Tony Joseph: Mr. Gates, I was going through your presentations on .Net, and it seems to me that your strategic approach hasn't changed at all - it's about creating excitement about a new platform, getting as many developers behind that platform as possible using a variety of tactics, and using that proliferation of applications to dominate the field. The strategic environment, in that sense, has not changed at all - Net or no Net.

Bill Gates: You are right, the basic principles are the same - leading in the software industry; creating a platform designed for high volume, low cost; willingness to put in billions into R&D, just betting on the volumes.

Joseph: Would it be correct to say that if you succeed to the extent that you like to succeed, what we would all end up with would be an operating system for the Web?

Gates: That is partly right. Of course, the Web would continue to accommodate many operating systems. But if we do what we want to do, our operating system would be both the best and the most popular for getting the most out of the Web. In the Web, there is space for open standards, for TCP/IP, HTML. And even the existing and on-going operating systems - we are going to work with them. Think about graphical interface. We weren't the only guys doing graphical interface.

Lots of products whose names are easily remembered by most (smiles; an allusion to Apple, perhaps), were there. But Windows just did that better.Any time we do something, if we do it really well for a period of three or four years, it is quite popular. But then, there comes a point when the market expects more. And once again we have to get the company on to what the next big thing is going to be. 

Joseph: You seem to be uncomfortable with the phrase, operating system for the Web. Why would you be?

Gates: Well, because there will be many operating systems for the Web. It won't be the only operating system for the Web. It certainly is an operating system designed around the next generation of the Web. The Web as we know it today is about browsers. That is all it is about.... When we wrote applications for Windows, the arrival of the browser didn't change those applications in a deep way. Now we are doing the .Net. So I am basically agreeing with you. For the new strategy, the way you write the application would be deeply about the Internet, assuming that you have a passport that is authenticated, assuming that you store things up on the Net and it shows up on the other devices, assuming that you get notified when something interesting is happening. So it is a new platform for these new capabilities on the Internet that just haven't been there before, including things like speech and handwriting recognition...

Joseph: Today, if you look at people who get onto a digital environment, I would imagine 70% of them, 80% of them, would do that using a Microsoft product. A few years down the line, when there will be proliferation of new devices in addition to the PC, would you see that percentage going down?

Gates: Well, we will be dealing with a variety of devices. So it is possible that in one of those device markets, we would be more successful than in another. In the full screen device, the PC, you could say we have a strong incumbency to be the leader there. I think we have a chance if we do the best job, to be strong in all the devices but the competition taking place there is super healthy. Think about how the browser got better as we competed with Netscape. Now we have the competition with Palm in terms of the PDA device; we have lot of competitors on the TV - Liberate, OnTV.

Joseph: When the Net happened, there was some expectation that we would be moving into an era of non-proprietary platforms, of open interfaces. Is that a lost dream? 

Gates: I am a little confused about what that means. The interfaces in Windows are as open as it could be - you can buy a book in a bookstore and read about the interfaces to Windows. 

Joseph: In the case case brought by the Department of Justice, wasn't the openness of Windows interfaces an issue? 

Gates: No. There has never been any question. It is easy to examine Windows; there are no secrets in Windows. Capitalism works that way. It is about how companies do the implementation. Like Nokia makes a new phone using the GSM standard. Is that proprietary or not? We build an operating system based on TCP/IP, HTML, XML - which are completely open standards. But the way we do the user interface, the way we do the speech, that is what we compete on.

Joseph: Let me put the question a little differently. The way you handle this new .Net platform, is it going to be any different from the way you handled Windows?

Gates: (Long pause) No. (Laughs)
You may pay for it by subscribing or something like that. But no, it is still based on capitalism. That is, the developers need to buy food; they need to be paid a salary for that. It is still based on that concept. (Smiles).

Joseph: This fear that we could all be moving towards another era of platform dominance by Microsoft, is that a concern that you would need to address while trying to get as many developers on to your side as possible?

Gates: We don't have any dominance. What we have is a product that is very popular. (Gets agitated) People buy whatever they want to buy. There is a lot of confusion about what is going on. If a movie is popular, is it dominant? No, people are choosing to buy the ticket and go to the movie. Software is the ultimate word-of-mouth product. People buy because friends say, "Hey, this is great, buy Windows 95, buy Window 2000, buy Office." ... And what was the question?

Joseph: Let us avoid the term "dominant." The fear that there could be one player with a very large market share, is that a fear that you would need to address?

Gates: Microsoft is the creator of the large software industry. There was no large software industry. The fact is, there are millions and millions of jobs and all this success. That is because we have created a framework whereby making the hardware identical, you can have a virtuous cycle of high volume and low prices and write a software that can target all those millions of machines. So what has happened around the software industry has been fantastic for everybody involved in it. There will always be some platform that is more popular than another platform. That is a natural state of affairs. There is just no getting around it. Whether it comes from Microsoft, or not. Take the VHS case in videocassettes. 

Joseph: To ask a different question, new devices is an area where competition, as you said, will be tough. Which of these devices will be very important to you, what will you be counting on the most?

Gates: What we are betting on is the Windows layer which allows people to choose between those devices, without it affecting how their applications run. So what we are doing is that we are ensuring that there will be a variety of devices because there will be this .Net layer that will mean that all your information shows up on all the different devices. 

So the various form factors that are popular will have to do with human factors. The TV will still survive because you will need something which you sit far away from, without a keyboard. The PC will be strong because you will want something which you can sit close up to so that you can edit documents. The phone form factor, although it will have a small screen, will survive because you might like to walk away with something in your pocket. I don't know whether there will be four or five or six form factors, and what exactly will be the mix of features. But the .Net strategy supports all those devices. The ones that we are keenly interested in are e-book, phone-sized PDA, TV and PC.

Joseph: There is a line of argument that says as we move ahead in the computing world, the focus of activity could move, on the one hand, to software development on the server-side and, on the other hand, to embedded software. This would be a happy development for your competitors. Your comments.

Gates: I am not sure what you mean by those words. But we have a device for doing speech recognition. That is not happening on the server. There is too much latency between you and the server. That has got to happen right there, on the device. The cost of microprocessors is going down, not up. So we have the ability to give people an immediately responsive device and make that device rich - for graphics, for games, for business presentations. You are going to have more power in the device, not less, because it is so cheap, it is just a microprocessor. 

The people who thought we will go back to centralised computing, look at what they said about the Network Computer (Oracle's Larry Ellison was the big proponent of Network Computer). Go ask anyone who bought a network computer what it was like. It is easy to forget it. This is about empowerment. It is not about disempowerment. It is about empowerment where you can work off-line, you can buy applications. So the central thing is about a balance where, when you are connected, you use central services. But you also have lots of bridge code running on your behalf when you are not there and even when you are not connected, that code will keep working for you. ...Continued