How would you compare the innovation environment in Europe with its counterpart in the US? And should we in fact be looking at Asia as a major competitor in the area of IT innovation?
I think there's innovation happening around the world. I think the very close association between federally funded basic research and the commercial sector is key. You see in the stimulus funding and the next federal budget an increase in federal research dollars. It's focusing quite a bit on energy efficiency, renewables, health and health IT. This has been critical to our industry in the United States.
Different countries in Europe do it to different degrees. So creating incentives for R&D is important and this means creating an environment which encourages risk and protects intellectual property. When you look at the US stimulus package, it was very much focused on new areas where the message is that you should take some risk.
In talking with the Commission, have you had any discussions about the Lisbon Agenda, and what the next strategy might contain? Some people are calling for a more explicit focus on innovation – is that what you're hearing?
Well, we've worked very closely with the Commission on the Lisbon Agenda and i2010, and now they are in the process of looking to the next version. We've talked a lot about human capacity, a lot about R&D. We're talking about government use of technology to spur innovation and that goes back to technology use within the delivery of government services as well as spurring innovation.
On the issue of intellectual property (IP), is Europe a difficult place to protect IP?
I think the patent regimes across the different countries provide similar kinds of protection. There has been more focus in Europe than in other countries about questioning the value of patents, so innovators might think twice about first securing patents in Europe. The discussions in recent years have not been about strengthening the patent system, but in terms of weakening it.
In Asia, where you've spent some time, have you seen any improvements in how well intellectual property rights (IPR) are respected?
China continues to be a very significant challenge with respect to enforcement of intellectual property and the use of illegal software. We've seen some great progress in Russia, great progress in Brazil, continuing progress in India.
So those economie - who really recongise the value of protecting intellectual property rights and what it means to their local innovators and their ability to drive innovation and build businesses around innovation. I think it has been most prevalent in Brazil, India and Russia.
The progress those countries have made in the last few years alone has been quite significant, which makes the challenge with China all the more significant.
Is there anything that Microsoft can do to lower prices or make scaled-down versions of its products available?
We have a variety of pricing models and licensing models. We've seen the most progress in China related to the development of local software companies and their desire to build successful businesses. So we work very closely with China and others around the world to build start-ups through our Bismarck programme and a very significant business partner programme to help developers build their business. And that has been the most important factor in China.
There's still a lot of work to do but we see it both with the range of copyright owners – where it's music and film or software – in China, and now that there is the ability on the Internet to distribute one's innovations. The distribution models are great, but the challenges it presents are also quite significant and these are issues that copyright owners in China and around the world are dealing with. In China, the cost of distribution has gone down, so you're competing with piracy but you're competing with less infrastructure costs.
Is Asia seen as the most significant market for the future?
Absolutely. Not just because it's a very big market but because it's a place with huge innovations. Miscrosoft is most successful in an environment where there are lots of companies building software, innovative hardware, providing services. We do well when there are others in this ecosystem doing well, when the environment really promotes innovation. And we see very significant opportunities in Asia.
What about Asia as a competitor? Surely the next big competitor could come from there?
Yes, we have very significant competitors in Asia and in Europe. The cost of becoming a global company today is much less than it used to be. And the talent – the focus on science and engineering in China, India, Korea - is much more significant than in other places. So just the sheer numbers of graduates do put other parts of the world at a disadvantage.
People often talk about a European patent – is that something you favour?
We have really being favouring harmonisation across patent regimes. We've been advocates for patent reform in the United States to be more in line with the European and Japanese systems. So the cost of patent protection will hopefully go down over time because of some of the harmonisation.
And is a global patent a pipedream or is it something to work towards?
I think in the current environment it's probably not very likely.
Microsoft is now quite a mature company. How can it compete with relative newcomers like Google and even more dynamic start-ups?
That's why we focus on R&D. We have a number of established businesses, but we are constantly innovating in new areas as well.
You've launched your new search engine, Bing, but Google might feel they invented that ten years ago. So is it really an innovation?
There are many search products in the marketplace. There were search products before Google and there'll be search products after. The innovations we unveiled with the Bing launch were quite significant in taking the technology forward. We believe there's great scope to make advances in this area. It's not going to be easy, of course. Bill Gates has said the next 25 years of innovations will totally outpace what you saw in the last 25 years.
How has the recession affected demand for Microsoft products and services?
It has significantly impacted demand at the consumer level and the enterprise level. We are fortunate to have a diverse business with consumer, business and government levels, and we've seen the ebbs and flows in these areas. We've seen significant contraction of capital spending in the US and other countries. IT has been a significant percentage of spending so the earnings across the sector are down.
In terms of stimulus packages, the European recovery plan is somewhat more modest than the American package. But are there areas you are looking to benefit from?
The focus on investing in technologies that will help increase efficiencies and productivity is critical in the long term. We've also seen a very significant stimulus in China and Brazil, as well as Russia.
What can Microsoft do to help reduce global CO2 emissions, and what can technology companies do to reduce their own carbon footprint?
Windows 7 has huge advances in battery power management: that will certainly have an impact. Data centres are working to reduce consumption of energy and water. We think software will be a critical part of driving to a low-carbon or no-carbon environment. It's putting information into the hands of people and businesses and government to move to smart electronics in your home, which can speak to each other and tell you when the most cost-efficient time is to do your washing.
We, and others, are looking to build platforms that will allow the mayor of a city to track energy uses across the city. The whole idea is that if you have more information about the energy you're using, you might actually change your behaviour.
What are you doing in health?
We're doing a number of things. I think it's one of the most exciting businesses we're in. Then there's the Health Vault, which allows personal health information to be captured from devices.
I can share this with my doctor or I can actually learn more about my own health and better manage my health. We think there is huge opportunity with chronic illnesses to manage their own healthcare.
On the hospital side, people often complain that there are different software packages in use in radiology and surgery, which causes practical difficulties. What are you doing in this area?
We are using Amalga in hospitals to break down the silos between data, where it's X-ray information, laboratory or surgical information. We have huge partnerships with major hospitals in the United States. It has been incredibly well received.
A great deal of effort is underway to help healthcare institutions aggregate and share information. Amalga is able to cut across all these different software applications and suck out the data. It is a very significant contribution to what is a very challenging environment. There are a lot of custom-designed products in use.
On the consumer side, people often talk about the digital divide, but will some of these technologies which allow you to track your health be exclusively available to the few?
Health Vault is something that can be done as part of a telecoms company's package. In the US, it's an advertising-based model – which might not work everywhere. But there are certain governments who view this as a very cost effective way to provide a service to their citizens, so I think it's something that will be broadly available and broadly relevant to people.
The whole issue about whether or not people will have access to computers and have the digital skills to use the tools: that's why the work the EU and NGOs are doing is critical. Computer technology is becoming central to managing your health, finding a job, doing basic office skills.
What's the next Windows or the next Facebook or Google?
Well, the health sector has huge opportunities. The whole issue of energy efficiency and the role of software as an enabler of that will be big. The innovations will come in the application of technologies to specific areas where there are huge challenges like smart transportation, how to meter things better.
Distance learning, telecommuting – these are things that are still in their infancy but will change the way we live; the whole concept of search and being able to analyse large amounts of information and finding the really important things that are relevant from all the information that's available. When we think about search today, it's very static. Bing is taking a step forward, but there are more steps to take.
Is it static because there's not much more we could want from search?
I don't think so. With the advent of social computing Web 2.0 tools, there are so many more voices in the policy discussion today. So what I really want to understand is which of those voices are really rising up? Where are the key conversations? At the moment I have to read all this stuff to understand that. You're seeing some new businesses coming out that map and analyse the different conversations, but technology can do that. The whole idea of information, data, and communication is changing very rapidly. The use of software to navigate through large amounts of data and help tie it to specific outcomes is a huge opportunity.
Is Microsoft still investing in innovation during the crisis?
We firmly believe innovation and advances in productivity will help move the global economy out of the current stagnation. Certainly before 2000 and 2001, it was innovation that moved the global economy forward quite a bit. The past ten years it was debt [that fuelled growth] and now with that debt being taken out of the economy over the next number of years, there is a significant focus on stimulating the economy. The stimulus packages are a really important mechanism for growing confidence. We are optimistic that the US, Europe and others will come out of this with a different level of activity but, nonetheless, with growth.
As a company we are focusing on increasing our R&D investment. We're over $9 billion this year, which is an increase from last year and we firmly believe that in these economic times it's especially important to focus on innovation.
You're based in the US, but have been in Brussels talking to policymakers. What are your priorities in those discussions?
Coming to Brussels gives us an opportunity to talk to a lot of different directorates about what can spur innovation. One clear issue is human capacity at all levels of sophistication in information technology – from very basic digital literacy skills to highly sophisticated software innovation.
You can see where governments are focused on their stimulus or recovery packages: health, education, energy efficiency, renewables – a lot of it will be driven by software. Green IT, health IT. So the need for talent that can design, develop, deploy software for smart buildings, smart transportation grids, preventative care – it will all be driven by software to a great extent. Understanding the kinds of data that will help drive preventative care and energy efficiency.
The human capacity is a key issue and the Commission has done a lot of great work focusing on these issues.