Gates Q&A: What's Ahead For Microsoft

Gates: Well, search is a very broad term, because you have search inside an application, you have search across file systems, you have search across the corporation, you've got search across the entire Web. There are plenty of things they have in common: learning what the person is interested in, correcting spelling mistakes. But the approach that works for the Web works very, very poorly inside a company, it turns out, so you don't want to try to take everything across. The Web has lots of these links, so weighting things according to the number of links works quite well. In a corporation, documents don't have those links, and you really have to go into the structured data. If you want a memo about a project, you might need to know who worked on that project and therefore weight the things that were authored by those people higher than people outside of that group. The whole way you rank things is very different in that business environment. We take some of the common things [from Web searching], but we make sure we don't directly apply it. Many people who've got that type of Web-search technology inside their business have been very disappointed in what it delivers.

InformationWeek: I'd like to go back and ask you a couple more questions about the ERP business. It's shown fairly modest growth over the past several quarters. Revenue growth for fiscal '05 was 5.8%. It also seems to be a fairly expensive business to run. How would you explain the difficulty in getting a lift there, and how much longer would you expect that business to be in an investment phase versus a return phase?

Gates: Well, Microsoft probably has the longest-term horizon for big things we do of any company you can think of. The Internet TV stuff we started over 10 years ago, and finally this year people understand why we've been so big on that. Something like database software has been profitable for quite a while, but we're just working our way up to No. 1, so that's been a more than 10-year quest. Here in business applications, the strength of our commitment is very clear, whether it's bringing in Great Plains, bringing in Navision, or putting a lot of R&D dollars into the business. That's because we believe it can be a much bigger business, and we can have a much higher share of the business than we have today. Because of that long-term growth, you're right, we're in an investment mode.

The 5% growth, if you compare it to other [companies], ignoring their maintenance revenue--that is, if you just take new licensing-- that's actually relative to others a pretty good growth level. Over time, we'd hope to be at a much higher growth level, and every new version we bring out we believe will drive our share, particularly as we're connecting up to the latest Office features, and bringing out this role-based approach. Applications can be way better than they are today and we're showing our belief in that with that high level of investment.

InformationWeek: Oracle and SAP have had this role-based functionality for a number of years. Could you contrast your approach with theirs, or say how it's different or better for your customers?

Gates: What we're really talking about here in terms of roles is quite different than what they've done. Remember, SAP is almost over-specialized in terms of how it presents the information. There are a lot of cases where in different companies roles are combined, and so you have to have a level of flexibility about how you do these role definitions. These aren't just predefined roles, these are sample roles, and then you can sit there and say for your company how things work. ... It's one of the first things we're doing across our entire application line.

InformationWeek: Let's talk about the channel a little bit. You have four different ERP suites you have to explain to the market, then there's managing the resellers, who sometimes carry more than one line, and are sometimes calling on the same customers. I understand you're taking some steps to simplify that from a branding perspective, coming out with this new Microsoft Dynamics name. In addition to branding, how are you trying to simplify your product line for the channel?

Gates: In most countries, we only have two product lines that we're really pushing super-heavily. We'll have Axapta and then, depending on the country, either Navision or Great Plains as the big push. In some vertical markets we have Solomon, but that's a very focused product line in terms of who it's appropriate for. Each of our partners decides whether they are selling to the Solomon type customers, or whether they are selling to the higher end customers where Axapta tends to come in. We can pretty quickly understand what part of our product line they're going to be most focused on. If you're a big partner, yes, you want to understand all the things we're doing.

InformationWeek I wanted to ask you about hiring and recruitment. At the Microsoft Research Faculty Summit in July, you spent a lot of your time talking about how Microsoft is trying to hire every really highly talented new computer-science graduate it can. You even gave a sort of sales pitch, saying these open jobs pay really well, people can get their own office, and then you talked about how the hiring landscape is gating some things the company does. What's this difficulty in hiring computer-science graduates prevented the company from doing right away or not as fast as you would like?

Gates: Well, understand that we do the vast majority of our engineering work here in the United States, and that's where the number of kids going into computer science has actually been going down. Whereas in other countries, including China and India, the number of computer-science students is going up quite substantially. In those countries there's not the shortage of talent. For us that means we do some of our work outside the U.S., but because the vast majority is done here, we want to reinvest with the top universities in this country and get those student pools up. Having people understand the level of opportunity, what these jobs are like--I maybe have a bias, but I think these are the most interesting jobs in the world.

We're able to hire most of what we want, it just now takes a few months more than would be ideal. So we're not way behind; I can't say that there's some major schedule it would have affected by more than, say, 10% or 15%. It might mean that we enter new software areas a little less rapidly than we would have otherwise, but fortunately it hasn't really held us back. If the trends don't start going the other direction though, it will make it tough for anyone like us whose plan is to do the vast majority of their work here in this country. That's looking out more like on the five- to 10-year horizon.

InformationWeek: You're actually going on a college tour again in October.

Gates: That's right. It's a great opportunity for me to talk about the breakthroughs to come and the opportunities to work on those, and I'll get to see six new campuses this year. I enjoy that, and I get to hear what the students are interested in, I get to meet with the faculties. There's a lot of learning that I get out of that.

InformationWeek: What about the other end of the spectrum of talent at Microsoft? What are you doing that you would say is new in trying to retain your highest-level, most-talented employees?

Gates: Well, we have very low turnover of our researchers and architects and people who are doing the key product work. There's a real thrill people get out of working on the software that millions and millions of people are using, and they like to work with other smart software people. There's a certain naturalness that, if you want to do software that changes the world, there are very few companies you can go and do that at, and Microsoft is at the top of that list.

InformationWeek: Has the Kai-Fu Lee case at all changed your approach to HR and retention, outside of using the courts? [Editor's note: Microsoft has sued Lee, a former executive, and Google Inc., over Google's hiring of Lee, charging he broke his noncompete agreement.)

Gates: No. We're a 50,000-person company, and every day we're hiring hundreds of people all over the globe. I can tell you about a few dozen we hired in the last couple of weeks that are very exciting to me. We've got an amazing talent influx.