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| THE PRESIDENT OF THE STUDENTS ASSOCIATION | Good morning, everyone and welcome to the London Business School. It is my great pleasure, as the President of the London Business School Student Association, to welcome you to this inaugural lecture by our distinguished speaker here at the London Business School. We have probably the most fascinating and one of the best people we could possibly have to launch this series. |
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| In many ways Bill Gates is the epitome of who we inspire to become when we come here to the London Business School, and not necessarily for the reasons you might think! | |
| Most of us in this room might be very pleased to achieve the level of success that Bill Gates has. His value to us as an inspiration goes far beyond that. It stems from the fact that he is a visionary entrepreneur who had the courage to leave school – although I am sure he will not recommend that to us today – and to start a company at the age of 20, to have the prescience to foresee the future of computing but also the managerial ability to build his company and his corporation into the dominant company of its era. | |
| In doing so, Bill Gates and Microsoft have not so much foreseen the future as they have in some ways created it. Today he adds another chapter to that story with his book launch of Business @ the Speed of Thought. He will continue in the effort to describe what we will live in the coming years and decades to come. I look forward to a very interesting conversation with him. | |
| Without further ado, I would like to welcome to the London Business School the CEO of Microsoft Corporation, Mr Bill Gates. |
| (Applause) | |
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| Mr Bill Gates | Good morning, it is great to be here. You did not all have to get dressed up! |
| The most important part of my book tour this week is sitting down with people in business schools and talking about how all of you have an incredible opportunity to change the way that business is done. | |
| This is a great time to be in the world of business. A simple summary of it is that business will change more in the next ten years than it has in the last fifty. The way that people find and match buyers and sellers will be radically different. That is the fundamental mechanism of capitalism and the Internet is bringing a new level of efficiency to it. | |
| The way that information flows inside a company will be different. In the past employees had to work with very little information. They had a creative idea about how to change the product or price it in a new way. They really did not have the foundation to recommend that things be changed. Well, with the digital advances, the cost of doing this the right way and empowering those people has now become very small. | |
| In fact, most companies are already investing in the infrastructure that is required. They are buying PCs, they are connecting them in a network and they have got connections out to the Internet, and yet you still find in those companies paper forms that people have to fill out with redundant information; things where they have to go and visit somebody and stand in line and get something done; cases where the sales data comes out on paper at the end of the month and if you get that piece of paper and look at it, you say, "Well, isn’t that a little higher than we expected? What is going on there?" You cannot dive into it and see it by geography and by a product type, and really come up with a theory about what that means for the business and then mail around the view you created on that data, so that you can collaborate with other people to provide new approaches. | |
| I have had business leaders come to me quite a bit and ask what they should do to adapt to this new age. In some ways they view it as an opportunity. They know that they can improve the decision processes; they know that the way that they have bought and sold things can be far more effective. They are also afraid, though, because they see new companies being started up that just take the Internet as a given. They think of the Internet as the distribution channel and so maybe then they will go and make the huge investment to buy the physical distribution that has characterised business in the past. | |
| I was talking to these leaders about this. I thought: it is really important to give them a matrix to say how far along are they, how much are they achieving here – a simple matrix like saying that Canon employees sit down at their screens and find any memos that have been written in the past that might relate to their project. If it takes more than 60 seconds to do that, then people are not going to take the time. This incredible asset that you want to have, your corporate memory, really becomes valueless. Simple tests like saying: have you, as a CEO taken all the paper forms in the company and decreed that they should all go away requires leadership from the top. | |
| People were stunned when I said that two years ago because they thought: we have created all these nice forms and that is the way we are used to doing business. The systems that we have replaced them with are a lot better; in fact, they are subject to constant feedback. Everything we have got you can send comments on and say how it could be better for you or how it needs to adjust to new business conditions. There is a lot of velocity here, a need to respond to dynamic markets in a better way, a need to have what I call better business reflexes. | |
| But I am not saying that people should make decisions without thinking. That is why I call it "Business @ the Speed of Thought". It is all about empowering people, getting more out of their thinking and it requires a new approach to do that. | |
| I created three new terms that show what a milestone this is in the way that people have behaved. For people at home I talked about the Web lifestyle. This is the idea that, once you are using the Internet and once you are comfortable with it, no matter what application is involved, whether it is electronic mail or pursuing an interest that you have or buying products, you would like to be able to use the Internet for a broad range of activities, use it to get the latest news, use it to organise a trip, use it to research some medical advance that is relevant to you or someone that you know. | |
| People who use the Internet on a regular basis without thinking that it is special have I call the Web lifestyle. Today that is a very small part of the population. Even in the United States where it is most prevalent, well under 10 per cent of the people really are taking this approach. They tends to be young people coming out of universities and people who work in technology companies. In fact, one of the great advantages that the US has had in terms of using this technology rapidly is that those students are change agents. When they go into their companies, they have been used to signing up for courses electronically and researching things electronically and so they demand that those things be done inside the businesses. | |
| When we talk about this new way of doing work, that is the Web workstyle; that is where employees really expect everything to be at their fingertips. If they is going to work with a customer, they expect to be able to call up every contact with that customer, not just the billing status or what that customer bought, but any phone call, any meeting, any insight that somebody in the organisation has about that customer and how they can work with them in a different way. | |
| Part of this is raising the expectations that people have. They have been so used to working in an information form environment where they do not get to learn about why is the company profitable in this area and not in the other area, where they go to meetings that are not really about making a decision, they are sitting and listening to lots of information that is presented. Those meetings should be less necessary and the meetings that should remain are the ones where you are really brainstorming and where you are really deciding what the strategy should be. | |
| Overall, for an organisation it requires leadership from the top. Even though a typical CEO will have grown up in an age in which there were personal computers and it was not the CEO who was supposed to learn how to type and sit there in front of the screen, CEOs have got to show that they are willing to dive in. In fact, some of the leading companies have said to their executives that they are assigned homework of actually going out on the Internet, buying some books, seeing what is out there, looking at the competitors’ websites, looking at their own websites and seeing what they look like. | |
| The incredible thing is that some of these businesses are still only thinking about this as the website. The irony is that if you build up the right information to use on the website, that are far superior to the information views that have been available inside the company. All those front ends, all those old ways of looking at data, should go away and the Internet approach should become the only approach. When you are looking up a customer internally, you may see a little bit of additional information that the customer himself does not see, but the way you navigate and the idea that it all comes together in one place should be absolutely the same. | |
| So we are talking about rebuilding companies with this digital nervous system approach. | |
| To really believe in this, there are some key principles. You have got to sign up for the view that the Internet changes everything, that companies will not be receiving bills on paper. Just imagine a big company getting their phone bill. There are probably four or five people who look at it, type it in, pass it on to someone else; that is a complete waste. Why is that not coming in electronically, being assigned to the right cost centres, various thresholds being checked and with software that says, "Is this unusual? Should somebody receive an e-mail to know about this?" rather than otherwise simply happening without any overhead whatsoever. | |
| At the same time that Microsoft got rid of our internal forms we decided that anybody we did business with would have to do so electronically. So that if you want to invoice Microsoft, you do not send that piece of paper. If your computer systems have not changed to be electronic, you go to our website and call up that electronic invoice form and you take the piece of paper you would have sent us and just there and type it in. Over time your system should do that simply by connecting up through the Internet. | |
| Part of this vision is about empowerment. Part of it is to say that the jobs that in the past were rote type jobs, taking paper and typing into the computer or a customer phone call coming in and all you are doing is pulling something up on a screen to just simply relay information, will not be necessary. The right thing to do is to convert those workers into people who do more complex things. Give them the right tools so that they can take a complex customer complaint and, instead of just writing it down, they can actually handle it and turn that customer into a satisfied customer. | |
| Again and again you are hearing me say that customers need to be at the centre of this. That is one of the key assets that businesses have. If you look at the typical business today, it is hard it is to go and get the information about customers. If you are working with one division, the information system does not connect to the other division. There is no ad hoc reporting of the things that go on. It really is an incredible waste. | |
| A final principle that may surprise people is this idea that bad news must travel fast. As soon as Microsoft got an electronic mail system, I started getting messages from people saying, "This is great. We won the XYZ account". Of course, they get a piece of mail back immediately saying, "Hey, that’s great. Good job. Glad to hear that". | |
| I did find myself wondering: what about the accounts I did not get mail on? Does that mean that we lost every single one of them? So I instituted a rule that said: We need to have the right balance of hearing the good news from the market and then the bad news to make sure that everybody is aware as early as possible about trends in the marketplace. There I would say that we need to change our strategy in some way. After all, good news just confirms what you are doing. Good news says, "OK, we have got our priorities right. We just need to go full speed ahead with what we are doing". Bad news, particularly from your leading edge customers, may suggest that you have to re-think some of the things that you are going about. | |
| If you see it early on, there is an opportunity to convert it into good news, there is an opportunity to make a change before the marketplace shifts in a way that is quite negative for the things that you are going about. | |
| Where are we today in this process? Very few companies are doing even the basic things here. Electronic mail is popular in maybe 30 per cent of companies, but beyond that, when you look at forms and information on access, less than 10 per cent of companies are doing the right thing. I believe that this will change very rapidly, particularly for companies that do business with other businesses because here is no problem with the communications connections; there is no big expense; the infrastructure is there and efficiency will just demand it. | |
| If you are a bank that does cash management for someone, they will expect to connect up through the Internet. If you are a bank that does portfolio management, the way you will integrate in with their electronic views of the information will be the primary basis on which you are selected. This means that businesses have to step back and think about these processes in a way that they really have not done before. | |
| I have said that our great hope here is that there is a generation growing up where the computer is second nature, where browsing the Internet, using electronic mail, having full visibility through pivot tables and a spreadsheet is not some foreign thing and they will be the ones that lead the charge here. | |
| There are a lot of schools that are doing interesting things. I would like to see schools take all the best practices here and put them together and have them all at one place, Some schools are taking their applications only on-line. In lots of schools now, when you want to sign up for courses, that is done purely electronically. You get your grades that way and you submit your homework that way. Certainly going out to research the new developments in the markets is done that way. | |
| If you make a comparison, the more radical steps are probably prevalent in schools in the US. For example, requiring everybody to have a laptop computer and then designing the curriculum around that is fairly typical at some of the business schools and something that I think will spread. | |
| You have got people who put their research out on the Internet and let people have access to that. Here at London Business School there are things like the form that allows people, even alumni, to come in and see the ideas that are being developed here and participate, even when they are far away, and things like virtual tours, where you can come in and see what the school is like and decide if it is the right place for you. | |
| All these projects have emerged in the last three years or so. For Microsoft, we learnt about the Internet because of our people going out to universities. We were working with the phone companies and the cable companies and they were looking at a different set of protocols, but in fact they move very slowly and it surprised a lot of people that what really drove communications in a digital way to critical mass was the standards that had been around for a long time in the universities. So many elements came together here: the base of PCs, optic fibre bringing the cost down and some of the new protocols that were created from the standards committees like HTML. | |
| Once you get all those pieces in places, it is a volatile mixture. The explosion first took place on some campuses like Cornell. In fact, someone who worked for me, Steve Senovsky, came back in 1994, after being at Cornel on a recruiting trip, and said, "Wow, this has really changed. It is ubiquitous and it is a fundamentally different way of thinking about information". | |
| One of the ways people measure the progress here is to they track the amount of commerce that is done electronically. The numbers are really gigantic today because your get businesses like Intel or Microsoft or Cisko who say to their distributors, "Look, let’s just go on to the Internet". So overnight you can have $6 billion business a year in our case shipped to be E-commerce type business. You can get these gigantic numbers but that transformation is not the profound shift; that is a buyer and seller who would have done business anyway simply using this as an efficient means of staying in touch. | |
| The profound impact is where it is buyers and sellers who could not have found each other. I understand there is a start-up that somebody has done from the London Business School that relates to ski chalets and finding people who have those and are interested in those. You cannot imagine doing that as efficiently without digital searching techniques, and so that is a market that will be mediated far better because of the ultimate marketplace that the Internet will provide.
In some areas, like stock trading, over 30 per cent of stock trading in the United States is now done over the Internet. Other categories like book buying have a very high visibility; still only about 4 per cent of the sales are there actually on the Internet. |
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| So we are still at the beginning of this. As I said earlier, the business-to-business piece is the part that I think will proceed at the fastest pace. | |
| One company whose sales model made itself a natural to go out onto the Internet is Dell because they work directly with customers. This way of staying in touch and having better customer service appealed to them and so we partnered with Dell to actually go out and build their websites, first in the United States and then taking that around the world. | |
| You see here the home pages that they have in France and in Germany. When we turned on their site in France there was a question: how long would it take people to come in and use it? They have not run a single ad, they have not told people it was there. But in fact, within 15 minutes of the site being up, somebody bought a computer. You think: has that guy been waiting here for years typing in that URL ready to go? But it was not a coincidence because when we brought the system up in Germany, the same thing happened. Fifteen minutes later somebody was buying. That is an example of the profound consequences of a piece of business done dramatically differently, that person finding the latest configurations or finding pages that are adapted for their company’s needs that even has the approval process built into the electronic interaction. | |
| Dell is a great example of a pioneer that is using the Web in a new way. For them the greatest cost saving is actually the customer service part, answering people’s questions, keeping them up-to-date on the products they have got. | |
| If you look around the globe, and I think this is particularly relevant for this group here because I have been very impressed with the global diversity that you have here at the London Business School, you can see that there is a lot of penetration that still has not developed. In the United States if you take the most generous figures, which is anybody who says that in the last month they did something on line, it is 29 per cent of the population. I would say that only about one-fifth of those people, though, are really fully involved in the Web lifestyle. But, if you go outside the United States, the numbers drop pretty dramatically. Taking Europe as a whole, they drop by a factor of five, whether you take light on-line use or heavy on-line use. | |
| Given that the size of the economies and the total number of people is actually greater than the United States, there are a lot of people asking what elements have led to this and will that gap be closed? Certainly PC sales grew faster in Europe last year than in the United States and so the gap is shrinking somewhat but, with the wave of start-ups and the kind of priority this has on the agenda of businesses, I still think the US finds itself with almost a mania, a kind of gold rush type thing, where every CEO now would list it among the top things that they are thinking about and the primary change agent in their business something that would be called a strategic inflection point: a strategic inflection point for banking, for brokerage, for insurance, for retailing. | |
| It is hard to think of a business that is not affected. Maybe with an oil company that is great at finding oil the Internet does not change that as a fundamental proposition, but all the decision processes they have about that, how it is delivered, optimising those things, the Internet will change how that is done and therefore the things that differentiate one oil company from another will definitely be information-driven. | |
| Manufacturers may now think that there main job is managing their factory but all of that is really driven by information: what new models should be designed, what things should be produced, where are the defects coming from. The excellence, even in the car world, will come from handling these information tools. | |
| So we are seeing, once you get outside the United States and Europe, that less than 1 per cent of people are connected up. Because we are using this every day, it is easy for us to forget exactly how the man on the street is thinking about it. From time to time we ask a consultant to go out and just talk to people randomly and ask them what they think about these trends and get some input. | |
| We made a video of that, so let’s go ahead and take a look at it. | |
| (Video) | |
| Mr Bill Gates | We still have a long way to go getting this web lifestyle out to everyone. |
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| I think one of the reasons that people still underestimate how quickly this will come is because they do not have a sense of how the innovation will change the interface and change the devices. There are some upcoming advances here that are very important to this. Of course, we have got the miracle of the microprocessor. Every two years it is giving us something twice as fast with no increase in cost. That is why computing is a million times cheaper today than it was 20 years ago. That is not slowing down; in fact, it is actually getting a bit faster. That is why we will be able to take PCs and handle not only the things that mainframes would have been used for in the past but this incredible level of transactions and reliability that these Internet sites will require. | |
| One key element of the infrastructure will be wireless networks and networks that can deal with audio and video. Today people are reluctant to put video-conferencing and multi-media on to their networks because they are worried that it will crowd out the key traffic, the transaction traffic, and that has higher priority. As we work with companies like Cisko to define ways to manage that traffic and shape it, then those applications will be encouraged in the corporate environment. Likewise, having a wireless approach in your place of business means that your phone will not be wired to your desk. You can take a screen device with you. You will have a screen device that you just carry around and take into meetings. | |
| There is a lot we can do to improve collaboration, the way people find out about new developments, the way they work with each other on those things, the software needs to make it easier not to be overwhelmed by irrelevancies and yet make sure that you are notified by the things that you care about. | |
| Speech recognition will be part of the interface. That has been a tough problem because people are very demanding of high quality. The keyboard is not that bad. So, even though we are going to have this extra speed, probably we are four or five years away from that being the typical interface. | |
| Even sooner than that, though, we will have handwriting recognition. We will have a device that literally is the size of a tablet that has very high quality text on it. Even with a long document, you would not feel the need to print it out. You will be able to sit and read it just off the screen. The software to make the text appear the right way and the fact that you can adjust the viewing length and have it like you would a book is very important here. At a meeting like this one three or four years from now everyone will have a tablet PC and be taking notes on it so that you do not have a mismatch between what you do on paper and what you do on the computer. | |
| Finally, you will have all these different sized devices. The PC will probably reserve that term for the full screen device where you create documents and edit them, whether it is at home or in the workplace. You will certainly have a device that has phone-like functionality that is smaller, that fits into the pocket, and not only connects up for voice but also digital wireless. | |
| You will have something your car that you can just talk to and ask for a radio station or directions to a new location. It will be up-to-date in terms of what the traffic conditions are and fully connected with all your other devices. You will not have to be involved with moving information between them. If you get somebody’s phone number and put that on your small device, it will show up automatically on your PC and your auto PC without any overhead at all. It will also have the TV connected up to a high speed, two-way network using the cable or phone infrastructure so that getting e-mail or playing multi-player games will all be very natural. In fact, if you are watching a sports show, you will be able to look at your buddy list and see if any of your friends are watching the same thing; if so, you will be able to open up a voice conversation and talk with them simply as you are watching together. There will be a lot of variety but all connected to the same network, all sharing the same information. | |
| This is a pretty exciting time to be in business. It will not necessarily be the leaders of the past who are the leaders in the future. The jobs will not be the same as they have been. There is no doubt in my mind that the successful companies will be the ones that really grab these tools. I think that is an exciting opportunity and certainly something I think we will all have fun making a reality. |
| (Applause) | |
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| THE PRESIDENT OF THE STUDENTS ASSOCIATION | I would like to thank Mr Gates again for that fascinating and humorous insight into the future of business and life in the 21st century. Mr Gates has generously agreed to give us about 10 or 15 minutes more of his time to answer questions. He will be taking questions from you. If things get out of hand, I may have to step in! |
| SHIRA KUMAR | I am Assistant Professor at London Business School. |
| My question is more on management than on information. We teach our students about having some debt in the company, that it is good and that there are tax advantages to that. As soon as we tell them that, they say, "No, Microsoft has not. They have no debt". What do you have to say about that? I have not so far been able to give them an answer. I hope you will be able to help me. | |
| Mr Bill Gates | The role of capital in different business is different. When you have an enterprise like ours, we generate cash. Truly successful businesses generate cash. There is always the question: what do you do with that cash? Do you send it back to the shareholders? Do you have more businesses that you can invest in? Often businesses will get outside their circle of competence because they have this cash and it burns a hole in their pocket and they decide to do something with it. |
| Throughout our history we have had enough successful products that there has not been a financial limitation on our ability to hire more people for R&D and to expand our distribution channel. So we did not need to go public, we did not need to raise a dime. We have been cashflow positive from the beginning. The thing that holds us back is how quickly can you find great people and bring them in. If there were more great people, we would increase our R&D investment even faster than we have been able to do. | |
| We always have the question: how much of this cash will we need? Will this business require us to do acquisitions? Are there some discontinuities coming along? Our profitability might cycle down before we are able to cycle it back up again. So we have been very conservative and kept a substantial amount of cash in the company, something like $15 billion. Then we buy back stock quite a bit. Our best investment has been in buying back our stock. | |
| If you contrast this with, say, Intel, whose operation does require massive amounts of capital to build new fabs all the time, the balance sheet looks a little different. That is because our primary assets, which is our software and our software development skills, do not show up on the balance sheet at all. This is probably not the most enlightening thing from a pure accounting point of view. | |
| MARTIN GUENZLE | I am a first year MBS student. |
| I have noticed in your book you mention the role of computers in technology at school. In addition to education, do you see the role of business becoming more active in terms of social responsibility, given that technology is changing the social infrastructure that we have now? | |
| Mr Bill Gates | Certainly for Microsoft being very involved in schools and helping teachers get access to our technology and then being there to help them with the networks and making sure it all works very well is something that our employees have become very involved in.
We do a lot of charitable giving as a company. We also match dollar-for-dollar any gifts that our employees choose to make. You get a lot of people in the company, including myself, who have had this level of success through our ownership in the company and we are doing a lot on the philanthropic side, personally giving back to important causes, whether it be World Health, which is a top priority, or making sure that the access to these advances is more widespread than it would be in other ways. |
| I think business does have a responsibility here. It is a balance. Business has its role; government has its role; non-profit organisations have their role. I think you will see a little bit more of a mix in there because we have got to have more educated workers. We have got to have the right social fabric to continue to have the incredible success that we have had.
This era of business is incredible positive in terms of the investment levels and the growth of the jobs and the economy, more in the United States than other places but even on a world-wide basis. Business can do things to help maintain that environment. |
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| LADY QUESTIONER | Mr Gates, how do you feel about the open software development movement and the co-operation of systems like Linux? Does Microsoft see this as a threat or an opportunity? |
| Mr Bill Gates | In our business you have got to see everything as a threat. We are always looking at what is going on.
Throughout the years in any year you would have said, "Oh, this year it is (Astontages) and that is a threat, or Borland or Word Perfect or IBM OS2". This year the things that we think about and that the press likes to write about are: what about job OS; what about some of this free software; what about mainframes? Are people still using them and still not moving to use the Windows approach for those high-end systems? |
| So it is a very competitive environment. A lot of the challenge comes from very small companies doing new things. We compete with Palm which makes a small device. That is something that we are very dedicated to doing better products for and getting ahead in terms of that market. Across the board, because of these levels of investment, there is an intensively competitive set of things going on. | |
| In terms of free software, because of the fact that people have the source code to make changes, what you end up with is thousands of versions that are incompatible. Different applications work with different ones, different drivers work with different ones. Businesses really are not in a position to test all those things and fix them. In fact, because of our high volume approach, the software budget that is going to Microsoft is less than 2 per cent of the IT budget of any company. That lack of the testing and that lack of central involvement says to me that the role of that software and the commercial environment will actually be fairly limited, but that is not to say that we do not think of it as competition. We thrive on that. | |
| QUESTIONER | I have a question on globalisation. Microsoft has been really successful at leading the world from the United States and leading the technology movement. Now that countries outside the United States are producing industry leading players – France with smartcards, Germany with enterprise resource planning and so on – do you see Microsoft changing its US-centric approach? |
| Mr Bill Gates | Part of the success of Microsoft has been present all over the world in providing our software tools to developers, wherever they may be. There is no doubt that the dominance of US companies in the software industry will moderate somewhat. It is really unprecedented to have an industry like this where of the exports on-year 90 per cent are coming out of one country. As other countries have seen the opportunity, they are getting their schools to use the Internet in the right way. Where location is a little bit less important in participating in all of this, we are going to see success stories around the world. This is a high growth industry. |
| However, our ability to collaborate with people in other locations is getting better all the time. I would say that our relationship with SAP in Germany is probably the closest relationship we have with another software company. They have got a group in California, but the key people we work with are in Waldorf, Germany, and the e-mails are flying back and forth between ourselves and Waldorf all the time. | |
| I think that we will be able to maintain a significant part of our R&D in the United States and still have these partnerships. We are diversifying our locations as we grow. We are up in Cambridge with the Research Centre, we are in China with the Research Centre, we are doing developments in different locations. We are giving a pretty big operation in India now. We will have to go to different locations but I feel great about the way we are reaching out to companies in different companies through the new tools. | |
| QUESTIONER | I am a second year London Business School student. |
| Your book talks about getting a digital nervous system. I would like to go the other way completely. For Bill Gates as a human, what is the thing that affects your human nervous system on a day-to-day basis? What is the thing that goes on in your mind and makes you nervous? | |
| Mr Bill Gates | I would not say that I am a very nervous person. If my daughter is not feeling well, that might make me nervous, or if she is late coming back from school, something like that. |
| Our work is, I think, about the most interesting work there is. I get to go to work with incredibly smart people. The rules are always changing, so I have to learn new things. What about cable, what about wireless approaches, when should we assume speech recognition? It is only by making the right decisions in that very dynamic environment, that we will continue to thrive. That makes it a job that I find very stimulating. | |
| I do not think being emotional about whether this is going well or this is not going well is the key. We have had a very stable, long-term approach to everything that we have done, so we look at every development in the marketplace as something that is an opportunity. We sit down with a group of people who decide upon its strategies and charge forward. | |
| QUESTIONER | I am a second year MBA student. |
| Do you think the Internet companies will ever be as profitable as the stock valuation suggests? | |
| Mr Bill Gates | There is no doubt that, of the Internet companies out there, there have got to be a few of them that are grossly under-valued. There is also no doubt in my mind that there is a substantial number that is substantially over-valued. Remember that my expertise is not as a stock picker. I do not come in every day and look at the volatility of the stock market. I come in every day and sit with software engineers and talk about what we are going to do in that space. |
| I do think it is easy, though, for people to confuse two things. The first is that the Internet will be a great thing for consumers, just incredible. You look at how people are buying and selling different things on sites like (E-Bay). If you look at the transparency before you go in to buy a car: even if you do not buy it over the Internet, you can see what the ratings have been, see all the different products and understand exactly what the dealer paid for that car so that you have an advantage in the negotiation of what that fair price would be. With that kind of impact the benefit is huge, but it does not necessarily mean that the companies involved in that business will have super high profitability. In fact, a lot of the things that have been sustainable in competitive advantage, like the distribution network, are less important, so the barriers to enter are much lower in this world. I think every category in the Internet will be hyper-competitive, whether it is selling tickets, or books, or loans, or stock trading, or any one of those things. There will be profits that are made because there will be trust relationships, there will be skill that people get that drives their brand, but it is a very open question what sort of margins you can expect. I can say that the sales levels will go up, but the margins are something that reasonable people can sit and debate. I take a conservative view of this. I have always thought all high tech stocks should not have high multiples, including our own. When I see these multiples, I say, "Wow, somebody who is buying that stock is not as conservative as I am". | |
| QUESTIONER | When will the bandwidth allow a new organisational structure? Will we work side-by-side and write e-mails, regardless of location as a true and virtual team? |
| Mr Bill Gates | Business connectivity is going very fast. In any business district in the US and most places in Europe, if you say, "I want to have a 20 megabit connection to the Internet", you will get four or five companies to come in and bid to provide that connection. That is less true when you get out to the homes because in those neighbourhoods running that last mile of connection it is not yet economic for anyone, other than the phone company or the cable company, to do that. But for businesses you are going to have huge bandwidth. As we get the right prioritisation on those networks, video-conferencing will just be commonplace. It is about an extra $40-$50 to have a reasonably nice camera as part of a PC. Whether that is taking still pictures or doing a video-conference, it is there as a nice tool. |
| We are also going to use the camera to recognise who is sitting at the PC and we will be able to tell a little bit if they are confused or happy about what is going on and make use of the interface and adopt that, the same way somebody does in a face-to-face conversation. | |
| I am a big believer in video-conferencing, not as a total replacement for face-to-face meetings but particularly where you can bring up the related material and collaborate together on that material using a facility we call Net Meeting. As well as seeing the person, you can have the software to help mediate who has the floor at various times and poll the people in the room about in what direction the meeting should go. | |
| I think there is a lot to be done to make meetings more effective, including virtual meetings, where people are not at the same place. It has been slow to happen. I would not predict a particular year, but I think you will see an explosion in the next three or four years. | |
| QUESTIONER | I am a second year MBA student. |
| I want to know how Microsoft is realigning its focus to be able to deal with the emergence of industries and specifically could you comment on the Teledesic Internet and the Sky projects. | |
| Mr Bill Gates | Teledesic is a pretty exciting thing. Actually Microsoft is not directly involved in that. (AMA) is a major investor in it. Certainly Microsoft will do things to take advantage of it. Teledesic is launching hundreds of satellites in low orbits that will provide extremely high Internet connections to every point on the globe. So, whether you are in Africa or India or on your farm in rural US or rural UK, you will have the ability to do super, high definition video conferencing or watch cultural events, whatever it is that you want to do. That kind of geographic flexibility will promote the use of these technologies in a very substantial way.
Microsoft is making sure that they build in Windows into the infrastructure of what they are doing there and that our software is adapted to these new applications. For us the biggest change is now working with consumer electronics companies and cable companies and having the right kind of alliance where their expertise and our expertise can come together. When it came to the PC industry, that was one of the greatest things we did. We understood a business model that was quite different, where we did not build the chips and the hardware and go and write the specialised applications. We focused on one element and built up a critical mass of applications around that. |
| Again, thinking through the business models, what the boundaries are that draw on the best things for each company is the challenge right now, and I spend a lot of time on it. | |
| QUESTIONER | I am a second year student. |
| I would like ask you what has changed from your first book to your second book. What is the message there? | |
| Mr Bill Gates | This book has a very different focus than The Road Ahead. The Road Ahead was really about the broad impact of technology. Here what I have done is to ask: what does this mean for business? How should a business organise differently? How should information flow in a new way? |
| I have some chapters that update some of the issues about: will the network hold us back; will the interface get to be easier and simpler than it is right now? It really is drawing out examples and giving people very concrete methods where they can say: how far is my company down the path? Everything really echoes the optimism I had about this when I wrote The Road Ahead. I am very consistent in what I am enthused about. | |
| THE PRESIDENT OF THE STUDENTS ASSOCIATION | Unfortunately, we do not have any more time for questions. |
| On behalf of the London Business School, the community and all of our guests here today, I would like to thank Mr Gates for coming in and having this conversation with us and telling us what to do in our future business. We wish you the best of luck with your book. We know it will be a huge success. We hope you enjoy the rest of your whirlwind stay in London. Thank you very much for being here. | |
| (Applause) |
Document Dated: Tue Mar 30 1999
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