Gates sketches Microsoft's top 'scenarios'

Addressing analysts and reporters at the company's annual analyst day here this morning, Gates said that while many industry observers feel this is the end of the road for software, given the huge advances that have been made to date, "this is not the end or even the beginning of the end," as he again touted the power of the PC and software for the future.

And make no mistake: Software will continue to drive the digital decade.

"We are closely listening to our customers and partners, and believe that there will be further revolutionary advances for businesses, knowledge workers and consumers," Gates said.

In line with this, Microsoft will commit more money that ever to research and development, spending some $5 billion this year, an amount that is roughly on par with that of IBM, he said.

Gates' scenarios

Listing his favorite "scenarios," Gates said Microsoft's productivity applications, primarily Office, were already "half-way to meeting our vision. Office is very pervasive with productivity workers across the world."

But Microsoft is "barely scratching the surface" on other scenarios, Gates said, all of which have huge potential and will become pervasive over time. The most important scenario for Microsoft is that "things always work" for its users.

This concept is fundamental to all scenarios. "We will be concentrating on issues like customer feedback, Windows update, online support, and auto-backup and synchronization," Gates said. "This will be a growing vision going forward, but it will take two to three product versions to fully reach this vision."

Improving the reading quality on an LCD-type display is another challenging scenario, he said, with Microsoft concentrating on the form factor, software and resolution.

Another priority, meetings, has huge potential as the software for this is "primitive and extremely inefficient today," Gates said. There are many features in Office that target meetings, but all of these are dependent on wireless connectivity.

E-commerce is another big priority. The XML Web services approach to this requires standards, back-office and front-office support, as well as smart and simple tools to enable e-commerce. "We've barely scratched the surface in terms of the things remaining to be done," Gates said.

Communications is the scenario that holds the greatest potential. This revolves around one address and notification, involving voice, video and screen calls, and scheduling.

TV and games are another important scenario, the idea being that digital technology in the living room will give users a range of new experiences and technologies. Digital electronics will connect all the different pieces and ensure that a user remains in control. This area has not yet paid off for Microsoft, but Gates said he's confident it would in the years ahead.

Digital music was the last scenario Gates mentioned. This has been "fairly inconvenient" for users thus far, and one where they're often not in control. Management of this needs to be simplified and more easily available. "There is a long way to go in this regard," he said.

In conclusion, Gates said Microsoft's new platform push -- that is, its .Net initiative -- is "analogous to what Windows was to us 10 years ago. Standards are driving its progress, and we will compete on having the best platform and tools. In order to lead, our relationships with software vendors, developers and tools are key. Building Visual Studio .Net has been key to this."

Belluzzo: Change is coming In another address this morning, Microsoft President and Chief Operating Officer Rick Belluzzo said the company is aware of the need to change -- not just in terms of products and technology, but across all aspects of its business.

Cutting to the chase, Belluzzo told attendees that Microsoft would address all of its current legal issues only at the end of the day, when CEO Steve Ballmer takes the stage. "We want to focus on our products, technology and vision going forward, so we will be concentrating on this for most of the day," Belluzzo said.

Microsoft has a number of priorities for the next year, he said. Leading that list: energizing the PC, which will extend its core business.

"Moving the PC to the next level is our number one priority," Belluzzo said. And that means "establishing .Net as the platform for the next-generation platform for Internet applications. We continue to extend our core business while at the same time building new businesses and growing our investments there."

Microsoft is also concentrating on keeping total costs under control. While it is still hiring new staff, expected at some 4,000 new people this year, that's "half as many as last year," he said.

(Earlier, Gates had admitted that the antitrust lawsuit hanging over the company had made hiring over the past two years "more difficult than ever before," but there has been a 180-degree turnaround over the past six months. "Hiring great people has never been easier for us than it is now," he said.)

Belluzzo added that "we do need to change the company, accountability, investment and other processes, increasing our attention to the long-term, becoming more focused on our investment initiatives."

As for Microsoft itself, Belluzzo said the commitment of employees to the company was evident by staff attrition of just 8 percent last year, some 10 percent less than the industry as a whole.

"This is an exciting period of transformation for Microsoft across our business as we grow our core base and continue to work to grow new businesses," he said. "But execution is key over the next 18 months."