How To Exploit Innovation
BILL GATES, chairman and chief software architect, Microsoft
By Erick Schonfeld

(Business 2.0) – You often talk about the importance of fostering innovation at Microsoft. What have you found to be the most effective ways to do that?

The most important thing any company can do is hire the smartest people possible and then give them the resources to transform their ideas into reality. As Microsoft has grown, we've worked to maintain that culture of innovation while ensuring that we have the processes and infrastructure to turn ideas into products on a very large scale. So we've been able to achieve a good balance between fundamental research, incremental development, and breakthrough products. Being a large company also gives us the ability to make big bets on the future. I believe the work we've done around Media Center PCs and Portable Media Centers, centered on our vision for digital entertainment anywhere, is a great example of how large companies can bring innovative ideas to market and deliver amazing new capabilities to consumers.

Which is more important, technological innovation or business innovation?

They're both equally important. The clear potential of personal computing inspired us to start Microsoft, and we chose to be one of the first companies to focus exclusively on software because we believed it was the best way to bring the benefits of the PC to as many people as possible. Our high-volume, low-cost business model has been the key to our success over the years, and it's the foundation for the technical innovations we're delivering to our customers. It's a virtuous cycle: The technology ecosystem that has evolved around our business model has helped generate some of the most exciting IT breakthroughs. And many of the technical innovations we deliver to businesses are the result of our focus on driving business innovations, and then building the software that uniquely enables these scenarios, like SharePoint, for instance, and all the other work we're doing around collaboration solutions.

Where do you find inspiration?

I spend a lot of time reading about technology breakthroughs and thinking about the ways they can enable great new software. Twice a year I take a week to do nothing but read literally hundreds of papers about advances in computing, business trends, and ideas from our researchers and developers. I also meet constantly with product groups, doing product reviews, listening to new ideas, and helping shape Microsoft's technical vision.

What is the single most important new technology that Microsoft must master?

It's hard to pick a single technology, because there are so many opportunities out there. Obviously it's critical that we deliver on the innovations in the next version of Windows. But I think some of the most important work we're doing is in fundamental research areas like natural interfaces, security, or distributed computing—long-term advances that push the state of the art forward and shape the future of computing.

Microsoft can pursue any market opportunity it wants. How do you decide what not to pursue?

Software is our core strength at Microsoft. Sometimes we make investments to help accelerate the adoption of fundamental technologies such as broadband, and we work with hardware partners to innovate around devices like the tablet PC. One example of how we're delivering on our vision for digital entertainment: our focus on creating simple, consistent, and compelling TV, movie, music, and photo experiences on a wide range of devices. This requires a combination of focused software innovation and close collaboration with the companies that make these devices.

Of those technologies that aren't a good fit for Microsoft, which are the greatest opportunities for entrepreneurs today?

Advances in processing power, graphics, storage, and networking are making it possible to put the power of the PC into almost anything we can imagine. Powerful software is emerging that delivers the information, entertainment, and productivity tools people want on any of these devices. The opportunities to create new and exciting services around this digital revolution are amazing. — E.S.