After four years in low gear, can Microsoft shift into overdrive and become technology's hot company again? Chairman Bill Gates said Microsoft...

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After four years in low gear, can Microsoft shift into overdrive and become technology’s hot company again?

Chairman Bill Gates said Microsoft already is a “hot, sexy company.”

Gates’ comment came in a rare one-on-one interview yesterday after he unveiled the software that could shift Microsoft’s sales and the PC industry back into high gear in 2006.

The software, code-named Longhorn, is a new version of the company’s flagship Windows operating system that’s in the homestretch of development. Test versions will be done this summer, and at an industry conference yesterday, Microsoft began helping computer-hardware makers learn how to build Longhorn-based products to sell in late 2006.

“This is the decade where we can have the most impact of all,” Gates said in his opening speech at the Windows Hardware Engineering Conference, or WinHEC, running through tomorrow in Seattle.

Gates, who also serves as the company’s chief software architect, said Microsoft is making its biggest investment ever — in people and time — in Longhorn. In the interview, he said the top priority of the product is that it be “a breakthrough, super-high-quality release.” He said he believes that Longhorn’s biggest selling point will be new features that make it easier to organize and find photos, music, documents and other digital information stored on the PC — this at a time when business, entertainment and other activities are commonly done “in a digital way.”

Apple Computer has a similar system in its “Tiger” operating system shipping this week, but Microsoft’s also lets users simultaneously search for files on other Longhorn computers on a corporate network.


Holding a prototype of a future small laptop, Microsoft Chairman Bill Gates addresses a Windows conference yesterday.

Conference attendees were somewhat enthusiastic.

Longhorn seems “pretty good,” said Stephen Affolter, a Panasonic hardware developer from Texas. “It would be nice if the release date was a lot sooner. But it gives us plenty of time to prepare for it.”

In the interview, Gates shared thoughts on what to expect from Longhorn. Here’s an edited version of the conversation.

Q: We heard today about how big Longhorn is to the industry. How big is it to Microsoft — is it the thing that’s going to get the stock going, get people thinking Microsoft is a hot, sexy company again?

A: Well, we are the hot, sexy company. I don’t know what you mean. Look at our valuation versus other companies in our industry. We are the highest-valued company in our industry and obviously we maintain that by doing great software work.

You’ve got Office and Windows. You can keep using those but it doesn’t generate any new revenue to us, even though you’re getting immense value out of that.

And so it’s through innovation that we’re able to have revenue at all. So to keep our incredible sales level up — that’s why we’re always doing breakthroughs in Office, breakthroughs in Windows.

Q: Some financial analysts expect your stock to start picking up in late 2005, 2006 — they’re expecting a “Longhorn wave” to hit the stock. Do you expect that, too?

A: The way stocks work, for any stock at any price, half the people think it will go up, half the people think it will go down. Otherwise there’s a sure way to make money, right?

So any statements about stock prices, I think you should take with a grain of salt. I’m not speaking about Microsoft; I’m talking about the market prices in what’s known. …

The closest we ever came to saying anything about the stock was during the bubble period when we were saying that tech stocks in general were ahead of themselves, but we knew that at the time. In retrospect, it’s even more clear.

But in general, we just talk about innovation and that’s all our message is about.

Q: There has been a lot of talk about the comparison of Longhorn to Apple’s “Tiger” operating system. What’s the biggest competitor to Microsoft in 2006?

A: The biggest competitor is the older versions of our software. That’s a fact. Then we get piracy of our software, where people get the new version but they don’t license it from us. Those are the two biggest competitors.

Apple’s always had some things that they do very well. Obviously, we’ve had things we do way better than them. The fact that Windows has more than 90 percent market share is because we’ve had much better hardware, prices, applications, and all those strengths just get stronger and stronger over time. We want to make sure we’re best in every category, and so that sense of competition is I think healthy.

They do new things, we do new things, and users get the best of that.

Q: Will there be some kind of Web search integrated into Longhorn?

A: There’s a browser integrated into Longhorn that lets you connect up to various Web search capabilities, but that’s been true of the operating system for quite some time.

Q: What are you going to call Longhorn officially?

A: (Windows chief) Jim Allchin has a list of candidate names. Naming a new software product is very complex because a lot of the names are already taken. This is a global software product so you have to understand trademark conflicts not just in the United States but other countries’ trademark laws.

So you want something that’s short, punchy, not taken in any country, and he’s got a few ideas that are going through the various hurdles that those things go through.

Q: Will it be a couple of digits again?

A: No, we’re certainly considering things that are not a couple of digits, so his list isn’t like 255, 256, 257. It’s a slightly more-interesting list than that; I don’t think we’ll just end up with a number. I’d be surprised if we did.

Q: I haven’t heard as much talk about betting the company this time. How much is Longhorn a do-or-die, bet-the-company kind of product? You have a much broader line nowadays.

A: I don’t know what “bet the company” means, honestly. We know how to do new releases of Windows. Of the features we do here, some will do better than others, but it’s such a broad set of features. …

There’s no doubt when somebody buys a new PC they’re going to get Longhorn on that machine. There’s no doubt at all, because there will be a ton of hardware features, a ton of developer features, a ton of end-user features that will just be common sense — of course, you want those capabilities.

Many of the things (going on) in the company build on top of Longhorn, and so that’s important. …

Q: Could you talk about the atmosphere on the Windows team and how it’s been affected by how long it has taken to get Longhorn out? I’ve heard grumbling from some folks about how long it takes to get their stuff out there, and you’ve had some defections to Google and some others because the product cycle is so long nowadays.

A: Look, everybody who does neat software wants to see their software in end users’ hands the day they finish it. That’s the kind of people we hire, that’s the mentality we have.

Meanwhile, end users want all the pieces to fit together. They want unbelievable compatibility; that’s why we put billions of dollars into these releases.

I’d say Windows morale is pretty high. There was some uncertainty about eight months ago as Jim was making the decisions about what would be in and how it would be shipped. … He made those decisions. …

Now people love the idea that we’re driving aggressively. They feel good that their piece is going to get out — it’s not that long from now. So you always see very high morale as you start to get into this stage. …

Q: So it doesn’t sound like you’re terribly concerned about the state of morale nowadays and retention?

A: We have as a company always had extremely low turnover. If you want to write software that’s going to make millions of people more productive, there’s no place like Microsoft.

You want a place where the research group is the best in the world, and the way we do product development on software is the best in the world — that’s Microsoft. And compared to any other type of job, these are the most interesting jobs.

Q: Could you talk about the timing of Longhorn? It was originally going to be done in 2005. Do you consider it late at this point?

A: No. It’s good for us to give guidance about where we’re going and what we’re doing. (With) software products, you never want to say it’s only the date, because you want to get certain features in, you want to get certain quality in, and that’s the most-important thing.

Yet you want to give people a certain sense so they can plan where it’s going to be. Longhorn’s been an ’06 product for a long, long time. As soon as we knew what sort of features we were doing, it’s been an ’06 product.

But no matter what happens to the schedule, it represents a huge amount of R&D and we think we’ll get out in ’06, but our top priority is that it be a breakthrough, super-high-quality release.

Q: How much will this nip security issues in general?

A: There will always be bad people in the same way that many things are moving to the digital domain. So we’ll never be able to say that nobody ever pretends to be somebody else online, that there are no businesses that are frauds sometime.

What we can do is give the user the advantage of the power of software and do it in a more automatic way where you don’t have to think so much about it. You’ve seen some of that with spam. We’ve got more to do on spam but we’ve made good progress. You’ve seen it now on the identity — the whole way the user identifies themselves, knows whether they’re going to a legitimate Web site. …

The issues get better, and that lets people feel comfortable in taking advantage of the new capabilities. But security is the biggest single item in every development project we do, including Longhorn.

Brier Dudley: 206-515-5687 or

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