Bill Gates' Vision for Vista

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I think when you've got shared use, where you've invested in the training and the network and all that, you should have a fully capable machine. I think for certain things we've got to get so you're just leveraging the cell phone, which somebody is already buying, so they're not even having to make a PC purchase at all. We've got innovations like a PC where you can just pay a monthly fee and use it. So I think that's part of the mix. Some of these cheap hardware designs will be part of the mix. I don't think that's the magic thing that changes everything, because there are so many other elements that any successful project has had to bring together.

Microsoft for many years has been both the market-share leader in the PC industry and the mind-share leader. Recently, Apple (AAPL) Chief Executive Steve Jobs seems to be usurping your role as mind-share leader. Do you agree with that assessment? What do you think about Jobs' role in the industry?

Steve has always been a huge figure in the industry, and, in a sense, bigger than life, more visible than I am in some ways. I don't think anything has changed. He's still much more of an impresario than I am. Microsoft is better known. We have more impact. Remember, there are tons of countries where Apple's PC share is tiny. The best case is the U.S., where it might be 5% to 6%. In many countries it's not even a tenth of that. There have been others who have been viewed as usurping us—like Marc Andreessen at Netscape. There was the guy at Sun who was viewed as usurping us. There was the guy at Borland. Jobs and I are two of the few who go way, way back.

Apple has a different approach than we do. They do the hardware and software together, which is sometimes useful and sometimes not. We're much more about enabling partner innovation. If you believe in partner innovation, you might say, hmm, that's why the Windows PC has 95% market share. But Apple does good stuff, and I'm glad Steve's part of the industry.

Well, a lot of the action right now is in consumer stuff, and that's where he's standing out.

The consumer side will always get covered, and the business side just doesn't get as much coverage. Now, in terms of changing the world, making the world more efficient, actually the business side is pretty darned important. The beauty of the Windows PC is it lives in both worlds. In fact, its share is even higher on the business side than the consumer side, and even there it's very high. But, even look at us, [gaming console] Xbox 360 gets more attention relative to its percentage of our business than that ratio would suggest. It's the same with the things we do with phones, or Zune [Microsoft's portable music player released last fall]. Phones actually are interesting because they cross the business/consumer boundary.

On Zune, it's the very early days, but it didn't leap off the shelves. Are you disappointed at all with that?

No. We set what we thought was an aggressive target, which was the ability to sell a million devices the first year we were out. That's a lot for a new device, but it's not a lot compared to what Apple is selling. Clearly, Microsoft is saying this is an important category, and that we're going to keep doing neat things. The big screen, the Wi-Fi, those are foundations that we can do a lot more with. So even the people who have got their devices today, they'll be getting a lot more out of them as we do new software capabilities. We're on track to do the million devices, and then we'll take it from there.

We've had some products that were incredible from the beginning and others that weren't. But Microsoft has a history of just improving and improving things, and bringing its software expertise to bear.

Steve Jobs's most recent performance was with the iPhone, a big rollout. Would you buy an iPhone at $499 or $599?

Well, of course, I'm the wrong person to ask. I like to dial numbers with one hand, and maybe I'm the only one.

I know you could afford the price, but do you think it's a little steep?

Well, the marketplace will do a good job of judging that, and they can always change the price. The phone space is one where we have been focusing. It's one of those places where we think software will be the critical element. That's just more and more true. Why do people like Xbox 360? Software. Why do they like iPod? Software. If there's anything good about the iPhone, it's software. How many companies in the world can do really great software? We do it with an incredible research group, the willingness to take on the toughest software problems, and just stick at them, and to have a variety of hardware partners, and the biggest application software base.

We're unique in this world of software. Will Nokia (NOK) step up to a world where software is super-important? It's not clear. Will Sony (SNE)? Well, they're trying, but so far it's been tough for them. And if you look at the whole traditional consumer-electronics set of companies, most of those are going to be more supplying components and hardware systems. The software industry, which we're a major part of, is going to be driving the magic in those things.

So the key trend to look at is the importance of software, and then say who really has shown the ability to do strong software? In some ways, just we have. If you define it more broadly, yes, Apple has done a few things well. Google (GOOG) has done a few things well. But, the leaps in software, and the kind of long-term investments we're making make it clearer than ever that we picked the right business, and the right place to contribute.