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Microsoft's chairman is setting the company on a course to provide software and tools that will allow different forms of entertainment to blend. Messaging will become a crucial part of Xenon, the code name for the next Xbox. Microsoft will also work with television outlets like the Discovery Channel and MTV Networks to create tools for delivering content, as well as advertising, into the home.
Its eyes ever set on the competition, Microsoft will continue to raise the stakes against Apple Computer in the music industry and against Google and Yahoo in search.
Meanwhile, Microsoft Research is working on ways to reduce the cost of getting people in emerging nations hooked on the Internet. One idea: Mesh networks that will let several families share connections.
Gates spoke with CNET News.com on the eve of his keynote speech at the Consumer Electronics Show in Las Vegas about Microsoft's consumer plans, the convergence of entertainment technologies--and why he hasn't done a blog yet.
Q: The industry's been talking about convergence for years. The
first products have come out, so what's next? Interoperability--is that
the next challenge?
A: Well, there's a lot of that going on. For us, the key convergence
product is the Media Center PC, which is the idea of that single remote
control giving you the best TV experience, music and photos but also
the full power of the PC, and we've got lots of partners who keep
signing on to Media Center and doing neat things. We'll show some
Discovery Channel stuff in the keynote. We have a new relationship with
MTV where they're using our rights management and formats, and we're
connecting it to the Media Center.
And so there is growing momentum with partners, growing momentum with the hardware. The price of Media Center PCs came down a lot, which is partly why we were able to double our sales this holiday. We've got some new remote controls from Philips and others.
And so you fill out the ecosystem, you get the people who install these systems to understand how they do the customization, you get the word of mouth going, and so I'd say we feel great about where sort of the centerpiece convergence device is and the peripheral things happening around it.
How are the different entertainment and media industries going to be
affected by these changes. For instance, it seems like advertisers are
really impacted.
Well, there's a thing that we can do for the advertisers that is
critical for them, which is to allow the advertising to be targeted.
That's what you've seen with our IPTV (Internet Protocol television)
effort--companies like SBC Communications signing up for that--and
we've got BellSouth as a new partner there. With that infrastructure,
even for people watching the same show, you can insert just in a
perfect way an ad targeted to that individual.
And the value of targeted advertising is really twofold. First, it means that the person is less likely to want to skip the ad, and second of all, it means the chance that they'll actually do something--buy something.
And so the new TV infrastructure will be about very targeted advertising. Advertising is taking on new forms. Obviously, in the search space, we're doing neat things with advertisers. No doubt, it's not going to stay the same as it is today.
What changes does this mean for Microsoft? Do you see yourself becoming, let's say, more of a seller of content?
Well,
the most explosive piece of content this holiday season was "Halo 2."
We sold 6.3 million copies, we've had 69 million hours of online game
play. And so is Microsoft a content company? Well, I'd say "Master and
Commander" is good--people have talked about how the story made them
cry--that's content, but it's also software.
The boundary there has always been a bit gray. Our main role is to provide the platforms and the tools, and simply partner with the content companies like MTV and let them do what they're good at. It's mainly in this interactive realm that we need to come in and do some complete content ourselves.
One of the big phenomena of the year has been blogging. Has the growth surprised you?
Well,
actually I think the biggest blogging statistic I know, which really
blew me away, is that we've got close to a million people setting up
blogs (Web logs) with the Spaces capability that's connected up to Messenger.
Now, with blogs, you always have to be careful. The decay rate of "I started and I stopped" or "I started and nobody visited" is fairly high, but as RSS (Really Simple Syndication) has gotten more sophisticated and value-added search capabilities have come along, this thing is really maturing.
And we've done some things in Japan and Korea that are unique blog experiments. The Spaces thing is a worldwide effort. It's a great phenomena, and it's sort of built on e-mail, and so we need to integrate more blogging capability into the e-mail world--and as we do the next generation of Outlook, you'll see that. We need to integrate it more into our SharePoint, which is our collaboration Office platform, and then, as I discussed, MSN is embracing it so that instead of thinking about, "OK, I go to one community to do photos, one community to do social networking, one community to do this," we say, "Hey," off of Messenger, which has got your buddy list already, then, "Let's let you do the photos and the social networking and everything--but starting in an integrated way off of Messenger."
Which ones do you read, if any?
Well, it's interesting, I get
a lot of people--and this is very typical for me--I get people who are
forwarding things on to me, so I sort of have human search engines that will say, "Hey, there's a particular thing that's hot and that's interesting."
I just type in various keywords. We have a lot of blogs that are just internal to Microsoft where people are completely open about what's going on with this, what's going on with that.
I've toyed with doing one myself, but I don't want to be one of those people who start and then don't finish it, and again I'm thinking maybe I could do one a month or one every six weeks--something like that. I'd kind of like to, but I've got to be sure I can keep going for at least a year to make it worth doing.
Will there be much of a push at Microsoft to sell third-party
content like music, or is it always going to be a smaller part of you?
We've said that having the music platform there is just part of the
overall online relationship that we want to have with these customers.
Apple is doing things the way Apple does--where it's the Apple hardware and the Apple store, that's great for them. We're doing it the Windows way, where you've got things like this Creative Zen Micro, which sold out this holiday season. This brings the photo capability in, and it's a very attractively priced device. So the variety story is an important one for us; it uses our rights management format and supports a subscription approach that we think can be a significant part of online music sales.
What do you think of Apple's success so far? I mean, they clearly have had a hit with the iPod.
Absolutely.
They had a hit with the Apple II, they had a hit with the Macintosh,
and they have a hit with the iPod, so this is a company that's had
three hits, and that's very impressive. There are a lot of companies
that don't have three hits. And in the same way that Macintosh helped
get people exposed to the graphical user interface, the iPod is doing a
great job getting people to think about digital music.
In the long run, there will be a lot of people making digital music players, and we think that there will be a very different market share with dozens and dozens of companies. And other than Apple, all those player makers are signing up to work inside the Windows PlaysForSure ecosystem.
There's a big debate over whether games will surpass movies and TV
as a bigger portion of revenue in the entertainment industry. What do
you think will happen?
Well, there are a couple things to look at. Instant messaging will go
from just being a text thing to also being voice and video and music,
so instant messaging, particularly for young people but in general, is
very, very explosive.
And Xbox Live is really talking to your friends, doing things with your friends. And as we bring in new game titles that are more approachable, appeal to different demographics, the boundary between what's game playing, what's socialization and what's communication--you will have really broken down the barriers there.
We can make these hot, super great graphics games something that are easy for people to use. That's a big initiative we have as we move to the next generation of Xbox. Likewise, the connection between the Xbox Live and our Messenger will be really simple so people can say, "Hey, come and play," "Oh, okay, I'm finishing my homework, I'm almost done, I'll get on and play with you." And so even as they're connected up to each other, they don't think of, "Oh no, now I'm gaming, now I'm communicating."
What are some of the primary goals with Xbox 2?
Broadening the market, having media capabilities that when there's a PC, we connect up to that. This whole story of the Windows Media Connect
and how all the formats and rights management and that simple Media
Center menu that's just got TV, photos, music right there--those are
common elements we're bringing to all the home devices.
We didn't do Xbox just to do a video game; we did it to be part of our vision of the digital lifestyle, and with the next generation, we really get to go there. In the first generation, we had one simple goal, which was to establish credibility as a great video game platform. We've done that. Actually, the last few months in the United States, we outsold Sony with the PlayStation. So even though they have the biggest installed base, we are a very strong, credible No. 2 in that. As we go into this next generation, it's much broader.
Yes, great video gaming but videogaming for a broader set of people, more communications, more media, more connectivity. And at the same time, we move up to things like high-definition graphics and wireless that the chip breakthroughs allow us to get to.
So just for the games alone you'd go, wow, but the concept now of bringing in your music, your media, connecting to the PC, connecting Xbox Live to Messenger--that just makes it a very big deal.
It's a full entertainment center, basically.
That's right. So
Media Center PC and Xbox become totally complementary. You've seen a
bit of that, where we let you take music from PCs and put it into game
titles, and we have this extender concept where the Media Center can
project through the Xbox, but that's just the start of what we can do
there.
One thing that's kind of intriguing in Xbox 2 is you're participating a little more on the design of the silicon.
Well,
we have some key partners that we've announced. ATI and IBM are the key
chip partners, and there are some others. But I'd say our
sophistication is much higher in this second generation. So every
level, what we're doing in tools, what we're doing in Live, the way
we're working with the publishers, the way that we've gotten involved
in the
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