Table Of Contents

Chapter 1: A Revolution Begins
Chapter 2: The Beginning of the Information Age
Chapter 3: Lessons from the Computer Industry
Chapter 4: Information Appliances and Applications
Chapter 5: From Internet to Highway
Chapter 6: The Content Revolution
Chapter 7: Business on the Internet
Chapter 8: Friction-Free Capitalism
Chapter 9: Education: The Best Investment
Chapter 10: Plugged In at Home
Chapter 11: The Internet Gold Rush
Chapter 12: Critical Issues

Chapter 1 - A Revolution Begins

Cutting a bunch of teenagers loose on a computer was the idea of the Mothers' Club at Lakeside School in Seattle. The mothers decided that the proceeds from a big rummage sale should go to installing a terminal and buying computer time for the students. Letting students at a computer was a pretty progressive idea in the late 1960s-and a decision I'll always be grateful for...

A whole generation of us computer guys, all over the world, dragged that favorite toy with us into adulthood. We caused a kind of revolution-peaceful, mainly-and now the computer has taken up residence in our offices and in our homes. Computers have shrunk in size and grown in power as they've dropped dramatically in price. And it's all happened fairly quickly. Not as quickly as I once thought it would, but still pretty fast. Inexpensive computer chips now show up in engines, watches, antilock brakes, fax machines, elevators, gas pumps, cameras, thermostats, treadmills, vending machines, burglar alarms, and even talking greeting cards. School kids today are doing sophisticated things with personal computers that are no bigger than textbooks but that outperform the largest computers of a generation ago.

Now that computing is astoundingly inexpensive and computers inhabit every part of our lives, we stand at the brink of another revolution. This one will involve unprecedentedly inexpensive communication. All the computers will join together to communicate with us and for us. Interconnected globally, they'll form a large interactive network, which is sometimes called the information superhighway. The direct precursor of this network is the present-day Internet, which is evolving rapidly in the right direction. The reach and use of the emerging interactive network, its promise and perils, is the subject of this book.

"What if communicating were almost free?" The idea of interconnecting all those homes and offices to a high-speed interactive network has ignited imaginations around the world. Thousands of companies are committed to the same vision, so it's individual focus, a superior understanding of intermediate steps, and execution that will determine success. All sorts of individuals and companies are betting their futures on building components for the interactive network. I call it the Internet Gold Rush. At Microsoft we're working hard to figure out how to evolve from where we are today to the point at which we can realize the full potential of numerous new advances in technology. These are exciting times, not only for the companies involved, but for everyone who will enjoy the benefits of this revolution.

Chapter 2 - The Beginning of the Information Age

Information has become increasingly important to us, and indeed we're at the beginning of an information revolution. The cost of communications is beginning to drop, although not as precipitously as the cost of computing did. When communication gets inexpensive enough and is combined with other advances in technology, the influence of interactive information will be as real and as far-reaching as the effects of electricity.

At some point a single wire running into each home will be able to send and receive all of a household's digital data. The wire might be fiber, which is what long-distance telephone calls are carried on now; or coaxial cable, which currently brings us cable television signals; or the simple "twisted-pair" wire that connects telephones in homes to the local phone system. It may even be a wireless connection. If the bits coming into the house are interpreted as voice calls, the phone will ring. If they're video images, they'll show up on the television set or a PC. If they're news, they'll arrive as text and pictures on a screen.

That single connection to the network will certainly carry much more than phone calls, movies, and news. But we can no more imagine what the broadband information highway will carry in twenty-five years than a Stone Age man using a crude knife could have envisioned Ghiberti's Baptistery doors in Florence. Only as the Internet evolves will all of the possibilities be understood.

Chapter 3: Lessons From the Computer Industry

Success is a lousy teacher. It seduces smart people into thinking they can't lose. And it's an unreliable guide to the future. What seems to be the perfect business plan or the latest technology today may soon be as out-of-date as the eight-track tape player, the vacuum-tube television, or the mainframe computer. I've watched it happen. History is a good teacher, though, and observing many companies over a long period of time can teach us principles that will help us with strategies for the years ahead.

"The Internet is changing the rules for everybody in the software industry."

Companies investing in interactive networks will try to avoid repeating the mistakes made in the computer industry over the past twenty years. I think most of these mistakes can be understood by looking at a few critical factors: negative and positive spirals, the need to initiate rather than follow trends, the importance of software as opposed to hardware, and the role of compatibility and the positive feedback it can generate.

You can't count on conventional wisdom, which makes sense only in conventional industries. For the last three decades the behavior of the computer hardware and software industries has definitely been unconventional. Big established companies that had hundreds of millions of dollars in sales and lots of satisfied customers have disappeared in a short time. New companies, such as Apple, Compaq, Lotus, Oracle, Sun, and Microsoft, appeared to go from nothing to a billion dollars of revenue in a flash. These successes were driven in part by what I call a "positive spiral."

"Death can come swiftly to a market leader."

Our business moves too fast to spend much time looking back. I pay close attention to our mistakes, however, as I try to focus on future opportunities... The need to look down the road keeps me alert. I never anticipated Microsoft's growing so big, 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.

Chapter 4 - Information Appliances and Applications

No one knows when residential broadband networks capable of supporting video-on-demand will be available in the United States and other developed countries, let alone in developing countries. Many corporate networks already have enough bandwidth, but ... even in the U.S. most homes will have to make do for some time maybe more than a decade with narrowband and midband access. Fortunately, these lower-capacity bandwidths work fine for many Internet-based services such as games, electronic mail, and banking. For the next few years, interactivity in homes will be limited to these kinds of services, delivered to personal computers and other information appliances.

"Can we expect to see more digital wireless services and devices?"

When Tim Berners-Lee invented the World Wide Web in 1989 as a way for high energy physicists to exchange information, he didn't foresee all the great applications that would be developed for it.

Allowing people to connect to the Internet through a variety of information appliances will be critical to making Internet use a mainstream activity. In the years ahead we'll see a proliferation of digital devices that will take on different forms and communicate at different speeds, enabling each of us to stay in touch over the net with other people as well as with information of all kinds. We'll use new versions of familiar tools-telephones, TVs, PCs, white boards, notebooks, wallets-to take command of information and reshape the media that make up much of our daily life: books, magazines, newspapers, video, music, telephones, games, even the art on the walls. We don't know exactly what all of the successful appliances will look like, but we do know that as technology evolves an increasing number of the appliances will be general-purpose, programmable computers connected visibly or invisibly to the net.

Chapter 5 - From Internet to Highway

"Is the Internet the Highway?"

The information highway doesn't exist. That may come as a surprise to people who've heard everything from a long-distance telephone network to the Internet described as a data "superhighway." Although the Internet is already delivering communication services and information to millions of people, a broadband interactive network-able to deliver all the killer applications described in chapter 4-won't be available to the majority of U.S. homes for at least a decade. We simply won't have the high-speed infrastructure in place before then.

"When do you think a high-bandwidth infrastructure will be in place?"

The Internet is the precursor of the ultimate global network. There is little doubt that when the global interactive network has finally evolved into the highway, it will still be called the Internet. But as quaint as the term "information highway" is beginning to sound, using it appropriately helps to draw a distinction between today's primarily narrowband interactive network (the current "Internet") and tomorrow's broadband interactive network (the "highway").

"The primary competition is no longer between different software platforms but is rather a competition to advance the evolution of the Internet."

Already the Internet's surging popularity is the most important single development in the world of computing since the IBM PC was introduced in 1981. The comparison with the PC is apt for other reasons too. The PC wasn't perfect. Aspects of it were arbitrary or even inferior technologically. Despite its shortcomings, its popularity grew to the point that the PC became the standard hardware for which applications were developed. Companies that tried to fight the PC standard often had good reasons, but their efforts failed because so many other companies were invested in continuing to improve the PC.

Chapter 6 - The Content Revolution

By the end of the decade a significant percentage of documents, even in offices, won't be fully printable on paper. The document will be like a movie or a song is today. You'll still be able to print out a two-dimensional view of its content, but that will be like reading a music score instead of listening to a recording.

"How is the World Wide Web changing documents?"

It's fast and inexpensive to communicate over the Internet. Mail or telephone communications are fine for a one-on-one discussion, but they get pretty expensive if you're trying to communicate with a group. It costs nearly a dollar to print and mail just one letter and on average about that much for a long-distance call. And to make a conference call you have to spend even more, assemble all the phone numbers, and have coordinated a time when everybody will be free to talk with the other people. It takes considerable time and effort to put even a modest-size group of people in touch with each other. On a bulletin board, all you have to do is type your message in once and it's available to everybody you want to reach.

Other than Web pages, very few multimedia documents are being created by PC users so far. It still takes too much effort...

PC software for editing film and creating special effects will become as commonplace as desktop publishing software. At that point the difference between professionals and amateurs will be one of talent and craft rather than access to tools.

Chapter 7 - Business on the Internet

"Are Intranets important?"

Over the next decade, businesses worldwide will be transformed. Intranets will revolutionize the way companies share information internally, and the Internet will revolutionize how they communicate externally. Corporations will redesign their nervous systems to rely on the networks that reach every member of the organization and beyond into the world of suppliers, consultants, and customers. These changes will let companies be more effective and often smaller. In the longer run, as broadband networks make physical proximity to urban services less essential, many businesses will decentralize and disperse their activities, and cities may be downsized too.

Even the smallest of all businesses, the individual earning a living in a profession or as an artist, has been empowered by the PC. One person without any staff can produce reports, handle correspondence, bill customers, and maintain a credible business presence-all surprisingly easily. In field after field, the tools of the trade have been transformed by PCs and software.

I liken setting up an intranet to fitting the final piece into a jigsaw puzzle. Businesses around the world are finding themselves in this happy position now. They've worked hard for years, investing in hardware, software, and training so that they can share information more easily. It's been a sound investment, but not quite all of the pieces have fallen into place yet. Creating documents has been made easy, but finding them has remained hard. Setting up an intranet will complete the picture-and it will cost many companies almost nothing to do because they've already bought all of the expensive pieces.

All of these electronic innovations-e-mail, shared screens, videoconferencing, and video phone calls-are ways of overcoming physical separation. As they become commonplace, they'll change not just the way we work together but also the distinction we make between the workplace and everywhere else.

Chapter 8 - Friction Free Capitalism

When Adam Smith described the concept of markets in The Wealth of Nations in 1776, he theorized that if every buyer knew every seller's price and every seller knew what every buyer was willing to pay, everyone in the "market" would be able to make fully informed decisions and society's resources would be distributed efficiently. To date we haven't achieved Smith's ideal because would-be buyers and would-be sellers hardly ever have complete information.

"The effects of giving full information to the buyer are being felt already."

"Do you think the Internet will be used for banking and shopping?"

The Internet will extend the electronic marketplace and become the ultimate go-between, the universal middleman. Often the only humans involved in a transaction will be the actual buyer and seller. All the goods for sale in the world will be available for you to examine, compare, and often, customize. When you want to buy something, you'll be able to tell your computer to find it for you at the best price offered by any acceptable source or to ask your computer to "haggle" with the computers of various sellers. Information about vendors and their products and services will be available to any computer connected to the network. Servers distributed worldwide will accept bids, resolve offers into completed transactions, control authentication and security, and handle all the other functions of a marketplace, including the transfer of funds. We'll find ourselves in a new world of low-friction, low-overhead capitalism, in which market information will be plentiful and transaction costs low. It will be a shopper's heaven.

Chapter 9 - Education: The Best Investment

Maybe it's just my innate optimism, but I expect education of all kinds to improve significantly within the next decade. I believe that information technology will empower people of all ages, both inside and outside the classroom, to learn more easily, enjoyably, and successfully than ever before.

"What changes in education can be expected?"

The basic purpose of the PC managing information to support thinking aligns superbly with the mission of educational institutions. Improving education is the best investment we can make because downstream benefits flow to every part of society. That's why putting computers and the Internet to work in schools is an exhilarating prospect.

Today, at the end of another century, change is in the air again. People are wondering whether schools are giving their children the skills they'll need to succeed, this time in the Information Age. A new technology revolution is transforming business and putting new demands on our educational system even while the technology itself is providing the means for meeting these demands. The people who resist change will be confronted by the growing number of people who see that better ways of learning are available thanks to technology. Foremost among the agents of change will be children themselves.

Chapter 10 - Plugged In at Home

One concern often mentioned in talk about the coming communications revolution is that people won't socialize anymore. Commentators worry that our homes will become such cozy entertainment providers that we'll never leave them, and that safe in our private sanctuaries we'll become isolated. I don't think that's going to happen, and later in this chapter, when I describe the house I'm building, I think I make my case.

"How will technology affect the home?"

The house has been under construction for what seems like most of my life. (It seems like I've been reading about the construction even longer.) Yes, it's full of advanced entertainment equipment-a small movie theater and a video-on-demand system-and it should be an interesting place to live, but I certainly don't plan to stay at home all the time.

"How will the Internet affect social interaction?"

...your computer will rarely if ever be turned off. If it is, it will turn itself back on the instant a need arises. It will be a simple-to-use device at the center of entertainment, communications, and productivity in your office and at home. Your computer will interconnect with VCRs, stereos, TVs, security systems, and the Internet. You'll take it for granted as you use it to choose music, check a movie review, play a game, review your finances, or dig up a recipe. It will be as standard a piece of equipment in your home as the telephone.

A decade from now you may shake your head when you remember that there was ever a time when any stranger or a wrong number could interrupt you at home with a phone call. Cellular phones, pagers, and fax machines have already made it necessary for businesspeople to make explicit some decisions that used to be implicit. A decade ago you didn't have to decide whether you wanted to receive documents at home or take calls on the road. It was easy to withdraw to your house-or certainly to your car. With modern technology you have to decide when and where you want to be available. In the future, when you'll be able to work anywhere, reach anyone from anywhere, and be reached anywhere, you'll also have an easier time determining who and what can intrude. By explicitly indicating allowable interruptions, you'll be able to reestablish a sense of sanctuary.

Chapter 11 - The Internet Gold Rush

Almost overnight the Interactive Television Gold Rush all but died, and the Internet Gold Rush was born. Suddenly interactive TV was passe, and interactive, networked computing was hot. It was a big change for companies to realize that consumer involvement with interactive services would take place first on the PC and only later involve the TV and other devices. The swiftness of the change was breathtaking. It caught me off guard-even though the increasing popularity of the PC was critical to the shift. But it was a welcome development. It fit Microsoft's original vision of "a personal computer on every desk and in every home." The Internet will deliver on our "information at your fingertips" vision too.

Strategies changed abruptly at every communications, computer, software, and content company that had been staking claims along the expected route of the information highway. Many plans were summarily abandoned as the spiraling success of the World Wide Web demonstrated that people would pay for connectivity to interactive content of many kinds-even if that content was delivered on maddeningly slow narrowband connections. Almost all of the broadband trials were canceled. They were much less important now that millions of people were already demonstrating their enthusiasm for interactivity-and declaring their specific interests-by logging countless hours on Web sites. This vibrant near-term market for interactive connectivity meant that interactive killer applications could evolve alongside increases in bandwidth to the home. Hundreds of new companies became Internet service providers, thousands of new corporate Web sites appeared each week, and computer hardware and software companies began creating Internet products.

"People in a gold rush often get so caught up in the dream of quick riches that they over invest in the obvious areas and ignore subtler or long-term opportunities"

It should be clear by now that, although I'm cautious about most Internet investments, I believe in the long-term opportunities afforded by interactive networks. Virtually everything Microsoft does these days reflects my conviction that the Internet is going to grow so that almost everyone in the developed world and huge numbers of people in the developing world will be users. Companies in most fields will ignore it at their own peril.

Chapter 12 - Critical Issues

Just because I'm optimistic doesn't mean that I don't have concerns about what's going to happen to all of us. Major changes always involve tradeoffs, and the benefits of the information society will carry costs. Societies are going to be asked to make hard choices about the universal availability of technology, investment in education, regulation, and the balance between individual privacy and community security. We'll confront tough new problems, only a few of which we can foresee. In some business sectors, dislocations will create a need for worker retraining. The availability of virtually free communications and computing will alter the relationships of nations and of socioeconomic groups within nations. The power and versatility of digital technology will raise new concerns about individual privacy, commercial confidentiality, and national security. There are equity issues that will have to be addressed because the information society should serve all of its citizens, not just the technically sophisticated and the economically privileged. I don't necessarily have the solutions to the many issues and problems we'll confront, but as I said at the beginning of this book, now is a good time for a broad debate to begin.

"One of the wonderful things about the interactive network is that virtual equity can be achieved much more easily than real-world equity"

"Will there be equal access to the interactive network?"

I am troubled, however, by the possibility that in the very long run computers and software could achieve true intelligence. Predicting a timeframe is impossible because progress in artificial intelligence research is so incredibly slow. But once machines can really learn, they will be able to take over most things humans do today. This will raise issues of who is in control and what the whole purpose of our species is.

As more business is transacted by means of the network and the amount of information stored there accumulates, governments will set policies regarding privacy and access to information. Software will administer the policies, ensuring that a doctor doesn't get access to a patient's tax records, that an IRS auditor can't look at a taxpayer's scholastic record, that a teacher isn't permitted to browse a student's medical record. The potential problem is not the mere existence of information. It's the abuse that makes me worry.

"Do you think the government needs to regulate the Internet?"

Access to government information, medical advice, bulletin boards, and some educational material will be free. Once people are on the network, they'll enjoy full egalitarian access to vital on-line resources. Within twenty years, as commerce, education, and broad-scale communications services move onto the network, an individual's ability to be part of mainstream society will depend, at least in part, on his or her using the network. Society will then have to decide how to subsidize broad access so that all users will be equal, both geographically and socioeconomically.