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Q: More developers are becoming interested in building new applications using the Web as a platform, as opposed to the PC. Do you feel you're in competition with Google, Yahoo and other Web properties for developers' attention?
Gates: No, I don't think so. The architecture we are interested in we call server-equals-service, so that we will have the full Exchange capability that you can subscribe to, where we run it, or you can have it on-premise with the traditional licensing approach. At this conference, we do give out APIs (application programming interfaces) for the MSN Search and the MSN Virtual Earth capability, so things that have been cloud-based services, you can have client applications that other services can connect to. So, I'd say the evolution is server to service, and bringing that symmetry in.

Google, because they are in the honeymoon phase, people think that they do all things at all times in all ways. With Google, there are rumors about them being interested in that services piece, but they really haven't done that much. Our search API is way better than their search API. Clearly, they are working in that area. They haven't done as much on the server piece. They had a Google server, but it was very bad at corporate search. That did not work well at all. That's the only place where I think they have done any server-type piece. Yahoo doesn't think of themselves as a platform company. I don't think you will ever have the Yahoo PDC. Google, because they are in the honeymoon phase, people think that they do all things at all times in all ways.

Well, I guess that's what you have to combat, right? They are in this phase, and when Google does anything, they get attention.
Gates: Yeah. You do me-too Google Talk, and it's a big deal. But we had our honeymoon phase, and it was fun from maybe 1985 to 1995. And we've had lots of competitors in their honeymoon phase. But I'd say, in some ways, this is the biggest honeymoon I've ever seen.

Is that a long-term threat for Microsoft? People like Google come along and they have this Web development idea and they popularize that notion and people listen?
Gates: Developers are not building on some Google thing at this point. The idea that the computing industry can simplify its offerings dramatically by having this server-equals-service approach, and having richer services, absolutely I believe in that, and we need to be at the forefront of that. The idea that management can be more automatic and software updating can be more automatic, state-replication more automatic--there are some big things here that can drive the industry forward. They are very complex, because we have to make things very reliable and very secure if you are going to do this. It's just now that we have the maturity of XML and the Web Services protocols that we can start to do (this).

So Google is not offering development capabilities yet. Of course, I expect they will. But they're not in that game at all today. In fact, they have this slogan that they are going to organize the world's information. Our slogan is that we are going to give people tools to let them organize the world's information. It's a slightly different approach, based on the platform-ization of all of our capabilities and not thinking of ourselves as the organizer.

So that would be the philosophical difference between Microsoft and what Google is up to at this point?
Gates: Well, we don't know everything they are up to, but we do know their slogan and we disagree with that.

How does Microsoft want to bring that server-equals-service capability to the market? You have the servers. Do you have the services?
Gates: Well, let's go through it. We have Active Directory, which we are making a lot richer. There's a lot of talk about that here. And we have Passport. So we're making those very symmetric and having this federation capability be central to the architecture those things follow. We have e-mail where we have Hotmail and Exchange. We'll have hosted Exchange from some of the telcos, too. In terms of Web sites, we have some people doing hosted SharePoint now, we have Spaces, which is a low-end version of that. We'll bring those together. So our services have started out as very inexpensive but not feature-rich. Our servers are very feature rich. So as we bring these things together, we give you the richness and also the choice of having it as server or as a service. And that is a very big deal to us. The place we are strongest in this today is in instant messenger, where the MSN Messenger is the service, and Live Communications Server is the server. So those things are very symmetrical.

So why services now? That idea has been around for awhile. There have been some projects within Microsoft to offer Office-like capabilities that didn't actually make it to market. So what has happened to make this a reality?
Gates: The fact that Windows monitors when people are having crashes and problems and we get reports, that's been there for three years. Software is becoming better because it is connected up and you can see how it's being used and you can improve it over time. There hasn't been an infrastructure for doing the patching. Some of these security things have driven that, and we can benefit from having that infrastructure, not just for security but for other improvements. The services concept is coming along. The first company meeting where I talked about software as a service was in 1998. The relationship with our customers has changed from software in a box to something else. But it's like, when did I first say "information at your fingertips"? That was 2000 Comdex. Do we have information at your fingertips today? No. Do we have a lot more than we had in the year 2000? A huge amount more. We're getting decent Web search, we're getting RSS. So software as a service has been moving along. We needed the Internet. We needed low-cost connectivity. We needed XML. The scale economics of doing large server farms...you can do those and do those well.

So you will see the services thing increase. We bought a company called FrontBridge that's kind of a software service firm. We have a lot of expansion ourselves in this area. It's not just consumers. A lot of it, actually the majority of this, is focused on businesses. We're giving them a choice of how they do IT, and some of it is through services.

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