Q&A with Bill Gates: Microsoft's pushing its frontiers

REDMOND, Wash. -- Eight months from quitting his day job to focus on philanthropy, Microsoft MSFT Chairman Bill Gates remains enthusiastically engaged in promoting the software giant's many new business initiatives. Gates is doing all he can to help Microsoft secure a foothold in digital entertainment, mobile devices and new Internet services, such as IP telephony and IPTV. He sat down this week with USA TODAY reporter Byron Acohido to explain why.

Q: What's the coolest thing about the upgraded Zune?

A: Look at this thing! (Holds up a Zune 8) Three or four years ago there was nothing like this. This is cool as heck. I'm finding music I haven't seen in 20 years. Hey, the Lovin' Spoonful? They're in this thing. I find one of their songs. I send it to friends I had an apartment with, it was actually 30 years ago. I can send it out to them and say, "Remember when we listened to this?" It's amazing.

Q: Up until last year, you and your hardware partners were pitching 70 different portable music devices. What persuaded you to change?

A: In the video game and music player markets, the experience is about everything working end to end. We decided this was going to be more important in this category than anything else. So we made a choice to use the Xbox approach for our music player, where we take the full responsibility for the entire experience. And obviously Apple was using that model (for the iPod).

Q: Taking the Xbox approach makes sense, since Xbox 360 has surpassed Sony's PlayStation 3. Sony is no Apple when it comes to marketing pop culture icons.

A: Once upon a time a statement like that would have been considered heresy. It's great to have a very capable competitor. This is a category where you can have two very successful companies. I think there will be a temptation for people who have older devices to buy newer devices. So we expect some people who bought from us or Apple in the past will go in and be part of the marketplace of buying these devices.

Q: What are short-term expectations for Zune?

A: We expect the satisfaction on the software to be dramatically higher this year than last because we made some big breakthroughs. We think we'll grow the market even more. Certainly the retailers are thrilled by what we've got here. One of our challenges will be making sure we can manufacture to the demand we expect.

Q: Shifting topics a bit, after you announced the $6 billion acquisition of (Internet ad agency) aQuantive, (Microsoft CEO) Steve Ballmer stated that the whole future of media and advertising is moving to the Internet. That's a bit scary for newspaper publishers.

A: I certainly agree with Steve. As you get more of these small portable PCs, ultra-mobile type, the amount of reading that's going to take place off the (computer) screen, over time, will be greater than off of paper. Given how few young people actually read the newspaper, it's a good thing they'll be reading a newspaper on a screen. That's where your publisher will get his value and opportunity to have advertising more targeted and, hopefully, more valuable over time. Driving up the value of the advertising is a big commitment for Microsoft.

Q: So how does Zune and things like Office Live, Xbox Live and Windows Mobile fit into this?

A: We were founded on believing in the magic of software. We've managed in terms of hiring people and having development tools and research groups that keep pushing the frontiers for us. We've become the pre-eminent software company. It really speaks to how powerful our original vision was that software has become the center of experiences like listening to music, sharing music, watching TV, playing video games. It all connects through the magic of software.

Q: Hackers continue to attack Windows, Internet Explorer and Office. How big a concern is security as we move deeper into Web 2.0?

A: We've made a lot of breakthroughs in how we make ourselves secure. But it'll continue to be a huge area of investment. To the degree that the bad guys do things digitally … you just have to keep making improvements.

Q: As you head off to your next career, how do you react to critics who say Microsoft has become too big, too bureaucratic, too political, too slow to innovate?

A: One thing I've always loved about the culture at Microsoft is there is nobody who is tougher on us, in terms of what we need to learn and do better, than the people in the company itself. You can walk down these halls and they'll tell you we need to do usability better, push this or that frontier.

Q: So what shape will Microsoft be in when you leave?

A: We're stronger today than we've ever been as a company. Our worldwide breadth, the success of our products, our sales, our profitability, our balance sheet and — perhaps most important — the depth of talent is greater than it has ever been.