Full text of the interview between John Waples, Business Editor of the Sunday Times, and Bill Gates
The Company has morphed five times since its inception. Are we getting to a stage now where Microsoft has to morph again and it is time for a structural change?
Bill GatesW, Chairman, MicrosoftW
No. There are two tracks that are somewhat separate. There are technology discontinuities, where we need to bet on something and then there are management structural phases, where the way we organise and do things are different. And those two things are really separate. The latter is much more an internal thing in terms of how we are getting our people to work together, making decisions, etc. Steve has driven all of that for a long time.
I wouldn’t say 80,000 versus 40,000 people is one of those discontinuities. Steve made a lot of changes when he became CEO in terms of the processes and delegation where he and I were making a lot less of the decisions. But I don’t think we are at some boundary. It is up to him. He thinks about those things all the time; I get to think about just the technology discontinuities. It is always a matter of degree but there are always big things happening, such as software running and the internet, natural user interface, advertising models, and the importance of the mobile phone.
John Waples
I suppose the point I am trying to make is does Microsoft all hang together now in one company? Does MSN work alongside Vista? Is there a point at which some of it gets spun out in several businesses?
Bill Gates
No. We’ve done a few spinouts. We have sold Expedia, which became a very successful travel company and that was quite some time ago. We sold Slate magazine, where we were planning on doing what journalism on the internet would look like. Slate did some wonderful things but it came to the point where hiring that kind of talent and keeping it vigorous was not our central skill. We are a software company, so Don GrahamW at The Washington Post bought that. Actually it has done very well, which I am pleased to see, and it keeps pioneering things. If you want to see cool ways of journalism on the internet I think they are at the cutting edge of that.
In terms of online, email and anything software-centric, that is a core part of the company. We always do reorganisations but what I was saying about the five phases is where we really look at the whole process of how things are reviewed and how the pot people think of their jobs, that is what has changed. Phase one where the top guy writes the majority of the code reviews is not the phase we are in today.
John Waples
You became Chairman and you have become an iconic figure throughout history. Does Steve now step up and fill those more public shoes?
Bill Gates
Steve and I have talked a lot about that. I will do some of those things in my part time role. I will be in Washington DC for my Foundation things. I will also be representing in separate meetings whatever the issues are from Microsoft, and something like going to Davos and speaking I think Steve will still choose to have me. But he may decide to step up some external activities, particularly during the first year that I am gone to get the message out. There has been somewhat the impression that Bill did this and Bill did that, which is so ridiculous. But this is an opportunity to get visibility not only for Steve but also Ray OzzieW, Craig MundieW, and even a few layers down to the people who did Xbox, which is a resounding success, the people who did the new version of Office, which is an overwhelming success, or SharePoint. Steve will be going out and creating that visibility so that the over-simplified view is a little bit corrected.
John Waples
I know share prices are funny things but is a there frustration within the company that since you became Chairman the share prices have flat lined, albeit last year was good year?
Bill Gates
They have not flat lined.
John Waples
Is there a frustration that some of the opportunities and technology are not being fully understood outside?
Bill Gates
No. Don’t get confused about the share price. In the year 2000 the share price was stupid and Steve and I were the only people to step up and say these technology companies are overvalued. Steve said it and I said it. It was just insane. What happened since Steve took over is that we have doubled our profit and doubled our sales. It is an unbelievable story and against all the pundits saying that various things would happen, it is phenomenal. In terms of the market’s notion of technology valuations, CiscoW is a third of what it was in the year 2000. How poorly have they done these last seven years? Intel is half of what it was. How poorly have they done? In 2000 it was insane, we said it and meant it. The share price can be very high or very low; that is not what we control. We control innovation, sales and profits. Those are the things that have done super well.
John Waples
You have said an awful lot during your tour in the past ten days about interoperability about how things are worked together. Which parts of Microsoft in the next three to five years will be the most exciting areas?
Bill Gates
The things that are really different impact all the products. So, the natural interface will take Microsoft Office and you will have your desk where you can take a spreadsheet and zoom in on it, and take your email and look at it in different ways. Most of these breakthroughs in software and the internet itself, what they call services or cloud web services, the natural user interface piece, the new ways you can write software in a richer form, are pretty pervasive across all the products. I love natural interface; I love the model-based development.
Everyone expects us to do a super job renewing Office and Windows. The place that we expect to surprise them is more down on the consumer side. We will surprise them on the business side but only because we will be doing more innovation on unified communications and more long distance intelligence than they expect. They don’t even expect us to necessarily change the whole way of how you think about search and why it can be tons better than it is today. And there are things like Tablet PC that are not yet mainstream. Mediaroom, the TV over the internet that BT as one of our partners is rolling out at a very aggressive rate now, and there is a really great customer response. So, we love all our children.
John Waples
Sure. When you look at new technology and look at companies is there a general view that the new wave was being taken by Google and Facebook? They are the ones that we all talk about; Microsoft is seen as more old school now. Do you feel that you are seen as a less dynamic company?
Bill Gates
Starting in 1985, there was a list of companies that people would talk about. [Correction to transcript – there was a comment about Ashton TateW in here]. Word Perfect was so good. 1990 would have been different. I think in terms of Sun and Netscape, you could probably write an article today saying the predictions that they would take over prove to be correct or not. You might want to wait a few years just to be absolutely sure but the headline said we were obsolete and they were the centre of the universe. So, it is different companies every time. IBM has been around forever and is still doing fairly good work. It is also subject to the idea that the new kid on the block looks flashy. Why not MySpace? Didn’t everyone say they were taking over? Are you so fickle? Even within two years you switch your love.
Of course, the new companies are interesting and it is exciting but the fundamental things that advance software – digital recognition, speech recognition, security proof, model based development – our research labs have been working on those things for over a decade. That is where the really big stuff comes and that is what makes me confident about our future; we have got people in our laboratory in Cambridge, which is really pushing state of the art and we have proven that if you do advance research we can get it very quickly into the products. Mediaroom represents huge research advances. The work we are doing in search, our research people have helped us advance that in a very dramatic way.
John Waples
Are we saying then that Apple and Google are a fad of the moment?
Bill Gates
No. Netscape wasn’t a fad. Sun wasn’t a fad; it was a real company with real products that some people bought and some people used. These aren’t fads; they are businesses. Google is a business.
John Waples
Yes, but what about longevity?
Bill Gates
Who knows? Go back and look at the predictions every year since 1985. What you will see is only one constant. Every article predicts that the leader will be replaced, no matter who the leader is, and some day they will be right. Some day they will say Microsoft will be replaced, and in ten years or twenty years from now, they will be right. So, just keep going because it will be one out of 20 times. I think that is good enough for some people.
John Waples
You haven’t talked much about the robotics arm that you have in terms of what may come out of that.
Bill Gates
That is not something that is exploding at the moment. It is a perfect example of the kind of thing that we are working on and putting a lot of money into, knowing that in two or three years, there probably won’t be a very big market. But in the five to ten year timeframe the work we do there will be very important. The innovative hardware is being done most intensely in Korea and Japan, and it is phenomenal because they need a software platform to take all these different sensors and types of robots and make it easy to write applications that get them to do security or manufacturing or moving goods around. In our robotic studio, which we have a pretty modest-sized team working on, has become a central component and we are getting feedback from those people on how we make those things better.
So that will be a huge software driven market and it will take all this visual work and modelling work we are doing and bring it into that robotics domain, so that all our tool kit guys take our basic research and show how subsets of that are already applicable to the robotics development.
John Waples
Why does Vista seem to have such bad press?
Bill Gates
It doesn’t have bad press. It has sold over 100,000 million copies. That's a record for a new piece of software. There are tons of things that people love about Vista, it has really been very well received when we go out and talk to our customers. Something that has been most troublesome for people is not having a device driver, when they have an old version without a new device driver. We have been after that to ensure they are out there. Upgrading has been more difficult than people expected. We have seen that somewhat with all the versions but here especially. ‘Next time,’ we say to ourselves, ‘let’s ensure all the device drivers are out there.’ There have been some lessons learned but it is a great product. Once it is up and running, people’s reactions are incredibly positive because of its new capabilities.
John Waples
It seems to have quite a negative aura attached to it, particularly over here.
Bill Gates
It is very successful and lets people do exciting new things. Every time we make a new version, there is lots of input, which lets us do it better.
John Waples
What will you miss most about running a company? What has been the most exciting part about being engaged with a hugely supercharged growth story?
Bill Gates
I have not been running the company for eight years.
John Waples
This is a seminal moment as well.
Bill Gates
It is a big change for me. I have been at the company full-time since I dropped out of Harvard, which has been over half of my life. Exactly what I do at the Foundation will be interesting, as their activities pick up. I have been there part-time, so it is not as if it is a new thing of which I have no understanding. I have been taking trips to Africa and Asia, meeting with pharmaceutical executives and going to AIDS conferences. I will take that part-time work and make it full-time. Steve and I will have to pick which projects I am involved in. The biggest thing to give up is trying to be the person who knows about and reviews all the engineering projects going on to ensure they fit together. Ray Ozzie has started to do that over the last six months, and he steps into that role, which is chief software architect. Craig Mundie will do lots of the outreach, policy and advanced research. He steps into that piece. As you said, there will be a little public representation for Steve to do but, in my part-time role, I will still have a hand in that.
In terms of transition, I do not think there has ever been a company that has been as methodical. I talked to the Board three years before the date. We announced to the public two years before the date. We updated everybody about how Craig and Ray were stepping up a year before the date. Now we are five months away and things are going very well.
John Waples
Have you found the rigours of running or being Chairman of a public company more and more onerous?
Bill Gates
I have not been CEO during the time of Sarbanes-OxleyW (SOX) and signing reports, so I could not tell you. Steve has done a great job of it.
John Waples
I am sure Steve must have moaned to you about it.
Bill Gates
Steve is not much of a moaner, I have to say. He is hyper-energetic and does everything that is needed. We were using digital systems and being precise about these things. If there is a complaint about digital regulations, small or medium-sized public companies are much more affected because, for them, an extra million in expenses is meaningful. I do not mean to make light of it, but to review our accounting process we paid our accountants $1 million extra. You just will not see that in the figures. We were very methodical about these things because we are global and do all this stuff with software. It has been a huge market opportunity for us where we have given people software to do SOX, where they track the flow of information and use our digital rights to control the flow of information. It has been a huge way to get SharePoint, which is a very general piece of software, into companies faster, because we have said, ‘Get this in there and make your public reporting and information tracking very good.’ I should not be the one to complain about these regulations, even though I sometimes feel sorry for small public companies where overhead expenses have become higher than in the past. Then again, the idea of credible financial information, the goal of the regulations, is very appropriate.
John Waples
You have avoided the personal issue. Personally you must see this as a seminal moment in your own life.
Bill Gates
It is a seminal moment in my life.
John Waples
Is it no more than that?
Bill Gates
What is more than that? There is my birth, my death and then there is…
John Waples
Fine. You mentioned the Las Vegas show, a second digital decade. You gave a flick through some of the things you see changing. Can you expand on that? If you are sitting in your living room watching TV in 10 years’ time, how will our lives have changed completely?
Bill Gates
There are things you do digitally today like organise your music collection or photos, and sharing them. In the next 10 years, those things will become a lot better. When you take a photo on your phone, it will immediately go to where you want it, so you can share it with your relatives or label it. Taking photos of your kids growing up will become easier. That is very neat. People have a view of that to some degree. There will also be things like reading the newspaper from the screen with a Tablet device. TV will not be delivered over broadcast channels but over the internet, like BT is starting to do with Media Room. You can have the news cover the topics you care about more in depth. As you watch the Olympics, the sports you care about will be the ones you get. If you want to see the background of an athlete or to understand something, you can interact in a way that is very simple but gets you what you want.
For these new things – digital reading, digital TV and the empowerment of information in the work environment – you will see the numbers. You can come in and have the indicators to be able to dive into that data. That work environment will make people more productive. That is why I am very optimistic about the economy. You get these advances, as we saw in the 1990s. Companies design products faster and productivity goes up at a rate that economists, with a model which does not build in innovation, would never predict, yet the results from that period were overwhelming. It was IT/software/internet enablement that allowed that to happen. Work will change and home activity will change.
John Waples
What will become obsolete? Will newspapers become obsolete? As you go through technology change, things become obsolete as a result. What could become obsolete?
Bill Gates
The printing press may become less important. I do not know what mix your paper has between reading it on the internet versus reading the paper. It is probably overwhelmingly read on paper but, over time, that will shift, if you can sit with a nice little flat screen and call it up. If you see an interesting article you can write a little note on it and send it off to a friend, if they are a subscriber. It will just be a lot easier. We are not there yet. We are talking about a decade, so there is a lot of latitude. We may need to go through a few more iterations on cost and simplicity before this becomes very obvious.
Take the wanted ads. They have gone from being very print-based to being online. They are a lot better online. You can navigate them better and, in some cases, list for free. The economics are very different. The barriers to entry are much lower than when it had to be paper-based and only newspaper companies had the delivery infrastructure to get things out to every house. We still have the basic idea of classified advertising, like the idea of a phone directory, but it will not be a big, thick paper thing.
The encyclopaedia is an example of where that has already happened. When my boy asks questions about science and things, he and I go and use EncartaW or WikipediaW to look these things up and navigate around. We have the Britannica and all those things, but they lack the animations, links and diagrams. They are not up to date like the PC is. We can say that the paper-based encyclopaedia is on its way out. It is not even the most popular way to do things now. Many other things come along like that. The phone on the desk with all those funny buttons is one we are going after right now, when unified communication software, which uses the internet, costs less and is far more effective for employees.
John Waples
Will anything else be obsolete? Those were all print-based things. Are there any other areas that technology will push aside?
Bill Gates
There is a real question about shopping for various types of goods. We can create rich 3D environments on the internet of what it is like to look through a bookstore, furniture store or something like that. There is an interesting question around which goods you will want to go into a shop to see. Women’s fashion may be one where that experience is so strong that it will stay high-street based, whereas when shopping for utilities online we can let you see and try out things. It has been fascinating that things like travel and insurance have gone online fairly quickly. Banking is a hybrid where people still like to have a branch. Pure internet banks have not gained much share, but traditional banks are offering a hybrid by saying, ‘Please use our internet as much as possible but, if you must come into the branch, it will be there for some types of activities.’ There has been a shift away from the high street for certain goods, but it is hard to predict how much that will happen.
John Waples
You were at Davos. You must have picked up the mood. There is a lot of uncertainty around at the moment. Did you pick up a sense that a lot of the world leaders think we are at a tipping point between a full-scale recession and a slowdown?
Bill Gates
You are right: that was the general mood. I found it a bit strange. Name a time when there has not been uncertainty, when we knew what would happen. There are imbalances in the economy in terms of the US housing market, the trade deficit and the currency ratios. It is interesting to think what that might lead to. The credit market became too loose and is now tightening up. It is very healthy for these things to cycle. The economic results in the US – employment at 5 per cent with lots of job growth – are not that bad. Everybody’s worry may be one of the elements that cause people to be more cautious. If people are cautious, that slows down the economy. I am no expert on the short-term economy.
Fortunately, the kinds of decisions Microsoft makes on investing, vision and speech, even if I knew GDP would be down next year, I would still want to make. For the Foundation, in terms of a vaccine for malaria – those people do not know what the word ‘GDP’ means and they want to live. I was amazed at how people seemed unsettled. In fact, as interesting as these financial issues are, you can go back a year ago and see some the same. The mood can become self-fulfilling, which is worth noting.
John Waples
Thank you very much indeed.