Newsmaker: Gates explains why Microsoft needs Yahoo

newsmaker PALO ALTO, Calif.--For a man a few months away from leaving his job, Bill Gates has a lot on his mind.

The Microsoft chairman is looking ahead to the time later this year when he will be focused full-time on fighting disease and poverty, while also trying to do everything he can to help his software company in its battle against Google. These days, that includes trying to sell Microsoft's $40 billion plus offer for Yahoo, not only to Wall Street, but also to all those Yahoo folks that Gates has his eye on.

Gates spoke to CNET News.com on Tuesday about how Microsoft needs Yahoo's engineering talent, how Windows 7 will make the keyboard and mouse less essential, though far from obsolete, and what journalism will look like in the future.

Q: You mentioned in some of the phone interviews earlier today that Microsoft isn't really looking to up its bid for Yahoo. I was hoping you might be to talk about why acquiring Yahoo is important, what is it that they have that they could bring to Microsoft? And then as a follow-up, do you think the company is ready to go the proxy fight route? Is that what's needed to get the deal in front of shareholders?
Gates: We have a strategy for competing in the search space that Google dominates today, that we'll pursue that we had before we made the Yahoo offer, and that we can pursue without that. It involves breakthrough engineering. We think that the combination with Yahoo would accelerate things in a very exciting way, because they do have great engineers, they have done a lot of great work. So, if you combine their work and our work, the speed at which you can innovate and get things done is just dramatically more rapid. So, it's really about the people there that want to join in and create a better search, better portal for a very broad set of customers. That's the vision that's behind saying, hey, wouldn't this be a great combination.

So, it's not a scale question but more a people question?
Gates: With people, you get scale in terms of the number of brilliant engineers and the speed of innovation that they're really driving. If you take mobile and video and neat new things for advertisers with targeting, and just the basic search algorithms, and the kind of computational platform we're building that we're using for search and we're going to use for cloud computing generally, the amount of computer science it's taken to do that is phenomenal. As you get more scale of engineering, you can just pursue that agenda more rapidly.

It's really about the people there that want to join in and create a better search, better portal for a very broad set of customers. That's the vision that's behind saying, hey, wouldn't this be a great combination.

So, yes, the advertisers and the number of end users is good, but we'd put the people in the engineering as the key thing that we say, yes, what can we get when we put their brilliant people and our brilliant people together.

Since you mentioned the people, how big of an issue do you think the cultural difference is? Because, I mean, obviously the key to retaining people is making sure that they actually want to work for Microsoft. Do you think there are significant cultural differences?
Gates: We've had an extremely successful group here in Silicon Valley that's done brilliant product work like Mediaroom and PowerPoint, and we have a research lab down here. Yahoo wants to do breakthrough software. The engineers there want to compete very effectively against Google or any other thing that comes along. So, I don't think there's really a different culture. If Yahoo had gone the direction of just being a media company, and not said that software innovation was important to them, then, no, there wouldn't be that intersection, because we're about breakthrough software. And that's where you can take search, portal, and these other things, and really bring them to a whole new level.

(Yahoo CEO) Jerry Yang, to his credit, has kept a lot of very top engineers that have just been doing their work and improving those things, and that's why we see the combination as so powerful.

One of the things that you've been talking a lot about is this idea of the new digital decade. What are some of the things that we can't do today that we're going to be able to do in the coming years through digital technology?
Gates: Well, everything is evolutionary in that things that start with a few people, get very widespread, and then eventually at least among younger people in the more developed markets just become common sense that that's the way things get done.

A cell phone that does photography; that's easy for your photos to just be shared and available. A cell phone that you can talk to and it will find the information that you're interested in. The next 10 years will have a lot of those (things) where they're not very commonplace today. If you look hard, you could find a little bit of location-based software or a little bit of interactive TV. But over a period of a decade, these increases become dramatic enough that it's a qualitative change, that you almost laugh at why did we have physical film, why did we have TV that was very channel-oriented.

There are a lot of these things about books, and note-taking, and TV watching that are basically unchanged by the digital revolution today, even though there are some avant-garde users. Whereas 10 years from now, the mainstream users will act like, well, of course, it was always supposed to be this way.

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