Remarks by Bill Gates
2003 International Consumer Electronics Show
Las Vegas, Nevada
January 8, 2002

BILL GATES: Well, good evening. It's a pleasure to be here at CES. I think people will be surprised this year to see that the pace and innovation has remained very strong. Since it's also early in the New Year, I think it's good for us all to review our New Year's resolutions, and I thought I'd share a few of mine with you.

First, I've got a key goal to get the Xbox team to develop Extreme Bridge, it's a really hot game. I've got to get better so I can beat my friend Warren.

Second, I think it's time for me to pitch USA Network on doing a sequel to that great movie, "Pirates of Silicon Valley."

(Laughter and applause.)

I'm also going to really take advantage of Microsoft's latest Windows Media Center by setting it up to record every episode of "American Idol."

And finally, I'm going to see if there's a place I can fit into my schedule some time this year to go back to Harvard and finally get my degree.

(Applause.)

Well, the title of my speech tonight is about smart living in the Digital Decade. And it's really to talk about how advances in three different areas are coming together. Advances in devices, advances in connectivity, and advances in services.

Every advance that's made in each one of these areas reinforces progress in the other areas, it drives the popularity of the other devices. In fact, in many ways over this next decade that we refer to as the Digital Decade, many of the predictions that were made and said would happen only a few years ago will finally be taking place. They'll be taking place because all of the pieces will come together.

For example, the pervasiveness of broadband. That's a very key element. The pervasiveness of wireless networks in the home, very exciting year for that, very key developments there, they're pulling that together. The devices using the latest advances in screen technologies, memory technologies, disk capacities, everything that we want in terms of the pace of improvement in those basic technologies is taking place.

Now, often when people see better devices, they think that they're substitutes one for the other.

For example, the cell phone versus the PC, or the TV versus the PC. In fact, our view is that we need to get these devices working together, because the big transition that's taking place is not from one screen form factor to another, but rather it's from doing things in a non-digital way, keeping your schedule, your music, your photos, too.

By the end of this decade, virtually everyone doing those things, using all the different devices, the ones that in their pocket, the one that's on their desk, and the one that's on the wall, and those working together.

And to get those things working together, we have to advance the software, and we have to advance a number of standards. And it's really only through that kind of synergy that this full potential of the Digital Decade can come together.

Tonight, we're going to show you a lot of neat new products. We're going to show you some future vision. But before we get into that, I think it's good to reflect on all the challenges and the twists and turns that took place to get us to where we are today. So, let's go and look a little bit behind the technology and the road that we've traveled.

(Video segment.)

BILL GATES: So it's been fun so far. Well, we had a number of big launches just the last months, Tablet PC in early November, it's been out for a couple of months now. Sold out most versions of it, and so a very strong early reception. It's very exciting, because that brings the PC to new realms -- note taking, meetings, reading, annotating documents, and every time we take these devices and make them more natural, make them so you can sit down with them, or even just hold them between two people, we advance this idea of the Digital Decade.

One of our biggest surprises with the Tablet was that even though Tablet-specific features didn't relate to photos or music, people used those capabilities far more, because they had it in their hands, and they could share it with people, and it was just that much more accessible.

Another Windows-based advance that got talked about last year is the Windows-powered Smart Display. I demonstrated them here, and now they are available in the market, officially launching in retail availability right now. Key partners include HP, Samsung, BenQ, and that?s in addition to the previously announced partners that we had a number of. So a very strong following there, and very exciting to see Smart Displays out there in the marketplace.

In the pocket-sized devices, this is also a strong year. I?d say the industry as a whole is now looking at the phone-type devices and the PDA devices coming together, and how do you build a device that?s the best of both of those? Some people want a keyboard, some people don?t want a keyboard. Some people want a larger screen, some people don't. But, everyone wants the richness of the applications that were stronger on the PDA, and yet the connectivity, both voice and data connectivity that comes from the phone world.



And so we introduced two products. Pocket PC Phone Edition, which is the larger screen product, but looks like the PDA but brings the phone in, and then the Smart Phone. That's the device that has a much smaller screen, and if you looked at it at first you'd think it was the classic phone. In fact, the Pocket PC applications are all there. So far richer than that phone has been in the past. I'm sure there will be a lot of experimentation with form factors moving forward. Miniaturization, and the ability to combine those functions together is really driving that market to a whole new level.

Of course, the platform inside those phones is what we call a Windows CE .NET. Whenever a device has limited memory, and limited power capabilities, we use Windows CE, that?s the subset of full blown Windows, and yet the same tools, the same way of programming applies to that version of Windows.

The full blown version of Windows, of course, is now Windows XP, and last year was a fantastic year for XP, with over 90 million copies getting out into the marketplace. We've just been out a bit over a year on that, and that's the strongest first year we?ve had with any version of Windows.

The unification here of having one Windows platform, XP, the same code base for the professional version and the home version really simplified things, in terms of quality work in the industry, testing things in the industry, doing new drivers for things in the industry. That's become a foundation for a lot of advancement, and it's allowed partners to take that and build on it. Microsoft is building on it, and other people are building on that, as well. So the idea of this platform is very, very key.


One of the extensions that we introduced for Windows XP is a Media Center product. This is the first time that we?ve said that a Windows PC should be able to work very well on the wall sized screen. It should be able to work very well when you're working at a distance, and you don't have the keyboard, you simply have a remote control. Windows Media Center comes with a remote control, and of course the idea of calling up pictures, music, videos is all very straightforward.

There's the same kind of interface that you're used to when you use the keyboard, but it's much larger and simplified, so at a distance that kind of navigation makes sense. Things like programs, recording, looking at TV guides, and being able to search in a very rich way, those are significant advances that came with that Media Center Edition.

We also advanced the audio-video software inside Windows.

We now ship our Windows Media 9 series, which brings new levels of audio and video quality, bringing things like advanced sound capabilities, and a video that's as good as high definition onto the standard PC platform. That?s a download that people will get automatically if they go out and select things that are using those new formats. We also have Movie Maker, that lets people sequence things, still photos, or their videos, very simple to use and yet more powerful than any other built in software for that kind of capability.

We have an add-on pack, a digital add-on pack for Windows, as well, that let's people do kind of neat offerings, and synch their media on to different devices in a very simple way. So lots of new digital media experiences coming to the PC platform.

Once you invest in the PC, and you have that broadband connection, our commitment is that you'll be able to do more and more things with it, not just the productivity software or the games, but all of these media things that certainly at the start of this decade very few people were doing, by the end of the decade virtually everyone will take these kind of activities for granted.

Now, getting the PC so its capabilities are available everywhere in the home is really the next stage for this. We'll make a lot of steps in that direction next year. For example, Thompson is a key partner. We?ll build into their high definition TVs Windows technology, the ability to project out is just basically built in.

Likewise, if you have your Xbox connected up to the TV, that TV will have software that will let you do projection there, as well. The simple rule is that you can have screens of various sizes around the house, and by having the storage and power of the PC project onto those, whether it's looking at the family photos, or the weather, or the schedule, you can have touch-screen devices, or any device throughout the home, and so the power of the PC without having to go to the place that that?s located.


So a lot going on about information being projected around the home, drawing on the standards that the PC has become, and the richness there in terms of the media capabilities.

Now, with these new devices, I think the way to really understand what we're doing is to actually see them, see how the partners have taken our software work and combined that with their design and their hardware to make some things that are really quite amazing. So I?d like to ask John O'Rourke to come out and give us a look at the new smart devices.

JOHN O?ROURKE: Well, as usual, Bill is right that smart devices is absolutely the best product category to come out. And to demonstrate how Microsoft software, together with hardware from the consumer electronics industry, is really advancing the reality of the promises of the Digital Decade. Every year you come here you see more advancements, and more innovation, and as you can see from behind me, more and more fantastic devices, ranging from a multitude of different purposes.

Last year at CES we announced, as Bill mentioned, Windows CE .NET for embedded devices. What I have here are a couple of really great examples of momentum behind those embedded devices. The first one right here is an exercise bike. It's the Exertris exercise bike, and what?s really cool about this is that it's not just your standard, boring, sit there and pedal away bike, actually it has incredibly rich multimedia experiences built into it.

So rather than just monotonously pedal and pedal away, it turns it into a game, where if you want to keep winning, and you want to keep playing the game, you've got to keep pedaling. So it's a way to sort of work off that fat while having a great time. Who says gamers are couch potatoes, anyway?

The next device here is actually the Bernina sewing machine, again, taking the device and making it more intelligent, and also in this case actually making it connected. What's great about this, it has over 6,000 different patterns and stitches, because it has a CD-ROM drive, a USB port, and a modem, you can actually connect it up to the Web, and actually download new patterns and new stitches. Now, sewers tend to have little small, tight-knit groups, their sewing circle, but now that sewing circle has the capability and potential to really go global.

Now, with the advancement of analog media, and the move to digital media, there are many, many devices coming out. You see that there are music playback devices, and there are many, many additional devices that we?re going to be seeing tonight.

What we're also seeing as well is that traditional playback devices, like your DVD player, are also expanding to integrate and to take better advantage of that fantastically rich digital media, and photography and video that you have on your PC.

Two devices I'd like to show you here, one of them is a Polaroid DVD player, and the other one is a Panasonic DVD player. What's really cool about this Polaroid DVD player, it is the very first DVD player to actually support playback of native Windows Media video. What that means is, as Bill mentioned, you could create your own very cool home video of your kids running around, or perhaps your vacation, burn it onto a CD, create it using Movie Maker 2, and then pop that DVD right into this player, and have the capability with just the simple click of a button for you, your friends and your family to be able to watch that home video.

So, let me show you what that looks like. Just a simple click of a button, and it's going to launch directly from this player right into my home video.

(Video segment.)

We really don't need to spend a lot of time on my home movies, but what I wanted to show you next was another great DVD. This is the Panasonic DVD device. And what's amazing about this is, it's actually the first DVD playback to have high-mat format built directly into the box. Now, you may be wondering what high mat is.

Well, high mat is a format developed by Panasonic and Microsoft that enables you to take all of that rich photos and music and video, put it on to a recordable device, like a DVD or CD, when you pop it into a high mat device, it will give you great performance in cataloging and organizing all of that rich media, and give you great performance in playback.

Let me show you what that means, so I have a device right here in this Panasonic, and if we can switch over to the video from my home movies actually to the Panasonic device that would be great. With the Panasonic device here, you have the capability to look at all that different rich media. Well, we seem to be not able to pull that up right now, so why don't we move on to show you some of the more great devices that we have.

Well, there was a lot of excitement about the ability to take your music with you, so whether you're going on a plane, or whether you're just jogging down the street, there's always been a lot of demand to do more than that. Why should you be just limited to music? You've got all those great photos, and all that great digital video. Well, today, it's incredibly exciting to announce a brand new platform, a platform code named "Media2Go," which is a personal media player, enabling you to playback your photos and your music and your videos from one incredibly great looking, sleek device. What's really cool is, I've got a prototype of it here.

Now, this is a prototype of the new "Media2Go" devices. You can see they're very nice looking, four-inch screen, have a 20-gigabyte hard drive stored into it and the support for this concept is already just really taking off. We have four fantastic partners: Sanyo, Samsung, ViewSonic and I-River are all committed and targeting to deliver one of these devices for holiday season of this year.



So what's great about this is with that 20-gigabyte of hard drive you can actually come in and you can store so much information. What I'd actually like to do here is I'm going to jump down and load up one of the videos that I have here. It's the music video that I recorded on my Windows Media Center Edition PC. But with that storage I can have up to 175 hours of digital video, 8,000 of my favorite songs and up to 30,000 digital pictures. It's incredibly cool.

It's a great looking screen, nice sound coming out of it, really nice when you've got to perhaps take the kids over to grandma's or you've got to take that 14-hour flight from JFK to Tokyo.

Now you want to be able to take your media with you. It's also very important to be able to take your data with you. And last year, as Bill mentioned, we unveiled the smart phones and since that time the support both from the handset and device manufacturers has been incredible but as well the network service support to bring data to those great devices has also been incredible.

Now, these devices up to this point have really all been designed for the GSM network. We're incredibly excited to announce this week that there is new Smartphone and Pocket PC software for the CDMA network. Now this opens up a huge new market; over 120 million subscribers use CDMA today, so this opens up a huge new network.

And you can see we have a whole array of new devices. One of them I'd like to show you is this new Pocket PC from Samsung. This Pocket PC, you see a great looking device, nice screen, and in addition, it also has a digital camera built into it, wireless and phone support right within this one single device.

Now, while mobility is great when you want to take your data or when you want to take your media with you, a lot of people want to have mobility actually within their home. And this is just so fantastic because last year, at CES, as Bill mentioned, we announced Smart Displays. Well, Smart Displays are wireless touch screen monitors. They're really next generation monitors which take your PC experience really to any room in the house. Imagine doing e-mail, sitting on your couch and reading your e-mail, or perhaps browsing the Web while you're out on the patio. Now, as you can see from all of the different smart displays I have next to me, partner support is incredible, 10 partners up to this point developing Smart Displays. We're very excited to have three more with BenQ, Samsung and HP bringing more Smart Displays.



What's great really about the Smart Displays is they're intelligent. You can just grab a device, pick it up, and you get all of everything you could do within your PC right on this device. So, what I would like to show you is, because it's an intelligent device, you have incredible capability. You can add value, and many of our partners have done so. In the case of ViewSonic, they've actually included a Home Control Application. So, what I can do is just pull out my Home Control Application, and it lets me control TVs and the various things. In this case, I'm going to actually use it to turn down the lights. Oops, sorry about that. Let me turn those back up. And now I'm going to use this actually to turn on a TV here, switch it over to my TV. Now, there actually is a special on PBS I would like to show you, it's all about Motown, and check out this incredibly great user interface that comes from the Home Control Solution, we just need to push this button and actually switch over to PBS, and I can see what's going on within Motown.

Now, this is just a couple of little things that you can do with the Smart Displays. As I mentioned, this is the full power of your PC right here in your hand. And I thing I love about this is that my office is actually in the back of the house. So, I can take this out, bring it into the living room, and while my kids are playing away on the rug, I can actually be reading my email, or browsing the web, and still giving them lots of attention.

Well, the device I really wanted to end on is by far the smartest and most important device in any home and that is, of course, the PC. And if you want to get the best PC for your home, you absolutely have to get a Windows XP Media Center Edition PC. I mean, these things are really incredible and they're just great designs for the home.

And we announced them last year at CES, but this holiday was when the availability of the first Media Center Edition PCs came. And I've got to tell you, they were hot, they were selling like hotcakes. And the reason being is it's just a fantastically complete PC that lets you access all of the entertainment you want really from anyplace within the room.

Now, the support for Media Center Edition PCs has been fantastic and I'm very, very excited to announce that we have additional support for new Media Center Edition PCs. It's so exciting it's actually attracting non-traditional PC manufacturers into the category. We have ViewSonic that is actually coming out with a Media Center Edition PC and we're very excited about that. And in addition to that we have Tagar Systems and iBUYPOWER Computer that are also coming out with Media Center Edition PCs.

What I'd like to do now is to show you what the experience is like with a Media Center Edition PC in case you've never seen it. One simple green button that I push here, and it brings up an interface for Media Center Edition PC, and you can see that I get access to My Television, My Music, My Pictures.

What I'd like to do in this case is actually jump over to My TV and in this case you can see that I'm watching "Hard to Kill" and if suddenly I get a telephone call, wouldn't it be great to actually be able to pause this, boom, I can pause that, take my phone call; when I'm done start playback again, and there I am, I'm good to go. It's an incredibly powerful Media Center Edition PC. (Applause.)

Now, as you can see, the form factor for the Media Center Edition PC is great. To fit in your AV rack there are towers that are sleek designed but there's a brand-new configuration that we're announcing today. We're coming out with a laptop configuration for the Media Center Edition PC and our partner Toshiba, a leader in the laptop category, will be coming out with a Media Center Edition PC in their 5200 Satellite series. And in addition, there will be laptops that are Media Center Editions from Alienware in extreme colors as you see with this wild green right here.

Now, just from this demonstration and discussion of the partners that have helped us come so far, all of the varying devices, you can see that together Microsoft software and the consumer electronics industry has really made tremendous progress. And so many of these devices are not islands on their own; they're actually well integrated with the PC, sharing media, sharing photos or video or transferring data. The Media Center Edition PC is a fantastic source for you to then take that data and, for instance, put it on your media-to-go device.

So it's with great pleasure that I want to thank everyone here for working so closely with Microsoft to help us make so much advancement and really continue to drive the reality of this digital decade.

Now I'd like to ask Bill Gates to come back up to speak more about smart living in the digital decade. (Applause.)



. . . . So at this point I'd like to ask Bill to come back out to talk about smart living in the digital decade. (Applause.)

. . . . Be right back.

Bill? Hey, have any of you seen Bill back here? He's supposed to be onstage. Hey, Bill. Have you guys seen Bill? Hey, Bill, are you back here?

BILL GATES: Hey, John. I'm just playing this new game, Midtown Madness III. This is so cool. This kid out in LA thinks he can beat me. I mean, I'm just taking him on.

GAMER: (with voice masking): Are you ready for me or do you want to give up right now?

BILL GATES: Well, look, man, I am just cruising. You LA guys are not up to your old game. I mean, come on.



GAMER: Do we need to start over, Micro-Boy? I'm right behind you, buddy.

BILL GATES: I'm looking in my rear-view mirror.

GAMER: OK.

BILL GATES: I'm cruising through Chinatown, cruising.

GAMER: Are you calling me sloppy? It looks like you're being powered by a 16-bit processor.

BILL GATES: Hey, when you grow up you might beat me, but for now look at me go.

GAMER: OK, OK, here I come.

BILL GATES: All right.

GAMER: Watch this.

BILL GATES: Whoa! Whoa, whoa, whoa, what happened there? All right.

GAMER: OK, I'll tell you, buddy, my secret. Here I come.

BILL GATES: OK, here I go.

GAMER: Here I come, here I come right now.

BILL GATES: Oh, I think I can catch you.

GAMER: No, no, no. Watch this.

BILL GATES: I got you I think.

GAMER: No, no, no, here I come. I've got you licked. I've got you licked. You don't know what you're doing.

BILL GATES: Something went wrong there. I think I was too nervous. I'm kind of in the middle of a speech.

GAMER: I am the champion, my friend! I'll keep on killing you to the end.

SHAQUILLE O'NEAL (Voice masking off): You're not too bad yourself; you just need a little practice. I'm looking forward to playing a lot of Xbox Live. My throat's kind of dry from dusting you off. I'll see you real soon, Micro-Boy -- loser! (Laughter.)

BILL GATES: Right. Well, with Xbox Live you can tell you can mask your voice. I had no idea who I was playing. Maybe I should have guessed when he picked that Hummer, though. He was pretty good.

Well, let's talk about connectivity. Connectivity is one of the key ingredients to make this all come together. In fact, it's been very gratifying to see that Wi-Fi has really beaten every estimate there has been for the penetration. It's the best-selling peripheral now in PC stores and the penetration in broadband homes is over 50 percent. So we expect that to be pervasive.

Wi-Fi is getting better, increasing the speed, moving up to have capabilities for automatic security and quality of service capabilities that will bring voice and video onto that Wi-Fi network.

We see Wi-Fi networks being in virtually every digital home. We see them being at almost every workplace, a lot of increased penetration there. And, of course, anywhere where businesspeople are getting together in meetings, hotels, convention centers, airports, so when you carry a portable around, in places you spend time you will be connected up.

That's been a great industry effort, and so I think the Wi-Fi network has moved to the center as one of the important ways that things will be connected up. It's not the only way and all these different networks we see as complementary to each other.

If you want local high-speed connection for peripherals, getting rid of the cords that you've had in the past, that's where Bluetooth comes in, being able to have your phone talk to your PC, being able to have a wireless keyboard or a wireless mouse. The cost of Bluetooth peripherals, the chipset for Bluetooth has come down pretty dramatically and we'll see that in a very, very pervasive way.

The wide-area third-generation networks are very important. That gives you connectivity wherever you are. And so when you have that Smartphone you can go out and browse, get information, get your e-mail up to date, your schedule wherever you go.

We're building more and more into Windows the ability to adapt to the network that's available, and so if Wi-Fi is there that's the high-speed network, that's got a flat rate for using it so that's what we'll take advantage of. But if you have the ability, the silicon to connect onto a 3G network, if we don't have the Wi-Fi we'll connect up to that. And the silicon for these networks is coming down in cost to the point now where for portable PCs, 802.11, Wi-Fi in every single one almost now, and over time we'll see it in the different form factors and then Blue Tooth will come along and be pervasive as well.

And then software has a big role to play here, making it so that the network automatically recognizes what's out there. That's what we call Universal Plug & Play and that's been an industry-wide initiative, an initiative to bring in companies and make sure they're testing their devices to have the rich self-description that makes that kind of Universal Plug & Play work without any effort on the part of the user.

Now we go from connectivity to services. By services we mean that things that you can sign up for across the Internet. Services will often be very niche-oriented for small groups of people. Some will be very broad like the communications capabilities that people like Yahoo! or AOL or MSN offer across the network.

We're going to make it easier and easier to build these services. We want to see an explosion of these services. It was gratifying to see that all the numbers for e-commerce were up very dramatically during the Christmas season this year, and that's even without some of the foundational advances that will make some of the security and sharing information so you don't have to retype things even more pervasive across the network.

Two big services for Microsoft are MSN 8, which was a big introduction for us this last year, 2002, and the Xbox Live, also new in 2002. MSN 8 is really moving to be unique in terms of the software capabilities. It used to be you would think about online services and you'd think you buy the access and the software together. Now, that's still available. If you want to go dial-up, it works that way. But more and more for people who buy broadband, they get their broadband capability sometimes separately from the software piece that provides the rich communications. Sometimes that's called bring your own access and we see that as a very important growing element of our offering, because what we come up with that's unique is in the software, letting people find each other, letting people create rich documents.

When you get MSN 8 you get things like Photo Plus, Money Plus, learning and research software that works for kids of a wide range of ages, and so we're putting more and more software value in there.

We make the browsing more powerful, this idea of customization, having the dashboard that shows you the quick information that you care about, making it so that people can browse together as they go around the Internet.

One of the big advances for MSN 8 was the idea of online safety, having parental controls that really work, not ones that simply have the option of being so restrictive that you felt like in the practical sense you had to turn those off but rather letting people pick for different age groups things that would affect the buddy lists, the e-mail capabilities, the browsing capabilities all in a very standard fashion.

And that's been important enough that Good Housekeeping has recognized MSN 8 as the first piece of Internet software deserving of their Good Housekeeping Seal of Approval. And I think that not only shows the effort that went into making it household friendly, but also the mainstream idea that now Good Housekeeping is looking at software and wanting to recommend to its readers exactly where they ought to go to get products that will work well for them.

One of the biggest things in MSN 8, of course, is the idea of eliminating junk mail, making it so that your inbox is not just filled up with all that interesting mail that you used to get there.

I have to say that I don't really miss it all that much. In fact, you know, there were some great Spam e-mails that I used to get. There was one that talked to me about how to get out of debt. (Laughter.) I always thought, OK, that's kind of an interesting one. I never did reply to that.

The next one would take care of one of my resolutions. This was one that said get a diploma now. (Laughter.) But I checked, they don't offer a Harvard diploma. (Laughter.)

But the one that probably would have saved me the most money by far was one about legal advice. (Laughter, applause.) You get the top law firms for just pennies a day. (Laughter.) And that would be a significant economy in my case. (Laughter.)

So those are the kinds of things I'm not going to be able to see in my inbox anymore. In fact, it's pretty amazing as we've gotten that Spam capability in, the percentage of mail that our users get now is down by about 35 percent so that's just some indication of how significant a problem that was becoming for users. Some users, it was even a higher percentage than that, so definitely a very timely thing and something we need to keep pushing forward on.

The other service that I think really points the way to the future is Xbox Live. As you saw from my little fun round with Shaq there, you can talk to each other as you play, and that brings in a social element that makes it very different than simply having a screen where all you're seeing is the other person moving around or doing something up on the screen.

Talking is fundamental. And that's why we decided to have Xbox Live require a broadband connection. It's the only online service that did this. We needed to build into the Xbox an Ethernet connection, a hard disk to really make this work and make it exciting and so far we've been really amazed at the results. Sales have been double our original projections. The average player is playing over two hours a day on the service. And this is with just this first round of games coming out -- Mech Assault, Ghost Recon, Tom Clancy's Splinter Cell; those are the hot titles in this online area. We have a lot more coming. In fact, we have a lot that are specifically designed for the online environment, some that are much more about bringing people together to chat about things and share ideas about things than they are about the classic who can score the best or who can shoot the most things type genre that have been really the dominant genre in standalone gaming. Online gaming opens up a wider range of genres. It enhances all the existing genres but it brings some in and some that I'm sure we'll be very surprised about.

Our game studio is hard at work on some titles that will take this live capability to a whole new level. Halo 2 I think will be a very important title both in a standalone sense and the fact that that's the first version supporting Live, Project Gotham Racing 2. Midtown Madness, that's the title that Shaq and I were trying out, that comes out this summer and Castle Wolfenstein. So classic titles brought to the online, and then some new titles coming there as well.

We've given developers really strong tools to make it easier for them to pull things together and we've standardized how you can find other people and do your buddy list. And, of course, it's all built around the Internet, that voice communication that's taking place there.

But you can imagine that when you have voice communication you've got a screen, that's going beyond the classic phone. Whether it's gaming or serious things you're doing that screen sharing will be a large part of communications. You'll assume that capability as well.

To make things easy on building services across the Internet our hardcore development division is building tools around an approach called Web services. This is something I'm sure you heard a fair bit about last year. You'll be hearing even more about it this year. The Web service standards are really in place. The leading companies, including ourselves, IBM and most of the companies you could name in the industry have decided to really get behind this to bring systems capabilities to a new level.

This is the infrastructure that's actually required to deliver on some of the things that were talked about three or four years ago. Even e-commerce requires a kind of security, authentication, orchestration that come with these Web service standards.

Web services are built around XML. That's the standard data format. They're all built to take advantage of the huge investments that went into the Internet. And so we're going to make it so that somebody with a good idea for building a service, whether it's a photo printing service or a storage service or a special hobby that people have, letting them get together and share things with a neat special interface, we're going to make the barrier to building that kind of service very, very low by having the right development tools to make that happen.

So services will be a huge growing element of how people think about their personal computing experience. Those services will target the full blown PC but they'll also be available in somewhat reduced capability forms onto all these different devices that we've talked about.

Well now let's move from smart services to an introduction that really takes everything I've talked about, the basic ideas I've talked about and bring those together. I talked about smart devices, smart connectivity and smart services. And one of the dreams we had at Microsoft was to bring those capabilities down to a small form factor, to create intelligent personal objects, Smart Personal Objects that would work throughout the home environment, not just devices that would do the same thing for everyone but devices that would understand the things you're interested in and the things that you care about.

At COMDEX we talked about this. We introduced this SPOT, Smart Personal Objects Technology -- that's the acronym for that -- and said that there would be a wide range of devices that take advantage of this. Actually the one that we went into the most depth showing there was an alarm clock, an alarm clock that when you wake up can tell you your schedule, tell you about the traffic, and built in there was some magic chips that did the job of receiving that information and being able to display it to you.

So this SPOT initiative is quite broad. It's going to make everyday devices a lot smarter. Let me give you an example of that. This is a little magnet device. Let me hold this up for you here. And this is a traffic magnet. It's got the SPOT chips in here and this will be a reasonably inexpensive device. You can just glance at it and see -- in this particular case it's Seattle -- where the traffic is heavy and where it's not. And so you could put this at your house, put it in your car, put it in your office and just stick it up there and glance and it's receiving on a constant basis a connection that keeps that information up to date.

So you can imagine something like this for stock prices, for weather, for sports. You could have a little baseball magnet that shows you the teams that you're interested in in the world of baseball, not just the final scores but also a little diamond that while the game is in progress you'll get the play by play and see what's going on. For magnets that's kind of a new thing; SPOT makes that kind of capability possible.

Now, to meet the characteristic for being a SPOT device we've got to have personalization, we've got to have this special network that connects things together and it's got to be a very simple device. In fact, what we do with these devices is we say that all the things you want to do to customize them, to pick the information or change it, you do that by going to a full-screen PC and simply entering in the device ID and then you have the full richness to pick exactly what's going to show up on that device. The device itself is simple; it's just to display information.

Now, one of the form factors that we're most excited about -- in fact, we really want to focus on some breakthrough announcements on tonight is the idea of a watch, a wristwatch device with built-in SPOT technology. And so this watch that I'm wearing is a SPOT device.

You know, this is a screen, it's a digital screen that's about 120 x 90 pixels and we can display any type of information there. And this watch has built into it that connection to the network to get the information that's coming down that might be interesting.

Well, SPOT to us is sort of the next evolution in what the watch should be. And you know, it's about glanceable information. You can glance and just pick a channel, the weather, and see what's there. If you take your watch and you change time zones it will notice that. You can have it set up to display your home time zone, the time zone that you've gone into. You're able to send messages to this. You can just set it up to send instant messages so it's like a paging device receiving information from people who want to contact you just on the device, the one device that you always have when you carry it around. Of course, it's always got the right time of day because it's synchronized. The data signal actually makes sure that it stays together.

So advances in timing devices have been a big deal over time but it's been quite a while since there's been something dramatic that really brings the watch to the new level.

We've got a video that talks about some of this progress and also has some of the partners who have been involved in bringing SPOT technology to the wristwatch. So let's go ahead and take a look at that.

(Video segment.)

BILL GATES: Well, every morning hundreds of millions of people put on their watch and, in fact, on average in this country people own three watches. They often wear them as a fashion accessory. They're often given as a gift. And Microsoft decided that although we had this wonderful technology we wanted to work with the very best companies in the watch business to really bring this together, people who had cutting edge styles, cutting edge brands, cutting edge distribution to get the message out there about a whole new way of looking at your watch.

We're super excited to have Fossil, Suunto and Citizen Watch as the initial partners in building these watches. These partners share a vision, a vision that the watch will go beyond time to timely information.

And this is a very flexible platform. The fact is that the watch can receive over the network new software at any time. And so let's say a new sport type thing that you want to have a display for or if you're, say, at a venue where the Olympic games are taking place, new capabilities can be downloaded to display information in a very special way related to that.

It's really a platform, a platform where there will be a lot of standard channels that we can all think about and understand today -- weather, sports, news, things like that, but many new things will come along that various people want and will simply create a channel that exists exactly on their watch.

The connected and stylish nature of these watches is really a sea change for how we think about what we can glance at. This is a form factor that we think is very important and a form factor that's very complementary to the ones that we already have.

To really give you a sense of what a watch is like once you put SPOT technology into it and connect it up to what we call the direct-band network I'd like to ask Roger Gulrajani to come out. He's the marketing director for SPOT and he's going to show us some of the capabilities of these new devices. Welcome, Roger.

ROGER GULRAJANI: Great. Thank you, Bill. (Applause.)

Thank you, ladies and gentlemen.

Partners: I'm so excited to be working with great partners -- Fossil, Citizen and Suunto -- as we introduce SPOT watches to the market.

At Microsoft we know a little bit about technology but when it came to trying to build fashionable lifestyle watches we really wanted to partner with companies that understood how to do that, to enable a watch that's not a geek watch but rather a watch that's a lifestyle device, something that each of us would feel really proud to wear and that's what we're going to do.

Now, why watches? Well, a watch is a device that each of us puts on every morning. It's something that we don't even think about. We put our watch on, we talk out the door, and also watches are with us all the time. They're giving us a great bit of information. What they're doing is they're telling us time. And again our vision is not just having a watch that tells us time but also timely information. That would be a cool watch.

So again what would be a great watch? Well, for me a great watch would be a watch that when I travel it would automatically adjust to a new time zone like this Fossil watch that I'm wearing here on my wrist. It would have atomic clock like accuracy. That would be a cool watch.

In addition though, a great watch would be a watch that would allow me to personalize it so that I can change the face or I can change the style to suit my needs. This watch here is a Suunto watch and again like any other SPOT watch I can push a button and I can change the watch face. I can turn it into something that meets my fashion needs. I can personalize it if I want to have it with a whimsical face or a serious face. Again, it's very easy for me to customize it and have a design or a style that I'd like to have. That's a cool watch.

But as Bill mentioned, we didn't want to just create watches that give you time but also timely information. What we want to do then is allow people to use the Web. What they'll have is basically the ability to choose the information services that they'd like. You can pick the services that you want. So, for example, if you want to choose stocks or you want to choose calendar or you want to have traffic, you can make this watch the information device that you'd like. Then that information is available on your watch. During the day it will just show up. And so when you want to, for example, sneak a peek at what's happening in the basketball game while you're listening to some guy at a keynote you can do that. (Laughter.) It's easy; it's on your watch.


So again the notion we have is a very simple, very intuitive experience. By pushing a button I'm able to change the channel and I can see that information and continuously during the day that information is being updated. It's only the information that you selected, so again it's not the notion of it's all the information on your wrist. We weren't trying to put a PDA on your wrist, we're not trying to create a supercomputer on your wrist; we're trying to give you a tool that basically gives you the information that you'd like to have.

For example, if I go to the weather service, the weather channel, I knew this morning that there was going to be rain in Las Vegas. Why? Well, because my watch told me so. I had that information there on my wrist and I was able to glance at it and understand what to wear.

Now, I know the first thing that you're going to do when you go out and buy a SPOT watch is you're going to put your personal information on it. That's important to us. So what we've done is we've created a very secure platform. Every watch has a unique key and then all the information that's sent to these watches is encrypted so that only your watch will receive your personal information.

So I hope you're as excited as we are in terms of building these SPOT watches. At Microsoft we see that we're building the brains of these watches but our partners -- Fossil, Citizen and Suunto -- they're building the fashion element, they're building, if you will, the heart and soul of these devices that will truly make them into great consumer products, something that will make a great holiday gift this coming year.

Thank you. (Applause.)

BILL GATES: Let me spend a few minutes describing some of the cool technology that's inside the watch. Of course, the people buying the watch won't have to understand this but I think it's pretty amazing and fun to see how far technology has come.

Microsoft Research is where this product idea was born. Bill Mitchell had a concept that he believed in, he promoted and now has been made a reality.

Part of it is taking advantage of the advances in chip technology and so built into every SPOT device is an ARM CPU. It's a CPU that runs at 28 megahertz and it's got 512K of ROM and 384K of RAM.

Now, let's compare that not to the original Altair computer. I mean, the Altair computer had 4K of memory. Let's compare it to the original IBM PC. That's about four times the speed and eight times the memory of the original IBM PC. And amazingly, what we're actually downloading into this device, you can sit at a PC and write programs using a form of BASIC somewhat like the BASIC that ran on that early IBM PC, and those programs get translated into .NET byte codes and sent across the network down into the watch itself. That's why it has the flexibility that I talked about. People are going to come along to us with new ideas for channels, a way of presenting things and we'll be able to add those to the list of things that people are able to get to. So the cost and the power of this chip that goes way beyond the IBM PC is in every one of these devices.

Another key element is the network that delivers information to this watch, the network we call Direct Band. This is a one-way network. What it does is it uses the ability to add data to the FM signal -- it's called FM sub-carrier -- and this watch listens to all the different FM frequencies and finds the transmitters that are sending that data and looks at that data and sees when it's traffic data, stock data, messaging data, schedule data, program data and it keeps it in the memory that's on the ARM chip that's on this watch.

It's a really great use of technology because the infrastructure for FM is already there. Those are very powerful transmitters and we were able, with advances in this chip technology, to send quite a bit of information across that sideband and make it very robust. If you can connect up and listen to FM radio, even in places where the FM doesn't sound that good, you'll be able to receive the data into that SPOT watch.

So the chip technology, the software technology and the network technology come together, so it's a smart device with smart connectivity and then the information services that are offered up on the face of the watch is a smart service. So this actually combines into one introduction all of the concepts we've touched on tonight.

Let's take a look at some people actually using their SPOT watches and the kinds of things they're going to do with them.

(Video segment.)

BILL GATES: We're going into testing with the SPOT devices starting this month and the actual product, including the services and the partners availability through their distribution channels in North America will be out in the fall of 2003.

We're very excited about SPOT as an initiative but we also think it represents the direction that things are going in. The idea of using the magic advances to make things available to users in a natural form factor, a form factor that's not only natural and with them but where it's the things that they care about, and so you see that in many of the new initiatives, making the network so that you can put new devices on it, making it so you can have your handwriting be part of how you interact with these devices, making it so you can have your media with you wherever you go; all of these things are elements that have to come together for the digital decade.

A basic assumption here is also that the reliability, the simplicity, the preservation of privacy, the ease of extension of this as an open platform will really let a lot of things flourish around us, and those are tough problems and that's the reason we're spending over US$5 billion in R&D to do our part to build those things into the platform.

The idea of smartness really is just at the beginning. We see that devices in the future will understand the user's context better, what that user is trying to do and therefore things like what messages they'd be interested in receiving at that time so their time is used in the most effective way.

We see smart devices knowing where they are and therefore, for example, noticing that there's another screen nearby that they might be able to project up onto.

And so smartness comes from great software and partnerships with the people who build those devices.

One last thing I want to do to give you a glimpse of where we see this headed is to do a little demo that's about the future vision, and I'd like to ask Steve Guggenheimer to come out and help us take a look and see what this smart concept holds for us as we move forward.

STEVE GUGGENHEIMER: Thank you, Bill.

Hello, everyone. What we want to do at this point is sort of build on all the things we've seen tonight in terms of devices, services, connectivity and project out five years or so and think about how we might be able to help people and their families in their lives live a little better or smarter, as Bill talked about.

So with that, I'm going to take you through a couple concept scenarios. First off, Bill was talking about the Smart Personal Objects Technology and he had some sort of simple magnets up there. I think as we continue to see chip cost come down, more powerful capabilities in terms of screens -- if you look around the show floor here I think you'll see a lot of evolution of screen technology -- here I have some very rich magnets. When I sign up for MSN in the future I got one that basically brought down all my group or community information on a regular basis, so I see my family photos. If there's things going on in the extended family it could be projected up to the magnet on the refrigerator. And in many ways what I have here is really a very low-cost digital picture frame disguised as a refrigerator magnet as we move out in the future.

I also have some other magnets, one for the school and one from all of the restaurants locally. Today, every week I get a little brochure of what the specials are, what they're going to have on sale at the local restaurants. In the future I'll just have a magnet on the refrigerator; it tells me what the specials are, the number to order and all the information I want.

Now, let's sort of slide over here. One of the things that we're seeing more and more as we move forward is the PC is moving out of the bedroom or the den and it's moving to where the center of activity is, whether that's the dining room or the living room or somewhere in between and so I've sort of positioned mine halfway between our kitchen and living room. We've got a pretty small house here.

And one of the things we're starting to see over time is the evolution of the way we interface with the computer. In the old days there was sort of one interface for everyone. With XP now everyone can customize their interfaces. Similarly with the services, with MSN now I can have individual experiences with the right content and the right setup based on the user.

As we move forward I think we'll see more and more concepts in different ways. On this one what I've set up is sort of a family interface so no matter who walks up to the PC we've tried to put information that's relevant for everyone, so we have the family calendar, temperature, photos, et cetera.

Now, I want to start working on this but before I do I'm actually getting a call here on my cell phone. Now, this brings up the point Bill talked about. As we move forward, devices are going to more seamlessly interact and so when the phone was ringing here I also got an icon up on my screen. It says it's a call from grandma. I happen to know that she has a videophone. So instead of taking the video call on the small screen I'm just going to take advantage of the fact that it's sitting right here next to my PC and use this larger screen to go ahead and see what grandma wants; in my case, my mother.

MRS. GUGGENHEIMER: Hello, dear. I'm at the bookstore. I want to show you what I found for Little Miss Birthday Girl.



STEVE GUGGENHEIMER: Great, what have you got?

MRS. GUGGENHEIMER: OK. You open it up and look. Isn't it beautiful?

STEVE GUGGENHEIMER: Yeah.

MRS. GUGGENHEIMER: What do you think? Do you think she'll like it?

STEVE GUGGENHEIMER: Perfect for the 4-year old, yeah.

MRS. GUGGENHEIMER: I thought so, too. Now, I know it isn't one of those electronic gizmos but I figure she'll get plenty of that from you.




STEVE GUGGENHEIMER: We cover that pretty well.

MRS. GUGGENHEIMER: Listen, dear, I have to go now so I'll see you later. Bye-bye.

STEVE GUGGENHEIMER: Bye-bye.

Now, one of the things Bill also talked about was sort of relevant content based on context, so here since I was talking to my mother -- she's a member of my immediate family -- we'll see some information that's directly related to my interactions with her on an ongoing basis. So I see the calendar items that I have coming up on a regular basis, some tasks that I have, and, in fact, she's requested a new calendar item. So I'm going to click on that.

One of the things we get a lot of feedback on is how can we make it easier to sort of share schedules to work better together, especially sort of when we're trying to manage our family lives. So here what I can see side by side is my calendar and my mother's calendar.

So as we look towards the future with some of the services -- in this case maybe MSN calendars -- we'll be able to overlay side by side with the correct permission people that we want to have share our calendar.




So in this case you saw I had some free time. Let me go ahead and click on this and accept it and in that way I can actually have scheduled an appointment with my mother back and forth and be able to go ahead and make that work.

Now, since we're talking about family interactions I want to switch gears a little bit and bring out another family member and do a little more interaction. I'm going to ask my eldest son, Bill, to come out. He's 10 years old. He's a little big for his age, but it's OK, he's a pretty smart kid. (Laughter.)

BILL GATES: Hey, Dad.

STEVE GUGGENHEIMER: Hi, Bill.

Now, Bill has just come home from school and, of course, he's got his device sort of sitting there on the table and as we move forward, you know, we talked about very customized user interfaces, so the first thing Bill will do is logon. You can see he's sort of got his "keep out" up there and he'll use his thumbprint. William -- only we call him that at home.

Now, Bill being a ten-year old boy is very much into space and so you can see here again customized content, the combination of locally and through services giving him the very rich UI. We see that his buddies are on the side there and he can set up an instant message session, for example, and do it in a richer way. So, in fact, if he invites Jeff for an IM session he can pick something fun so maybe the football and bounce it off the other kid's head, very little interaction but very popular for a child in this case or I'll say a young adult, Bill, to be appropriate.

Now, Bill being a good kid comes straight home from school and does his homework.

VOICE: Sorry, kiddo, you know the rules.

STEVE GUGGENHEIMER: Now, see, there's a good example of some of the things we need to head to as we move forward. As we see more and more digital media and more and more devices, as a parent, right, and overall as an industry we need to help make it easier to manage this context. In this case Bill went to play Xbox Live before he's done his homework and you'll see I've got a parental control alert. What happens is each time he tries to do something that he's not supposed to I get an alert on my screen and I'm going to look at this one and, of course, it tells me that Bill was trying to do this before his homework.

Now, as we look towards the technology in the future, today with MSN 8 we do a great job of enabling parents to sort of manage the content their kids access on the Internet. With Xbox we allow parents to manage the games that their children play based on ratings. With Digital Rights Management, PVR technology and other capabilities, between the hardware and the software industry we'll be able to set up sort of a universal interface over time where I as a parent can manage all the content my child has access to, whether it's the games they play, the videos they watch, the music they listen to, the Internet content, et cetera. And not only can I do it by the type of content but also certain rules like how much Xbox he can play in a day or a given week, and you can see we'll make sure we manage that well; as well in this case as homework.

So now that's an interesting scenario. How did I know that Bill hadn't finished his homework? Bill, if you can actually sort of go to your homework? There, he's already up there. We see on the lower left hand side that he hasn't done his geography. Now, it's not too farfetched to imagine five years out or more where as a kid you actually submit your homework online, so no more my dog ate the homework stuff as we move into the future.


In the same way it's set up relative to our system so that I get a trigger when he has or hasn't finished his homework and that's how our rules are set up.

So, Bill, I think we need to get this done.

BILL GATES: Well, maybe I'll see if dad can help me out here.

STEVE GUGGENHEIMER: Oh, OK.

Now, as Bill goes and does this you'll notice I get an alert. So what I want to do -- it's telling me that Bill wants a little help with his homework and I'm going to go ahead and click on that.

Now, the interesting thing here is I get a page very similar to Bill's but being a parent I have some more content that the teacher has provided that gives me tips really and hints on what they're looking for in this assignment and how I can help them.

So as we look towards richer services in the future you can very easily see how we could link sort of the schools with the parents and children to create a richer learning environment. We know that as parents get more involved in education it's an overall better experience for the child and in this case we can share that information, use rich services to do that.

And so I'm going to go over here now. Bill's asked for help. And now Bill's sort of asked me to do this. Now, we could sort of just look over his shoulder here, but we've got this nice big TV here. Bill talked about the fact earlier that we should be able to move seamlessly between screens. So can you just project that up? You'll notice he clicks on TV, switches it over and now we can use this bigger screen to do that.

So I know that right now I'm going to let Bill slide on his homework. We do want to help him with his New Year's resolution but he's got some other stuff to do. So I'll let you go ahead and go even though he didn't finish his homework.

Now, to sort of summarize a couple key points, one is as we move into the future it's going to be easier to seamlessly go between the screens that we want to use, so whether it's my watch, the phone, the TV screen here or the PC we'll be able to use the right screen for the right context and move very seamlessly between them.

Second, we'll be able to provide services overall that give us more ability to interact in richer ways, whether it's video or context sensitive menus or important things like how we help parents manage the content that their children access or how we help schools and parents and children link together.

The opportunity between the rich devices, the connectivity and these services to allow us all to live a little smarter in the future is a great opportunity for all that.

With that, I'll hand it back to Bill. Thank you. (Applause.)

BILL GATES: Thanks, Steve.

It's been a lot of fun to show you the new devices, to talk to you about the new connectivity, to talk to you about the new services and show how we think these are going to come together.

One key point I want to emphasize is that these are platforms and we have partners, the partners that build these platforms and then tens of thousands of partners who take these and build software applications on top of them.