LOS ANGELES TIMES INTERVIEW : Bill Gates : A Seasoned Boy Wonder Still Searching for the Cutting Edge

At age 40, Bill Gates, co-founder of Microsoft, the powerhouse of the computer software business, can no longer be called the boy-wonder. The novelty of being the youngest self-made millionaire is long gone. The big challenge for this now-billionaire (his fortune is estimated at $14 billion) is to keep Microsoft, 20 years after its founding, on the cutting edge in the fast-changing world of technology.

Gates seems a study in contrasts. Gone is his rumpled college garb. Yet despite his tailored suits, Gates still presents a nerdy image, offering a boy-next-door charm that some say is calculated to mask a ruthless competitor and master marketer. (The Justice Department is again looking at Microsoft business practices.) He readily admits that Microsoft has made more than its share of mistakes. “We didn’t get into the network business until later than we should have,” he admits. But Microsoft made up for that lapse last week by unveiling its new Internet strategy.

Gates has become a oracle of high technology. His new book, “The Road Ahead,” was intended to articulate his vision and goal of making software easier and enjoyable for all--though many book critics are still looking for that vision. But Gates himself is anything but an open book--he is too smart and clever for that. As a capitalist first and foremost, with a steely goal of putting a computer on every desk in every home, his actions tend to reveal more than his folksy manners.

Gates’s is no rags-to-riches story. He is the son of a wealthy, prominent Seattle family and the product of private schools. As a high-school student, he worked summers at entry-level software programming jobs, earning $5,000 each season. He went on to Harvard, but dropped out to start Microsoft, based in Redmond, Wash.

Microsoft is now moving into the communications industry--blanketing the entertainment and information sectors with new investments and alliances. Microsoft has a stake in DreamWorks SKG, the new multimedia company created by Steven Spielberg, Jeffrey Katzenberg and David Geffen. Political commentator Michael Kinsley is leaving CNN for Microsoft, to work on electronic publishing. And Microsoft is talking to NBC about becoming part of that network’s proposed 24-hour news channel.

During a during a quick trip to Los Angeles on Tuesday, Gates good-naturedly responded to questions., lacing his conversation with such youthful adjectives as “cool” and “neat.” But when pressed with questions he doesn’t like, Gates becomes flip and somewhat testy. He sees the world through the prism of markets. Value to him seems to do mostly with the bottom line.

Gates says he has mellowed from his early days, when he would often work three days straight and not take vacations. Now, however, he makes it a point to regularly set two weeks aside as “think weeks,” where he spends time alone to study anything from competitors’ products to recent Ph.D. theses.

Two years ago, he married Melinda French, general manager of the consumer division at Microsoft, and they are building a huge showcase home complete with state-of-the-art video screens, so Gates can browse through the his recently acquired Bettmann Archive, the vast photographic collection that includes such resonant images as John F. Kennedy Jr. saluting the casket of his father.

Question: What is it that interests you about film entertainment and how does it fit into where you are taking Microsoft?

Answer: Our involvement with DreamWorks is in the interactive business. When Jeffrey left Disney, the day I saw that in the Wall Street Journal, I called him up and said, “Gosh, is there something you are going to be doing that a partner who understands technology and is willing to take a long-term view would be valuable in?”

He came up a few weeks later. A little time went by before he ended up getting together with Steven and David. Once that happened, there was discussion of what could we do. You know, when you get to know these guys it’s both impressive and kind of fun. In the world of interactive there isn’t that much that has been done. It’s a clean slate that clearly involves not just the skills that been have used in current media forms, but carrying those over. So we decided to create a joint venture and got it going.

That’s our interest. We’re just a strategic partner of theirs. We made a modest investment in the parent--I think we own 2% of DreamWorks.

The venture DreamWorks Interactive--DWI is 50%-50% . . . . They have a number of projects under way. The first thing they will ship will be for Christmas, 1996. They are not specific in what which titles they are doing. It is all CD Rom-based interactive, very creative, very artistic stuff. One thing that is incredible is how involved those founders are staying in the interactive business. It’s not just an investment.

Q: What are your other interests when it comes to entertainment? What are you looking at beyond DreamWorks?

A: You mean Microsoft?

Q: Yes, or you individually?

A: I go to movies all the time.

Q: I mean as it applies to the new technology that you are pioneering.

A: We bought a company called SoftImage that does computer graphics software. So, for example, the dinosaurs in the movie “Jurassic Park” were animated through this SoftImage software package. We’re taking that; putting it into the PC, and greatly enhancing it so that the cost of doing really cool movies--even with wild special effects and modeling--will be within reach of not just high-budget operations, but even students. Combined with the improvements in the hardware, particularly the graphics hardware, they will be able to do something pretty good.

The furthest we’ve gone in that is we have something called “3-D Movie Maker,” which is less than a $50 title which we just shipped, like a week ago. That is Microsoft’s really hot entertainment title for this Christmas. It uses SoftImage software, a sub-set of it, to let kids grab characters--or even adults--to do neat things. That’s the best thing Microsoft has done in this genre.

Q: You just purchased the big photo library, the Bettman Archives.

A: I have a company that is not Microsoft, called Corbis. Corbis is the operation that merged with Bettman Archives. It has nothing to do with Microsoft. It was intentionally done outside of Microsoft because Microsoft isn’t interested.

Q: What is your interest in that personally? Is it the photos, history? What is that fascinates you ?

A: Being able to get at high-quality images. You know, it’s kind of hard if you are an art student or architecture student and, say, you want to study great photographers, or you want to see pictures of a country you are going to, or see a Nobel prize winner. My belief is that with the Internet getting faster and faster, and screen technology getting better, that whether you are looking for an image to publish or just to browse or use it in a personal document--if we get a really great index and we have mechanism to pay royalties to people who bring images, then you could create a place that is very easy for people to go and allows high quality imagery to be used far more broadly than it is today.

But that’s just a bet. It hasn’t happened yet. Corbis has been licensing images, scanning them, building the index and so it’s a huge investment. We’ve gotten some great people in there, making good progress, but it will be four or five years before we know if that bet works. I think great images are a fascinating thing. But I don’t extrapolate from my interests that that’s necessarily the market

Q: So it was a business decision?

A: No, this one is the closest to a case where my own personal enthusiasm may have played a major role. I’ve gotten these high-quality screens in my house so this image data base will be something I’ll be able to browse in my new house. I also said to myself, “Am I making this a business decision?”--and I convinced myself that I was. Maybe I wasn’t. Ask me in five years, maybe we’ll know. I’ll tell you, “Yes, it was a great business decision,” or I’ll explain how maybe I fooled myself.

Q: What about value? I understand that Microsoft Network, for example, plans to position itself as a conduit, not as a publisher subject to rules of libel and any others that fall on publishers. It also raises the questions of whether the network might include pornography. What are the rules for the new publishers?

A: Are you interested in value? There’s a market out there and there is a lot of uncertainty of what the equilibrium condition looks like relative to conventional media . . . .

But pornography rules are no different in the electronic world than they are for anyone else; libel rules are no different than anywhere else. There is some accommodation required. If you have chat rooms--let’s say you have an article on your web site and you let people chat about it. Somebody can utter something libelous or pornographic. Under the current interpretations, you would be totally liable for what they said. That means it’s basically prohibitive.

If you ask your lawyers, they say you shouldn’t have chat rooms because of that. So people are either taking the risk or hoping the rules will be set up so you can notify people as they move into different parts of cyberspace.

What are the rules? Who is the publisher who is is responsible? Are these identities of people in this area of cyberspace real identities, that have been authenticated, or arbitrary appearances and names that people have been allowed to choose. Some people think that allowing all these places where . . . there is no libel or even places pornographic--you should be allowed to make that choice.

But these rules have to be crafted because the electronic world spans the normal publishing rule and the normal individual one-and-one conversation world. It’s the entire spectrum that expands from those two end points.

Q: Considering the latest set of inquires from the Justice Department, how do you respond to the idea that you might be a barrier to competition?

A: The notion of barrier to competition is very easy to test. You look at prices coming down. Has there been product innovation? Is there lots of competition?

If nobody is complaining, then I think this is mighty suspicious.

There are lot of things you can look at. In terms of Windows, there is no easier record to stand on than what we do to evangelize Windows. We spend over $100 million a year on that.

This latest thing [Justice Department query] is sort of a joke for everybody who knows it is a joke. We work so hard to create compatibility. The Justice Department hasn’t talked to us for ages and ages--Aug. 8 was the last communication that they didn’t plan to do anything before Aug. 24, and so we haven’t had one question, one request since that time. There had been an incident of the CID they sent to us about four months before that. We sued them in New York, saying this was completely unreasonable, and they dropped it and then never sent us any classified information document.

Q: You don’t think your approach needs altering in any fashion?

A: What do you mean my approach? We ship hundreds, hundreds of product. We do the best the job we can. We now spend $500-million a year taking phone calls from customers, we take every one of those customers calls. We use them to decide what to make a new product. This is capitalism at work. Do I think there is something wrong with it? Not that I’ve detected.

Q: Do you find an adequate labor pool you can hire from?

A: Sure. There is nothing that is eroding in the labor pool . . . . The kind of people we are going after, the United States is getting better and better in turning out those kinds of people. Now does that mean we are reaching down in all of society in the way we should? No. . . . .

There is this insane immigration bill that they are trying to pass right now, which would totally prevent us from bringing in any foreign workers at all. I think that’s very poor because it makes it most attractive to do your work outside the United States--where you can pull people together. You can have people come in, like customers, to collaborate with you on the products.

Here, they say you have to pay 105% of the going wage to the foreign workers but it’s illegal to pay them more than it is to pay women and minorities and other people. Anything you do is illegal. There are many, many Catch-22s in this bill. Telling you not to use foreign workers is bad news--but it’s the issue of the moment.

Q: What percentage of Microsoft workers in Seattle are foreign workers and did you testify against this immigration bill?

A: I saw old Sen. Simpson and told him my ideas. He said they were toning it down, and we looked at what they toned down--and we’re still completely unsatisfied. In a very key area, in the development area, we get up to 8% foreigners, mostly it’s Canadians from the University of Waterloo, McGill [University]--there are quite a few good universities up there. We had a company in Vancouver that we bought and we moved it down to Seattle and we ended up with Canadians as part of that transfer of people.