by Forbes Staff
Whatever services eventually become available, they will most likely be viewed through a display, such as a CRT [cathode ray tube], an LCD [liquid crystal display] or a plasma panel. Because transmission technologies generally progress more quickly than display technologies, TVs may evolve into two or more separate units, such as a display element and a set-top box.
Also, the distribution of content will likely move from a package-based system [such as prerecorded video] toward a digital network-based system. Video-on-demand is just one example of a new service that we’re likely to see in the near future. Once the necessary copyright protection measures are in place, we’ll be able to access information about programming (such as a profile of an actor appearing onscreen), to buy our favorite music and even to send and receive AV content to our friends.
Gates: The thing people are not paying attention to is that as we make the computer speak, listen, learn, see—it becomes a very different thing. One tablet you carry around. High enough resolution that you feel like reading off of it. You can talk to it. It can talk to you. It can see who’s there. Those things—the naturalness of interaction—are probably in the next five years, and certainly in the next 10. So your TV set will see who’s coming in the room and interact because the chips will become inexpensive and software will become inexpensive. Natural interface. People just aren’t thinking about it. When you want to navigate the Web, you won’t give it URLs—you’ll just give it a sentence: I want to see the latest movies, the newest restaurants.
Idei: You’ll be able to use a computer without knowing you’re using a computer in the future. For example, while you’re driving a car, the computer will be working [to detect the position]. Information will be transmitted from the car by wireless telephone so you can get your position.
The computer and telephone should be combined into one. I think today’s smallest digital cellular is smaller than a digital watch, so you can combine the telephone and computer and make a lot of different applications. Bill’s computer in the past was a word processor, spreadsheet, database and what else?
Gates: Until it’s trivial to take a picture, see it on any screen and send it off, or go to any device and ask for some music … until it’s all integrated, there’s a lot to be done. It’s going to take a lot of software and hardware advances and industry standards before you really feel like you’re getting all the power out of these devices.
Today, with digital cameras, getting pictures into a PC and editing them and keeping track of them is too hard. That’s not going to be super hard to fix. But some of the other scenarios are tougher, like getting rid of all the remote controls.
Any bottlenecks—technological, political or otherwise?
Gates: [Telecom infrastructure] is the biggest. If you have to be pessimistic about the time frame [for the spread of portable information devices], it would be upgrading that infrastructure and the regulatory environment. It’s a different story in each country—but you can still be pessimistic about almost any country.
Is there a key to unlocking that?
Gates: Deregulation. Those industries and countries that resist such change start to lag behind, and then they see the light and start deregulating. Great Britain was one of the first to deregulate its telecommunications industry, and is already reaping the benefits in terms of more competition and lower prices. What technology has done is make deregulation smoother and easier. Ten years ago it would have been impossible, say, to have spot trading in electricity, because the technology wasn’t there.
In 10 years what do you see as the shape of this industry?
Idei: We need a total solution, so I think we need a lot of companies’ collaboration—not only Sony and Microsoft, but also [operators of] cable or satellite TV—to make content distribution all interactive.
Bill, you had mentioned Alan Greenspan as an apparent believer with you that computer technology has changed the very nature of the economy and made it more difficult to predict and interpret.
Gates: Well, economists have never been able to explain much, and once again they can’t explain what’s going on now. The only difference is that now it’s good news they can’t explain. It’s usually bad news they can’t explain. The opportunity for economists to make breakthroughs today is more evident than ever. But basically my views and Alan Greenspan’s are pretty well aligned.
WELCOME TO MY STORE
By Eric Nee
October 1998
WHILE AOL WON THE SUBSCRIBERS, Yahoo won the eyeballs. Bill Gates’ MSN is a flop compared with them. Microsoft Corp. has lost the first round in the battle of the Internet.
But only the first round. Silicon Valley is littered with the carcasses of companies that dominated their markets before Bill Gates decided he wanted in. Microsoft is determined to capture a big piece of territory on the Internet. It has the brainpower, the cash and the strategy to do that.
There’s a pattern to this: When a new business looms in cyberland, Microsoft’s initial entries are often late, weak or both, but they are there. Its next products are better; the next ones better yet. Just ask WordPerfect Corp., Lotus Development Corp. or Borland International.
They dominated word processing, spreadsheets and databases until Microsoft walked all over them.
Now the battleground is the Internet. At the moment Microsoft is trailing Yahoo Inc. and America Online Inc., No. 1 and No. 2 among Web portals.
True to form, Microsoft is regrouping and counterattacking. It has realized that its original strategy was flawed and has forged a new one.
In essence, Gates’ inspiration is this: Capture people who want to buy products and services wherever they might be on the Internet. If they don’t use your entry point—your portal—well, then just capture them after they’ve come in through someone else’s.
What does that mean? Think about what happens when you wander onto the Web in search of a product. First comes the on ramp, the wires that connect your modem to the network of computers out there. Next along the way is (usually) a so-called portal. This is a launching pad for your search.
The last stage in this process is your destination. This could be a site that helps you buy a new car or a site that shows you mortgage interest rates and steers you to a bank or a site that finds houses in your price range. Amazon.com, which sells books, is an example of a destination site.
AT&T WorldNet Service is an on ramp. You pay $20 a month for a connection service and not much more.
America Online is a hybrid: part connector, part portal, part destination. It provides connections, special services like chat rooms and a Web portal.
Yahoo is the most popular Web portal, with 40 million visitors a month and a wealth of destination sites like Yahoo Travel and Yahoo Real Estate. Amazon.com is a pure destination.
Why is there value in a portal? Think of it this way: If the Internet is potentially a vast shopping bazaar, portals are entrances to it. The people who own the successful portals, like Yahoo, get first crack at the customers.
Why is there value in a destination? If you want a good deal on a Ford Expedition, you might spend only a few seconds at the portal looking for a car site then spend half an hour at the car site. There you will debate whether you want to spend $1,300 extra on leather seats and ponder whether it is worth going out of your way to the dealer who will save you $300. While you tarry at the site, the provider has a chance to bombard you with ads.
If there are sales commissions to be made on the Web, they will be made largely at these destination sites. Advertising dollars will also accumulate at these sites. That’s where eyes linger.
Microsoft’s new dual strategy is to own and build destination commerce sites like Expedia, CarPoint and Sidewalk. It is also improving its portal, MSN.com, and making it available around the world. Microsoft has scaled back content sites like Slate, the online magazine, and ended its efforts to compete with AOL’s proprietary online service. It has just about given up on its efforts to entertain
people; instead it’s concentrating on ways to help them spend their money.
The stakes are potentially enormous. Close to $6 billion in U.S. consumer commerce will be generated on the Web in 1998, and the business is just cranking up. How big can it get? Nobody knows, but travel, certainly a Web-vulnerable business, will generate about $10 billion in commissions in the U.S. alone this year. Just 10% of that … well, you get the idea.
Aware of this potential, Bill Gates has said that Microsoft’s Web businesses will become the company’s fourth major business group, after PC operating systems, PC applications and servers.
And where is Microsoft right now? Eating dust. This year it may do $50 million in advertising and commerce. Upstart Yahoo will take in more than double that amount; America Online nearly 10 times.
“Until about six months ago I was somewhat dismissive of their strategy,” says Mary Meeker, Morgan Stanley Dean Witter’s Internet analyst. “But now I’m impressed.”
Point man for Gates’ Web attack is Pete M. Higgins, the 40-year-old group vice president responsible for Microsoft’s Web products. So what is Higgins doing to make his boss happy?
He has already ended many of Microsoft’s attempts at creating hip content sites. One flop was Microsoft’s Mungo Park. It sent editors on exotic expeditions around the world, but real travelers mostly want to go to Disneyland, take Caribbean cruises or work the slots at Las Vegas.
Then there is Slate, the online magazine into which Microsoft has poured millions. Rumors are that it will not survive long in its present form.
Microsoft made the same mistake with Mungo Park as with Slate: It tried too hard to be hip. Its more recent efforts have been decidedly more utilitarian.
One of Microsoft’s biggest Web successes is Expedia, its travel service. Expedia offers neat ways to book hotel rooms, buy airline tickets and reserve rental cars. Expedia produces travel commissions for Microsoft and ad revenues from suppliers.
Microsoft’s Sidewalk.com has undergone extensive renovation.
Originally a trendy guide to arts and entertainment in nine major U.S. cities, the site is being relaunched within the next few weeks with a national guide to buying products and services.
Sidewalk will retain its arts and entertainment guides, but the emphasis will now be on making Sidewalk a place to buy a stereo or hire a caterer, products and services that would appeal to the kind of people attracted by the listings. Listings for caterers, stereo dealers and the like will be free, but Microsoft will charge merchants who want to elaborate on their offerings, get better placement or link to their own website. Sidewalk has signed up 6,000 advertisers so far.
What about Microsoft’s competition? If AOL is the hands-down winner in the number of paid subscribers, Yahoo is the champion when it comes to attracting people on the Internet. Yahoo.com is the most visited U.S. site on the Web.
Yahoo is something like a department store. Once logged in, you can find and buy just about anything there. Yahoo Travel, Yahoo Real Estate, Yahoo TV Coverage, Yahoo Finance and more than 50 other specialized areas are now offered, says Yahoo Chief Operating Officer Jeffrey Mallett.
By contrast, Microsoft’s sites have been all over the Web, so it is consolidating its three home pages (onstage.MSN.com, home.microsoft.com and MSN.com) into one, MSN.com, the company’s new portal. This is now the default home page for its 2 million MSN Internet Access paid subscribers and for many Internet Explorer users as well.
This new Microsoft portal has been in the works for some time, and the pieces are now rolling out. MSN.com has an updated look and will soon include features it has long lacked—its own search engine and Web-indexing capabilities.
Microsoft is also integrating MSN.com with its more popular Web properties. One of these is free email from Hotmail, the company it purchased last December. Hotmail has 23 million email accounts and was the 11th most popular U.S. site on the Web as of August.
Microsoft will also better integrate its destination commerce sites like Expedia, CarPoint and HomeAdvisor into MSN.com. CarPoint is one of the most visited auto sites on the Web, generating $300 million in car sales in August. Expedia is the second most visited travel site, handling $5 million in travel bookings each week. Microsoft launched its latest destination site, HomeAdvisor, in July.
The aim is to turn MSN.com into an Internet equivalent of a vast shopping mall. HomeAdvisor can help you buy a home and get a loan, and when used with Sidewalk, it can help you find a painter and buy a new couch after you’ve moved in.
Higgins understands this process of integrating separate products. He was the executive who made Office into a category killer by pulling together the most popular PC applications.
Don’t expect the Web frontrunners to cave in. Unlike Office, where Microsoft was one of the first to package together individual applications, Microsoft is a latecomer to packaging on the Web. Yahoo already has Yahoo Travel, Yahoo Real Estate and other enterprises.
But Microsoft could have an edge because it owns and controls its destination sites, whereas AOL, Yahoo, Excite and the like carry sites belonging to others, with whom they must split the revenues.
Microsoft thus gets to keep a bigger chunk of the revenue. However, its competitors can pick and choose from the entire universe of destination sites. To get around that limitation, look for Microsoft to dip into its petty cash drawer and buy promising products as it did with Hotmail.
People in the industry have taken notice of Microsoft’s refocused efforts, and Infoseek Corp., Lycos Inc., Compaq’s AltaVista Search Service and NBC/CNET’s Snap Internet Portal Service decided they wanted a piece of the action. Among them they have agreed to pay Microsoft $60 million over the next year to be featured search engines on MSN.com.
But if destination is destiny on the Web, Higgins is going to have to bring Microsoft’s great technology to bear in creating compelling sites.
As the Internet matures, users will come to expect more from sites—more convenience, ease of use and speed—and that’s when Microsoft can bring its considerable strengths in software development into play.
The challenge for AOL and Yahoo will be to match whatever the Microsofties in Seattle produce in the way of irresistible destination sites. If they can do that, Microsoft won’t be able to roll over them.
GATES UNPLUGGED
By Elizabeth Corcoran
December 1999
EVERY ASPECT OF MICROSOFT’S identity and strategy has been closely tied to its founder, Bill Gates, the 44-year-old Harvard dropout who is Microsoft’s CEO and largest shareholder. But in a frank discussion with Forbes Global during the giant Comdex trade show in Las Vegas, Nev., Gates, by turns pugnacious and contemplative, said he could envision a time within the next decade when his second-in-command, Steven Ballmer, could take over.
“We’re both pretty good about being two people with one huge job,” Gates says. “Who has what title isn’t a phenomenal element of that.” So far, Gates says, he is “super happy” with the way that Ballmer has taken on added responsibilities since becoming Microsoft’s president in July 1998. Could Ballmer become CEO? Gates: “Yeah, it’s possible.”
Gates and Ballmer, friends since they met as undergraduates at Harvard in 1974, have opposite personalities, except for one trait very conspicuous in both: competitiveness. Gates grew up in a privileged family, son of a prominent lawyer in Seattle, Wash. Ballmer’s father was an immigrant who worked his way up to middle management at Ford. While Gates is reserved, eschews small talk and delights in technical details, Ballmer is effusive and outgoing, a perennial salesman. While Gates has long focused on technology for its own sake, Ballmer’s first declaration as president was that Microsoft should “delight” its customers.
Last March Ballmer orchestrated a sweeping reorganization of the company. All product groups now report to him. “The organization chart would suggest that whenever I’m interested in something, I just call up Steve and say ‘Well, everybody works for you, Steve, so you c
ome in here and talk to me about this,’” Gates quips. “And, of course, that’s not how it works!”
Instead, with Ballmer as president, Gates has been free to do what he has long considered the most fun—work with product groups and chart new directions.
Gates concedes that as long as Microsoft was racing to finish its biggest software project ever—Windows 2000—it has been hard to get muscle behind new ideas. Even so, he’s excited about several projects aimed at moving Microsoft beyond the PC. “We are a software company—not only a PC-software company or only a full-blown Windows software company,” he says.
These days Gates considers Microsoft’s partnership with AT&T to build digital set-top boxes as important as its longtime work with the chipmaker Intel and the PC maker Compaq. Gates says he’s meeting every few months with AT&T CEO Michael Armstrong. “The rollout with AT&T is the real showcase of how [digital set-top boxes] should be done,” he predicts.
Another sign of just how far Gates wants to move Microsoft is a project he calls “Web OS” that’s bubbling away in the research division. Imagine, for instance, an operating system that doesn’t start by assuming a single processor at its core. “Years from now you’ll hear more about [this], but not in the near-term,” he promises.
You know how Gates feels about antitrust laws. Consumers, he insists, want more from Microsoft, not less, and Judge Thomas Jackson should not be mandating that they accept less. “We’d like nothing better than to have this whole thing resolved because [it] takes the public’s attention off what we’re really all about, which is coming in and saying, ‘OK, Windows can be made better,’” he insists. The Windows 2000 version is almost ready for sale. “This is as big as the first release of Windows, Windows 3.0 and Windows 95,” Gates declares.
Windows 2000 is one project that has certainly proved to be complex. Microsoft once hoped to finish the program, designed primarily for businesses, by 1998. Now developers have pledged to ship it off for pressing onto CD-ROMs by the end of December.