BROCKMAN: What's a CTO?

MYHRVOLD: Hell if I know. You know, when Bill and I were discussing my taking this job, at one point he said, Okay, what are the great examples of successful CTO's. After about five minutes we decided that, well, there must be some, but we didn't have on the tip of our tongues exactly who was a great CTO, because many of the people who actually were great CTO's didn't have that title, and at least some of the people who have that title arguably aren't great at it.

My job at Microsoft is to worry about technology in the future. If you want to have a great future you have to start thinking about it in the present, because when the future's here you won't have the time.

BROCKMAN: So, what's happened with Microsoft's efforts regarding online publishing? Sounds like yet another example of "Brockman's Law": Nobody knows and you can't find out.

MYHRVOLD: That's basically right. At this stage in human history, technology plays a role that is enormously important. On Wall Street technology is one of the key leading indicators for the entire economy; something happens in high tech the whole market goes down. Back when the Dow theory was first developed they had the Dow industrials and they had the railroads, as the Dow transportation index. No one really cares about the transportation index anymore, but back when it was first created, it was an incredibly powerful force. If you did that today you'd have to have a technology index in some sense. And probably for the next 20 years, technology, particularly computer technology, is going to be one of the most dynamic parts of the economy and society. In the 20 year time frame time you could argue that genetic engineering and a variety of biological technologies are going to wind up having even more impact on us, because they'll cure our diseases.

But the biology stuff doesn't get to happen unless we get another 20 years of computing to happen. Suppose you sequence the human genome. You will have this thing that sits on a CD-Rom, and you're going to analyze it with computers. Writing it all out, all these strings of AGCT, is no fun at all. So the enormous revolution in biology that is about to take place is highly dependent on computing. Ultimately it's going to have a bigger impact. Certainly in another 20 or 30 years, as I'm entering my 60's, I'm hoping it'll have an impact.

My kids asked me the other day what the human genome project was about. I have these twins who are about 8 now. They'd heard about it, and they'd heard about DNA, and so I explained what people were doing. They said, well Daddy, why are they doing that? I replied by the time you're my age there may not be cancer or a whole bunch of other diseases. So they thought for a minute, one of them said by the time we're your age? Daddy, it might be too late for you! And it might. But the technology age fortunately isn't too late for me. I am a little bit in the thick of it. As everyone is right now.

BROCKMAN: The Net shakeout has begun. Any comments?

MYHRVOLD: I wrote an article in Slate about the economics of the Web, where I pointed out that there were no economic models regarding the content creation on the Web. At this point. The blunt way to put that is the word that usually follows manic is depressive. The phase of enormous uncritical not well-thought out enthusiasm for the Net which we've seen in Wall Street and many other ways in the last 12 months is going to give way to a period of time where people are very negative, at least about some aspects of it. Some of the corrections that we're going to see the market make are going to be too far the other way. In the same sense that they were crazy high six months ago they're going to be crazy low six months from now. Roughly speaking.

So, that's one effect. The second effect is that even setting aside the market being overly negative, it's just basically true that many of these things don't have a lot of basis in reality. They never did. Or they did at one time and now events have changed. If you look at television as an example: TV ultimately developed both a strong subscription version, which is cable, and a strong advertising version which is ordinary broadcast television. It's a great example of a new medium that developed both, but it developed both over a period of about 30 years. It took a while for the major advertisers to shift their advertising budgets from print and billboards and those cute little Burma Shave signs that they used to have in the 30's. Those people had a hard time shifting to television. Similarly the advertisers of the world spend billions and billions of dollars, but they're not going to shift those billions, which is a central part of their business, until they understand the medium more, until there's more people there and until the techniques of Web advertising are understood better.

All those things take time. It doesn't happen overnight. A lot of the problem with the Web comes from mis-extrapolating. There are some curves that are rising enormously fast. Like take the number of people who get on the Internet. That curve is going like a rocket. That's because it's easy for people to get on the Net. A hundred million people have personal computers, of one variety or another, and they're not on the Web yet. Getting on the Web means getting a modem, which for most of those people are already built into their computer; getting some free software, and signing up to a service where someone may give you up to a year free to get on the service. The barrier to getting on the Net is very low, and the pressure's very high, because you hear about it constantly. And all your friends are on it. Pretty soon everyone who's even half awake is going to be on the Web, in some form or another. Maybe just for email, maybe just for limited exploration; but they'll be there. That curve grows very very fast.

On the other hand, the curve for getting advertisers to support content sites is based on a fundamentally different dynamic. It's about people having success with Web advertising. It's about ad agencies understanding how to do it. Unfortunately the center of gravity of the advertising world has been broadcast, which is a quite different medium, quite different set of techniques. Getting the people in the board rooms of America and the rest of the world to decide to shift billions away from something that they're very comfortable with over to the Net takes time. A much longer period of time than it takes millions of people to say "Oh, what the hell, I'll answer that free offer and get on the Net." But if you take those curves extrapolated from one phenomenon and move them over to another, you make the wrong decision.

To keep it in perspective the early days of the personal computer industry were just as tumultuous. Just the stakes were smaller, and nobody gave a damn.

At The West Coast computer fair, there was a point where you could have gone and Steve Jobs and Mike Markkula would have run your credit card and sold you an Apple I. Many of the companies of that era tanked. There was a company called Gavalan that made the first portables. Some companies were spectacularly successful, and then fell right off, like Osborne Computer.

That example is being played out today on the Net. The Net is way more central to society, so it's been hyped far more than early PCs were. Because it threatens potential entertainment, content and communications, the stakes are enormously higher. Instead of companies going through five million dollars of venture capital funding, and tanking, as they did in the early 80's, today they get an instant IPO valuation of five hundred million dollars, and then tank. So they have a hundred to one difference to scale.

BROCKMAN: To Bill's credit, he told me that Microsoft, among a few other large companies, was prepared to lose a lot of money for at least three years. It would then be interested to see who was left standing. Isn't it interesting that companies can call themselves successful when they've never had a profitable quarter? What does it say about culture, economics, when some of the leading companies in the field have never shown a profit.

MYHRVOLD: Not only have they not shown a profit, some of them don't even have any cash flow (speaking broadly, not just the companies you mentioned). The one counter-example I can give you is Craig McCaw, who became a billionaire without ever turning a profit. There was only one year when McCaw Cellular was profitable and it was because of an asset sale, it wasn't because of operations. Now the flip side is that they did have cash flow. The reason they weren't making a profit is they were continually building up their network, which clearly was a good decision.

However, we are living in the realm of expectations so much that ultimately it becomes difficult to fulfill those expectations. It's a perfectly reasonable statement regarding some set of Internet companies to say "this company may be enormously important in five years." However that quickly becomes, "if it's going to be important in five years, then it's going to be a real rising star in two years." That means I have to buy the stock now, and that winds up getting the company fully valued, such that some companies over the course of last year, have had values that are in excess of anything you could imagine for their business outlook in five years under reasonable expectations. To a degree that was crazy; to a degree that was actually fairly sane. Mostly it was crazy. The problems start to happen when you get people's expectations up too high. Once they start getting disappointed, then they wind up crashing things unrealistically low. We're likely to see a variety of cycles of Internet popularity. I don't mean national popularity of the Net, but in terms of punditry, in terms of the business, we're going to see a cyclical phenomenon where people get way too excited, and then way too depressed. This is sad, because it's going to hurt some very legitimate companies and some very legitimate ideas.

BROCKMAN: When we last talked, you were in charge of Microsoft's online stuff. Are you out of that now?

MYHRVOLD: Well, I'm Chief Technology Officer for the company, and that includes all of our efforts including online stuff and other things. It's more like I took on additional work.

BROCKMAN: What does the Internet mean to you now?

MYHRVOLD: The most interesting aspect of the Internet is none of the technology features; it's putting people in communication with one another, very broadly. Whether that's through Web sites that allow people to publish to a large audience with amazing efficiency and lower cost per unit people that you communicate with; or it's email or Chat or other means to put people in more direct two-way communication. The strength of the Internet is with what people will do with that communication capability. There's cool parts of the underlying technology that send things around. But people are too obsessive about the technology and not obsessive enough about what people are going to do with it. People have focussed enormously on browsers and the browser world, but the browser is only as useful as the stuff you're looking at with it. Sure, it's a nice thing, and for us software guys that want to get down to the guts of it there's a variety of strengths and weaknesses and we can be plenty fascinated. But in terms of people, what matters is the information they can do. You see that in the enormous excitement about Java, which I'm something of a curmudgeon about. In general, in computer science for as long as there's been computer science, there have been trends where people say "I have a new programming language which will set us all free". Programming languages ultimately solve very little. Programming languages allow people to express their ideas as software perhaps a little bit easier. But the really interesting thing is the programs! So you have to say the interesting thing about Java will be programs people create in Java. Now will there be programs they create in Java they couldn't have created any other way? Highly unlikely. They might be a little easier, they might not, and we'll have to see how it develops. But a market which is obsessed with the tools and the appurtenances rather than the actual effects is clearly focussing on the wrong thing. If any sanity reigns, a year from now we'll find people are going to be focussing on what people are using the Internet for, what people are using these tools for, and not on the tools and the standards and the things themselves. Within the computer industry they're of huge interest, obviously; we're all about tools and protocols and standards and all that other stuff. As we should be. But in terms of what people should really care about, very broadly, it isn't that stuff. No one goes to a Frank Lloyd Wright house and says God, I wonder what kind of cement he used! You see some great painting in the Met and you say, God, I wonder what sort of pigments there were. Or - my favorite example - who's the most powerful entity in Hollywood. Kodak? It's all their film. Or maybe Panavision. It's all their cameras. Well, if you said that to Steven Spielberg or anybody else in the film industry, they'd laugh. Sure, they use Kodak film and sure, we use Panavision cameras, but it's what we do with it that actually matters.

BROCKMAN: Can you talk about R&D at Microsoft?

MYHRVOLD: We realized a number of years ago that in order for personal computing to move forward the companies that were involved in it would have to start doing research, and developing new technology very rapidly. But for a long time the technical agenda for little computers was set by big computers. In the early days of the personal computer industry, people would say well when are you going to have multi-tasking or multi-processors. There's a whole laundry list of features that first existed on mainframes or minicomputers. The workstation guy inherited that list and they ticked a whole bunch of the things off; the personal computer industry inherited that list and ticked a whole bunch of things off. It was clear even six years ago to us that that day would be coming to an end relatively soon, that we would have done everything big computers did. And, in fact, given the horsepower that was going to be available in microprocessors, our little computers wouldn't be little any more. Our little computers would soon have more computing power than a big computer of that era. Certainly if you take just the machines I have under my desk here, or take the hottest machine you can buy today - 200 megahertz Pentium with 64 megabytes of RAM, etc. - well that's vastly more powerful than workstations or minicomputers of five or six years ago.

We realized that we couldn't keep implementing somebody else's agenda; we had to develop new things. Many people in the computer industry did develop new things; I don't mean to say that the personal computer industry was all about slavish copying. But, you know, the graphic user interface is a great thing for Apple; it was a great thing for Microsoft, and others - so thank God there was a Xerox to invent that in the 70's. So Apple and Microsoft and others could spend the 80's implementing that cheaper, more efficiently, and extending it. At some point though we can't rely on companies like Xerox or the old line hardware companies. Most of the development of the computer that was done privately was done by two kinds of companies. It was either done by companies not in the computer business, like AT&T, the height of Bell Labs for many many years - during the height of their computer research - was at a time that it was against the law for AT&T to be in the computer business. Xerox is a company that wasn't in the computer business that did a tremendous amount of research there. Or, it was hardware companies: IBM, DEC and others. We thought that there should be research done by software companies - or a, done by PC industry companies, or by software companies. We started investing in it, 5 or 6 years ago; we've built a quite large and I think quite successful research group; we've got about 170 people in it. And over the course of the next few years we're going to dramatically increase the size of that and keep it growing with the company.

BROCKMAN: What kind of budget are you talking about?

MYHRVOLD: We're still working that out, but one of the things that's funny is that you've got to work hard to grow something as fast as the rest of Microsoft, so in the last couple of years our spending as a percentage of our overall spending, in research, has declined even while we increased research, we just didn't increase research as fast as the rest of the company. We can look at reversing that, and continuing to grow the research group.

The thing about research is of course the total effect is not directly proportional to the total amount of money you spend. You don't want to have warm bodies there, you want to have THE best people you possibly can. And that's always been a constraint on research expansion.

In areas like databases we have people like Jim Gray, who are one of the regional founding fathers of relational databases and transactional technology. In graphics we have arguably one of the best groups in the world; we have people like Jim Kajiya and Jim Blinn, Andrew Glasner, Alvy Ray Smith, and a host of other graphics researchers. In speech recognition we have a very strong team that has people from Carnegie Mellon and other leading universities. In natural language we have a very strong team. In programming tools and programming technology - which is very important to us because we use that technology ourselves - we have two or three very strong teams. So across the board - we also have a bunch of people who have been in the industry for a long time and have a tremendous track record, as generalists. Butler Lampson, who was there at PARC when the great things occurred and was a leader at DEC Research. Gordon Bell, who helped develop the Vax, and championed the it and Ethernet, championed the whole bunch of other major technological things at DEC -works for us. Charles Simonyi is another guy who has been involved in key things in computing at every stage — he has been a longtime Microsoft employee, but wrote the first graphical word processor at Xerox. And through a combination of having young people who've just gotten their Ph.D. and are out to conquer the world, and some of these folks who have been conquering it steadily, at least in the research sense, for the last 20 years, I think we're going to have a neat mix.

When I first started recruiting for Microsoft it was a real bitch, because we didn't have a reputation with academics for being a research place. Academics are often quite conservative; the places they like to go to have a history of 50 or 100 years like Stanford, MIT or Carnegie Mellon.

We had to start one of those without having that long history. At first it was difficult to get people, serious people, to be interested in us as a research place. As a development place we were well-known, but particularly five or six years ago the company was known in academic circles mainly for DOS, which didn't make lots of computer scientists want to come work here. But we persevered, and hired a few good people and then they helped us hire more, and those helped us hire more, so now it's such an interesting environment to be in that recruiting is a whole lot easier than it was back then.

One of the things that we thought was very important was establishing a research culture where we didn't have an us-vs-them attitude between research and the product. Or an ivory tower attitude - there's a variety of ways you can describe this - where you get a dysfunctional relationship between the people that have to ship your products, which is what ultimately pays the rent, and the people who are doing research. Part of our proposition was that that needn't be a big gulf between the two. Of course you're not going to force your researchers to go out and fix bugs in the next version of Office. They wouldn't find that very fun, and actually the people that work in Office would say, What, are you kidding? They don't know enough about it to go do that. You don't want to ask people who are fixing bugs on the next version of Office to say, Oh, and in your spare time we'd like you to do a whole bunch of research. They're different activities. But there's a tremendous amount of synergy that can come from having a good relationship between the people in research and product groups. We've had dozens of things spin off from research into the product groups, to the point that I don't think you could find a major product at Microsoft that doesn't have some code or some significant technology from research. They all do, at this stage.

BROCKMAN: Given its culture, can Microsoft ever be as open as a Bell Labs?

MYHRVOLD: We do that already. Having a lab which is closed and buttoned down and secretive is ultimately counterproductive. Because you're only going to have a small fraction of the world's smart people working for you; you're never going to hire them all. By being part of a larger research community you get the benefit of people criticizing - or supporting - the work that you do. We encourage people to publish - in fact at the last Siggraph conference, 20% of the papers at the conference were from people at Microsoft. If you look in other disciplines you'll find that people from Microsoft are not only key contributors to conferences and are very open about their work, they help organize the conferences. They're on the editorial boards of journals, and other things. We think it's very important to maintain an open environment.

At the same time, you can maintain an open environment and still get plenty of proprietary value out of things you invent, because you understand them best, because there's a variety of ways of protecting your intellectual property. So there's no contradiction between running research as something that will ultimately yield a great profit and doing great open research. There isn't a problem. People think there is, but there isn't. The main difference between research and one of our other product groups is not a profitability issue. Research is already very profitable for us, if you count the value of things that have moved across.

It's more of a time-scale issue and a predictability issue. Research is much harder to predict when it's going to be valuable to you, or, when you start a project, if it's going to be valuable to you. We have a variety of things in speech understanding and natural language understanding, and other areas, where the potential for it to be enormously valuable for us is there. But it's very hard to say, that'll occur in one year, two years, five years - or maybe never. If you have the ability to sit back and say fine, we'll take the risk on that, then you'll get a great return on it. But it's not something where you can manage by saying what's our benefit, our profit, next quarter, from research. It doesn't work that way.

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