Trends in Computer Technology

Head Table Guests

Bill Whittaker, Q.C., Partner, Lette Whittaker and an Honorary Director, The Empire Club of Canada; Simon Strauss, grade 12 student, Jarvis Collegiate Institute; The Rev. Michael Caveney, Minister, Glebe Presbyterian Church; Larry Wasser, President and CEO, Beamscope Canada Inc.; Marjorie Sharpe, President and CEO, The Community Foundation of Toronto; Harry Seymour, President and CEO, Pathfinder Learning Systems Corporation and a Past President, The Empire Club of Canada; Diana Chant, C.A., Partner, Price Waterhouse and Treasurer, The Empire Club of Canada; Peter Turner, Warden, Hart House, University of Toronto; Zul Abbany, Vice-President, Marketing, Digital Equipment of Canada; Carolyn Leitch, Technology Reporter, The Globe and Mail; and Rick Doyon, Vice-President, Advanced Technology Practice, Hill & Knowlton Canada.

Introduction by David Edmison

Around the turn of the century a group of German engineers were invited to a demonstration of a revolutionary new technology. Of the

500 or so asked, only a handful showed up. The others were apparently intimidated, worried that this new technology would render them redundant or would simply be too difficult to learn. What was this revolutionary breakthrough? It was the telephone! While today, the telephone is among the most common of household items, and no one would consider it too difficult to use, in the beginning, how could anyone have predicted its profound effect on our world.

This same type of resistance to change and intimidation by a new technology was no doubt prevalent when the personal computer was first introduced to the marketplace. After all, not since James Hargreaves invented the spinning wheel and Edmund Cartwright the power loom 200 years ago has the world witnessed such a dramatic technological revolution. As we approach the 21st century, at the vanguard of this revolution, is Microsoft Corporation, a company committed to making computers more user friendly.

Microsoft Corporation is the largest producer of computer software in the world. It dominates the personal computer operating systems and desktop operating systems market, serving an estimated 150 million people. Recently, the company’s market domination was secured with the introduction of "Windows 95," launched on August 24, in one of the most ubiquitous marketing campaigns ever witnessed. "Windows 95" was recently described as the technological "epiphany," offering users greater applications and efficiency.

Recognising the importance of technology and the contribution of Microsoft, the company’s Chairman William Gates was received by our prime minister and a dozen other world leaders to exchange views on technology. This is a testament to the power Mr. Gates and Microsoft have earned in a relatively short period of time.

With us to today to talk about this dynamic company is Frank Clegg, the man who oversees all the sales, support and marketing services for all of Microsoft’s Canadian operations. Mr. Clegg graduated with a degree in Honours Mathematics from Waterloo University and currently sits on their Alumni Board. Our guest joined Microsoft in January 1991. Under his leadership Microsoft Canada has achieved unprecedented growth and has earned Mr. Clegg Microsoft’s prestigious "Presidents Award" for fiscal 1991, 1992 and 1993.

Mr. Clegg has undertaken a number of initiatives since his appointment. He has introduced Microsoft Consulting Services and expanded the reseller channel and Solution Provider programmes in

Canada. He has also led Microsoft Canada in their re-engineering effort called Blueprint ’98.

Obviously Mr. Clegg plays a key role in the Microsoft team, a team committed to making the personal computer as much a household item as the telephone.

Ladies and gentleman, 1 ask you to welcome our special guest, Mr. Frank Clegg.

Frank Clegg

David, thank you very much for those kind words and warm introduction. Thank you all for taking the time out of your busy schedules to join us. I know you have a lot on your calendars these days.

David made some comments about technology and the impact microprocessors have had on our lives in the last decade. Fundamentally, we believe the change that we saw in the last 10 years is going to be accentuated. In fact, personal computers will have more of an impact on our lives in the next decade than in those previous 10 years. I would like to speak about our vision and the key trends we see in technology over the next decade, as well as some of the implications for us at home and in the workplace.

Microsoft is celebrating its 20th anniversary this year and I think there are a couple of things which really make us a pioneer in this environment. If you think back 20 years ago, there really wasn’t anything called a personal computing device. There are two elements that have built up our technology, our focus and our success as a company

The first is a clear mission-a mission to have a computer on every desk and in every home. Our focus is to develop great application software to allow that mission to happen. I do a lot of work with advisory councils and board members, and what makes Microsoft unique is that this mission is clearly understood by everyone-our chairman, our co-op students or our contract people.

The second thing is that Microsoft has a clear strategy to obsolete our own product. You talked about Windows 95. It’s a bit of a challenge to have this great market share and market acceptance of a product, while consciously developing another product that will cause the former to be obsolete. We feel that if we don’t do that our competition will. So we are encouraging our organisation to figure out how it will evolve in this industry. We think this is a critical component for survival.

There have been several introductions of technologies over the last couple of decades. One key indicator of a technology’s public acceptance is the length of time it takes to get into the first 10 million homes. The telephone took more than 35 years to get into the first 10 million homes. The personal computer did it in less than seven years, so we are fortunate that we have chosen the right technology in terms of something that was going to be accepted very early and very quickly. The challenge that we have is determining the next technology that will transcend the previous one and be accepted as readily in the marketplace.

In the industry today, there is considerable discussion about what the future technology will be. Will it be the phone companies? Will it be cable companies or will it be satellites? What will the world marketing companies be? There is still a lot of debate and uncertainty. Some things are certain though. One is that we are converging on a digital world. We will have two-way communication and we will have incredible price performance. The other thing that will happen, and there is no debate about this, is that consumer technology and computer technology will actually converge. You’re starting to see that today.

In fact, more computer chips are shipped today for use in devices other than personal computers. If you start thinking about chip technology, you start thinking about automobiles, coffee makers right through to bathroom scales. One good example of this is that on the weekend,

we all changed our clocks back to eastern standard time. In almost every clock that we set back, there is some chip technology involved.

The challenge that we have as an industry is how you make that technology work together in a seamless environment. We do think though that consumers are ready for this technology. You may think of the wide acceptance of banking machines. I think the majority of people today have an instant teller machine card and feel very comfortable going in and using it to withdraw cash. When we think of the phone interface, it is used for anything from cashing Aeroplan points right through to ordering some material from a catalogue system.

A third of the homes in North America today have a personal computer. If you have children, that ratio climbs to 50 per cent. We think the figure will grow at least 40 per cent over the next several years so that within two years, 50 per cent of the homes in Canada will have a personal computer. The other thing that is happening in the industry is that there is a major investment in home technology. We are buying the latest and greatest technology for our homes. We believe the standard configuration this holiday season will be an Intel-based Pentium processor PC with full multimedia, some full video, voice, graphics and a modem so you can wire out to the network.

Clearly, the trend is that we are now buying better technology for our homes than we have in the workplace. That’s something we are struggling with in our organisations today. It’s a situation where I may have better technology and tools in my house than I have at my work. So we do think computers and people are ready. If you go back 20 years and you compare the processor that we shipped then versus what’s available in the marketplace now, today’s processor is a million times more powerful.

It’s very difficult for people to grasp, as we do not deal with exponential growth as individuals. When I say that

we’re going to have a 10,000 MIPS (millions of instructions per second) processor engine in five years, it’s really hard to comprehend what that means. I will try to give you one small example. For those of you who have a personal computer today, there is storage space that could hold, for example, a gigabyte of information. A gigabyte of information allows you to store a full 26-volume encyclopedia. In five years, that will be in the memory piece of the machine itself.

This technical advancement creates an incredibly positive spiral for us as a software developer because we know that the technology is limitless in terms of the power of these machines. We get to create incredibly rich content and incredibly powerful software that we can give to you and our customers to use. As we create even better software, more customers will use it. This will drive the demand for more technology which drives the price of that technology down. This then allows us to create greater software. So we think it’s a very positive spiral and we think it will continue.

As we head toward a digital world, the other element that we will see develop is the movement of communications to digital technology. The opportunity is the price performance that you are seeing in the processors and in telecommunications. It is going to be very inexpensive to send these full video images across the telephone lines, through the cable systems or through the satellite. There again, we have the opportunity to create these great applications that involve sharing information around the world in a very cost-effective format.

We have to start rethinking how to use the computer, particularly in organisations. There is a lot of time and effort spent on internal efficiencies. Initially, we did a lot of work on internal efficiencies such as payroll or operational applications. Today there is a lot of hard work going on in the industry to use this technology to help re-engineer the business process and to help us drive

international competitiveness as Canadian companies. There are companies today struggling with getting thousands of business partners or customers on their system and sharing that information.

Our vision of the future is that you will now want to start thinking about having this technology available to every individual customer you have. The challenge is to increase from tens of thousands of customers talking to you at work in your systems to potentially several hundred thousand or even millions of customers. The work that we are doing today will build the foundation for that. Let me give you a few examples of some of these things. There is a company that we worked with in the Calgary area that sells office products and all of their sales representatives have personal computers that have compact disc technology, allowing them to go into their customer’s office and show a very rich slide presentation of the product.

If the customer is interested in a particular product, the salesperson can actually call up a video clip, show the technology being used and take the order right in the customer’s office. Later on, he can go home, to the office or to a hotel room if he is travelling and download the information to the server for verification. If there is any new sales or inventory information or any product that has just been announced, he can take that down through the telephone line. This application is shipping today in the marketplace.

We are working with the Ford Motor Company. Through the Microsoft Network, you will be able to sit in your home and configure and design the automobile that you want from Ford, pick the colour scheme you want, pick the features you want and you can even see the car in your favourite scene. Ford wants to be able to then send somebody to your house to take you for a test drive in the car that you have just selected. Then you make the decision. You may even decide to buy that car right there

or you may decide to go back through the network and price it out or get other options. That technology and that platform are available today.

An application that’s probably a little closer to me is a European one where you can actually sit down and go through a series of questions and select the appropriate wine for dinner. You can then order it and have it delivered to your house the following day. What we are finding with that application is that people are spending more per bottle of wine than they would have if they had gone out and picked it up themselves. Again, this technology is shipping today, so the opportunities are fantastic.

As consumers, we start to take advantage of this and start to feel very comfortable when we think about the opportunities ahead of us. What are the major implications? It’s our belief that every industry, sector and business today will be impacted by this growth and this explosion in the on-line interactive world. If you think about the retail environment today, a big advantage of retail is location, location, location. If I were to give you the technology and the ability to go and choose a sweater from anywhere in the world or a suit from any country in the world, you might actually have your image scanned on to this personal computer device. You could see this suit in a particular colour on your body in a certain scene. Then you could purchase it and have it shipped to your house. In other words, it gives me the opportunity to get the best of Scottish sweaters or certain shoes from different parts of the world.

If we replace the retail model with an electronic shopping mall, then retailers will really have to start to rethink the value that they provide. I am not suggesting for a minute that we’re going to get rid of shopping. Certainly my wife will never click on a mouse to do all of her shopping and neither will I. Quite frankly there are certain things that I will go out to shop for because I want to go out and shop, but there are certain things that I just

detest buying and now I will have the choice as an individual. If you think back to the movie industry when video came out, people were predicting the end of the cinema. Well cinemas have increased in popularity and revenue since the introduction of the video. Now you hear people saying, "Yes I’ll go to see that one at the theatre, but I’ll wait until this one comes out on video." We have differentiated between a show that is worth the money to see on the big screen and one that is not. I think similar things are going to happen in this on-line environment.

We’re doing some work with a couple of business partners so that you can actually download Microsoft software through the Internet and purchase it electronically. Again it’s something that our business partners thought was worthwhile. What I find interesting is that it’s not our largest business partners who have come forward with that idea. We talked to them about it. They either didn’t feel it was appropriate or they weren’t ready to do it. It’s a couple of companies that you really haven’t heard about that were experimenting with it, and are similar to the companies we’re talking to today.

Look at what Bayshore Trust has just done this month in the Canadian marketplace. We now have the ability to go through the Internet and take out a loan and Bayshore commits to having that money in your account in 48 hours. It’s the electronic world that allows this to happen and Bayshore is not exactly one of the top 10 in Canada, but it is leading the edge in trying and experimenting with different technology. I think that is exciting.

I’m going to talk a little bit more about the Internet. What I want to do is give you an example of some of these happenings. I picked the home page for the Swatch Watch Company. I picked this one because I think it is interesting. I can select the things that I want to see, or I can also select the things I don’t want to see. As a business there has to be some encouragement for our customers to look at our information, to look at the products and services

we have available. We want to make sure that there is an attractive thing to do, and that’s exactly what the Swatch Company has done. It’s a very enticing, exciting, very graphical kind of picture encouraging me to go in and check it out.

The next step is now you have the ability in an on-line environment to take the pieces of this watch and put it together. My folks tell me that it takes about 15 to 20 minutes to do this. I haven’t done it yet but I am going to do it. I think it’s an exciting thing to try to do. And if you go through this process and spend the time, then Swatch will send you a coupon for a watch discount. That person just spent 15 to 20 minutes doing this. What does that tell you about that individual? What does it tell you about the opportunity to cross-sell to that individual? We are starting to really understand and learn about our customers and have our customers tell us some fascinating things about themselves and their business and what they’re interested in. This is a very quick analysis without a lot of detail, but it reveals the opportunities.

Consider some of the traditional things that you would spend money on in your household. We see a shift in market share from the traditional environment to this on-line interactive world. In some areas like TV shopping, this shift could be as high as a 75-per-cent share shift. We think, fundamentally, that anyone who is doing TV shopping today would shop in the on-line interactive world because we can give you better-quality pictures and better selections. In some areas like retail merchandising, it’s going to be a smaller amount, like a two-per-cent shift, but two per cent of a fairly large number. When you pull it all together we think the opportunity is at least $1,500 per household per year and in that we are not making any major decisions or any assumptions on a shift in terms of new applications. For example, when the automobile ame out, there was a whole industry of service stations

d mechanics and repair centres that came out of that.

We are not trying to project any of this. This is just raw material of what we know today and what we know is available.

I want to talk a little bit about the Internet. In his opening remarks, David talked about the impact the telephone has had. We use this term in Microsoft called a "sea change." We view things like the introduction of the telephone or the introduction of the personal computer back in 1981 as a "sea change" around the world and in the industry. We think the Internet is that same kind of major change. What this does is phenomenal. Really the Internet has been around for 30 years. It was developed initially from a defence standpoint and in an environment for people in an academic world to share great ideas and information. It just exploded in the last year to the point that any business, if it is not actually including this in some of its material, runs the risk of being viewed as a technology-illiterate company. You see all these companies that are generating home pages because they feel pressure to do it. The good news is that anybody can put content on the Internet and anybody can access the Internet. The bad news is that anybody can access the Internet and anybody can put content on it. So companies are putting their content up there but the real test is how often do they upgrade it. Have they got their best people working on their content?

We think the opportunity and the way we are approaching it is really two-fold. We have something called the Microsoft Network which is an on-line interactive environment. Our strategy is to be a civilised community on there. In other words, we create this environment for business which is very secure, where there is a lot of strong infrastructure to encourage you to put your best content on there and perform secure transactions. With customer information secured, our customers are going to feel very comfortable putting their Visa Card, or their Mastercard or American Express Card number on

the Internet. And parallel to that we think there is an opportunity to create great tools so that people who are creating these applications and creating this material can do it in a very efficient way.

Everything we’re doing in terms of tools and applications and platforms is designed to enable you to leverage the Internet and leverage the expertise that we have built in terms of developing great applications.

What I would like to do right now is to just show you something that we are doing. You may have heard of our agreement with the people of New Brunswick and what they’re doing over the next several years. They are taking all the curricula that they have in kindergarten through to grade 12 and are putting that on the Microsoft Network. The strategy behind this is to include the rural parts of New Brunswick where they may not be receiving the same variety of course material as urban centres. Students will have the capability to use a PC to access new course material not offered at their school.

This will evolve over time as this service doesn’t have to be limited to a student in New Brunswick. Why couldn’t it be a student in Australia or a student in Europe? Information could be shared with students from around the world. In this scenario, there is no reason why we couldn’t export this to the rest of the world. We are very excited about the opportunity, so we’re doing a lot of work with this consortium in New Brunswick to pull this course material together and to make it very effective.

What I thought I’d show you today is a subset of that which talks about the opportunity from a retail standpoint. We are in a campus environment so of course most of us would be familiar with the library and the bookstore from our university days. This bookstore environment is very similar to what you’d see today. I am just showing you a copy of the slides. What we could do is sign on to the Microsoft Network and have this coming over the telecommunication lines. I’ve elected to do this locally

but in a real-world environment, speed and price performance will advance as telecommunications become more and more effective.

We will be able to have people working around here sending down richer and richer images. So you can click on the kiosk that’s here in this environment. You can go in and look at it and set up different kinds of material that you could pick. Let’s pick operating systems and we’ll pick Windows 95 to look at. As you can see you can put a lot of different material here and a lot of different information. We can preview the title, and again you can decide what kind of material you want to put up. We can continue the preview and even get to the point where I want to order this book. I said, "Yes I’ve seen enough of it, I want to order it." Now if we were running on-line, it would have my ID on here, it would have my Visa Card if I wanted to put it on, or I could enter it myself. And again this technology is available today. This is not something that’s five years down the road. This is technology we are working on with our business partners to roll out today.

As we go forward, if you really start to think about the opportunity from a real information-highway standpoint, it’s incredibly exciting to us. You talk about the personal computer but we think this is going to expand, and that the device is going to be more than just a personal computer-it can be really any electronic device out there. Any device that our customers are using has a real opportunity to have two-way communications so instead of our guessing what content we think they want or what material we think they’re interested in, they are going to be able to give us immediate feedback and immediately interact with us and tell us whether that works or not. From a business standpoint, if you have that information, it’s almost near perfect information about customers, in terms of what they can do and the capability they have. We are going to continue to evolve this technology and

have the flexibility to allow our customers to really make some decisions on what they would like to use.

There are some things that have to happen from an evolution standpoint. Without going through a lot of details, there are some core things we have to do in the larger account environment, the large enterprise environment, and the thinking is evolving. We used to think about the mainframe system being the centralised storage for all the data that we’d ever want to know about our customers. Well in the scenario that I am painting for you, there is not going to be one central place for all this information. So we have to evolve this technology to be able to share this information among a lot of different distributed systems. We used to think that if you wanted to do a banking transaction, you would go on to the bank’s network and you would move that information around. Well our thinking is changing with the Internet explosion and all these on-line services. You may not in fact use that proprietary network. It may be more efficient to go through some other system.

And then finally, we used to think of this client, in other words, the front-end system, being something that would be a PC device. Well it will have a lot of PC technology in it. I am not saying it will be a toaster. I think it will be a little more sophisticated than a toaster, but it could be a palmtop machine. It could be your broad TV interface. So again the technology has to evolve to make that all very similar and very easy for us to use.

We’ve got a lot of work to do in security and Microsoft has just made announcements with Visa and American Express. We as consumers have to feel as comfortable putting our Visa account number on the network as we do handing it to someone in a store or giving it to somebody over the phone. Today we feel comfortable for some reason giving somebody that information over the phone. Well, we have to make it so that you are at least that comfortable putting it on the network. There’s a lot of work

under way with our business partners to do that. As you can see in this example, we are even using the cash register receipt. We’re going to give you a copy so that psychologically, you feel good about it. We’re going to give that same kind of look and feel to it.

There’s a lot going on in usability. I mentioned that a third of the homes in Canada have a PC. About two-thirds of them don’t today, and it’s not an affordability issue. The reason is that people are not prepared to spend the time or there is an intimidation factor. We have done a lot in the last two decades to make that person-machine interface more effective, more functional and a lot easier to use. We could do a lot more.

We just announced a product called Microsoft Bob. On the screen, there’s a door knocker so the first thing you do is knock on the door. Then the door opens up and you go into this room. You can configure this room as contemporary or traditional. You’ve got this room set up as a family room and in it there is a little clock for your calendar, so you don’t launch Microsoft schedule, you open up the calendar. If you want to write a letter, you don’t launch Microsoft Word, you open up a letter writer. We have these little characters that come up. I’m showing them in the upper right-hand screen. These warm fuzzy little characters can offer help by saying, "I notice you’re having trouble, would you like me to do something?"

The problem we have today is if you do something wrong, we beep at you. We want to talk about a nicer, friendlier way to do it. You can pick whether it’s a fuzzy little dog or some other character. If you want something with an attitude, we even have this little rat. Then you can evolve to things like natural languages, voice or other kinds of technology. We are spending as much time on how you work with the PC more effectively as we are on adding features. With many of the features that are available today, some customers are not sure how to use them, so they need help. As computing gets more and

more sophisticated, we can actually have a feature working in the background watching what you are doing. It can then pop up on the screen and say, "Hey did you know there’s an easier way to do that?" or "I see you’re struggling, would you like me to help you?" Then you can actually enter in an English sentence saying, "Yes I would like to know how to paginate this document" and have the machine come back and say, "OK let me take you through the steps to do that."

This is the kind of work that we’re doing. For feedback, we’re getting people to sit down at a screen and we’ll watch what they do. We track eye movements and facial expressions to find out how they are doing and we’re investing a significant amount in this because that’s what we need to do. The other part that’s interesting is the whole content evolution. We have an opportunity here and if we do it right it’s an incredible opportunity in the marketplace. If you think back a few years, if you wanted to create something in a very sophisticated graphical environment and print it, you typically went to a specialised area that would do it for you and then came back with incredibly rich content or information. Now that device was typically some kind of a closed system that could be anywhere from $50-80,000.

Today we have the technology, using a Windows machine, using something like Microsoft Publisher with a? very good quality colour printer, to do a similar job for, $5-7,000 from your desktop. We view the opportunity and the content the same way. We’ve acquired SoftImage which developed the tools that Lucas Films used to create dinosaurs in Jurassic Park. This is a very sophisticated system and it’s incredibly amazing to watch this technology. In fact, you have to go on a week-long course to learn how to use this system. It’s so sophisticated. We’re going to announce in the next six months that technology for the Windows NT platform. So you will be able to buy a desktop PC and the software to create

the same quality content that Lucas Films creates for movies, but right in your home or on your desk at work. That’s at one end of the scale.

At the other end of the scale, we are also