Bill Gates - The Road Ahead

Consumer electronics has also benefited from standards managed by private companies. Years ago consumer electronics companies often tried to restrict competitors from using their technology, but now all of the major consumer electronics makers are quite open to licensing their patents and trade secrets. The royalties for their products are typically under 5 percent of the cost of the device. Audiocassettes, VHS tapes, compact discs, televisions, and cellular telephones are all examples of technologies that were created by private companies that receive royalties from everyone who makes the equipment. Dolby Laboratories’ algorithms, for example, are the de facto standard for noise reduction.

In May 1990, the last weeks before the release of Windows 3.0, we tried to reach an agreement with IBM for it to license Windows to use on its personal computers. We told IBM we thought that although OS/2 would work out over time, for the moment Windows was going to be a success and OS/2 would find its niche slowly.

In 1992, IBM and Microsoft stopped their joint development of OS/2. IBM continued to develop the operating system alone. The ambitious plan for OfficeVision was eventually canceled.

Analysts estimate that IBM poured more than $2 billion into OS/2, OfficeVision, and related projects. If IBM and Microsoft had found a way to work together, thousands of people-years—the best years of some of the best employees at both companies—would not have been wasted. If OS/2 and Windows had been compatible, graphical computing would have become mainstream years sooner.

The acceptance of graphical interfaces was also held back because most major software-applications companies did not invest in them. They largely ignored the Macintosh and ignored or ridiculed Windows. Lotus and WordPerfect, the market leaders for spreadsheet and word-processing applications, made only modest efforts on OS/2. In retrospect, this was a mistake, and, in the end, a costly one. When Windows finally benefited from a positive-feedback cycle, generated by applications from many of the small software companies, the big companies fell behind because they didn’t move to Windows fast enough.

Windows, like the PC, continues to evolve. Microsoft has continued

to add new capabilities to various versions. Anyone can develop application software that runs on the Windows platform, without having to notify or get permission from Microsoft. In fact, today there are tens of thousands of commercially available software packages for the platform, including offerings that compete with most Microsoft applications.

Customers express to me their worry that Microsoft, because it is, by definition, the only source for Microsoft operating-system software, could raise prices and slow down or even stop its innovation. Even if we did we wouldn’t be able to sell our new versions. Existing users would not upgrade and we wouldn’t get any new users. Our revenue would fall and many more companies would compete to take our place. The positive-feedback mechanism helps challengers as well as the incumbent. You can’t rest on your laurels, because there is always a competitor coming up behind you.

No product stays on top unless it is improved. Even the VHS standard will be replaced when better formats appear at reasonable prices. In fact, the era of VHS is almost over. Within the next several years we will see new digital tape formats, digital movie discs that put feature films on discs like a music CD, and eventually the information highway will enable new services such as video-on-demand, and VHS will be unnecessary.

MS-DOS is being replaced now. Despite its incredible strength as the leading operating system for personal computers, it is being replaced by a system with a graphical user interface. The Macintosh software might have become the successor to MS-DOS. So might OS/2 or UNIX. It appears that Windows has the lead for the moment. However, in high tech this is no guarantee we’ll have it even in the near future.

We have had to improve our software to keep up with hardware advances. Each subsequent version will only be successful with new users if current users adopt it. Microsoft has to do its best to make new versions so attractive in terms of price and features that people will want to change. This is hard because a change involves a big overhead for both developers and customers. Only a major advance is able to convince enough users it is worth their while to change. With enough innovation it can be done. I expect major new generations of Windows to come along every two to three years.

The seeds of new competition are being sown constantly in research

environments and garages around the world. For instance, the Internet is becoming so important that Windows will only thrive if it is clearly the best way to gain access to the Internet. All operating-system companies are rushing to find ways to have a competitive edge in providing Internet support. When speech recognition becomes genuinely reliable, this will cause another big change in operating systems.

In our business things move too fast to spend much time looking back. I pay close attention to our mistakes, however, and try to focus on future opportunity. It’s important to acknowledge mistakes and make sure you draw some lesson from them. It’s also important to make sure no one avoids trying something because he thinks he’ll be penalized for what happened or that management is not working to fix the problems. Almost no single mistake is fatal.

Lately, under Lou Gerstner’s leadership, IBM has become far more efficient and regained both its profitability and its positive focus on the future. Although the continuing decline in mainframe revenues remains a problem for IBM, it will clearly be one of the major companies providing products for businesses and the information highway.

In recent years, Microsoft has deliberately hired a few managers with experience in failing companies. When you’re failing you’re forced to be creative, to dig deep and think, night and day. I want some people around who have been through that. Microsoft is bound to have failures in the future, and I want people here who have proved they can do well in tough situations.

Death can come swiftly to a market leader. By the time you have lost the positive-feedback cycle it’s often too late to change what you’ve been doing, and all the elements of a negative spiral come into play. It is difficult to recognize that you’re in a crisis and react to it when your business appears extremely healthy. That is going to be one of the paradoxes for companies building the information highway. It keeps me alert. I never anticipated Microsoft’s growing so large, and now, at the beginning of this new era, I unexpectedly find myself a part of the establishment. My goal is to prove that a successful corporation can renew itself and stay in the forefront.

When I was a kid, The Ed Sullivan Show aired at eight o’clock on Sunday nights. Most Americans with television sets tried to be home to watch it because it might be the only time and place to see the Beatles, Elvis Presley, the Temptations, or that guy who could spin ten plates simultaneously on the noses of ten dogs. But if you were driving back from your grandparents’ house or were on a Cub Scout camping trip, too bad. Not being home on Sundays at eight meant you also missed out on the Monday-morning conversations about the previous night’s broadcast.

Conventional television allows us to decide what we watch, but not when we watch it. The technical term for this sort of broadcasting is “synchronous.” Viewers must synchronize their schedules with the time of a broadcast sent to everyone. That’s how I watched The Ed Sullivan Show three decades ago, and it’s still how most of us will watch the news tonight.