Last modified: October 3, 1997 7:55 PM PDT

Gates: Why is Windows so cheap?

This week, Microsoft CEO Bill Gates hit San Francisco for the official launch of Internet Explorer 4.0 and sat down with editors at CNET's headquarters to talk about software, standards, and market strategies.

Does the AOL purchase of CompuServe change your goals with MSN?
Oh, they don't make much money. It's not like some model of "Oh, hey, you just do the data--you'll make a lot of money! Now, how much?" No, I think their purchasing CompuServe is interesting. It gives them the big number. It makes us No. 2 clearly. They're a very strong No. 1 in terms of just numbers...I would say it changes our strategy.

Bill Gates
All things Microsoft: CEO Bill Gates in a CNET interview.

But they haven't made a dime in 12 years or as long as they've been in business. How long will you go investing in MSN and some of these online ventures before you pull the plug?
Well, I have a longer time horizon than most other players in the market. So as long as I think that the net present value of the activity is a significant positive number, the fact that the near-term years are negative numbers doesn't bother me. I'm going to be here in ten years. But if I decide that the net present value summed all over those years is never going to work out, then hey, why do the thing?

I have two measures for the people who do interactive stuff: Are you No. 1 or No. 2 and if you're not, then I don't think No. 3 or No. 4, no matter how many people are there and all, I don't think they're going to do that well. And is your category developing enough that it's going to be a significant category? So some of the things that we're doing in that area I'm sure will be quite successful and then some of them may not be.

Will it take you ten years do you think?
I don't see any of them that will take ten years at this point.

When do you think that technology for WebTV will be acceptable, that a lot more consumers will go out and buy it? Is it a year?
I think we're going to have a big Christmas this year. But when you talk to the people who use WebTV, they're very enthused. Or when you talk to people...say I've got a relative, all they want to do is email and I'm going to get them set up on WebTV. There's this very strong reaction to the product. And so I think it's ripe to do very well. Last year it was a totally new product category. We had to get the distribution going--it wasn't us at the time, it was just WebTV as a small company. Now they've got the Microsoft brand. We're going to put quite a bit more marketing behind it. We've got Sony and Philips and now Mitsubishi will have a product this year.

So I can virtually guarantee we'll do twice as much this Christmas as last year. Will we do four times as much? Five times as much? That's hard to say. It's the word of mouth spreading and how people see the product fit-in. So we think this year there will be a big uptick and then the next year after that...It's not just at Christmas, but it will share the same kind of seasonality that home PCs do or a little bit greater.

Do you see Java to be a bigger competitive threat than Navigator/Communicator?
Well, we're the most successful provider of Java tools in the marketplace. Visual J++ is doing extremely well. In terms of performance, debugging, rich development environment...I feel like our Java guys have done a great job in the marketplaces responding to that.

So Java, the language, we see as an important language. In no sense is that a competitor. Now does it mean C is going to go away? We don't think so. In fact when I was at the PDC [Professional Developers Conference] I said, "Oh, I think C for the group there, that C will continue to be the most popular language." And there's this huge applause. It's like, "OK. Hope you love C. Go ahead, stick with it." So it will be an important language: VB, C, COBOL, and then there's some like PowerSoft, ABAP, that will be there. Delphi as well.

In terms of the notion that people are going to write applications that don't take advantage of an operating system--that's where you see a difference in opinion. When I buy an application, I say "Hey, does it use my security model? Does it use my user interface model? Does it use the clipboard? Does it integrate in with the other applications? Does it use what this platform is fastest [at], does it make the graphics calls that this platform is optimized for?"

So as a buyer of an application that somebody says to me, "No, I'm not taking advantage of anything in your operating system," I'm not sure how strong of a pitch that is. But if they say "OK, well I've got this duplicate operating system I layer on top of that"...Just think Macintosh. For Microsoft, how strong of a pitch was that for the old Mac user to say, "By the way, this application adds nothing specific to the Mac--no balloon help, no color management, none of the user interface guidelines. This application is for me, the developer. I was lazy, and because I wanted it to run on a wristwatch, sure I only used 100K of memory and I only used this much of this much of the screen because, hey, I wanted it to run on a wristwatch, so I don't use this thing."

There's a question of will people write applications that actually use the rich environments: storage, scheduling, graphics--you name it--or won't they. We think they will, whether it's our environment or Apple's environment. Now they can do that in Java and other languages. I wouldn't say it's a big competitor. That's just a question of "Do users want exploited applications?" It's not a competitor. We compete with Solaris now--their volume versus Windows' volume or even just NT volume. It's not huge, but they do sell into a part of the market that we are doing better and better in all the time. And we're quite focused on "OK, what is it that we need to win even more of that business?"

Would you clarify the controversy over the Java licensing. Is it going to end up in court, as Sun says?
Well, Sun took an unusual position because they're sort of not only the brand-name holder of Java, but they're also a competitor of ours in terms of selling operating systems. We've done very good Java implementations. I mean everybody can just look at them--run the test cases, see how they work, see what the speed is. That's the objective data.

The fact that Sun is afraid of us--just go to any of their speeches, they talk about Microsoft. Sometimes they forget to mention Sun. So is Sun thinking about Microsoft? Apparently. Are they thinking friendly thoughts? It doesn't sound like it. You have to ask them. But it's not sounding too friendly. Now does this mean they're feeling some pressure on overpriced workstations? Potentially.

And it's tough, it's tough to compete with a PC model when you say, "We're open," but then it turns out that as soon as you buy one of the Solaris systems, it's very hard to buy hardware from somebody else. Whereas in the PC world, you buy hardware from Compaq today, HP tomorrow, and IBM the next day. Which is open? Which gives you the most choices of applications, which gives you the most choices of peripherals, which seems to be the most competitive in terms of basic system pricing?

And so Sun is in the model of the classical computer companies where the hardware and software are tied together. And we don't represent that model. We're part of the PC model, which is Compaq, Gateway, Dell. Many, many companies are playing in the PC model, which has become a huge part of the computer industry, the majority of it.

What exactly is the issue when they come out and they made these public pronouncements that Microsoft wasn't following the licensing agreement?
Well, I think it's very consistent with everything else they say. They appear to think we're a competitor...and they want to say anything they can. Certainly we're following the license. And if they honestly don't believe we're following the license, at some point they'll describe that to us.


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