Anna Nicole Smith, she'll get his money, he'll be dead in a week. OK, very simple, very easy, that's the American way. (Laughter.)

YUSUF MEHDI: Well, given that, Jay, I thought we should share some entertainment things. So here's some things with entertainment. Let's go ahead and take a look at some clips and show you the quality now. We stream this at 300k, and if you download it, it will actually download and play at 700k, so really high quality. Let's go ahead and take a look at it.

(Video segment.)

JAY LENO: Now, you see the thing that's very cool about that is on the Tonight Show, let's say that somebody has a favorite headline or there's a sketch or something they want to see, rather than watch the show they could just go right -- oh, that's bad. I don't know if I'm as crazy about that as I thought.

YUSUF MEHDI: We have top content from NBC, Showtime, Discovery Channel, Home, Weather Channel, et cetera. It's great content to start out and launch. As of tomorrow everyone can come up to MSN and get this great quality content, and then over time we'll add more and more content.

JAY LENO: Could I watch --

YUSUF MEHDI: That will be a little bit harder to find on the Web. I'm not sure you'll find it on our video service but we'll take a look at it.

So that, Bill, is just a quick sneak peek at some of the key features with MSN Premium, and MSN.com.

Any parting thought, Jay, before we depart?

JAY LENO: Any parting thoughts? No, I saw Martha Stewart there, did you see that today?

YUSUF MEHDI: Yes, I did.

JAY LENO: They found her in a spider hole under a farm in Connecticut today, just for anybody who hadn't gotten the latest news on that.

YUSUF MEHDI: So that's MSN. We're very excited about it. I think it's the biggest release we've had at MSN to date, and I think we're going to satisfy the hundreds of millions of people who use MSN every day.

BILL GATES: Well, thanks, Jay, thanks, Yusuf. (Applause.)

Let me talk now about Outlook Mail Connector, back over here. This is one of the features of the MSN Premium thing that is about getting rid of one of the big problems with e-mail today. In e-mail you often have very rich e-mail at work. When you connect up Outlook, which is the most popular and a very rich mail client, to an Exchange Server at work, you've got calendar sharing, task list sharing, address book sharing, it is a very rich experience. But when you leave work, when you've got your family doing e-mail, it's separate from that and you don't have that same richness, you don't have those same features, and so you often have to learn another e-mail client or you get Outlook, but you get it with very limited capabilities.

What we decided to do was to let people who use MSN Premium to have Outlook but to have all the features they get connected up to Exchange. But we do it by connecting to Hotmail. We had to upgrade our back-end mail server so that we can make this part of MSN, but now we've got this and what I've got is a copy of Outlook here, that is actually connected up both to an Exchange Server, and at the same time, to the MSN back-end, which is called Hotmail.

So you can see up here I have folders that relate to my Exchange account, and there you have the rich features, in terms of flagging things in the same conversation. When I move over here and see the inbox that's stored on MSN, I get those same capabilities. I get the ability to right click and set flags on these things, get the time ordering, all of those different rich things.

If I go down to calendar, what I can do is I can call up the calendar I have at work and my personal calendar and look at those, side by side. So say I got a mail, somebody sent me mail where somebody was asking to schedule time with me, I got just that invite, then I go over to that calendar and I see exactly when I'm free and then I can move appointments around, I can even copy appointments, if I want, from one calendar and put it on the other calendar. So I can have my personal calendar, the family calendar, see as many of these side by side, and work with them the way I want.

Likewise, contacts, I have contacts, same kind of richness. I've got tasks stored in that back end, and so now the most capable e-mail experience is seamless between work and home as part of this subscription. So it's a piece of the MSN offering that really spans that boundary.

Well, now let's switch topics and talk about another thing that's a subscription service, which is the MSN Direct network. This is what connects us up to our SPOT watches. We talked about these SPOT watches last year as we were developing the chips and getting the technology pulled together. That technology is pretty amazing because it's got not only a wireless network receiver that uses a form of FM to connect up here but it's also got a very powerful computer. And so we can download software for new channels and ways to present information all the time. These are now becoming available, the smart watches.

The network, the wireless network is in the 100 largest metro areas, and we'll over time increase the coverage of that because we're partnered up with FM radio stations, who actually it's their antennas that give us that data connectivity.

Over the next few weeks it will get rolled out in all the different distribution outlets. Tonight the Fossil stores here in Las Vegas in the Fashion Mall and at the Aladdin are open with lots of the new watches. They'll stay open late for people who want to get a hands-on look at those.

You can see the kind of distribution we're going to have. You saw there were a lot of different form factors. As we're working with Fossil, they're actually doing not only Fossil branded but they're doing Abacus-branded and Dick Tracy-branded, and then the other watch partner, Suunto, is a very Suunto kind of great watch for active people.

So broad distribution and a lot of really neat content. As I said, we'll keep extending that but even from the beginning we've got news from great sources, the Wall Street Journal, weather, the calendar that you can set up to bring down onto the watch.

And this kind of format is very different than the pocket format. The fact you can glance at it and just see the information is right there.

Now, we're going to continue to add new channels based on demand. One that we're working on right now is the sports channel and we think that will be a very exciting thing for people to know exactly what's going on with their sports team.

Now, understanding how we make this work, how do you get the information that you care about right there on the watch, is that a complicated thing or now; well, in fact, I want to show you the experience of indicating how I work with my SPOT watch. All I have to do is go onto the Web, use an account and type in the watch registration number, which I've already done that so I'm on here. And then I pick any one of these channels. So I can pick news, and under news I see all these different news sources. Let's say I want to add MSNBC Technology and I want for news that's really breaking news to have an alert so that I'll be told to go ahead and immediately take a look at that. So I'm going to add these things and I push Save.

So now that channel will be changed on my watch. What actually happens is a message is sent across this MSN Direct Network and my watch receives it and knows to change.

Likewise, for stocks that's very easy to do, for weather. Here's a case where for my main location I've chosen all sorts of weather display information, wind chill, sunrise, sunset, and then I've chosen to get other weather information for additional cities. Adding a city is very, very simple. I can just say, OK, let's go to California and pick Palm Springs, and say I want to add that and so now as soon as I click Save here, another message will go out to my watch that will say when that information is broadcast go ahead and put that into the display.

And so you can see all the channels that we have right now and here you see the discussion about this sports channel that's just coming online and we think that will be another great thing.

Over the course of the year we're going to get a lot of input, decide what channels make sense to people, things like daily diversions, neat things that have a particular interest, and we'll broaden out the form factors available through the watch format.

So we're launching now, this is kind of a whole new category of device and yet you can see the effort to make it seamless from the beginning is something that we've put a lot of thought into.

Well now let's talk about phones, pocket-sized devices. The PDA and the phone have been a very vibrant category over these last two years. The categories have both been doing very well and Microsoft has been doing a lot within the category to increase our activities.

Here you can see all the different phones and there's quite a variety of form factors from the very small ones that you think of as more phone like to the larger ones that are more PDA-like. And the variety here will just increase over time as people want to add in GPS devices, as we go to different aspect ratios, different keyboard capabilities. You can see one already there with the keyboard, but you'll see more of those. That is a trend that is important. We want to support the great carriers, the great phone manufacturers and make sure our software is very versatile to them.

These high-end phones, the smart phones, are going to grow by over 110 percent, according to IDC forecasts next year, and so that's the place that we're very active. We've got eight leading handset people building these, people like Motorola, Samsung. We've got a lot of leading carriers, including AT&T and Verizon now offering these different phones.

And what we're doing with the software is making sure that if you know how to do, say, Outlook e-mail on your PC that it's very familiar how you do that on this device. Any of the photo formats or adding voice annotation to photos, the way you'll do that will be consistent between the phone and the PC, doing voice annotation.

Some of these devices will let you deal with ink and pen, making sure that can carry over back and forth to the PC as well.

Things like information security, if you have e-mail that's restricted, making sure those restrictions are reinforced on these devices.

We also share, of course, the same development tools. So if people want to build vertical applications for healthcare, legal, insurance, they're seeing that they can use the common tools and target these devices very easily with those same tools.

Now, another area that was in that original set of devices I wanted to touch on our progress in is the automotive area. In the car it's a particular challenge that you don't want to distract the driver, so here's where we know that as you go to your car, the idea of having directions that you've looked up on a PC or on a phone, having those available to you through a map or an audio readout, that makes sense. Having any new tunes that you got at home brought down to the device in the car or videos for the passengers, particularly the kids, that should be very automatic. And after all, your car is now generally within range of your Wi-Fi network, not always but in many households that's true and so just by having a receiver you can make that so you don't have to do manual synchronization. Even if you're listening to, say, a radio show, an NPR show, right, wherever you are, you ought to be able to have the rest of that streamed down to the car and then listen to it on demand through the rich device there in the car.

A lot of value added in terms of communication, information and entertainment that can move into the car but we need to adapt. We need to have special interaction in a form factor and it's these partners here, which we're very excited about and we'll keep adding to those, that are helping us to drive that forward.

Another very important device in the world of software and convergence is the set-top box. This is an area that we've also been investing in for a long, long time and seeing how the videogame and the PC and the set-top box really can come together, work together, get the best of all those things, that's been something, a real strong principle for a long time.

We have software that runs even on the current set-top boxes, so our strategy is not based on just relying on a new generation, we went back and wrote software for even the very resource limited boxes that are out there. That's called our Foundation product. Today we're announcing the version 1.5, which is where you get the high definition and digital video recording support. More and more through add-ons, the set-top boxes are including those capabilities.

And you want a connection, you want, say, for example, the videos you record there to go onto a portable media device or you want to be able to move them between your different sets and the PC, and so that's the kind of integration that the common software base can a lot easier.

A big project for us in this TV space we call IPTV, and this is assuming that in the future programs won't just be sent in a broadcast mode, but they'll be sent over the IP data network and so the ability to have high-definition, arbitrary number of channels, user in control, targeted advertising, rich interaction, those things become possible when you think of the platform as an IP-type platform. And helping make that transition very economical and simple for the cable operators is something that we believe that software can make that very possible.

A lot of investment there in the set-top box space and some real progress in terms of that.

Now, the home is going digital. We saw first we go from analog formats to digital stored media formats. Then we go to taking the digital format and storing it on a disk, a hard disk where it's in its most flexible, most portable form.

The transition in the case of audio is overwhelmingly to the digital form, either on physical media or downloaded. DVD players for movie playbacks, they have been a runaway hit.

The idea of downloading movies through some of the pioneers like Movie Link, Cinema Now, that's really just catching on, as the availability gets stronger and stronger, and we're partnering with them to do better and better software.

The camera is there, the growth is explosive: 105 million digital cameras worldwide. That's 34 percent growth versus the classic type, analog cameras are showing no growth at all, so quite a contrast between the two things.

But we still have a lot of these frustrations of how these things work. How do you search for things? How do you find the music that your friends like? How do you find the neat new music? How do you organize it the right way? The hard disk and software can solve that. How do you find what you want to watch with all the different channels or maybe something obscure that you might be interested in? That's a serious challenge.

So software on the PC and software that connects through standards with these devices can solve those problems. The ability to organize, the ability to create, the ability to communicate about things with e-mail; I think the real harbinger of the future is what's happened with Xbox Live. This is a case where we assume broadband, we said, hey, let's connect it up, let's write the games so people can play with each other at a distance and by assuming broadband we'll let people talk to each other.

Well, that idea of chatting while you're playing has meant the focus in some cases isn't so much on the game as it is on the social experience, and so people are even coming to us and saying, well, can we chat while we're watching videos, can we chat watching channels and doing a variety of things?

Well, that's the same trend you're seeing with Instant Messaging. You saw it there with photo sharing, so the idea of ongoing, real time communication while the richness of the device is there, that's something that will be common across all these devices. The importance of voice as an input type, voice recognition, that will be there in every one of these devices over time.

So consuming content, interacting with content, sharing content and having new forms of entertainment that take the richness of these platforms and go with it, some of it from the videogame tradition moving to address broader genres, broader populations, very exciting what the powerful devices working together with one device with a hard disk being kind of the hub of all these activities.

That's the philosophy behind Media Center. Media Center was launched in 2002. A second generation was launched this fall. It's about connecting all the entertainment devices. One of the big limitations of the PC was that you had to sit down at the keyboard. It was always set up so one person at a time would be connected up there. What Media Center did is it said, no, I can use this remote control, I can use this very simple at-a-distance interface, to get to all my different media activities.

The second generation drew on the feedback we had from the users of the first generation: radio support, video on demand, 16x9-aspect ratio. We made it extensible so we have partners like Napster, ESPN, Kodak Ofoto, ABC Interactive; lots of partners doing really neat stuff and fitting right in. You can see Napster right on that main screen.

In the hardware arena, HP was our launch partner. Now we have additional partners like Dell, Sony, and Gateway, so 45 manufacturers in eight countries.

The second edition has been selling at about four times the popularity of the first and again we're getting feedback and we'll drive it forward based on that.

One of the media formats we support there and that we support on all devices is the Windows Media Video. The latest incarnation of that is the high-definition form of that. High-definition is at the beginning but all of us who have seen it go, wow, that is something that is cool enough, that as the price of the devices come down, as the distribution gets there, this is something we all want to be pervasive. That's why we have this format and we're building it in to all of the different PCs.

Sixteen titles are out just pioneering the idea of what would this look like and so you go beyond the DVD. You go beyond the DVD not just in the video but also in the audio. It's 5.1 audio. It's very high quality. And to experience it let's just look at a short clip that was done using this Windows Media Video high-definition.

(Video segment.) (Applause.)

BILL GATES: So at the same time that we're giving people more flexibility in dealing with media, making it easier to find, easier to organize, we're also raising the quality as well. The digital world will be a world where the quality of phone conversations, the voice quality, the quality of music and the quality of video actually gets to a level that it's so good that any additional improvement you wouldn't even be able to appreciate, really getting to the best it can possibly be.

Well, let's take a look at Media Center. As I said, it's a centerpiece product for our vision of what's going to go on in the home. It's the extensions to Windows that really define how we see the home of the future.

And so I'd like to ask David Alles from our Media Center team to come out and show us the latest and show us some of the future of Media Center.

DAVID ALLES: Hey, Bill, it's great to see you again.

BILL GATES: Thanks, David. (Applause.)

DAVID ALLES: I'm very excited to be here at CES, very excited to be in Las Vegas. It was great to hear the stories that you just had about the Media Center PC revolutionizing the seamless digital entertainment, and I have a new device that helps people bring all of that digital entertainment on the go.

I have a Portable Media Center from one of our partners, Creative, here. You can see, in fact, an episode of the television show "Las Vegas" is playing on this that I previously recorded on my Media Center PC. And with the green button here you can tell that it is part of the Media Center family.

This device is small enough to fit in your pocket, has a big enough screen to enjoy movies and is about the same weight as a wallet, so finally you have something in a great device that takes all of your media with you. And it's not just those recorded shows like we talked about; it's also your music, your photos and your videos, whether those videos are home videos or a downloaded film from the Internet.

I'm actually also very happy to announce some of our premier partners that will be providing content for this device so not only the content you have on your PC now but because of partners like Cinema Now, Napster and EMI Music they're helping to make available the music, music videos and movies from their libraries for people to take on their portable devices.

I know that you have a portable music player. This really is the next generation of player that people are really going to enjoy. And with that next generation of player, when this comes out in the second half of this year there's going to be another version of Windows Media Player that introduces the technology that we call SmartSynch, where, you know, synch is sometimes a hard thing and we want to make it automatic for the user so all of that great digital entertainment that lives on the PC can get taken care of by the PC and brought to this device without the user really having to think about it.

Now, I know that you've had a hard day, so how about you take a couple minutes and go and watch some TV backstage while I talk about some of the other devices that we have?

BILL GATES: Hey, this is cool. I'll love playing with this.

DAVID ALLES: It is great stuff.

BILL GATES: Thanks, David.

DAVID ALLES: OK. (Applause.)

Now, we just talked a little bit about taking the great digital entertainment that you have from your Media Center PC and taking it with you on the go, but wouldn't it be great if you could also get that entertainment off your PC and onto every television in your home? I'm very happy to announce that now you can.

Here we have a device, the software we are calling Windows Media Center Extender. I like to call it MCX for short. And we have partners that in the year 2004, OEM partners of Alienware, Dell, Gateway, HP and Samsung will be making this device available to real people.

Now, this device looks like a device that you want to have in your stereo component as opposed to most of the PCs today. It is thin, it is completely silent. There is no fan so it's going to fit in there great. It also has a green button so that you can tell it's part of the Windows Media Center family. It hooks up to your television or a set of AV equipment and then it connects back to your Media Center PC through a wired or wireless connection to be able to get not just all the content from that Media Center PC but that same seamless, all in one, great interface of the Media Center PC. So all the stuff that Bill was showing you before that you can do, whether it's music or radio or movies or pictures, you can do through an MCX connected device as well.

And it's totally OK for the person on the PC to be using the PC to watch a movie or do e-mail and another person to be using this device to do the same thing or something else.

Another great thing about this is that when we talk about all of the great extensibility partners, like if you're a Napster subscriber, with no extra work to the person or to Napster, once you've subscribed in one place, whether it was on your Media Center PC or through your MCX connected device, it will automatically show up on all of the MCX connected devices and PCs in the home. So we think that this is great and that works for television recordings, that works for music, that works for all of your stuff.

Now I'm going to move to another room in the home. So let's assume that this is my bedroom. We've already talked about some of the great MCX connected experiences that you can get in an existing television in your home by a very inexpensive and easy to set up device, but we weren't willing to stop there. We tried to figure out how we could make people get that experience in an even easier way. And I'm very happy to announce in partnership with Gateway and HP we have a set of Media Center ready televisions that will be coming to the market.

Now, first and foremost these are great TVs. They're the LCD TVs and plasma TVs that are coming out on the market today that customers are loving. But if you have a Media Center PC at home, you can bring it home, plug the power in, walk over and the first time that you press the power button on the remote control to turn on your television it will find the home network, start looking for a Media Center PC and then find your Media Center PC and bring up that great seamless digital entertainment interface and experience as on the PC, as on the MCX device.

So here are two different ways that real people can get their televisions to have that same rich experience and content that we've already delivered on the PC.

Now, lastly I'm going to walk to one more room, the rec room and no real discussion about home entertainment from Microsoft would be complete unless we also talk about Xbox. So over here we have an Xbox that's connected up to a television and I'm very, very happy to announce the Xbox Media Center Extender Kit that once you have this kit, which is comprised of an Xbox DVD title and a separate remote control and you put the Xbox title in the Xbox, it makes it act the way that those MCX or MC-ready televisions were acting just on the other rooms in the house.

So, Bill, we have made this so easy that even a five-year old or a Chief Software Architect of a major corporation can actually use this. So how about if you turn on the bottom power button on the Xbox and we could see what it looks like.

Now, we've seen Xbox launch in the way that it always does, but once that is done it starts reading the DVD, it searches out for the Media Center PC on the network, it starts what we call a Media Center session and then, boom, the person is back at the Media Center UI with access to their television, their pictures, their videos, their music, all of the great digital entertainment stuff that's on their PC today.

So we think that these are three great ways that people are going to be able to take the fantastic experience that we've already delivered on the PC and deliver that to their best television or every television in their home.

If you haven't checked out a Media Center PC already, now is a fantastic time because this is the year that we're not just delivering it to the den but really every room in the house.

BILL GATES: Well, that looks great. It's the vision is becoming a reality.

Thanks, David.

DAVID ALLES: Thanks very much. (Applause.)

BILL GATES: There's been a missing standard in the media area where every device that wanted to go up to the PC and find out what sort of audio or video things were there insisted that people had to install software on the PC, and as such on all your different PCs you get different versions of that software. Really, we decided that shouldn't be necessary. You should be able to go out and buy a portable media device, or a device that lets you go in and see the audio or picture files on the PC with no software installation required at all. And so we're enhancing the media APIs in Windows with what we call Windows Media Connect. We've published these APIs for manufacturers in an early form. We'll be finalizing those this year along with the update that provides this capability.

What it means is all the different devices in the home can contact the PC and see what's there and no special software install has to take place. Part of the vision is very simple, it's a matter of where you buy or rent your video and audio, you shouldn't have to change your client PC software, you should just connect up to whatever you're used to using including the standard Windows Media Player, and whatever portable device you use, likewise, that shouldn't be connected to the client software or to the service you used to buy that music. You should be very flexible about taking things from different services, putting them on different media players, and each company that chooses to compete in those areas competes on the independent basis of those products rather than special ways that they happen to be connected. So a certain level of flexibility that we think is quite important, and a new extension that fits into this vision.

So, I wanted to talk about where is all this going. After all, if we were at the end point on this, we wouldn't still be investing over $6 billion a year in R&D. I can say with great confidence that throughout this decade that very high level of investment will make sense as we bring more intelligence to the devices, as we bring automatic management to them, as we conquer those new scenarios, we see a lot of amazing milestones on the way. But plenty of work to build the ultimate tools for the Digital Decade, certainly in the home and in other locations.

The PCs are going to get more powerful during that time. DDR will become commonplace. You'll think of, hey, what was it like before I had that? Physical media will become less common, whether it's disks to store photos on or anything, things will be stored on disks and transmitted from wireless and wired networks. And the information will be automatically recognized. Either the metadata will travel with it, and that data will get richer and richer, like we have on photos today, or your software will automatically recognize what song it is, or what TV show it is, and what movie it is, and use a service to go out and get that metadata. We've seen a bit of that today with what's built into the Media Player, but now extending it to the other media types, getting more metadata in, and applying that even for user created content is something we think is very important. That's the kind of thing that makes all these devices work together in a rich way.

And we explore how the power of software can drive these scenarios forward quite a bit in our Research Group. We're very proud of the fact that we've got a long-term horizon in that group, a lot of people who are taking on things that are very ambitious, some of which will be so tough it will take us a long, long time to solve. One of the scenarios we looked at is dealing with media, dealing with all this richness. And there's a team actually called the Next Media Team experimenting with these things. They've come up with some very neat ideas. These are not in today's products, but some time out in the future what you're seeing here, I think, will have a very positive impact, and be part of the Microsoft products.

So, I thought it would be great to ask one of our researchers from that team, Steven Drucker, to come out and give us a glimpse of the neat things that he and his colleagues are working on.

Welcome, Steven.

STEVEN DRUCKER: Thanks, Bill.

(Applause.)

I'm going to show two quick research demos.

BILL GATES: Super.

STEVEN DRUCKER: These demos both use software that exploits the same rapidly evolving graphical capabilities that you're seeing used in video games today, and this way we can create rich, compelling experience for interaction with large collections of media.

So, this first demo, we call it Media Variation. It's based on that idea of "Six Degrees of Separation," sort of, maybe you've heard of the Kevin Bacon game. It's the same idea here. Each of these clusters of movies is related to the central movie through some idea, some information that's been annotated on it. So, for instance, Ridley Scott directed "Blade Runner," and he also directed all these other movies. So, I can very quickly scroll through all those movies, click on one of them, that goes to the center, and now I get clusters of other related movies.

Now, sure I've got directors, I've got actors, I could find out some other movies that Russell Crowe might have been in, and click on one of those. Bet you've never heard of "Hammers Over the Anvil," but you have lots of other movies. You could also look at other clusters based upon genre, based upon people who liked this movie also liked these movies, and you don't even have to work with just movies, you could be working with music, you could be working with books. Click it again, just browse through this whole collection in a fun way. If you wanted to go back, you can go back and see, I want to start over in a different place. We can also start at some random genre point, so I can say, I'm going to click on this thing here, I'm going to see some other related movies to the thing. OK.

So, we're going to switch to another demo now, and that demo is for managing your own private collection of media, your photos, your videos. In some ways, this is much more difficult than managing a big public database because someone else has annotated all that public information. They've put in who the director is. It's much harder because you are the only one that is going to sit there and annotate your database, maybe your friends and family. So, we provide lots of tools to assist in doing that.

First of all, here's your collection of data, collection of photos, and videos. I can, as you can see, move through this, have it expand, I can double click on one of these and show different pictures here. There's also video in the same database. Click on one of those and bring those up. Because cameras nowadays are taking videos, they're taking videos, and videos are taking stills. So, what we can do is, if you're going to be taking both, you want to be able to rapidly filter through these and say, you know, I really only want to see my videos here. So I can select on video. And I can say, OK, just show me the video here, and the screen reorganizes, takes up all the real pictures, just show you the maximum that I can. OK, well, photos and videos that's pretty obvious.

But some other things that we can do is use research code to do face detection. One of the things we can do here is to say, just show me those pictures that have faces in them, and it does a pretty good job of detecting faces. Things that fool Mother Nature fool it also. But, we're also working on face recognition, that's a little further down the line, but we'll get to that also. That's one of the reasons we have research. We can do indoor-outdoor detection. In this case it looks for blues and horizon lines, and greens. And even if things don't work exactly, you're getting immediate feedback to help you manage your collection.

Now, let's just suppose you already have marked up your entire collection using keywords. So I can go here and say, okay, let me see some shots from the Computing Museum. OK. Now, I only see the keywords that apply to this collection. So, for instance, I want to see pictures of Gordon Bell at the computer museum, or I want to see my favorites. Now, we can narrow down very quickly. The first thing to ask is, how did I get all those keywords on there? I mean, it would be incredibly tedious if I had to assign a keyword at a time to each of these photos. No one is going to sit there and do that. So that's why we give you some tools to let you do that.

One of the things that we know about each of these photos and videos is when it was taken. So we have a view that lets you cluster based upon that. So here we have a view that simply organizes these, based upon the breaks when you put down the camera, you took a lot of pictures, you put down the camera, you took a lot more pictures, and it figured out those maximum breaks in those things. We told it to use the six largest breaks. If we want to use more breaks, or a lot more breaks, it's very easy to do that.

Even better than that, though, is you can drill in very quickly into any of these. So I can double-click on this, and I can say, OK, I remember this, this is when I went to the Mariners-Red Sox game. So these are all the pictures from the Mariners-Red Sox. So I'm just going to select this entire row here and assign a keyword to every single one. So Mariners-Sox game. So how else can I select lots of similar pictures? Well, one way is also using dates I can select here and I can say, you know, I want to have everything around when I took that picture, in fact, four days around it, or 18 days, or a month. I can also use the same filtering that I used before, so I can filter down. And I can also use similar looking pictures. So for instance, we have pictures that all look the same, and it's very easy for me to pull up similar looking pictures like that.

So, in fact, I'm going to pull up some pictures that were taken around Thanksgiving, and I'm going to put them into a temporary holding area. This is a bin that I can use kind of like a folder, I can use it to e-mail to people, or to send to different devices, but I don't want to send all of these pictures. It's a beautiful sunset, which is kind of rare in Seattle, but I really just want to show the people that came to my Thanksgiving vacation. So naturally what I can do is I can say, I want to select all the faces, and everything that's not a face I just want to get rid of this from this collection here.

Now that didn't remove it from the main collection, it just removed it from this temporary holding area. And now I'm going to use that temporary holding area, and send that to different electronic picture frames around the house. So, for instance, there's a picture frame over there. And I'm just going to tell it right now to send this to this frame, that's the living room. So we're going to send this to a frame, and in a moment you'll see those pictures showing up on that picture frame. That can be sent wirelessly.

Now, because I've already marked this up richly with metadata, you can browse and get more information on the picture frame itself. If it's got some interfaces you can just tap it and get some more information. You can browse the entire collection, not just pictures that I've sent to it. Likewise, if you had a Pocket PC, which I think Bill has in his pocket, you can browse through the entire collection here. So here it's set on slide show right now, and showing some of those pictures. One of the nice things about this slide show is that I can do more than just browse through the entire collection, I can annotate this. So I'm not sure if you knew that that's built in here, but I can sit here and I can record a little voice message here. So I'm going to say, these are some beautiful pictures from the Skagit Valley Tulip Festival. And it's much more natural to record it right then, because that's when I'm going to be showing this to someone. You know, this is a picture of my grandmother when she was three years old. You're not going to say that to the computer, but you might very well say this now. So I can kind of find out that annotation, and that annotation shows up right away. I can -- we'll click on that.

(Audio segment.)

So there's this sort of seamless interface. You can get all this annotation, use those annotations to pull all the media together and browse it comfortably.

BILL GATES: Thank you, Steve. That's fantastic.

(Applause.)

Well, we covered a lot of different time periods. We started with some products that are here today, MSN Premium, the SPOT watches that we've been working on for a long time. We talked about things coming later this year, Media Center moving to a new level to reach out to the portable dimension, connecting to Xbox, connecting to specially equipped TVs, a lot of different ways that we're taking that hub concept and making it a reality. A big theme there is working with the content companies, working with the hardware partners, working with software partners, so they think of that as a platform that they can go and do their special work around. And we've been very excited to see the reception of that.

Way out in the future we saw the idea that the management tools, and the intelligence of the device have got to do even better at anticipating what you want, and helping to organize things for you. And that is the magic of software. It's the very rapid hardware advance, the idea of software platforms, great software development tools, and software richness that makes me very optimistic that even though people have many, many devices, lots of music, lots of videos, lots of memory, even though they won't have time to want to manage these systems, and move data around we will be able to create the ideal for them, whether it's communicating, creating, or just consuming the best content that's out there. So I think that's a wonderful framework for all the companies that are showing their wares here at this show. This is going to be an amazing decade.

Thanks for coming. We're excited to be working with you. And I think it's amazing what we'll see in the years ahead.

Thank you.