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Microsoft: Fighting back

Ina Fried and Michael Kanellos CNET News

Published: 06 Jan 2006 16:45 GMT

Microsoft has some catching up to do.

It's not a phrase you hear every day. But whether it's Apple's iTunes-iPod combo or Google's advertising engine, the software maker's top executives readily admit that they are coming from behind.

In a rare joint interview ahead of the Consumer Electronics Show in Las Vegas, Microsoft Chairman Bill Gates and chief executive Steve Ballmer outlined their plans to catch their rivals and discussed why it's Sony that will have to play catch-up in the video console wars.

On the Windows side, Microsoft's dynamic duo ticked off several reasons why they think consumers won't want to skip Vista, the next version of Windows. And while some software may shift to an ad-supported model, Microsoft's honchos cautioned that Windows is not likely to become a free download anytime soon.

On a lighter note, the two also shared the inside scoop on what they — and their families — are playing on the Xbox 360, Microsoft's game console.

Q: Obviously, with any release of Windows, one of the big challenges is, how do you convince the average consumer that this is something they're going to want? What are the things in Vista that you think will kind of hit home for that initial sale?
Gates: Well, Vista will be pretty strong in that respect. [It's] just the way we've integrated the search pervasively in the user interface; the way you can tag things easily and find them — tag photos, tag music, rate music and photos; the zippiness of the user interface, taking advantage of the DirectX advanced graphics capability.

You know, we've always had a mix of new Windows OSes, of people who get it when they buy a new machine. Because if we do our job right, we get manufacturers to shift over and have that very quickly on all the new machines, and we get people upgrading into the existing machines.

Ballmer: And that will certainly happen this time in terms of people — the [computer makers], consumer OEMs will have that thing day one.

With previous releases, the upgrades were mostly new computers sold with the latest version, correct?
Ballmer: Numerically, that will be the dominant factor this time, too.

Gates: Because in the installed base, it's the most active 20 percent who are willing to upgrade an OS. For a lot of people, that new machine is when they do [upgrade].

You know, you could get 40 percent of the features of Vista, if you went out and got our Windows desktop add-on and latest IE add-on, the latest Media Player add-on and Defender add-on, and all that. You could cobble it together. There are a few people who have, but it's a very small percentage.

Windows Live and Office Live — those complement what Microsoft already sells or repackage some of the online stuff you already do. Do you see a need or a desire to have ad-supported versions of the kinds of software you're best known for, things like Works or Money?
Ballmer: You get a hybrid thing happening with Money. Money is a good example today. This is a packaged product which is not ad-funded. There's an online site, which obviously has advertising as a mainline ingredient.

I think what we'll get is a combination of rich client experiences and service experiences and a mixture of advertising, subscription and transaction — traditional bought stuff. I don't see our...

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