Gates taking a seat in your den

Microsoft's chairman chats with CNET just before CES about his company's consumer push--and why he hasn't done a blog yet.

LAS VEGAS--Bill Gates is coming to your living room, whether you like it or not.

Microsoft's chairman is setting the company on a course to provide software and tools that will allow different forms of entertainment to blend. Messaging will become a crucial part of Xenon, the code name for the next Xbox. Microsoft will also work with television outlets like the Discovery Channel and MTV Networks to create tools for delivering content, as well as advertising, into the home.

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Bill Gates, chairman, Microsoft

Its eyes ever set on the competition, Microsoft will continue to raise the stakes against Apple Computer in the music industry and against Google and Yahoo in search.

Meanwhile, Microsoft Research is working on ways to reduce the cost of getting people in emerging nations hooked on the Internet. One idea: Mesh networks that will let several families share connections.

Gates spoke with CNET on the eve of his keynote speech at the Consumer Electronics Show in Las Vegas about Microsoft's consumer plans, the convergence of entertainment technologies--and why he hasn't done a blog yet.

Q: The industry's been talking about convergence for years. The first products have come out, so what's next? Interoperability--is that the next challenge?
A: Well, there's a lot of that going on. For us, the key convergence product is the Media Center PC, which is the idea of that single remote control giving you the best TV experience, music and photos but also the full power of the PC, and we've got lots of partners who keep signing on to Media Center and doing neat things. We'll show some Discovery Channel stuff in the keynote. We have a new relationship with MTV where they're using our rights management and formats, and we're connecting it to the Media Center.

Apple is a company that's had three hits, and that's very impressive. There are a lot of companies that don't have three hits.

And so there is growing momentum with partners, growing momentum with the hardware. The price of Media Center PCs came down a lot, which is partly why we were able to double our sales this holiday. We've got some new remote controls from Philips and others.

And so you fill out the ecosystem, you get the people who install these systems to understand how they do the customization, you get the word of mouth going, and so I'd say we feel great about where sort of the centerpiece convergence device is and the peripheral things happening around it.

How are the different entertainment and media industries going to be affected by these changes. For instance, it seems like advertisers are really impacted.
Well, there's a thing that we can do for the advertisers that is critical for them, which is to allow the advertising to be targeted. That's what you've seen with our IPTV (Internet Protocol television) effort--companies like SBC Communications signing up for that--and we've got BellSouth as a new partner there. With that infrastructure, even for people watching the same show, you can insert just in a perfect way an ad targeted to that individual.

And the value of targeted advertising is really twofold. First, it means that the person is less likely to want to skip the ad, and second of all, it means the chance that they'll actually do something--buy something.

And so the new TV infrastructure will be about very targeted advertising. Advertising is taking on new forms. Obviously, in the search space, we're doing neat things with advertisers. No doubt, it's not going to stay the same as it is today.

What changes does this mean for Microsoft? Do you see yourself becoming, let's say, more of a seller of content?
Well, the most explosive piece of content this holiday season was "Halo 2." We sold 6.3 million copies, we've had 69 million hours of online game play. And so is Microsoft a content company? Well, I'd say "Master and Commander" is good--people have talked about how the story made them cry--that's content, but it's also software.

The boundary there has always been a bit gray. Our main role is to provide the platforms and the tools, and simply partner with the content companies like MTV and let them do what they're good at. It's mainly in this interactive realm that we need to come in and do some complete content ourselves.

One of the big phenomena of the year has been blogging. Has the growth surprised you?
Well, actually I think the biggest blogging statistic I know, which really blew me away, is that we've got close to a million people setting up blogs (Web logs) with the Spaces capability that's connected up to Messenger.

We didn't do Xbox just to do a video game, we did it to be part of our vision of the digital lifestyle, and with the next generation, we really get to go there.

Now, with blogs, you always have to be careful. The decay rate of "I started and I stopped" or "I started and nobody visited" is fairly high, but as RSS (Really Simple Syndication) has gotten more sophisticated and value-added search capabilities have come along, this thing is really maturing.

And we've done some things in Japan and Korea that are unique blog experiments. The Spaces thing is a worldwide effort. It's a great phenomena, and it's sort of built on e-mail, and so we need to integrate more blogging capability into the e-mail world--and as we do the next generation of Outlook, you'll see that. We need to integrate it more into our SharePoint, which is our collaboration Office platform, and then, as I discussed, MSN is embracing it so that instead of thinking about, "OK, I go to one community to do photos, one community to do social networking, one community to do this," we say, "Hey," off of Messenger, which has got your buddy list already, then, "Let's let you do the photos and the social networking and everything--but starting in an integrated way off of Messenger."

Which ones do you read, if any?
Well, it's interesting, I get a lot of people--and this is very typical for me--I get people who are forwarding things on to me, so I sort of have

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