A folksy Gates predicts Microsoft's future

Microsoft CEO Bill Gates has told a European audience that his worst nightmare is to watch Microsoft sink into mediocrity. Even if Microsoft remained a 'cash cow' but 'sank under the waves' to become just another software company, Gates said his life's work would have meant hardly anything. And if he was a 25-year old entrepreneur out there today fighting to get recognition in the software market? He would go it alone and not try to partner with Microsoft, Gates claimed.

What is Microsoft chairman and CEO Bill Gates' biggest fear these days?

Amid what is probably one of the most trying periods in Microsoft history as the company gets set to defend itself against antitrust charges in U.S. , Gates told a crowd of technology business people at the ETRE (European Technology Roundtable Exhibition) conference that his worst nightmare is to watch Microsoft sink into mediocrity. Even if Microsoft remained a "cash cow" but "sank under the waves" to become just another software company, Gates said his life's work would have meant hardly anything.

"I worshipped Digital when I was a kid," Gates said. But when he finally met the founders of the company later on, he realised the company had already been eclipsed and was no longer a star, Gates said. "We [Microsoft] don't want to live through that," he said.

In an uncharacteristically relaxed and friendly delivery, Gates gave predictions about what future versions of Windows would contain, gave some advice to startup software companies and took a few shots at rivals IBM and Sun Microsystems He had the crowd laughing about his future at Microsoft, which he says will include him "puttering around writing a bit of code" while a young CEO heads up the company's direction. He also said that he can't see how Microsoft could grow to be any bigger than twice its current size, but got another chuckle when he said it "would be nice" to make a few more billion dollars.

"The higher you get the farther there is to fall," Gates said. From where the company stands today, Gates said he could see it growing to be worth double its current value, but couldn't imagine it quadrupling in size. "I just can't see it from where I'm sitting," he said. "Just because something is in a Windows box doesn't mean it will be successful."

Where will Microsoft be in 10 years?

First of all, it won't be developing applications directly for the ERP (enterprise resource planning) arena, Gates said. While Microsoft Office and back-end ERP systems from vendors such as SAP AG will "get much closer together," perhaps with Office acting as an interface to the information on ERP systems, Microsoft won't become an ERP vendor, he said. Microsoft hopes to collaborate closely with ERP vendors to develop Office in this manner, Gates said.

"My definition of Office is much broader than people may expect, but nothing we are doing will be ERP," Gates said.

In addition, Microsoft won't go after the IT services sector, Gates said. While the company will continue to support customers and help them integrate Microsoft products into their companies, Microsoft won't become a services company in the way that Compaq is aiming to do with its Digital Equipment acquisition, Gates said.

By focusing on high-volume software as its main goal, Microsoft will be able to outpace companies that focus on "software and something else," Gates said, adding a criticism of IBM's plan "to do software and everything else." As IBM focuses on capturing the services market, it will lose out on having partners to offer its software and hardware products, Gates said. IBM's strategy has already caused Lotus Notes to be eclipsed by Exchange, which is distributed by many Microsoft partners, Gates added. Gates also criticised Sun's strategy by calling it "high price and low volume."

Microsoft's approach of having partners that offer its products in conjunction with their own services will continue to be the company's strategy into the future, Gates said.

Gates also made predictions about how Windows will look in the future, but didn't predict when these features would appear, adding jokingly that Microsoft sometimes has had problems "assigning release dates to products."

In the near future, Windows will include an "object store" that will allow information to be stored on a device as small as a mobile phone and as big as a server, Gates said. It will function in a way that it makes the information stored there mobile and globally accessible over the Internet, so that people can essentially take their desktops with them, he said. In addition, Windows will include speech and handwriting recognition technologies.

Other predictions for the Microsoft of the future include internationalising and compartmentalising product development, Gates said. For now, he prefers to keep almost his entire development team in Redmond, but could consider "assigning one of the big three products to a non-Redmond lab" down the line. This would only happen if Microsoft grows much larger, Gates said, adding that he would hate to see a bunch of Microsoft labs across the world with differing agendas, such as IBM has today, he said. "But we aren't as big as IBM yet," he said.

One step Microsoft plans to take in the very near future is to open a research lab in China, Gates said. The company has already been very happy with the research lab set up in Cambridge, England, last year and would like to have one in Asia as well, he said. Microsoft has a person in mind to head up the China lab, but Gates wouldn't name names or give an opening date for the lab.

And what would Bill Gates do if he was a 25-year old entrepreneur out there today fighting to get recognition in the software market? He would go it alone and not try to partner with Microsoft, Gates said.

"The world is yours," Gates said. "Go out and do it on your own. If you want to be safe, this is the wrong business."

Nice advice, perhaps, but at least one attendee found Bill's optimistic and cheerful mood a bit jarring.

"Maybe if the advice to go out on your own wasn't coming from someone who owns 95% of the desktop environment, then I could see how it would be sound advice for young entrepreneurs," said a CEO of an electronic commerce startup, who asked not to be named.

In a panel later in the afternoon entitled "Microsoft: Evaluating the Empire," several speakers from other software companies critiqued Gates' talk.

"Microsoft is an incredibly aggressive company," said Edward Iacobucci, founder and chairman of Citrix. Now that so much attention is being paid to these aggressive tactics, Microsoft is going to have to be a nicer, different sort of company, and Gates' friendly tone in the speech is a step in that direction, he said.

John Gage, chief scientist at Sun, had more scathing remarks about one of his most formidable competitors. "Gates is growing up and that's a good thing for all of us." The legal skirmishes Microsoft is now involved in with the DOJ and with Sun are a result of Gates "acting like a spoiled adolescent" over the past few years, Gage said. The reason Gates came across so positively today likely has to do with the fact he has been trained to act civil and answer questions in a straightforward manner by his legal advisors, Gage said.

Whatever his position of power today, Gates was humble enough to admit that all of Microsoft's products would be obsolete in three to four years, just like any software products on the market today.

In this respect, Gage agrees. "I think Sun and Microsoft will be totally changed in the future," Gage said. "You can take half the people at Microsoft and half the people at Sun and write them off," because the operating systems and applications of the future will look nothing like what they are working on today.

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