Gates: Free IE helped browser competition

Bill Gates, speaking at a conference dubbed "Innovation and Opportunity in the Digital Age," said his decision to integrate Microsoft's browser into the Windows operating system was a "pro-consumer" move, since it ensured that revenue generated from Internet ads would pay for the browser, rather than higher prices for Windows.

"The notion that you can't stay in business when the browser is free has been answered resoundingly, since our move brought more competition to the browser market, certainly with [America Online] paying billions [of dollars] to buy Netscape," Gates said.

The Redmond, Washington-based company is in the midst of an antitrust suit in which the Justice Department (DOJ) and 20 states contend the company used its predominant position to try to corner the market for Web browsers. Microsoft denies the allegations.

"We feel strongly at this point that innovation will be upheld," said Gates, referring to Microsoft's bundling of its browser technology into its dominant operating system. "But this kind of lawsuit is something no one should have to go through.

"We are in a business that is very, very competitive, so there's a lot of ironies from having the distractions of a government lawsuit--particularly one that seeks to restrict our ability to innovate our products," he added.

Gates said that government does have a role in technology, but more as a model of how technology can streamline an organization.

"But the government does not need to set technology standards," he said, citing an example where the government dictated standards for high-definition TV. "These formats were obsolete, and in this case the [Federal Communications Commission] did the right thing" by setting the parameters without demanding exactly what format would get used.

Gates during his speech questioned where the company he cofounded will be 20 years from now.

"What we can say for sure is that today's operating systems, including Windows, will not sell at all in three or four years," Gates said. "People's expectation of what operating systems will do will change."

He said consumers will begin to expect speech recognition and fewer complications.

"The question is whether I can obsolete my own product or whether someone else will," Gates said.

Linux, the freely distributed Unix-like software, is now considered a serious alternative to Microsoft's Windows franchise. Another player on the field is Sun Microsystems' Java language.

"While we can say with some certainty that Coke will lead the drink industry 20 years from now, if you want to guess who will lead in the operating software system business, you might pick us," Gates said. "But you would have to give us pretty low odds because between now and then...we'll have to really reinvent the nature of the product."

Microsoft, Gates claims, is spending upwards of $3 billion per year in research and development to try to keep ahead of the competition.

Microsoft faces competition from companies that are forming alliances in order to compete with the software giant on a daily basis, "sometimes with the help of outside encouragement," Gates said, referring to the government's antitrust lawsuit.

Gates added that the personal computer model versus the network computer model has been settled and he crowned the PC as victorious.

He said that PC users can pick their hardware and also buy software from different manufacturers, while Sun makes both the hardware and operating system. He pointed to the higher prices for Sun's systems and the continually dropping PC prices as a sign of how PCs are emerging ahead.

"This is great for computer buyers and Microsoft is doing what it can to accelerate [falling prices], while Sun is doing everything it can to decelerate that, including coming up with catchy slogans," said Gates, referring to Sun's "the network is the computer" slogan.

The conference was conducted by the Manhattan Institute Forum, a nonprofit education and social policy think tank.