Q&A: Bill Gates Spills About What's Next for Microsoft

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Visit Time.com tomorrow, when Gates divulges how he plans to revolutionize video-conferencing, internet television and the battle to knock off Google.

Come back next week to read more from TIME about the future of medicine, the workplace and the movies (including an exclusive interview with George Lucas)

TIME: How do you think about innovation? What are your cues? Is there a way you look at the world and derive a vision of the future? People wonder how Bill Gates comes up with the next big idea.

Gates:There are tons of great people here at Microsoft who are always coming up with ideas. I go off for a week every six months and read hundreds of papers from people who are telling me about big advances, and their ideas about things they think we should do. Take a simple concept. You're a parent and your kid is growing up. How do you collect all the photos, email, video, calendars— all those things—and make it so that sharing it with relatives or going back 10 years later and finding some neat moments are very easy to do? Obviously today's software lets you do that better than you could 10 years ago, but it's still very hard, very manual and nothing like what it will be. Microsoft Research has a thing called the Sense Cam that, as you walk around, it's taking photos all the time. And the software will filter and find the ones that are interesting without having to think, "Let's get out the camera and get that shot." You just have that and software helps you pick what you want.

Actually the first place they used this is with people who have medical problems where their memory is not working. So they'll meet their son, which is a big event for them, but they won't be able to remember what was said. If you use this camera and play back the images for them, it reinforces those memories. That's not the mainstream application of it, but it's this amazing thing that who would have thought the right kind of software could take that memory impairment and really just change the life of someone like that and let him or her have those memories in a very simple, fun way.

It's really great to have the research people constantly talking to the product group people — "hey, we've made this breakthrough and why can't you apply it?" The product people are so much in the real world they'll say, well, it's too hard to set up or someone will have a privacy concern that if you have all those photos how are they going to be used.

TIME: Back in 2002 in a Fortune cover story, you discussed the questions that were guiding your conception of the computing future, and you had already anticipated the needs of a multitasking, on-demand and highly mobile consumer population. As you cogitate on what's next technologically, and the role the PC will play, what do you see now as you look ahead—what will we need, what will we want and how will Microsoft products deliver it?

Gates:We think about software running on the Windows PC but also on phone, in TV, in your car, across all these devices helping you get things done in a user-centric way. And you have to think about it from both ends: What would people like to have done for them? And you have to think about what can technology do. Inside our organization we have people who are particularly strong at one or the other. We find ways to bring those together. The best thinkers actually understand both sides of that. Some things that people would like to do are pretty obvious. When you watch the news there are things you are more interested in and less interested in and you wish it told you more about the things you cared more about and less about the ones you don't. Advertisers only like to pay to run their ads for people who might be interested in that product. And so those are things that we can make happen. I noticed I was taking a lot of notes and then going back to my office and trying to type up the email, but the next meeting would start and I thought, "geez I've got to have that right with me," and so started the dream of making a screen—a tablet PC that's better than note taking on paper or reading on paper so you can annotate things, share it with people, go back and see the history of what you've read. That's one of the quests we have as a company, and it really excites people to think that kids won't need textbooks, the teacher can customize the material, and the material can be interactive. So we take those big dreams about computing and then we see what's practical.

One of our researchers said that eventually software should make it so that you don't ever have fatal car wrecks. But that's way in the future. The quality of software and the cameras and other things it would take, that's hard to do. Whereas some things, like revolutionizing TV or getting the right hardware and software so this tablet idea becomes mainstream, those are things we think we can do in the next several years. So we're constantly playing around with those ideas and it helps a lot to have a research group that doesn't have any particular product they are working on. They don't have any time frame. But they are people who aren't just picked for their brains; they're also picked for their energy to want to come up with innovations that change the world. So this TechFest event where we bring our product people and our researchers together is probably the event that people look forward to the most because researchers love showing their new things and the product development people come in and not only get specific ideas, but they are reminded about the magic of software, which is what Microsoft has been about from the beginning—that software can unlock much better ways of being creative and communicating and keeping the memories of your kids, of being entertained. As the years go by, how people will be empowered by software will just get better and better.

TIME:Some people say that innovation is ideally suited to the young, cool, hip and nimble companies. Microsoft is certainly older and bigger than it used to be, but you haven't really slowed down. How much harder is it to innovate as a massive established company?

Gates:There are a lot of really incredible things we can only do now because the number of great people we have. One of the things were doing is taking all the photographs of the world from satellites, planes, cell phones and people driving around and stitching those all together to create what we call Virtual Earth so that you can see what it's like if you want to drive some place, see what a place looks like. That's a huge project. With all sorts of scales and costing a lot and representing a huge bet that we can only do because we're a large company. The Tablet PC with this handwriting recognition and helping to get new hardware to get it done. So being able to take on ambitious things, speech recognition, language translation, vision capability, those come because we're taking the success we've had and reinvesting very heavily. We're the most R&D focused company in the world as a percentage of sales of any large company, based on our overall R&D budget. That means we set a very high bar for the work that we do.

TIME:What's been your biggest misstep in terms of innovation and what did you learn from it that guides you now?

Gates:There are a lot of breakthroughs that once we make them we think, "ah geez we should have come up with that five years earlier, that maybe the pieces were there." Sometimes we start too early on things. With the Tablet PC we started 10 years ago. Someone could say, "geez you could have waited to start that." This revolution in internet TV is very personal and interactive. We started on that over a decade ago, and it has taken a long time for the costs of all the pieces to come down. Now, in the U.S. we have AT&T and Verizon and others actually rolling out this new generation of TV using our software to do it. So it has finally happened. The people who've been working on it for 10 years feel great that it came true. With Tablet PC we have a lot of people who love it, but it's not mainstream yet, so we still have years of work to do to make it that much better, cheaper, thinner, more accurate. We all have this conviction that it will be mainstream.

There are things that other people get to before us. We avoid that a lot by working well with the universities. We have way bigger university outreach program than any company and thats worldwide, universities in Europe, India, China. The U.S. universities are where we get the most out of that, but we want to make sure we're doing it everywhere. There are famous cases. Google's done a super good job on search; Apple's done a great job on the Ipod. We're a company that's brave enough to say that we will keep those categories very competitive and see what we can do to come up with something that's even better in the years ahead. Certainly video games are a great example, where Sony's done a great job, but now we've got the breakthrough product in the market and we'll see what they come up with next. Ours is the Xbox360. And theirs will be called Playstation3. It's not out yet and people don't know much about it. It's a very healthy thing. Even search is nowhere near where it should be. You're still clicking around, you're looking at a lot of ads but you don't get paid to look at those ads; and that's not fair. A lot of things could be done.

Visit Time.com tomorrow when Gates divulges how he plans to revolutionize video-conferencing, internet television and the battle to knock off Google.