Gates touts new version of CE, hints at Windows update

Speaking at the Consumer Electronics Show here, Gates outlined a new version of Windows CE, the company's beleaguered operating system for handhelds, in a keynote address long on gee whiz predictions about the home of the future, and short on details of how Microsoft hopes to participate in a connected world.

As expected, Gates announced several new initiatives, including an updated version of Windows CE called Pocket PC and other technologies.

The big question is whether Microsoft can gain a footing in the fast-growing market for handheld devices. The popular information appliances are increasingly figuring in high-tech companies' plans for online goods and services. Despite Microsoft's marketing heft and predictions that its arrival into the market would decimate rivals, Windows CE has failed to gain much momentum.

Pocket PC, formerly code-named Rapier, contains new features such as the capability to read electronic books through an application called Microsoft Reader. Earlier today, Microsoft said it will form an alliance with Barnes and Noble for electronic books, an area that the retailer has actively been exploring. Microsoft has scheduled an announcement for tomorrow morning.

Pocket PC will be the first software from Microsoft to use ClearType technology, which renders fonts easier to read. Also new on Pocket PC devices: support for Windows Media Player, which plays digital music stored in files formats like MP3. The Media Player software has been gaining ground against RealNetworks.

In addition, Gates said that the next release of the consumer-oriented Windows 98--code-named Millenium--will contain Microsoft Movie Maker for video editing. Like Apple's digital video editing software, included on the higher-end iMac computers, Movie Maker will be designed to allow users to store 23 hours of video per GB of hard drive room.

Digital media and software and standardized Internet technology will enhance communication and entertainment and simplify everyday tasks, the Microsoft leader predicted. "It's a revolution in consumer electronics," Gates said.

"The bottom line is, it's a great opportunity--a whole new generation of products," Gates said.

Joined by a Microsoft product manager, Gates demonstrated a MSN Web Companion manufactured by Compaq, AutoPC running on Windows CE and a smart cell phone. Turning to multimedia, Gates used the WebTV box from Echostar as a harbinger of upcoming digital television technology, including digital video recording options.

Universal Plug and Play, Microsoft's home networking software, will act as the glue to network all these disparate home appliances, entertainment systems and computers.

"I actually live in a home like that and it really works," Gates said. "It's a lot of fun."

Connecting home appliances to the Internet offers another benefit, Gates said: bug fixes. As devices and products became more laden with software, they too will benefit from downloadable repairs and updates, like WebTV and desktop Windows users already have access to. Internet-connected products will further enable e-commerce, he said.

Introduced by the president of the Consumer Electronics Association, Gary Shapiro, Gates addressed the audience of consumer electronics buyers and company representatives in what was billed as a Millennium Keynote. Dressed in his trademark v-neck sweater and button down shirt, he began by asserting the millennium rollover "was smooth sailing" and that it's "time to look ahead."

The Consumer Electronics Show is uniquely suited to address convergence between and among electronics devices, computers and software, Gates said, because it has historically been the place where companies that manufacture traditional home products like televisions, stereos and video devices have shown their wares. These appliances are now converging with PC components to offer the benefits of digital technology to home entertainment.

"It's not simply putting everything on the Web," he said, noting that ideal convergent devices will be portable, limited in function, personalized and simple to use. "With a little bit of software management, you can make it an environment where you can actually control things" more than in the past, he said.

Such gadgets and devices will run the entire spectrum, from palm-size to "classic PCs" to big-screen televisions, all connected via a home network. More typical appliances like washing machines and stereo speakers will also be connected on this digital network, he predicted, not for the first time.

Gates, speaking on a stage filled with living room furniture, cited some statistics to back up this much-touted convergence. Over one third of college users are playing and downloading digital music, he said, while half of all U.S. households keep their TV and PC in the same room. Statistics about college students are especially telling, he asserted, because students have historically been at the forefront of technology trends.

Convergence does not only apply to technology, apparently. Lending credibility to the assertion that Microsoft's creative energy has been sapped by Y2K and antitrust lawsuits, Gates reran the same humorous videos he played at Comdex. Perhaps Gates' PowerPoint presentation was hit by the Y2K bug, one audience member smirked.

Not all of the audience was amused, though. "People need a company they can count on," one panelist in Gates satirical video said. "Like Apple!" an audience member shouted in reply. "There's a lot of room for improvement," Gates conceded at the end of the video.

Meanwhile, CEA's Shapiro, in a not so subtle swipe at an antitrust lawsuit Microsoft is facing, asserted that "any country in the world" should be happy to be home such a "jewel" as Microsoft. That was the only explicit reference to the landmark antitrust case the software maker is defending itself against.

Bloomberg contributed to this report.