•You will hear a conversation between Brenda Schlender, an editor from Fortune and Bill Gates, Microsoft’s chief architect. •For

You’ve said you’re excited about what’s going to happen in the home over the next few years. Why?
First of all, the videogame machine will advance enough to have the ability to do what TiVo does: record your TV programs. You will also be able to talk to people while you play. And it will be a companion to the PC. If you want to listen to music while you play you won’t have to go rip the same content on multiple different devices.  You’ll just have all the family music available on the home network, no matter where it is.
Do you expect the equivalent of a home server to handle most of the content?
There will be hard disks in multiple places: on your PC, on your TV, and perhaps a home server, but they will be organized and displayed to you so that it seems like you have one big disk to pool everything. The home server is advantageous in that it’s a machine that you would leave on 24 hours a day and would always be accessible by any device -- your stereo, your TV, another computer. In fact what most people will probably do is designate one normal PC to be on all the time to manage the storage for everything else.
How soon is that coming?
Certainly within three years. And hopefully that will reignite PC sales into the home in this country.
Your most recent results revealed just how immensely profitable your operating system and PC applications businesses are, but also that you’re losing money in most of the newer markets you’re entering. Can Microsoft successfully broaden itself beyond its core business?
It’s very possible to have a situation where Microsoft is delivering lots of breakthroughs to customers that don’t map into increased profitability. Fortunately, we can afford to be patient and take chances. What we now call the "information worker" business, which is mainly Office, is very profitable, but it will have to change a lot going forward in order to keep growing, and not just in terms of changing the pricing model to a subscription model. We have to take a broader view of what productivity software actually is beyond word processing and spreadsheets and presentations.
So it’s not like the Office business unit that has hit any limit. The goal is to come up with software to make information workers more productive: helping them manage their schedules, prioritize their events, understand the business processes they participate in, and keep their information secure. And we are nowhere near that yet. Some of it is hard, but, the good thing is that it is just a kind of software overlay on companies’ existing investments in networks and data storage, so it will cost at most a few hundred dollars per information worker to dramatically improve the quality and the efficiency of handling these everyday processes and tasks.
What about your money losers?
If you take the four businesses where we’re losing money -- business solutions, which are enterprise software for small business, the Xbox, MSN, and mobile platforms like PDAs and smart cellphones -- we do have a three-year track, and in one case a four-year track, to where they all become profitable. That doesn’t mean that we’re proud of losing money, but it isn’t like what we’re thinking, "Oh, my goodness, we thought we would be making a profit by now.
Take mobile as an example. Until it’s a scale business until, say, 20 million cellphones and PDAs a year have our software -- we don’t expect to make money. We are doing our R&D investment at a level that assumes quite modest royalties, actually, and it takes time to get to that -- and we may never get to it. But we know we’re one of very few companies that are investing deeply, and, well, 20 million is in some ways kind of a modest goal.
Is your interactive TV business one of those?
Well, certainly the TV business has been in that mode. We assumed certain things would happen in the cable industry that did not happen, so now we have to go back and target one set-top box that is less capable than we had expected and another one that is more capable. I guess that’s a good example of a mistake where I made the wrong assumption and told the group to design for the wrong specification.
Otherwise you seem pretty upbeat these days.
Well, for this decade, I’m very optimistic across several different domains. Will the job of the IT person be dramatically improved? Will he be spending less on everything to get the same result and more? And will we continue to make the kind of improvement to make date centers run automatically and keep software up-to-date and secure? Those are hard problems, but they’re going to be solved.
Then there’s the business dimension: Will business transactions become fully automated no matter what the location -- big business or small -- in order to match up buyers and sellers? Certainly over the course of this decade we will get there.
In your opinion, how should people deal with relations inside a company?
One of the interesting boundaries inside a company has always been between back-end systems like ERP or CRM software and the knowledge workers sitting at their desks living in a very unstructured world of phone calls, faxes, and e-mails. A business transaction between two companies actually involves at least four dimensions: The knowledge workers in Company A talking to knowledge workers in Company B, and these same knowledge workers on both sides also interacting with their own back-end systems. So we really have to understand these boundaries both within a company as well as between buyers and sellers. That’s what web services are all about. We get some credit for kicking the thing off and pushing it, but IBM has come in a very wholehearted way. It couldn’t be done without these standards we’re all working on.