Microsoft's Mundie: Consumers driving tech trends

Story Highlights

• Craig Mundie is one of two men taking over for Bill Gates
• Gates is stepping down to focus on charitable work
• Consumers at "bleeding edge" of technology, Mundie says
• Cool factor now a reason for replacing gadgets, Mundie says

By David E. Williams
CNN

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ATLANTA, Georgia (CNN) -- Microsoft's Craig Mundie has some big shoes to fill when Bill Gates steps down next year -- or at least one shoe anyway.

Gates tapped Mundie, the software giant's chief research and strategy officer, and chief software architect Ray Ozzie to replace him so he can focus on his charitable foundation.

In a recent speech at Georgia Tech's New Face of Computing Symposium, Mundie told the audience that computer science has had a profound impact on productivity and creativity, but said it was still a relatively young discipline.

He told the crowd of faculty and students that technology would provide tools to solve many of society's problems, "but somebody has to invent the tools."

Mundie sat down with CNN.com's David E. Williams to discuss some of the issues facing Microsoft and the computer industry.

WILLIAMS: Do you expect any major changes at Microsoft after Bill Gates steps down?

MUNDIE: Well, I don't think there's any disruption. If there was going to be a big disruption, I think it would have come when we announced it, because we said, "Hey, Bill's leaving and we've made all the changes largely to accommodate his departure as of this day."

And as we walked up to that event, we were asking ourselves "How will the world react, and how will the company react?" And the reality was it was sort of a nonevent. I think we had a good strategy for how we were going to operate in Bill's decreasing contribution mode and so far so good.

WILLIAMS: Could you explain your new roles?

MUNDIE: I'm trying to look at the three to 10 years or longer. So say from the pure research back to incubation and things that are sort of beyond the current product activity.

Ray is focused more on things from today and a few years into the future, which is the next one or two product cycles, so we tend to be complementary in the time horizons.

WILLIAMS: Do you see the Xbox 360 being a gateway for digital media, instead of just a game player?

MUNDIE: Yeah. Absolutely. We think that if you look at entertainment, writ large, what are the big entertainment things? There's gaming, there's music, there's movies and then there's TV where TV is more of a smorgasbord thing and you select from it.

Our goal when producing a family of products, the media PC, the remote extension of those onto flat panels and other devices and having that being an integral function of an Xbox.

I don't know if you've ever run an Xbox 360 through a Media Center PC in your home, but that's how I run my house today. You can sit on an Xbox and you can get the full Media Center experience through the Xbox on your television. So you can look at the family photos, videos, music collection whatever it is, you can play all the 3-D games and now you can plug in the HD DVD drive and play high-def movies. So all of those experiences, games, movies, music videos and television are all deliverable through that device in conjunction with a computer system and the traditional media delivery network, so I think all of that is coming.

WILLIAMS: One of the things you talked about in your speech was a pay-per-use system you're testing in Brazil that lets consumers use prepaid phone cards to buy software over time instead of having to pay for it all at once. Is that an idea that could work in the United States?

MUNDIE: Sure, we have lots of people in the United States -- people here talk about the digital divide -- there's some people on the wrong side of the digital tracks. They have the same affordability issues that a broader part of the population in a country like Brazil and an even bigger percent of the population has in a place like Indonesia or China or India.

So we definitely think that these models, as they're perfected, have applicability for all of the people in any country that have that affordability challenge.

WILLIAMS: How does it work, is there a slot on the computer, or are there kiosks?

MUNDIE: Those are two different solutions. A kiosk is like using a pay phone, you have to go to where it is and then you put the money is to use it. That's not what this is about.

People want to have personal ownership and in-home or small business access to these devices, but they don't like the old rich-world business model. This allows the emergence of consumer credit to apply to the computer plus its software. The two things are sold as an integrated unit and the ability to pay for it over time can be shared among the financing institution, the hardware and the software companies.

And yet the thing has the prospect of being more affordable in the sense that people only pay for what they're using and they're paying for it over time.

WILLIAMS: When Microsoft sees a trend like social networking, does the company try to jump in with its own products, or buy a company that's doing something promising?

MUNDIE: Generally, the answer is all of the above. There's no one fixed answer at Microsoft or any other company about how you look at these things.

In some ways, you hope that your own [research and development]investments leads you to these pots of gold yourself and you can lead the world to some solution. In other areas, a lot of the investment has to go into maintaining the build capability in the systems that people already have. Which is a part of a platform that enables these things to emerge.

And then occasionally, you look at something that has just popped out of the ether and was unexpected and decide, "Do I care?" and if I do, do I try to build the same capability myself or should I try to acquire the company or partner with them.

We take every one of those things and look at them on a case-by-case basis.

WILLIAMS: When you're dealing with services that are trendy, or popular with kids, such as Second Life, or MySpace, are you concerned that there will be a backlash if they get too mainstream and too many big companies are involved?

MUNDIE: You mean, "If those guys would buy it, it must be bad." No, I mean there's always going to be a community that's going to be on the bleeding edge. And the difference now is that the bleeding edge a couple of decades ago in this field of technology was people in academia, or government laboratories, perhaps. Then it became the people in the enterprise in engineering and then it became the enterprise writ large and then it became "OK, we take computers home and use them."

But now between game consoles and cell phones and personal computers and other types of electronics, we have a much broader audience of tech savvy people so there are many more communities and rapidly evolving ones.

And it's interesting; the consumers drive many of these technology trends because they don't have a [profit and loss]. They don't actually have the anchor of depreciation and profitability that governs what they spend and when they spend it.

So you're starting to see for the first time fashion as a factor driving the replacement cycle for technology. It isn't that the bits wear out or the cell phone stops making calls, it's that fashion that's driving it forward. Not just in a cosmetic sense, but in terms of what's cool, what is it that people want to see now.

So I think the bleeding edge will continue moving forwards and in many cases will be driven by consumer adoption.

WILLIAMS: So do you see Microsoft doing something like Apple's iPhone in the future?

MUNDIE: Well, Microsoft has been in the phone business for years. What do you think that thing is (pointing to a cell phone on the table)? That does more than an iPhone does today and it's our 7th generation.

The difference is that we've been coming at the smart phone and the Pocket PC class of phones by starting from the enterprise level where historically, a lot of that market was.

I would say arguably, we're probably better prepared to continue not only to serve that marketplace but also transfer it over to the high-function, high-fashion phone world.

One of the differences that's always been true between the world of Apple and the world of Microsoft is that Apple is a vertically integrated company, so they can make anything from top to bottom, whatever their product is, and they can control it. That gives them the luxury of making an integrated presentation.

Microsoft has always driven an ecosystem of companies on a global basis and to create much more scale and ultimately much more diversity, but it takes a little longer to get the whole thing in gear.

We just announced Windows Mobile and I think in the next few months there will be something on the order of 45 to 50 phones introduced around the world.

I'm pretty sure that some of those phones will move a pretty good distance into this high-function, high-fashion category, just because the market is starting to move that way.

So by the time the iPhone becomes reality, and certainly at the price point it's going to be offered at, I think there's going to be quite a bevy of interesting fashion and function phones that will probably cost less.