Gates: Microsoft To Increase Patent Filing

In annual meeting with financial analysts, Microsoft's chairman puts the focus on R&D and intellectual property.
Microsoft will continue to ramp up its patent filing and intellectual-property licensing efforts, chairman and chief software architect Bill Gates said today in a meeting with financial analysts at the company's Redmond, Wash., campus.

Microsoft plans to file more than 3,000 patents in fiscal 2005 compared with "something over" 2,000 patent filings the previous year, Gates said. The company's planned "cycle of innovation" includes securing intellectual-property rights on Microsoft products and licensing that technology to other companies, signing license agreements to use other companies' software within Microsoft's own products, and providing indemnification protection to customers. Gates said Microsoft is still in the early stages of its licensing program.

Businesses continue to adopt new products and technology at a slower pace than consumers, due to security, compatibility, and complexity issues, Gates said. To get businesses to upgrade, he added, "You've got to make the cost-benefit there very straightforward."

In a separate presentation, Will Poole, senior VP of Microsoft's Windows client business, said Microsoft's much-anticipated Windows XP Service Pack 2 upgrade is on track to ship in August. Poole said the security-focused operating system update will ship primarily via the Web.

As Microsoft looks for growth, it sees opportunity in selling PCs to consumers who don't already have computers and, for those who do, in converting the large number of pirated copies of Windows into revenue-generating licenses. Microsoft estimates that about 60% of U.S. households have PCs and that in other parts of the world the percentages are significantly lower.

And Windows piracy isn't just a problem in emerging markets. Poole estimated that 22% of the installed base of PCs in the United States run unlicensed versions of Windows. That translates into 12 million PCs. By comparison, in China, where the piracy rate is higher but the installed PC base is lower, about 13 million PCs run unlicensed versions of Windows.

Eric Rudder, senior VP of Microsoft's server and tools business, laid out Microsoft's server-product road map through the end of next year. In the second half of this year, Operations Manager 2005 and Virtual Server 2005 are due. Next year, the rollout will include a version of Windows Server 2003 designed for dual 32-bit, 64-bit processors, Windows Server 2003 Release 2, Visual Studio 2005, SQL Server 2005, and System Center 2005, which combines the functionality of System Management Server and Microsoft Operations Manager under one umbrella.

In addition, Microsoft plans to release next year a version of Windows Server 2003 for supercomputing-class applications. The company will tune its Visual Studio 2005 tools to work with the new Windows Server 2003 High-Performance Computing release, and it's encouraging independent software vendors to write software for the platform based on the industry-standard Message Passing Interface.

Microsoft demonstrated for the first time a data-search engine in development that promises to scour both the Web and a PC's hard drive for relevant matches. For example, it might find data inside an Excel spreadsheet that's attached to an electronic message, as well as on a faraway Web server.

"People say, 'What do you bring to the party?' It's the ability to search what's beyond the Web," said Yusuf Mehdi, corporate VP of MSN Information Services and Merchant Platform. Microsoft's search engine is based on technology from Microsoft Research and the company's Office and Longhorn development groups, and it has already indexed more than a billion documents. Mehdi declined to say when it will be ready.

CEO Steve Ballmer estimated that within four years 40% of Microsoft's profits will be generated by the company's emerging lines of business: enterprise applications, software for mobile devices, MSN, and home and entertainment.

The vendor might also enter entirely new lines of business, which could have a negative impact on profitability, Ballmer said.

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