Is Silverlight really dead, or is it the future of Microsoft’s Windows 8 and Windows Phone? This is a question weighing on the minds of legions of Microsoft developers right now – developers who were once promised that Silverlight was the answer to their cross-platform, cross-browser compatibility woes, only to be later informed that JavaScript and HTML5 will be the tools used to build Windows 8 applications. HTML5 is also supported in the IE9 browser, coming soon to Windows Phone “Mango,” due out this fall.

Does that mean HTML5, then, is the future of the Microsoft platform? Maybe not. A new, unannounced platform called “Jupiter” may soon have Microsoft developers leveraging their existing skills to write applications for both Windows 8 and Windows Phone. Which means, of course, apps that run on all platforms – not just PCs, but tablets and phones, too…and even the TV (via Xbox).

That “Jupiter” exists is not new information. There have been a number of leaks about the forthcoming platform in blogs, forum posts and some folks have even reversed-engineered leaked code to learn more.

Above: C# being used to invoke a Jupiter-based app. Looks like Silverlight animation!

For those not closely tracking Microsoft’s news, here’s what (we think) we know about Jupiter, based on the information out there:

• It is a new user interface library for Windows. (source)
• It is an XAML-based framework. (source)
• It is not Silverlight or WPF, but will be compatible with that code. (source)
• Developers will write immersive applications in XAML/C#/VB/C++ (source, source, source, source)
• It will use IE 10′s rendering engine. (source)
• DirectUI (which draws the visual elements on the screen, arrived in Windows Vista) is being overhauled to support the XAML applications. (source, source)
• It will provide access to Windows 8 elements (sensors, networking, etc.) via a managed XAML library. (source)
• Jupiter apps will be packaged as AppX application types that could be common to both Windows 8 and Windows Phone 8. (source, source, source, source)
• The AppX format is universal, and can used to deploy native Win32 apps, framework-based apps (Silverlight, WPF), Web apps, and games (source)
• Jupiter is supposed to make all the developers happy, whether .NET (i.e., re-use XAML skills), VB, old-school C++ or Silverlight/WPF. (Source? See all the above!)

That last item is especially important, since to date, Microsoft’s only public comment about Window’s 8′s development platform is that it’s “based on HTML5 and JavaScript.” As Peter Bright of Ars Technica pointed out, Microsoft developers were “horrified” by this news.

Before you throw Microsoft developers under the bus for failing to jump on the HTML5 bandwagon, you have to understand that they’ve invested a lot of time and money over the course of many years to learn all the technologies Microsoft has pushed, including Win32, COM, MFC, ATL, Visual Basic 6, .NET, WinForms, Silverlight and WPF, explained Bright. It sounded like Microsoft was asking them to throw away decades of experience and switch to HTML5.

While obviously, HTML5 has come a long way in recent months, it’s arguably not quite ready to drive the entire Microsoft platform just yet. It’s an option, of course, as it is on iOS, Android and other modern operating systems with modern Web browsers.

But it’s not going to be Microsoft developers’ only option, it seems.

At the BUILD conference next month, it’s expected that Microsoft will reveal Jupiter to its developer community and the public, at long last.

Why does Jupiter matter so much? If it’s not clear from the technical details above, it’s because Jupiter may end up being the “one framework” to rule them all. That means it might be possible to port the thousands of Windows Phone apps already written with Silverlight to Windows 8 simply by reusing existing code and making small tweaks. Or maybe even no tweaks. (That part is still unclear). If so, this would be a technical advantage for developers building for Windows Phone 8 (code-named “Apollo” by the way, the son of “Jupiter”) or Windows 8.

Post-PC World: Microsoft vs. Apple vs. Google

Imagine if Apple was to announce something similar – an easy way to port iOS applications to the Mac, for example. Right now, there’s no simple method for this. While there are third-party tools that help, Apple developers still have to do quite a lot of work to get a mobile iOS app running on the Mac OS X desktop. That said, we imagine Apple is secretly hard at work on solving this dilemma as we speak. After all, you can clearly see iOS’s influence on Mac OS X with the latest release, Lion: there’s a iOS-like “LaunchPad” with rows of apps, support for apps that work in “full screen” mode, disappearing scroll bars, and more.

Meanwhile, at Google, there’s currently a lack of vision about how to merge desktop and mobile. Chairman Eric Schmidt has made vague statements about how, at some point in the future, Chrome OS and Android will merge. But it seems like Google has no clear idea as to how it will go about doing so.

That Microsoft is thinking about the merging of desktop and mobile is no small matter. It’s a post-PC world, as they say, and for now, Apple is the only company that seems to be able to compete here. Android is struggling in the tablet market. HP just killed its barely-launched webOS. With Windows 8, Windows Phone 8 and Jupiter, Microsoft, at least, seems to have a vision.

Developer Discontent Grows, Microsoft Stays Mum

But with Apple so far ahead at this point, the timing of that vision’s reveal may be key to Microsoft’s future. The fact that Microsoft has allowed discontent to grow in its developer community for the entirety of the year, just so it could have a splashy announcement at BUILD may be looked back on as a strategic mistake that contributed to Microsoft’s eventual downfall. Microsoft wants to be Apple, full of secrets and surprises, but it doesn’t have the culture to support it. With Jupiter, the news should have been officially announced months ago, as a tease, with a full reveal at BUILD.

But instead, Microsoft set aside developers and their concerns, in order to win the hearts of consumers, technologists and the media with promises of “big announcements” at BUILD regarding the future of Windows. Oh, Microsoft. Whatever happened to “developers, developers, developers”? Make them happy and the rest of us will come.

Image credits: Microsoft, David Burela

We’ve been hearing a lot lately about consumer cloud services. There’s Apple’s recently-announced iCloud, Amazon’s Cloud Drive, Google’s Music Beta (which is your music in the cloud) and, of course, Microsoft’s SkyDrive. All of these to one extent or another are moving away from simple online lockers, and we see that today with the release of the latest update to SkyDrive.

The navigation is less clunky. Groups are now built in. Docs open up in online versions of Word or Excel, and can also be opened in the traditional desktop Office apps with edits syncing back and forth. But the biggest change is SkyDrive’s transition away from Microsoft Silverlight to HTML5 for all but a few remaining features (including a crucial one: uploading files). Photos and videos are all viewed with HTML5, which brings infinite scrolling of thumbnails and a new slide viewer. Videos now use the H.264 format and the video player is HTML5 instead of Silverlight.

Microsoft has been stepping away from Silverlight for its web products the past few months, opting instead for the cross-platform compatibility of HTML5 and other “modern web” technologies such as CSS3. When you resize your browser, photo thumbnails also resize smoothly thanks to CSS3 transitions. And the original aspect ratios are maintained in the thumbnails, even for panoramic photos.

SkyDrive pulls docs, photos, and other files from other Windows Live services and brings them all together in one central location with a UI that is more front-and-center as opposed to being a background storage service for other products. Groups are now integrated and accesible from the left-hand column. The whole service is faster, taking better advantage of caching and hardware acceleration. A new information pane replaces what used to be an ad spot with hints and suggestions to help you dive deeper into the service.

For all the improvements, SkyDrive still presents everything as though it is still in a traditional file system. You can view all your files, or broken down by type (docs, photos) or by groups. The file system is a relic of the PC and is something that Apple is moving away from with iCloud. On the other hand, at least it is a familiar metaphor most people can easily grasp. And there is no reason, SkyDrive can’t introduce new organizing principles over time (groups is already a first step).

Well, unless you’re a Silverlight developer. Then you might be a little worried and/or pissed off.

In fact, following Bob Muglia’s (Microsoft’s SVP of the Server and Tools Business) comments last week during PDC, there was a bit of an uproar in the Silverlight Forums. So it’s hardly surprising today that we have Muglia directly responding with a follow-up blog post. And perhaps it shouldn’t be too surprising that Microsoft CEO Steve Ballmer has also issued his own post with his thoughts on PDC where he makes mention of Silverlight — 6 times in 5 paragraphs.

All of this came about be ZDNet’s Mary-Jo Foley noticed that Microsoft didn’t make many mentions of Silverlight, a key development tool in the making for years now, at their key developers conference. And so she asked Muglia about it. In his statement today, Muglia is quick to point out that Foley reported what he said accurately, but wants to also make it clear that he didn’t mean Silverlight is dead, just that the focus is shifting.

Reading over his comments, it does appear he’s saying basically the same thing he said last week. But instead of focusing on the key part, that Microsoft is shifting to HTML5 for their true cross-platform strategy, he focuses on what Microsoft isn’t changing in their Silverlight commitment. In other words, he completely buries the lede.

That’s fine, he probably had to do that to calm people down. But the fact remains that this is a significant shift away from Silverlight on arguably the most important platform of all: the web.

“The purpose of Silverlight has never been to replace HTML, but rather to do the things that HTML (and other technologies) can’t, and to do so in a way that’s easy for developers to use,” Muglia writes. But now he’s saying that Microsoft will be looking to HTML5 to do much of those things going forward. So again, that is a significant change in strategy.

Ballmer, meanwhile, probably added a number of those “Silverlight” references into his statement following the uproar. Silverlight. Silverlight. Silverlight. Silverlight. Silverlight. Is dead. Long live Silverlight! Or something.

Nearly a year ago, Microsoft pulled together a group of reporters for Bing Fall Release event. The highlight of the presentation was a demo showing off some nifty new features in Bing Maps. The problem? All of this stuff required Microsoft’s Silverlight browser plug-in to work. I berated the company for once again pushing users towards a more proprietary web. So today it’s time to laud them, as they seem to be backing away from that strategy.

During last week’s Professional Developers Conference (PDC), ZDNet’s Mary-Jo Foley asked Bob Muglia, Microsoft’s SVP of the Server and Tools Business, why the company failed to highlight Silverlight in a meaningful way this year. His answer was rather surprising.

“Silverlight is our development platform for Windows Phone,” he said. And while he said that the technology has some “sweet spots” for media applications (presumably like Netflix, which uses Silverlight on the web), its role as a vehicle for delivering a cross-platform runtime appears to be over. “Our strategy has shifted,” is how Muglia put it.

Instead, as they made clear during PDC, Microsoft is putting their weight behind HTML5 going forward. Hallelujah.

Microsoft’s new IE9 web browser (which is in public beta testing) will be a big part of this strategy. And presumably, a lot of the things that currently require Silverlight, like some of those nifty Bing Maps features, will move to HTML5 going forward. Again, that’s great news.

So why is Microsoft doing this? It seems that Microsoft sees the writing on the wall. They likely know that’s it’s going to be much harder to make a dent in the new developer world order with Silverlight, which still has a relatively small market penetration and no penetration in mobile, than with HTML5, which is (or shortly will be) everywhere — including all of Apple’s devices.

“HTML is the only true cross platform solution for everything, including (Apple’s) iOS platform,” Muglia told Foley.

This is a very different tone than Muglia had just a year ago, when he and then Microsoft Chief Software Architect Ray Ozzie were out on the circuit drumming up support for Silverlight with hopes that it would become a new de-facto standard like Adobe’s Flash. It’s not clear if Ozzie’s imminent departure from the company has anything to do with this change of tone or vice versa.

Regardless, Silverlight will now be mainly known as the development platform for Windows Phone going forward. In other words, the way to make native apps for those devices. But for just about everything else, it will be HTML5 or bust. And that’s great news for all end users. It’s one less plug-in to download. And it’s another step towards a unified web.

Once people get over the fact that they can watch anything at any time, they’re going to start really looking at the video and audio quality, and having SRS built in will make it easier to get, say, virtual solid sound pushed to your tablet or mobile phone. They say they can fit a surround signal into 96kbps, which honestly probably sounds like garbage, but it’s a good floor to work up from.

I generally think of sound and video on mobiles (and soon, tablets) as being low-quality in every way, but that’s starting to change. One of these days I might even be able to watch a whole movie on my phone without giving up in frustration.

Here’s the full press release:

SRS FIRST TO COUPLE 5.1 SURROUND SOUND TO MICROSOFT SILVERLIGHT AND IIS SMOOTH STREAMING ECOSYSTEMS WITH A COMPLETE TOOLKIT

SRS 5.1 Empowers Content Creators to Enhance Multimedia with Surround Sound Encoding That’s Playable Across TVs, PCs and Mobile Devices

SANTA ANA, Calif., September 9, 2010 – SRS Labs, Inc. (NASDAQ:SRSL), the industry leader in surround sound, audio and voice technologies, announced today that it is making available complete SRS surround sound encoding and decoding technology to users of Microsoft Silverlight, a powerful development platform for creating rich media and business applications for the Web, desktop and mobile devices.

“This is an exciting moment for SRS and we’re thrilled to expand this collaboration with Microsoft to now bring surround sound capability to Silverlight and its millions of users,” said Allen H. Gharapetian, Vice President of Marketing for SRS Labs. “Every day, more and more consumers are streaming TV shows and movies over the Web to their PCs, TVs, and mobile phones, and now, with the availability of SRS 5.1 surround for Silverlight, the collective online multimedia experience will become more vivid and immersive.”

Microsoft and SRS’ collaboration dates back to May 2000 when SRS WOW became a standard feature within Windows Media Player. Today, as part of a larger effort to deliver immersive surround sound to the rapidly growing number of consumers streaming content to their PCs, TVs and mobile phones, SRS has advanced the streaming multimedia experience to the next level by coupling its SRS 5.1 technology with a complete Microsoft-centric toolkit that effortlessly adds bit efficient, exceptional quality surround sound to content created in Silverlight.

SRS 5.1 is designed to provide content creators with the tools to create and deliver true, high-quality streamed surround sound encoded content across the three-screens, TVs, PCs and mobile devices. SRS 5.1 is the only surround format available now in Microsoft Silverlight that is coupled with a complete toolkit. This SRS package functions as a managed code add-on for content creators and developers making surround sound decoding in Silverlight applications easy and seamless. Because millions of TVs, A/V receivers, PCs and mobile phones today feature one or more SRS audio solutions such as Circle Surround, TheaterSound, StudioSound HD, and TruSurround, every one of these CE devices are natively equipped with the capability to decode SRS 5.1 surround encoded content, resulting in a “surround everywhere” entertainment experience.

Some of the other major benefits of these encoding and decoding solutions include:

* Multichannel and front-rendered surround sound
* Smooth steering and full bandwidth for a seamless and immersive surround environment
* Backwards compatibility with legacy matrix decoders and stereo
* Surround streaming over bit rates as low as 96kbps

Since the release of Silverlight in 2007, its adoption has continued at a rapid pace with installations approaching 60 percent on all Internet-connected devices worldwide, an increase of nearly 15 percentage points in just four months. Now with inclusion of SRS 5.1 surround for content created in Silverlight, any PC or connected flat panel TV can decode SRS 5.1 audio for true multi-channel or front-rendered surround.SRS 5.1 effectively provides a top-quality, format agnostic, easy to deploy and manage end-to-end surround sound technology for content creation, transmission and consumption.

“Multichannel audio takes the premium media experiences offered by Silverlight to the next level,” said Brad Becker, director of Rich Client Platforms at Microsoft Corp. “Microsoft is pleased to see SRS bring its surround sound technology to Silverlight’s hundreds of millions of users by taking advantage of the powerful extensibility and interoperability that Silverlight and IIS Smooth Streaming provide.”

The tools and white paper for SRS 5.1 content creation with Silverlight are available now at www.srslabs.com/Silverlight. Meanwhile, a demonstration of SRS 5.1 will be available at IBC in Amsterdam, The Netherlands from September 10th to 14th at the Microsoft stand located in the Topaz Lounge.

As we all know, the battle between Flash and HTML5 for the future of online video is raging. But what about that other plugin some sites use for video? You know, the one made by Microsoft — Silverlight? A new posting tonight may call that platform’s future in video into question as well. Because arguably their most important client is looking to jump on the HTML5 video bandwagon: Netflix.

A post tonight by Adrian Cockcroft (as noticed by the blog Hacking Netflix), Netflix’s Director of Web Engineering, indicates the company’s intention to embrace HTML5 going forward. The move is apparently spurred on by Netflix’s move to Amazon’s cloud, which will require a re-architecting of the codebase, Cockcroft notes. So what better time to start supporting the latest technologies? “One of these is HTML5, which is raising the bar for cross browser support for advanced user interface features, and is now supported by a large and rapidly growing percentage of the visitors to netflix.com. In addition many TV based devices now embed webkit, which is the HTML5 compatible technology that underpins the Safari and Chrome browsers,” Cockcroft writes.

It’s interesting that Cockcroft never actually mentions the video capabilities of HTML5, instead he talks about the “advanced user interface features.” Still, I think we all know what he means.

He also points out that Netflix is looking to hire to make this transition happen. The one posting he highlights is for a Senior User Interface Engineer — HTML5. The position description reads as follows:

Are you passionate about building great website experiences used by millions of visitors each day? Come to Netflix where we are using HTML5 based web technologies to move ecommerce directly onto to televisions in our customers’ living rooms. As part of our Customer Acquisition team, you will lead the way to our internationalized television user interface designed to help new customers find Netflix and start streaming movies in seconds. This new experience will be deployed to HTML5 capable embedded browsers and served from our cutting edge cloud based backend service.

This move shouldn’t be all that surprising considering that Netflix was one of the first apps to embrace the iPad, bringing its videos (h264 encoded) to the device through a native app. Still, this is a huge potential win for HTML5, presuming it happens.

Update: Cockcroft has now updated his post saying he wasn’t implying it would be HTML5 video, but rather some other user interfaces. He says that because HTML5 video doesn’t have a viable DRM solution, they can’t use it yet.

So much for his opening about “leaning forward and looking for new technologies to leverage,” I guess. He should have updated that to read, “new technologies to leverage, provided they offer DRM.”

When it makes a noticeable difference in quality, we will definitely provide higher resolution streaming. The iPad is a good example of a device where we are hard at work on this, but unfortunately it won’t be there at the April launch.

Which is bittersweet, isn’t it? The future, so close, yet so far.

Steve Gillmor: So, we’re here with Scott Guthrie, who the last time — well, the first time I saw you was at an offsite with Eric Rudder about 10 years ago.

Scott Guthrie: That was a long time ago.

Steve Gillmor: Yeah, and you were just — I don’t even think that — you were showing the ASP.NET development plug-in, wasn’t even part of Visual Studio at that point, and now you’ve basically taken over everything.

Scott Guthrie: Well, maybe not everything, but –

Steve Gillmor: But, I mean, you know, going from that sort of — I mean, don’t you sometimes think about how — were you aware of what the potential of that particular strategy and that plug-in was at the time?

Scott Guthrie: Well, you know, it’s been fun — I mean, it’s been a fun ride the last couple of years in terms of we’ve seen as .NET’s matured, both on the server but also on the client, and with things like Silverlight, and then seeing Visual Studio really evolve the way it has. You know, where we’re at today with VS 2010, .NET 4, Silverlight 4, and ASP.NET compared to where we were 10 years ago, it does seem sometimes like a different world.

You know, the nice thing, there’s a lot of continuity over the last 10 years, and so the same code that worked 10 years ago still works today. To some extent I think we often think of it just sort of how do we fill in the story and how do we kind of continue to open up new opportunities.

I think today, especially with what we showed with the Windows Phone 7, you know, I think we got a lot of people excited about the possibilities that are provided with that, and it’s great that you can use Silverlight and .NET and the same set of skills and the same tools that you already know to target it.

You know, I think we wowed a lot of people that — with not just the, oh, I can use the same APIs for productivity but also the apps we showed I think people, you know, some people commented, you know, I want to reach out and lick them they looked so good. Hopefully that’s a testament to kind of what you can build and get people excited about.

Steve Gillmor: Well, the time, the speed of development is one of the things that you were pointing out. I was particularly impressed, surprisingly so, I must admit, with how Seesmic seemed to be sort of the heart of the demos. In its showing how you can go, Loic [Le Meur] made an investment in the Windows client, and then backwards leveraged it into the Silverlight client, and then opened up three platforms as a result. That’s pretty spectacular I thought.

Scott Guthrie: Yeah, I think what we’re trying to do — I mean, ultimately what we’re trying to do is how do we enable developers to be successful on our platform using our tools, and a lot of the focus we’ve had around Silverlight has been primarily around consumer and then also last year more also in the business space where I think we’ve reached a tipping point where the value for companies being able to build an app and sell it or be able to make money is suddenly very compelling.

And I think both what Loic showed with Seesmic and then I think also the eBay app that was shown, that we’re really excited about, it was a great example of people are choosing it, because, wow, I can build an experience that my customers love, I can hit multiple devices, it runs on the PC and it can run on the Mac, it can run in the phone, and the user experience isn’t kind of a lowest common denominator but it’s kind of a wow experience on all the platforms.

You know, I think you’re going to see more and more developers get excited by that. If ultimately developers can build cool apps and make money off of them, you tend to get them interested.

Steve Gillmor: Yeah. I want to go back just for one more second to the original target. To me it’s ironic that ASP.NET was basically a runtime that came out of extending — I may be oversimplifying it here, but I’m going to try it anyway — that came out of extending the AJAX model, if you will, which was sort of born out of a desire to try and extend Exchange Web Services or Outlook Web Services and that whole timeframe. At some point, you and people at that time who were higher up than you were at the time, you’re pretty high up now, somebody made a decision that this was not just a hack but that this was something that you were going to basically turn the whole OS over to over time.

Scott Guthrie: Well, yeah, I mean, I think, you know, part of what we’ve tried to do with .NET from the beginning was how can you build kind of this runtime that was multiple languages, that allowed you to build all types of apps, server apps, client apps, mobile apps, and be able to get a rich development tool experience around them, and a lot of the original ASP.NET predated kind of AJAX, but a lot of our kind of focus –

Steve Gillmor: But it came out of that same sort of point in time where this was almost pre .NET as a matter of fact, wasn’t it?

Scott Guthrie: Well, ASP itself shipped with .NET for the first time, but we’ve kind of — we certainly have been focused on how do you build great apps, and we’ve tried to be very scenario focused both on the server with ASP.NET and obviously on the client as well, and tried to really work with customers and partners to figure out kind of, okay, what are the unique opportunities, what are the things that you’d find really compelling.

The great thing about an event like MIX is the fact that you get a chance not just to present to people, but more importantly get feedback, and walk the halls –

Steve Gillmor: What’s the feedback been?

Scott Guthrie: As far as today it’s been great.

Steve Gillmor: But specifically. I mean, what are the things that are interesting to you about the feedback that you’ve gotten so far?

Scott Guthrie: I think — I think the thing that’s been probably the most gratifying to hear this week so far has been just the number of people that have moved from an evaluation phase to an actual I’m using it phase. So, it always amazes me when I talk to often enterprise customers, and really before Silverlight 4 we didn’t target enterprise business apps as our primary audience, and it’s amazing to hear a large company that sometimes might be conservative in their technology things say, oh, we’ve moved way past evaluating, we’re actually –

Steve Gillmor: But the trusted aspect of the new –

Scott Guthrie: Yeah, the out of browser capabilities, and the ability to kind of reach outside the sandbox, we’re just starting to see a lot of companies start to adopt that. They like the fact that it’s easy to deploy, they like the capabilities, and it’s great having people come up to me during the event and say, hey, I want to show you a demo of something I built, and this is not just sort of like a little simple thing, these are big apps that people have built.

And I think Loic onstage with Seesmic, that’s not just a client for listening to Twitter or Facebook. You know, he’s built a whole ecosystem around that.

And likewise I think the eBay app that’s going to go live shortly is a great example of a really rich app that is going to be touched by millions of people.

So, that’s the thing that’s most gratifying here, and I think it’s still early, it’s only been a couple hours since the keynote, but I think the feedback on the phone work that we showed has been phenomenal.

Steve Gillmor: Let’s pin down a couple things. I detected a slight messaging, the lack of some words around the phone implementation. Is that Silverlight 4?

Scott Guthrie: That’s a good question. No, it is Silverlight. So, it isn’t Silverlight light or Silverlight something else. It is Silverlight.

Steve Gillmor: Right, well, you said that onstage.

Scott Guthrie: Yeah, right now the bits that we ship today have all the features of Silverlight 3, and about half the features of Silverlight 4 are already in it. So, once Silverlight 4 ships, we’ll then go ahead and obviously put the rest of the features in.

Steve Gillmor: So, you mean in a month we’ll see an upgrade to –

Scott Guthrie: It probably won’t be in a month but it won’t be too far off.

Steve Gillmor: But you’re not really committing to when the phone is going to be shipping anyway, right?

Scott Guthrie: We’re not right now committing to when the phone ships, but certainly with each update of the phone it will have the most recent version of Silverlight.

Steve Gillmor: And is Silverlight used in the marketplace?

Scott Guthrie: The marketplace app, I’m not actually sure if it uses Silverlight or not. You can certainly put Silverlight apps as opposed to XNA apps in the marketplace. In fact, it’s the only type of app you can put in the marketplace.

In terms of the video we showed, I don’t know exactly what the marketplace team used to build that, but they might have used Silverlight. I’m not 100 percent sure.

Certainly some of the applets that are included are built with Silverlight, and pretty much all of the — every app that we showed today in the keynote, with the exception of the games, was all Silverlight. So, the Netflix app, the Associated Press app, the diary app, Four Square, Seesmic, Shazam, Major League Soccer, the cannon demo and the Marionette app, those were all built in Silverlight.

Steve Gillmor: So, why is there this sort of fork between XNA and Silverlight? What’s that about?

Scott Guthrie: I wouldn’t have said it — I wouldn’t say it’s a fork. You can use the same language. XNA is built on .NET. So, you can use C#, you’d be able to use VB for both of them.

Kind of the UI mechanics of a game, in particular kind of a high performance 3D game, are typically different than what an application has. It’s much more about being able to create composite assets and be able to kind of quickly draw them to the screen. You will see the ability to have apps that use both Silverlight and XNA UI within them in the not-too-distant future.

But, yeah, there’s a huge ecosystem built up around XNA, and likewise around Silverlight, and so we want to make sure both work great. We typically think it’s a fairly straightforward decision as to whether you use one or the other. If you’re building an app, it’s Silverlight. If it’s a casual game, then, yeah, you could write it in either Silverlight or XNA.

Steve Gillmor: Can you load one into the other?

Scott Guthrie: Not with today’s build, but that is something that we’ll enable in the near future. And so you could have some UI built with Silverlight and some with XNA.

Steve Gillmor: So, for the free apps, development apps that you’re releasing today, that Expression and Visual Studio, you can build in one and then move it to the other project, right?

Scott Guthrie: Yeah. So, we announced today that we’re shipping Visual Studio 2010 for Windows Phone development Express for free, and then also the Expression Blend for phone also for free. And that’s not just for today but free forever.

And what’s nice about them is one is more focused on developers, one is more focused on both designers and what we call interactive developers. They share the same project system. So, if you create a project in one, you can open the other and vice versa, and you can actually have both tools open and working in the same –

Steve Gillmor: And they’ll stay synched?

Scott Guthrie: Yeah. Yep.

Steve Gillmor: And they don’t go out of synch in one direction?

Scott Guthrie: No. You can even have them both in the same source control project, and you can even have them both literally opening the same project at the same time, and just flip between them. So, they’ve really been designed to kind of work well together.

Yeah, the nice thing is I think people, basically the reactions of the audience were pretty pumped up after seeing my coding demo and then John’s blend demo, and I think maybe we got credibility immediately after that of like, okay, these are the richest mobile development tools out there, and then be able to announce, oh, by the way, we’re making them free, I think took a lot of people by surprise.

Steve Gillmor: All right, so that’s a good lead into this line of questioning. And you may consult your attorney if you’d like.

I don’t know if it was actually shown, but I was shown the night before the demo at PDC, I think Brian Goldfarb showed me the ability to be able to create something using the IIS Media Server. This was the new build of it, or at least it was new at the time, and be able to click a checkbox and be able to send it to the iPhone.

It seems to me, based on the fact that you’ve released these incredible powerful tools, that you have an opportunity to get at the head of the development chain for applications that not only will run on the Windows phone system, but also on the iPhone. There’s a fair amount of black helicopter strategy that would have to be discussed in order to figure out how you would get the UI to come over, not just the ability to be able to push video. But in general, I mean, you showed Netflix, you showed applications that export video. Does it seem interesting to you to do something — the analogy would be what Adobe has done in announcing — I don’t know if they’ve actually shipped anything, but announcing basically a recompiler or a converter for creating Flash apps and then moving them over to the iPhone. Of course, they have to because Apple won’t put their runtime — as far as I know, they won’t put your runtime on it either on the iPhone. Is that true, number one?

Scott Guthrie: Well, yeah, there’s a couple different aspects. I mean, one is that we showed it at the PDC last November, and that we’ll ship later this year is the ability for our streaming server to basically stream in a format that the iPhone natively consumes. So, that means you can build a Web page with a video tag on the iPhone, point it at a URL on our server, and we can automatically — it’s called (trans-moxing ?) our Smooth Streaming video format to the one that plays in the Apple player. So, you can get a very seamless video player right in your Web page. And if you go to www.iis.net/iphone with your iPhone today you can try it out and actually see it working.

And what’s nice about that is it doesn’t require any custom software to be installed on the iPhone, it just works out of the box.

Steve Gillmor: It leverages the H.264 codec.

Scott Guthrie: Yeah, both the H.264 codec and then also the built-in streaming support that Apple supports.

And so, yes, you will definitely see us continue to ship that, and that means that you can encode your streams once, play them on a Mac, a PC, using Silverlight on the desktop, you can play it on an iPhone, and obviously, like we showed in the keynote today, you can play it on a Windows Phone 7 device.

We also today shipped Silverlight for Symbian, which is for Nokia-based devices, and so you can also stream that to Nokia phones.

Steve Gillmor: Well, I find that less interesting than other possible ports like Android.

Scott Guthrie: Well, it’s nice to ship bits. Those bits are available for download now, so you can use them.

In terms of say iPhone specific –

Steve Gillmor: In terms of like a UI recompiler.

Scott Guthrie: I think it’s still a little early in the mobile space. I think one of the things that would be interesting to see, and I think we showed this a lot today, and I think Apple has shown it successfully in the past, is, you know, especially for a consumer device having a UI that performs consistently with a consistent set of metaphors is important. And I think Joe really demonstrated that in his talks and in the apps that we showed where they look the same, they feel the same, and specifically with something like Windows Phone 7 there’s just a notion of motion and fluidity that if you look at other phones, you even look at previous versions of Windows Phones in particular, but you look at Android, you look at other devices, they don’t work that way.

Likewise I think the iPhone has been very successful in terms of having a common set of controls and metaphors to program against. We’ll have to see whether or not if you have an app that looks different than the rest of that, you can certainly port it, but it would be interesting to see kind of what consumers think about that. Forget app stores and things like that, but just sort of if it feels out of place, do people care about it?

There is a way today on the iPhone to use it in a product called Mono Touch that Novell builds, where you can use .NET for all your logic, and then they support the ability to have — to use the standard Apple controls and the standard interface –

Steve Gillmor: Right, which is Miguel [de Icaza]‘s project.

Scott Guthrie: Yeah, Miguel’s project.

And so we’ve seen a lot of customers be very successful with that. And so certainly with the announcements we’ve made today you could absolutely reuse the same logic of your app in the iPhone and Windows Mobile Phone 7, and have them different skinned.

Right now we don’t have any plans or anything to announce in terms of Silverlight running on that particular device. Instead we’re spending all of our time really focusing — not all of it but really focusing hard on how do we enable you to build these kind of next generation Windows Phone apps that really take advantage of a lot of the new interface and the hardware acceleration that we showed off. If other people, you know, like Miguel’s project, want to be able to enable that kind of portability, that’s great.

Steve Gillmor: But there wouldn’t be any kind of plug-in into Visual Studio, which would allow you to take advantage of all the work that you’ve done in terms of a Silverlight development environment?

Scott Guthrie: Well, we certainly have our plug-in that works for both Windows Phone 7 and Nokia devices. We don’t right now have any plug-ins or plans that we’ve announced in terms of others, but certainly Visual Studio itself is very pluggable, so anyone could build that plug-in. But right now in terms of what we’re shipping this week, it’s focused pretty much on Windows Phone 7.

Steve Gillmor: Forgive me if I’ve misremembered this, but isn’t there an Eclipse plug-in as well?

Scott Guthrie: Yeah, there’s a full Eclipse tooling support for Silverlight that another company has done, and it’s free. And I think it works both on the PC and the Mac, and so you get standard — I think it’s a design surface, Intellisense and debugging support, all with the Silverlight.

So, yeah, certainly we’re not making any statement around you need to exclusively use VS –

Steve Gillmor: But why not, since it’s free and extremely powerful?

Scott Guthrie: Yeah, I’d love everyone to say I just want to use VS but –

Steve Gillmor: But it doesn’t run on the Mac, right? That’s only a Windows –

Scott Guthrie: Correct, yeah. I mean, Visual Studio today or Visual Studio only works on Windows.

Steve Gillmor: Any plans for Visual Studio built on Silverlight?

Scott Guthrie: No. No, not right now. The new VS 2010 is built on WPF, which is sort of Silverlight’s big brother, so to speak, and shares the same programming model as Silverlight. And I think we’re getting really great feedback now on the VS 2010 RC, be shipping that next month. And so that’s allowed us to do a lot more within the IDE. We don’t have any plans to rebuild VS on top of Silverlight. You know, we’re pretty happy with the version we have that works on WPF.

The nice thing is because the code between Silverlight and WPF is highly portable, we are able to move features around that way, but in terms of what VS 2010 supports, it’s a pretty rich app that really takes full advantage of WPF.

Steve Gillmor: Well, at the PDC we had a lunch with Ray and Bob in which someone asked the question about why don’t you rename WPF, and Ray sort of under his breath said, sure, just call it Silverlight. And Bob looked at him like, you know, this might be a little soon for that was the kind of expression. But I think that it speaks to how far — you call WPF the big brother, but increasingly it’s difficult to tell where one leaves off and the other begins, and what you really have with Silverlight increasingly is a Web operating system.

Scott Guthrie: It’s certainly our — you know, when we first announced Silverlight, kind of the positioning of it and then also just the technical details of it, we’ve kind of wanted to make sure it wasn’t different than WPF, it was going to be a subset of WPF, but we wanted to make sure it wasn’t a different subset. And each release of both WPF and Silverlight, you know, any new feature we added into Silverlight we made sure was in WPF, and likewise the new features we added in WPF we brought into Silverlight.

So, you have definitely seen these kind of technically converge, which is a good thing, and –

Steve Gillmor: And when you add the phone into the mix, and when you bring those two up, the phone and the Windows and Mac Silverlight versions up to the same code base — not the same code, but effectively Silverlight 4, as you said, will happen shortly, that’s going to tend to again start to minimize the differences between and OS that’s designed for the desktop and the much broader audience that’s now emerging.

Scott Guthrie: Yeah, and I think Loic kind of really — what he’s doing with Seesmic is just a great example of that where at the end of the day it really is for developers the two things that get them excited are — well, three things — one, can I build it, build a really exciting app that’s cool. Two, can I make money from that app, whether it’s advertising, whether it’s subscription, whether it’s purchasing. And three, how easy or painful is it to build those?

I think Seesmic is a great example of they’re able to build incredibly cool apps really, really fast, reuse the code across multiple devices, and ultimately are going to be able to monetize that really well.

So, I think there’s going to be a lot more success stories like Seesmic that we’re going to be able to point to in the months and years ahead. You know what’s great about attending MIX is you start to hear about these stories, you know, some big, some small, and it’s fun to see.

Steve Gillmor: All right, so last question. If you had some time with Steve, and I’m sure you do from time to time, Steve Ballmer, what would you say to them about what’s gone right here, and how that might affect decisions made in the future, like, for example, moving toward a version of Office on Silverlight, et cetera?

Scott Guthrie: Well, I think the things that we showed today, you know, I think the thing that when you step back and look at today, I think what we showed in the keynote, you know, I think we showed to some extent two or three things that were kind of profound. One was just how kind of how you can marshal a bunch of resources from around the company to really build something that is greater than the sum of the parts in the sense of we showed off Zune integration, we showed off Silverlight integration with dev tools targeting our phone platform, we showed off Xbox integration so that the games could integrate with Xbox avatars and gamer tags and achievement points, we showed off Outlook and e-mail access and calendaring access with a whole bunch of cool features on the phone. This is all about the phone.

And just you go down the litany of the number of scenarios that I think were unique that we were able to kind of connect in a way that consumers really like, and the number of kind of divisions and different groups that we were able to kind of collaborate on to build this kind of experience, and I think that is a — it might look easy sometimes but getting that many teams all aligned around a common vision and something that consumers really love, you know, I think is a great testament.

I think the other thing that I’d say that I feel like went really well was just people were excited. You know, the number of people who told me I want that phone, you know, is pretty cool, and I think the work that the Windows Phone team has done over the last year, some of the work that my team has helped with in terms of Silverlight and the tooling from it, you know, it’s kind of fun to feel like we’re really pushing the envelope in terms of not just what we’ve done in the past but more importantly from the phone industry in general.

And there’s still a lot more work to do. I definitely would not call it done. But it’s exciting to be able to ship the tools today and put them in hopefully millions of developers’ hands and see what they build with it, because I think there’s a lot of power there, there’s a lot of interconnected scenarios that provide huge opportunities for developers everywhere to light up, and I think consumers are going to love it.

Steve Gillmor: But you didn’t answer my question about Silverlight Office.

Scott Guthrie: Well, the new version of Office, 14 –

Steve Gillmor: It uses it a little bit.

Scott Guthrie: Yeah, it does use Silverlight, yeah.

Steve Gillmor: Do you think that it would be good to say to Steve, you know, we need to be more aggressive with this?

Scott Guthrie: Well, you know, in general I’d say I think the most important thing — and again I think the thing that we showed a little bit today is how do you make sure you’re consumer focused and scenario focused, because ultimately the things that get people excited, and frankly the things that sell products are if you can demonstrate value and uniqueness and get people excited. So, you know, I selfishly think, hey, Silverlight lets you do that, and for a variety of cool scenarios.

Steve Gillmor: What would a scenario be around Office?

Scott Guthrie: Well, I mean, I think some of the things that they’ve done with the Office Web companions in terms of light-up. You know, there’s the PowerPoint support or whether it’s the Word editing support. Ultimately my mom or my sister doesn’t really care what it’s implemented in, but the fact that that app is richer than what she might be able to see somewhere else is compelling.

I think likewise today — you know, Joe I think did a good job. We kind of went back and forth in rehearsals of how much does he call out the technology. In his segment he really focused on the user experience. The user experience, the users don’t care what it’s written in, they care that the motion is fluid, the UI is slick, there’s no jerkiness, it’s just smooth, crystal clear, polished.

Steve Gillmor: But the impact, the cumulative impact of seeing how those user experiences can be developed with an intuitive tool, that’s very impressive I would –

Scott Guthrie: Yeah, and certainly the technology does matter, but the thing I think we’ve learned, and we’re going to make sure we stay focused on is, okay, what’s the end user value, what’s the scenario that’s really going to make people go, I want that. To the extent which, you know, you use Silverlight to do that or you use HTML or you use Win32 or you use COBOL, pick whatever technology –

Steve Gillmor: Yeah, I’m going to bet more on the Silverlight than the COBOL.

Scott Guthrie: Yeah, certainly that’s where we’re investing, but –

Steve Gillmor: I want that COBOL phone. (Laughter.)

Scott Guthrie: That will sell well.

But that’s kind of really where we’re focusing on is how do we just nail that scenario, and really get people, the end users excited with it, and I think that was the nice thing about the day’s demos. You know, people more than just knowing like, ooh, Smooth Streaming is enabled on the phone with Silverlight. If you showed Netflix, and you say, oh wow, look, here’s a prototype where I can do instant watch streaming, that’s cool. Oh, I can do Four Square. Okay, I can do that in other platforms, but look, the map is integrated directly within the application, and it’s all seamless and I don’t have to navigate. Or the AP app in terms of gliding through lists of data and seeing the story with photographs in the background and Swivel 3D for the photos. You know, that’s the thing that I think gets people excited, and the fact that it’s really easy to build all those things and that all those apps were built in under three weeks, that’s the thing that will get the developers here excited, but I think it’s important to make sure you keep the consumer first in the center whenever you’re trying to build a client.

Steve Gillmor: Well, you did a nice job of summarizing the keynote today.

Scott Guthrie: I tried, yeah.

Steve Gillmor: Thanks so much for your time. I appreciate it.

Scott Guthrie: Cool. Thanks, Steve.

[Transcript courtesy Waggener Edstrom]

Scott Guthrie leads off. With no PDC this year, MIX has taken on the tone of the premier Microsoft developer conference.

Silverlight approaching 60% penetration, up from 45% at the PDC last December.
The Olympics player has been open sourced.
Visual Studio reved to support Silverlight 4.
Free Expression Blend 4 upgrade to Silverlight 4.

Silverlight 4 ships next month.

Joe Belfiore takes over to announce the development platform for Window Phone 7 series devices. What’s immediately interesting is how similar WIndows Phone is to Android. The three experiences may be more similar than Apple wants them to be, but the time spent learning Android pays off more quickly wtih Windows Phone than iPhone. Even differences become less intimidating because of the transition through Android.

Not surprisingly, what’s not shown is any tools for porting Windows Phone apps to iPhone or Android. I wouldn’t expect the latter, but given Adobe’s noise about Flash-to-i(Pad)Phone, the former is surely in the works. Microsoft is giving away all the dev tools for WP7 development, and Seesmic’s demo underlines how fast the ecosystem could be built with Microsoft at the head of the stack. Of course, no one sees it this way ecept a small number of analysts and developers who recognize Redmond’s core strengths and weakness from the stretched-to-the-margins Google play. That leaves Apple.

While digging through the Chromium forums back in November looking for clues about the then-unreleased Chrome for Mac beta, we stumbled on an interesting bit of information: Google was moving away from supporting Gears going forward. While this move was obvious for some given Google’s heavy investment in HTML5, Google hadn’t talked much about what would happen to their plug-in that allowed for things such as offline access to Gmail. They’re talking now.

In a post yesterday on the Gears API blog, Ian Fette from the Gears team comes right out and says it in his title: “Hello HTML5.” Fette notes that the reason there haven’t been many updates to Gears in the past several months is because the team has shifted its focus towards implementing the same features into Chrome through HTML5. So far, this includes Database API, workers, local storage, and web sockets. And soon, LocalServer API and Geolocation will be a part of Chrome as well, Fette notes. In essence, all of these features make Gears unnecessary — well, at least in Chrome, which Google obviously wants you to use.

Because of this shift of focus, Fette notes that support for Gears will be increasingly “constrained in scope.” What this means is that beginning immediately, they will no longer be supporting Gears on OS X Snow Leopard (and later). Meanwhile, Gears support in Firefox and Internet Explorer will continue in limited form for now. But both of those too will eventually be killed off. “We will not be investing resources in active development of new features,” Fette writes.

Really, all Google is waiting for is an effective way to migrate Gears-enabled apps (and their users) over to HTML5. While there is currently no good way to do this, it seems as if Google just may wait for developers to drink the HTML5 kool-aid and then kill of Gears support entirely — even if there are still some who are using it.

I’m all for this. As I wrote back in December, I’m of the opinion that plug-ins are perhaps the biggest inhibitor of a unified web. That is, a web where everyone sees the same content the same way, no matter what browser or which OS they’re using. It doesn’t matter if those plug-ins are made by Google (Gears), Microsoft (Silverlight), Adobe (Flash), or anyone else.

In any case, I won’t reveal what was said by Googlers because I want to be invited back next year. Also because they didn’t say anything that contradicts anything they’ve said publicly or that I’ve made up out of whole cloth. In fact, what I can talk about is what I said. Here’s a digest of that stream:

It seems that the WebOS contest for the hearts and minds for developers is settling out as one between ChromeOS and Silverlight. In my mind, ChromeOS is Chrome, and now that it’s on the Mac I care. Chrome therefore subsumes FireFox, Safari, and eventually Android, regardless of what has been said about the difficulty (or not) of having one OS span the desktop and mobile devices. I can’t tell you when Googlers will release Chrome Extensions but a spokesperson pointed out Google has publicly stated the project is open source, which suggests you could look up the answer to this and many questions. Indeed MG has made a career out of doing this.

So when Extensions ship, I will move off of Firefox within minutes, not because I have any extensions other than PowerTwitter but because I wait for enough stability and market force to make moving a conservative bet. And the main thing I’m waiting for above all else is Silverlight compatibility. I can’t say what Googlers said about this, but my thought is that if they can support the crap Adobe AIR hairball, they can support Silverlight. My bet is they will or already do.

I can’t say what Googlers said about HTML 5, but I said it would take 2 or 3 years before it got close to production, that in the meantime Apple and YouTube were forcing a standard around H.264, that Moonlight decompiling strategies coupled with the Silverlight to iPhone bridge demoed (almost) at PDC will provide a sufficient porting path to normalize the difference between iPhone and Android development, and that whatever the (n)on-existent Google phone looks like, it will produce a 2-horse market within a year. I can’t say how Googlers responded to my theory, but if someone were to use this as an argument for the iPhone being in trouble they’d be wrong.

That’s because (as I told the Googlers) nothing about Android or the nPhone mandates that Apple will stand still. Indeed, a strong Google phone or tablet or both frees Apple to ride right through the hole created by competition and drive the carriers further into a reactive postion. You can already see this happening as Apple approves Ustream, Qik, and even downstream video recording apps in swift succession. Once Verizon is filleted by either Google or Apple or both later this new year, it’s a battle for infrastructure to support the new Kindleized mobile marketplace, with the dueling AppStores providing DisneyBucks (Admobs or something like it) as payola for chart position. I kid the old record companies because they’re dead.

Speaking of the Kindle, it’s instructive to note how the book companies are trying the same stall that ultimately killed the record cartel, slowing down the release of some e-titles until they’ve milked the airport crowd. Meanwhile, Comcast is within minutes if not already releasing its on-demand access to premium content, and Netflix over Silverlight is spurring MacMini sales hooked up to sub-$700 1080 HD screens. We’re in mop up mode here, and the less-is-more design model of matching the quality of content with delivery mechanism is tipping the marketplace from downloading to streaming and built-in to bluetooth. As I told the Googlers, the marketplace won’t wait for HTML5, so HTML5 will have to come to them. I can’t say …

As the evening wound down, I talked with several Googlers about data portability and the Google stranglehold in search. I can’t say what they said, but I said I’m not worried about storing all my data in Gmail because it’s a lot safer than on my hardrive or not backed up as it always turns out to be. As to the Facebook issues regarding privacy and the difficulty of protecting digital breadcrumbs from winding up in someone’s unintended stuffing, I doubt the ability to constrain the leaking of private data and instead suggested Google would eventually be held responsible for surfacing inappropriate data at the top of its searches. In fact, what I am looking for are self-service tools that let me submit requests for redacting search results around the publishing of private data.

I can’t say what the Googlers think, but my bet is that this counter filtering will produce a new responsibility for data vendors, placing the onus on the search publishers to be responsible for what private data is made widely available when the appropriate IP owners (parents and individuals) have registered a social DMCA notice. As I told the Googlers, users (us) don’t care where the data is actually stored, only how it is being published and to who. I also predicted this technology will become a valuable part of competitive search offerings.

Perhaps the Googlers will surface some of their opinions on these subjects in the coming days, but even if they remain to be mined from open source archives the general thrust of the conversation is moving forward inevitably, beyond closed v. open and toward a pragmatic mix of both worlds. That’s why Silverlight is so viral in its evolution, moving in the past few months from a radical challenge to a conservative fundamental. Just as with ChromeOS, we still hear caveats and shadings about the disruptive qualities of these WebOS strategies, but simultaneously the boundaries between these two seemingly different paradigms are blurring to the point of disappearing.

The social layer is now the unifying driver of both platforms, and those industries, whether enterprise, media, or mobile, are being pushed into a single fabric. The realtime feedback loop retrieves gestures of interest and lack of it to the filtering server where it is compared to others with similar affinities and discounts applied based on the likelihood of accepting those offers. This builds on the Google Adsense model and its economies of scale around advertiser volume, but the social graph produces rich hubs of affinity which produce greater return. Swarm ranking trumps broader audiences when the tools to harvest more implicit affinities are available directly to the producers of the new products made viable.

But that’s just what I said. The other side of the conversation was at least as interesting. For now, this will have to be like one of Bob Newhart’s famous phone monologues, where you only hear Bob’s side of the call. Like the famous 8 foot invisible rabbit Harvey, after awhile you start to see and hear him just fine, thank you.

This news comes just days after Google’s revelation (thanks, in part, to our story on the upcoming Chrome for Mac beta) that they were backing away from supporting Gears in the future, in favor of HTML5. Gears is the software that Google created to allow users to use their applications while not connected to the web. But it’s also a plug-in (for all browsers except Google’s own Chrome for the PC). This is a big barrier to entry for many users. And it’s something that creates problems developing apps around it if say, a user doesn’t have Gears installed.

So it’s good to see Google step away from a plug-in even if it’s no longer proprietary (originally called “Google Gears,” they have since open-sourced it). And it makes what Microsoft is doing even more frustrating.

With Silverlight, Microsoft continues to make it clear that they intend to use this web application framework, which they developed, to power much of what they are doing on the web going forward. Again, the problem here is that not only does Microsoft control this, but it requires a plug-in to use. Sure, they’ve made the plug-in available to most browsers, including the ones by rivals Google and Apple, but it’s still a plug-in. It’s something that’s going to stop everyone from seeing the same web no matter which browser they use.

This has of course long been an issue with Microsoft. Despite a clear shift within the rest of the industry toward web standards, Microsoft long played difficult with its Internet Explorer browser. They could afford to, and maybe you could even argue that it was in their interest to, because they were so dominant. It was only when a standards-based browser, Mozilla’s Firefox, started biting off significant chunks of IE’s market share that Microsoft shifted their position to play more nicely with standards.

But even today, they still don’t play that nicely. As you can see in this video about IE9, they are still nowhere near passing the Acid3 browser test. Safari, Opera, and Chrome have all now achieved 100/100 scores on the test. Firefox has gotten a 96/100. IE? Well IE8 (the current version) gets a 20/100. And IE9, which isn’t out yet, only gets a 32/100. You can try to argue (which Microsoft does) that much of the test is meaningless to everyday browsing, but the fact remains that all its major competitors are able to pass it or are on the verge of passing it.

A humorous aside about the video linked to above is that while it’s a talk about Microsoft’s commitments to standards and interoperability with IE9, you need Silverlight to play it.

When asked about Microsoft’s shift towards requiring Silverlight for applications such as the new Bing Maps, officials from the company basically stated that they’re doing it because they had to. AJAX, the technology that powers many of the other web apps in existance today, simply isn’t powerful enough to do what they want, they reason — continuing on that it’s not about using a proprietary technology, but using the best technology out there.

The problem with this once again goes back to the idea of a unified web. If some web apps require plug-ins, the web is not going to be as seamless as it should be. And that’s why HTML5 is potentially so interesting. Because advanced components such as web video, which is now mainly powered by Adobe’s Flash plug-in, could be handled natively within the browser. (Here’s an example of a YouTube video rendered only with HTML5.)

Can Silverlight allow for more powerful web applications than standard web technology? Probably. Does the new Bing Maps look cool with seamless transitions between a map view and on-the-street city view? Yes. But another issue is: Do we really need that?

How often are you going to need (or want) to zoom around a city with 3D buildings when you really just want to look up an address? It’s a neat feature, just as it is within Google Street View or Google Earth, but it’s not really all that practical. The majority of location searches I do are on my phone where I simply want to get an address as fast as possible. I actually just had to double check if the iPhone has Street View built-in (it does) because I never, ever use that feature.

Nor do I ever really use it on the desktop. It’s useful for some select cases, like maybe if you’re buying a house and want to get a look at the neighborhood. But otherwise, it’s just a nifty feature to demo — which Microsoft did extensively today.

Again, I’m not saying it’s not cool. It is. But I’m not sure it’s worth trading the possibility of a unified web for. In fact, I know it’s not. Sadly, with Microsoft, the problem is only going to get worse, and not better. They’ve made that very clear.

[photo: Paramount Pictures]

But until today, I had’t really seen anyone boast a full-fledged multi-touch website yet.

Well, say hello to the future by visiting the new SilverPAC website, built by LA-based Ciplex in collaboration with Microsoft using Silverlight on Windows 7.

I just got off the phone with executives from the 10-year old interactive agency, and they told me they were actually commissioned by consumer electronics developer SilverPAC to build a new website with the usual technology. Instead, Ciplex saw an opportunity to take a stab at building a multi-touch web experience for the company using Silverlight tech, supported by the fact that its customer already had a working relationship with Microsoft. This gave Ciplex the early access to the Windows 7 beta and the set of Silverlight APIs needed to accomplish the feat.

The multi-touch website was launched a couple of weeks ago with little fanfare and met with only a handful of reviews. I don’t own multi-touch enabled hardware myself, but friends who do tell me the website is at times rather slow even using brand new gear, and the set of gestures is fairly limited: you can’t rotate items, for instance. If you have a multi-touch ready device, don’t hesitate to share your opinion in comments below.

For what it’s worth, the demo video (embedded below) makes it look really cool and promising. If you so desire, you can get a half-baked experience by simply visiting the website and using your mouse for the navigational gestures, but evidently this doesn’t allow you to try out pinching or two-finder swipe actions.

On a sidenote: the introduction video on the SilverPAC multi-touch website was amusingly made in Flash.

It’s worth noting that Adobe’s recently launched Flash Player 10.1 Beta also has what it takes for these types of websites to be built and interacted with, but we have yet to see any live showcases.

Looking very forward to future launches of this type of web experience, regardless of the underlying technology, and particularly on mobile devices.

What’s odd about this is that most observers consider FriendFeed a failure, too complicated and user-unfriendly to compete with Twitter or Facebook. If Twitter believed that to be the case, why would they endeavor to kill it? And if it were not a failure? Then Twitter is trying to kill it for a good reason. That reason: FriendFeed exposes the impossible task of owning all access to its users’ data. Does Microsoft or Google or IBM own your email? Does Gmail apply rate limiting to POP3 and IMAP?

So the reason Twitter is killing FriendFeed is because they think they can get away with it. And they will, as far as it goes, as long as the third party vendors orbiting Twitter validate the idea that Twitter owns the data. That, of course, means Facebook has to go along with it. Playing ball with Twitter command and control doesn’t make sense unless Facebook likes the idea of doing the same thing with “their” own stream. Well, maybe so. That leaves two obvious alternatives.

The first is Google Wave, which offers much of the realtime conversational technology FriendFeed rebooted around, minus a way of deploying this stream publicly. The Wave team seems to be somewhat adrift in the conversion of private Waves to public streams, running into scaling issues with Wave bots that don’t seem to effectively handle a publishing process (if I understood the recent briefing correctly.) But if Waves can gain traction around events and become integrated with Gmail as Paul Buchheit recently predicted, then an enterprising Wave developer might write a bot that captures Tweets as they are entered or received by Twitter and siphons them into the Wave repository in near realtime.

Note that this doesn’t presume access to Google’s version of the firehose. As with Microsoft, no one has publicly described the terms of service, including whether either licensee can allow third (or fourth) parties to derive services such as Track from their copy of the stream, or indeed how long they can archive tweets if at all. But that doesn’t preclude a Wave developer from leveraging each user’s polling rights just like any third party Twitter app or, even simpler, warehousing the stream before it enters the Twitter stream. Placing this initiative at the Wave bot developer level also engages an App Store-like critical mass that may prove significant in the early buildout of Wave momentum. Destroying the false premise that Twitter owns the data to begin with is an added bonus. Or it will smoke out some details of the Google/Twitter licensing deal.

The same could be true of Microsoft’s deal for the firehose, but here, as with Google, Twitter may not want to risk flaunting ownership of a stream that can so easily be cloned for its enterprise value. And as easily as you can say RSS is dead, Salesforce Chatter enters the picture. Here’s one player Twitter can’t just laugh off. First of all, it’s not Twitter but Facebook Benioff is cloning, and a future Facebook at that, one where the Everyone status will be built out as a (pardon the expression) public option. This free cross-Web Chatter stream will challenge Facebook’s transitional issues from private to public, given that Salesforce’s cloud can immediately scale up to the allegedly onerous task of providing personalized Track on demand.

It’s likely this pressure can be turned to good use by Facebook, unencumbered as they are by any licensing deal with Twitter. Instead, a Chatter alliance with the Facebook Everyone cloud puts Salesforce in the interesting position of managing a public stream with Google Apps support, which eventually could mean Wave integration. Where this might break first is in media publishing, as Benioff noted at the CrunchUp. Twitter’s leverage over its third party developers could be diluted significantly once Salesforce offers monetization paths for its Force.com developers. So much so that this may call Twitter’s bluff with FriendFeed.

But FriendFeed has always been more of a tactical takedown of Twitter than an actual competitor, a stalking horse for just the kind of attack Twitter seems most afraid of. No wonder the speed with which Twitter is introducing metadata traps to lock down the IP before a significant cloud emerges to challenge its inevitability. Lists, retweets, location — they’re all based on raising the rate limiting hammer to discourage heading for the exits. It’s not that retweets reduce the functionality of the trail of overlapping social circles, it’s that they lock them behind the Wall.

By aligning first with Facebook and adopting Twitter’s look and feel but not its metadata wall, Chatter developers are less threatened by a Twitter embargo in realtime. Benioff doesn’t need Twitter’s realtime conversation if he can build out Facebook’s, by retaining Facebook Connect control of the private stream while accelerating the Everyone status cloud and co-mingling it with Chatter + public notification and Wave bot integration. Add Silverlight to iPhone streaming to Moonlight recompiling, and developers have a powerful porting path that will quickly populate the Chatter Store.

Strange bedfellows indeed, but that’s the risk Twitter is taking in cutting off FriendFeed’s oxygen. Crushing a weak opponent’s windpipe does little to consolidate your advantages, but it leaves an indelible impression in those potential partners who are calculating a complex algorithm of time to market, stream access, platform elasticity, and user trust. But when you add a platform (Salesforce) which has continued to stay ahead of expectations while mining the social wave, the balance of power shifts dramatically. When you see Seesmic CEO Loic LeMeur walk out on stage at the Microsoft PDC with a Silverlight demo he bootstrapped in 2 weeks, ditto.

I don’t expect anyone from Twitter to answer the simple question of when will Twitter give FriendFeed the same access they provide other third party client vendors. For now, it’s frustrating to not see the flow of Twitter messages in realtime, but over time we’ll build tools on top of FriendFeed to take such embargoed messages private. Once inside FriendFeed, the realtime conversations that result are just the kind of high value threads Chatter will support, Wave will accelerate, and Silverlight will transport. Keep up the good work, Twitter.

This edition sports some familiar longtime Gangsters, including Ziff Davis Enterprise and ITBusinessEdge editor Mike Vizard and Mahalo founder Jason Calacanis, who promises not to agree to time limits on his next bets. Alert listeners of the old RSS-bound version of The Gang will recall Calacanis bet a sushi dinner that Google would launch its own OS. I pinned him down to one year, and unfortunately the bet was joined 3 or 4 years ago. Even if you accept the idea that ChromeOS is a real OS, then the next bet might be when Silverlight merges into the new Windows. Robert Scoble says no Silverlight Office for 5 years. I say 2 years tops.

More recent regular Kevin Marks continues to party down on the notion that HTML 5 will hit the mainstream shortly. Kevin sees Microsoft’s announced support for Silverlight video transcoded to Apple streaming format for the iPhone as a validation of HTML5, but there’s no getting around Microsoft’s aggressive use of Silverlight to push the market ahead of HMTL 5′s progress in the video area. Scoble says that’s not Silverlight on the iPhone, but if you combine the video hack with Miguel De Icaza’s Moonlight recompiling hack to iPhone primitives, it adds up to a porting path for Mac, PC, iPhone, and Android. Sounds like another sushi dinner for me. A feast of possibilities to ponder on a happy Thanksgiving Day.

STEVE GILLMOR: By hook or by crook, you own considerable — I wouldn’t call them clients as much as platforms —that intersect in a really interesting way around the real-time space.

ROBBIE BACH: Sure. Sure.

STEVE GILLMOR: I mean, for example, on the iPhone, the iPhone 3.0 software enables a bunch of real-time capabilities like Bluetooth in the back seat of a car, you know, things like that which may be no-brainers, but because of Apple’s –

ROBBIE BACH: They’re still harbingers of future things –

STEVE GILLMOR: Exactly. And the same way that Xbox 360 basically opened up the notion that — I mean, I have an eight-year-old daughter.

ROBBIE BACH: They grow up fast.

STEVE GILLMOR: Yeah. And a 15-year-old. The 15-year-old video conferences constantly.

ROBBIE BACH: Sure. Sure.

STEVE GILLMOR: The eight-year-old, she’s on all these different platforms that are disguised as whatever the — you know –

ROBBIE BACH: She’s on some Disney thing, she’s on –

STEVE GILLMOR: Yeah, exactly. But what she’s really doing is she’s doing –

ROBBIE BACH: It’s real-time.

STEVE GILLMOR: She’s on the phone with her friend and they’re both on the same site and they’re interacting with each other.

ROBBIE BACH: Right.

STEVE GILLMOR: So she’s — didn’t take her long to figure out that while the technology is catching up, that she could basically just simulate this herself with a couple of –

ROBBIE BACH: Right. My daughter does the same thing. My daughter does the same thing.

STEVE GILLMOR: So that is an enormous platform, and my particular interest in the end is going to be how that synchs up with the enterprise space because what’s on person’s game is another person’s –

ROBBIE BACH: Enterprise technology.

STEVE GILLMOR: — social platform.

ROBBIE BACH: That’s right.

STEVE GILLMOR: Which is another person’s CRM.

ROBBIE BACH: And it works both ways, too. Sometimes stuff starts in the enterprise, sometimes it starts in consumer. But in either case, it migrates — things migrate with some regularity back and forth across that divide.

STEVE GILLMOR: So last positioning point is I think there’s a lack of understanding about what Microsoft’s goals are.

ROBBIE BACH: I think that’s true.

STEVE GILLMOR: You know, of what is — I mean, the overarching strategy, of course, we understand, but how do you manage this transition to an on-demand cloud environment?

ROBBIE BACH: Yeah.

STEVE GILLMOR: And where –

ROBBIE BACH: How does the business model work?

STEVE GILLMOR: And where does the rubber really meet the road?

ROBBIE BACH: Sure.

STEVE GILLMOR: And you seem to be astride a number of the areas where there’s significant ROI that’s coming.

ROBBIE BACH: Sure. Sure. Some of which are here. But the clearly — well, so let me just step back. First, let me just make sure we’re clear on what the Entertainment and Devices does, and then we’ll spend two minutes on strategy, and then we can dive deep.

So Entertainment and Devices on one hand is a portfolio of businesses in a way, because I have all of the company’s gaming assets in the division, our music and video assets are predominately here, not 100 percent, but pretty darn close.

STEVE GILLMOR: And by music you mean Zune?

ROBBIE BACH: You’ve got Zune. Yeah, music would be Zune, video would be Media Center and Media Room. You still have — Media Player is a platform technology of Windows, so they don’t license music, there’s not marketplace for it, those kinds of things. And then MSN does some video work, but again, not their primary focus.

We also are responsible for the mobile phone work that the company does, Windows Mobile and associated things. And then there’s a fourth business that people don’t actually have a lot of visibility to, but which is an important part of the division, which is our mice and keyboard business and our embedded software business. And ironically, actually, our Mac Office business, those are all in the division.

Final thing that’s in E&D is we’re responsible for all retail sales for the company. So the sales force in my division — if you buy something at Best Buy, doesn’t matter what it is, that’s Microsoft related, my sales force has brokered that relationship, managed that –

STEVE GILLMOR: Is there some store initiative?

ROBBIE BACH: There’s a store initiative as well, although I don’t manage that, and that’s a conscious choice. They would be one of my best customers. So my job is to make sure that I supply them with great Microsoft product and that Microsoft’s experience shines the best in their store, and of course that’s obviously their job as well. So that’s sort of what the division does.

Now, if you asked us sort of what’s the strategy, I could go through each of the businesses has a little bit of their own flavor on things in terms of what they’re doing for the specific segments that they’re in. But if you looked across all the businesses, we focus on this concept which we inelegantly so far call three screens and a cloud, which is not a magical phrase. But when I think about what’s happening in entertainment in particular, I think over time people are going to want to think a lot less about where their media is, they’re going to want to worry a lot less about how it’s backed up. They’re going to want to be able to access it from whatever device they want and whatever screen they want. And I actually think they’ll want unique experiences that are enabled because they’re on multiple screens and because that’s all connected through a cloud set of services.

Now, if you asked a consumer, “Do you want a cloud entertainment experience?” They would say, “No, that actually doesn’t sound very appealing.” So that part of it may not be articulated yet. But when you paint a scenario for people, they say, “Oh, yeah, I want that. And, in fact, they participate in what are effectively cheap man’s versions of cloud experiences today. American Idol is just a cheap man’s version of a cloud experience today. It’s a duct tape cloud, right? There actually really isn’t a cloud, but they use a cell phone network to vote on things and take that, add five years, put some technology around it, and I can tell you I can have a really exciting entertainment experience around that that’s way richer than American Idol and is way more interactive and uses cloud technology to help enable and power it.

STEVE GILLMOR: Is that what you’re doing?

ROBBIE BACH: Well, if you looked at the long-term vision of where we want to get to, sure. I mean, the long-term vision where we want to get to, you kind of have to go in stages. The first thing we want to do is we want to enable people to have access for multiple screens to the same set of services that they want. So take Zune as an example. We have Zune on the PC today and we have Zune on Zune devices. We just announced at E3 that Zune will be on Xbox.

And so the Zune video services will be available across all three of those screens. Ultimately, we had music on two of those, it’s just a priority question, we’ll move that to Xbox at some point not defined. But we’ll expand that across those screens. So that’s just an example of the types of things we want to enable.

On the reverse side, you take Xbox Live, which has been phenomenally successful on the TV screen, we do pretty well with it on Windows, although the business model is actually quite different, and so it’s just a question of time before somebody says, “Okay, so how do we think about the Xbox Live experience on a mobile phone or on a portable device?”

So the first phase of this is thinking through how our services play out to people in a three-screen world where the cloud is a provisioning area. Then you can go one step further and say, no, that’s actually just the first step. That sort of says take existing experiences and migrate them to a cloud environment. What if we did something different, which is we said, oh, we want to create an entertainment experience and we assume the cloud exists? Then assume the consumer has access to all three screens or two of the screens or a favorite screen, what would that experience look like?

And that, to me, you know, that may be five, six, seven years away, but it’s a very interesting possibility. And because what it does is it not only changes the technology delivery, which people may or may not care about, but in particular, it changes the actual form of the entertainment. It actually changes the experience for the person getting involved in the entertainment. That, to me, is very exciting.

Anyway, that’s the broad brush.

STEVE GILLMOR: That’s what you’re doing?

ROBBIE BACH: That’s the broad brush on the strategy. And we’re early in the process of understanding that, but Xbox Live has 20 million members. So it’s not like we don’t have good traction in a number of these places.

STEVE GILLMOR: So real time. Does it mean anything to you?

ROBBIE BACH: Real-time as a phrase, you know, part of me will say, well, so tell me what you think it means to you. I can look at it and say, “Do we think that there are real-time experiences that we’re going to enable through our cloud-based services?” And the answer is absolutely yes. You can argue today we have real-time — it’s mostly peer-to-peer, but real-time experiences today on Xbox Live.

STEVE GILLMOR: Right.

ROBBIE BACH: Right?

STEVE GILLMOR: Kind of pioneered it, actually.

ROBBIE BACH: Yeah, absolutely. So you’d say, well, that’s a real-time experience. Now, somebody else could come in and say, no, let me define real-time in the gaming space slightly differently for you.

To me, real-time means everything’s served from a server. And this is not peer-to-peer, in fact, in the most extreme case, you could say there is no client and we’re just going to have a server-led gaming experience.

Me, I think that’s actually quite a long ways away, personally. I could tell you about the physics of that, I actually think it’s quite hard, and I think the business economics of it are very, very difficult because it doesn’t actually scale very well.

STEVE GILLMOR: So what are you saying? That basically Google is not going to get there?

ROBBIE BACH: Well, I’m not going to make any posit about what Google’s doing. They’re actually not the guys who have proposed this. There are some other guys who have actually showed some of this at the game developer conference. They showed some concepts, Steve Pearlman and those guys have showed some stuff.

And there’s interesting technology. There are places where — and they may achieve some breakthroughs that make it happen earlier than I think. But when we look at it, we say, okay, all of these things are possible, let’s go through the stages of development of where we’re at and just recognize where we are today and where we might end up. And doing a server-based delivery just because you can, if it degrades the consumer experience, why would you do it?

You have this funny technology advancement going on in the space where people would say, well, gosh, things are moving to the cloud. And I say, verily, yes, some set of things absolutely are and should move to the cloud. But at the same time, I would tell you, client power is getting cheaper and cheaper and cheaper, and more and more available on more and more devices.

And so you have this very interesting dynamic where the phone has never been more powerful as client, right? And you can only see that increasing. You know, in a year’s time, you’ll be able to do Xbox 1.0 graphics on a phone. So you’d say, okay, now, why would I render that on the cloud?

And there might be reasons why you’d do it. But you’d also have to ask yourself, gosh, what’s the experience like and how do I produce the best experience?

STEVE GILLMOR: So what do you see as the advantages of the cloud in terms of what you’re working on?

ROBBIE BACH: Well, for us — for us, the cloud does a number of things. First of all, it enables us to create community. Right? I mean, the biggest thing — people ask why is Xbox Live successful. Why do we have 20 million members on Xbox Live? And a good percentage of those people who pay us real money for a subscription every year. And some of it is about multi-player gaming, I will grant you. But a significant portion of it is about those people saying, “Hey, this is where I meet my friends. This is where we do things together.”

And if you don’t have a cloud set of services behind that, that gets actually quite hard. How do we do the types of things we’re doing now where you and your friends will be able to watch a movie together and not be in the same room? That requires a set of cloud-based services behind it to enable that to happen in a rich and effective way. And, oh, by the way, talk and see each other at the same time. That’s a pretty interesting experience and a pretty interesting trick. And that all happens through the work that we’re able to do on Xbox Live.

So to me, the biggest thing that the cloud does in the immediate term is it gives us a social environment. It gives us the ability for people to do things together.

STEVE GILLMOR: All right. So that naturally brings us to this new real-time phenomenon that some people think started with Twitter, but others think that Twitter is just an example of something.

ROBBIE BACH: Sure.

STEVE GILLMOR: What’s your take on that stuff.

ROBBIE BACH: Well, I think it’s just part of the socialization experience. I mean, we announced at E3 that on Xbox Live we’re going to have a client for both Twitter and Facebook and MySpace-type integration. We think that’s actually a nice part of the environment.

I don’t really know what the business model — I don’t really understand the business model. I’m not an expert on it, so there may be a business model there, I haven’t seen it yet. So we’ll see how it plays out. But certain as their demand for people to have that kind of rich interaction and real-time communications experience, and the answer is yes.

Now, how long-lived that is, how pervasive it is, how wide does it go? You know, you’ve seen Facebook, My Space go pretty wide. I think Twitter and these — what I would call almost a blend between text messaging and blogging, right? You know, there’s certainly strong appeal to that now, we’ll see how that plays out over time.

For us, it’s just part of the trend I said about earlier, which is about socialization. And so we want to enable people who are Xbox Live customers to have that be part of their experience.

STEVE GILLMOR: So one of the things I talked to Ray about and also to Brian was the notion of this kind of real-time technology finding a home at the center of the desktop. Now, since you’re basically dealing with multiple platforms and providing shared experiences I guess is the way to put it, across these different — do you see that as –

ROBBIE BACH: What do you mean by “the center of the desktop”?

STEVE GILLMOR: Well, you know, right now what would you say is the center of Office?

ROBBIE BACH: Outlook.

STEVE GILLMOR: Outlook, right.

ROBBIE BACH: No question.

STEVE GILLMOR: Okay. So that’s e-mail –

ROBBIE BACH: Calendar, contacts.

STEVE GILLMOR: Right. And Messenger isn’t one of those.

ROBBIE BACH: That actually depends on — this is where Office Communicator is an important element. That will depend on who you are. So around here and around a lot of companies, Office Communicator is the way people talk in meetings. For better or for worse.

STEVE GILLMOR: So is there an intersection point between Communicator and what you’re doing?

ROBBIE BACH: I suppose there is, although little of what I do you would call productivity work. There’s a few exceptions in the division, but generally speaking, the things we do are sort of the flip side. We’re sort of the leisure and entertainment part of what we do.

Now, having said that, the principles of those things absolutely do carry across.

STEVE GILLMOR: Give me an example.

ROBBIE BACH: Well, take an example on Xbox Live. People do a ton — you’d be stunned and how much text chatting they do across the Xbox Live network. Actually, a lot. And I mean, it’s millions of messages. And how is that different than two people in a meeting of 14 sending an Office Communicator message to each other saying, “Gosh, I wish this meeting would end”? I mean, it’s just part of the social fabric that we’re creating.

I mean, many times what I think on both sides we’re doing, because work and play are both parts of the social fabric, on many parts what we’re doing is creating fabric in socialization, using technology to create new fabric for socialization. And Twitter is part of that, Communicator is part of that, text messaging is part of that, Facebook is part of that, e-mail is part of that, video conferencing is part of that.

You know, we sell a camera for your Xbox. You’d be amazed at the types of activity that generates on Xbox Live of people who want to see other people while they play their game. And we demonstrated this camera technology at E3. That’s another part of the social fabric. You’re now going to create a whole new set of ways for people to interact and experience things in a social setting.

STEVE GILLMOR: And once you have the camera, then you might start to use it in other contexts.

ROBBIE BACH: You very well might want to use it in other contexts. Now, the camera for us in the case of Project Natal the camera for us has a number of different aspects. First, there’s just the fact that you have visual input and you can actually see other people. So that’s interesting in and of itself. But it goes one step beyond that which is not only is the camera the way for communications to happen, but it’s the way for the interaction with the device to happen. So now it becomes the user interface, if you will.

STEVE GILLMOR: The mouse.

ROBBIE BACH: It becomes the mouse, the keyboard, in the case of gaming, the controller for whatever you want to do. Now, that’s a very interesting concept. And of course people’s immediate reaction after that was, first of all, from a gaming perspective, they went, “Wow.” So it just kind of, you see the demos, and the demos aren’t made up, they’re real. We actually had people go and say, “No, that wasn’t made up on stage, go do it.” And you had people go do it and they go, oh, well, I thought it was cool, but I thought it was gimmicky. Now I see it actually works and I just walked in and did it.

So the demo parts are all cool, but the second reaction people get it, so, what does this mean for the PC? And maybe not at E3, but after E3 we had people say, “What does this mean for the office?”

And you say, well, just think of the possibilities. And there are some interesting possibilities. But it’s nothing like what we would do on Xbox, I don’t think. Xbox is a 10-foot experience in front of the big screen where hand motion and activity make sense. I mean, if I’m sitting here standing at my desk six inches away from the screen doing this, it’s not clear that that’s going to be value added versus just using my hand on a mouse and making the screen drive.

So the scenarios, I think, will end up being different. You know, so what we’ll go do is we’ll go do some testing. We’ll go say, hey, let’s put some creative people on the experience side of this. The technology part we’ll keep making progress on, but let’s think about the user experience. What actually would somebody use that camera for? What would be the ways in which you can do interesting things beyond video conferencing, for which you don’t need a 3D camera. So we’ll go and explore that and we’ll see where that plays out.

STEVE GILLMOR: So when you started doing the sort of real-time interaction on Xbox, I mean, was that something that you discovered during the process of thinking about other things?

ROBBIE BACH: No.

STEVE GILLMOR: Or was that the goal from the beginning?

ROBBIE BACH: That was the goal from the beginning. It’s one of the things that I’m most proud of in the Xbox space is from the first concept meetings, we said this is going to be an online environment. And at first, that was a technological statement. So we had to figure out, okay, what technology do we have to have, and somebody’s got to do a bunch of networking, there’s some networking software, and we’ve got to think about whether — you’ll laugh at this, but we had to decide whether we had a modem or not. You know, 2000, 2001 was about the time when that transition was happening, and the fact that we took the modem out was hugely controversial. Sort of a funny historical fact.

STEVE GILLMOR: And the right thing to do.

ROBBIE BACH: And the right thing to do, and it was the right decision, as it turned out. But we were criticized for it. You go back and read the articles, people said, oh, no, not enough people have broadband, you’ve got to have a modem. Well, for the experience we wanted to have, having a modem wouldn’t have mattered. Right? You couldn’t have had a good enough experience anyway, so why bother? It wasn’t worth the cost.

From the beginning, we said Xbox Live has a set of things, principles, that we’re going to abide by. One of those was every game will be voice enabled. You don’t have an option. If you want your game to run on Xbox Live, you have to support voice. And we had a lot of people say, wow that’s crazy. It’s going to take up system resources. Yeah, well, if you want to have a real-time experience between you and I, we’d better at least be able to talk to each other, right? I mean, you can’t have a social gaming experience if you can’t talk to each other. And by the way, independent of the fact that people send a lot of text messages on Xbox Live, it’s darn hard to type with the controller. It’s not an ideal experience. So the fact that voice was there from the beginning kind of changed the way people thought about things.

So I think from the beginning, you know, sometimes we stumble into things. Sometimes things evolve in a fortuitous way and you find a way.

STEVE GILLMOR: Like what?

ROBBIE BACH: Well, I think they happen in a number of places. But even in things — if I go back historically to think about Word and Excel and some of the things we talked about there and some of the experience, would I have said that that would have led to SharePoint? No. We didn’t start with Office and say, oh, gosh, sometime this will be a server — at least I didn’t — maybe there was somebody else who did. When I was working on the group, we didn’t think of that as a logical evolution. But when we saw what was happening with networking and communications and people’s desire to have real time and intranets, we said, oh, wow, SharePoint, now SharePoint’s a big part of that business. So sometimes things evolve that way. Sometimes something like Xbox Live is more intentional.

STEVE GILLMOR: So mobile. How’s that going to start to resonate off of the other things you’re doing?

ROBBIE BACH: Well, if you think about it, mobile has kind of a multitude of roles for us here inside the company. First of all, phones are becoming a platform by themselves. So they’re another computing platform, we’re going to play, we think, an important role in that computing platform.

Secondly, they turn out to be an important screen, the role of which is only just becoming apparent to people and might be slightly different than then PC screen and the TV screen because of form factor and where you are and environment and those types of things. But there’s a bunch of things people are going to want to get on their phone. And so for us, it’s another distribution point, if you will, for services. So it’s sort of a business by itself, which is called selling into what’s going to be a big market for smart phones, and then there’s a second key component which is, hey, it’s central to what we’re doing in terms of our three screens and cloud strategy.

And our job is to make sure that our services integrate well and sing well across all three of those local experiences on the TV, predominately with Xbox today, on the PC with the PC and on a phone. And we have to make sure that we do a great job delivering that. And I think the secret for us is in the software and the service delivery. That’s where we’re going to do our best work.

STEVE GILLMOR: Well, Zune seems to be sort of an odd man out there.

ROBBIE BACH: Well, no, not really. I think the thing you realize with Zune is you have to think about Zune in a couple of different ways. You have to think of Zune as both a vertical, portable music experience. And if you look up Zune HD, it’s a great experience, it connects to our services, it’s a first-class citizen. I just think of it — it’s another portable screen, it just happens to be a very specialized portable screen because it really does music and video and it’s not a phone and we don’t have any plans for it to be a phone.

So that’s Zune in a vertical sense. But you’re also seeing us move the Zune experience horizontally. So we now see it on the PC, you see it on the Zune device, you see it on Xbox, you’ll see that experience elsewhere. And increasingly, we think of music and video as being experiences that show up on all the different screens. And you should think of Zune as our brand for delivering that music and video across all the different screens.

STEVE GILLMOR: So it’ll integrate with the phone.

ROBBIE BACH: Yeah, we don’t have anything to announce and haven’t announced anything.

STEVE GILLMOR: Sure.

ROBBIE BACH: We know there are other screens where Zune isn’t yet. So there’s more things we can do.

STEVE GILLMOR: So can you break down percentage of time on each of these things that you spend?

ROBBIE BACH: That I spend? I probably spend most of my time today working in the phone environment. And interestingly, a fair amount of my time on the PC environment. Both of those. But a little less on — actually, meaningfully less on Xbox than I used to because Don Mattrick now runs that business. And he actually has more experience in the gaming space than I do by a factor of two. And so independent of the fact that I ran that for six or seven years, he’s doing a great job. The Xbox business has probably been in the best shape it’s been in ever. And he continues to run that. So I spend a little less of my time on Xbox and a little bit more of my time on mobile and on the PC screen.

STEVE GILLMOR: So what are you doing on the mobile space?

ROBBIE BACH: Well, so there’s sort of short-term and medium-term things, and then obviously long-term. Long term, we already sort of talked about, and I’ll only talk about that philosophically anyway.

STEVE GILLMOR: Sure, I understand.

ROBBIE BACH: But in the short to medium term, you know, the next deliverable is Windows Mobile 6.5 and the rollout of our brand around Windows phones. So that’ll come this fall. And then obviously there’s future work beyond that to continue to advance the work we’re doing there. There’s a set of services we’ve announced a marketplace for Windows Mobile 6.5 and My Phone, which is a cloud-based service that enables you to both have your phone backed up as well as exchange and move data around between your phone and your PC in an easy and natural way.

STEVE GILLMOR: Does that use Mesh?

ROBBIE BACH: Yeah, it does. It does. So you’ll see us start to integrate all of those technologies. I mean, this is the place where we have real capability because it’s not just the Windows Mobile team that’s doing work, it’s the Mesh team that’s doing work, it’s the Silverlight team that’s doing work, it’s the Azure team that’s doing work.

And you mentioned earlier that you don’t think people really understand the full import of our strategy. I mean, some of that is because there’s a lot of parts to the strategy, and sometimes we don’t do a good job of stepping back and communicating the richness of everything that’s there. And sometimes it’s just the fact that we’re constantly enhancing it. It’s not like we ship a product that’s called “real time” and suddenly it all just shows up there.

STEVE GILLMOR: Sure.

ROBBIE BACH: Right? Azure comes at last year’s PDC and we announce Azure. Okay, so people get that. And then there’s My Phone gets announced at Mobile World Congress. A different event, certainly connected, you know, Mesh is at a different place, Silverlight is at Mix. So you have all these components that are sort of part of their own space, but which we are absolutely knitting together.

STEVE GILLMOR: Yeah. Talk about Silverlight. How does that intersect with what you’re –

ROBBIE BACH: Well, Silverlight, for us, has a number of different and interesting aspects to it. First of all, as a business model enabler in the advertising space, it’s certainly a way that people are using to produce ads in the online world, whether that’s on the PC or on a mobile phone or on Xbox or on any other type of device. So that’s one aspect to it.

It also turns out to be part of our development platform, just more generally. So beyond advertising, which you can think of as, quote unquote, a simple app. You can take that into much richer space with a richer set of applications, and you’ll see that spread across the product line and across the screens that we’re doing. So to me, Silverlight is one of those central components to what we have to do.

STEVE GILLMOR: So gaming space. How is that?

ROBBIE BACH: You should — you know, we haven’t announced anything and I think you’ll see us make progress in the gaming space. Today, the environment we typically use for gaming is XNA, which is a great technology and continues to go well and over time we’ll have to make sure we make it clear how that fits in with the Silverlight vision.

STEVE GILLMOR: So what I’m hearing here is you’ve sort of had so much success in the Xbox space that you basically sort of kicked yourself upstairs and that’s what I’m hearing.

ROBBIE BACH: Sure.

STEVE GILLMOR: And there’s obviously great opportunity and also some challenges in the mobile space.

ROBBIE BACH: Yeah, that’s fair. That’s fair.

STEVE GILLMOR: So tell me about the challenges.

ROBBIE BACH: Well, I think the challenges are fairly straightforward, there’s just a lot of competition. Tremendous opportunity for a lot of people.

STEVE GILLMOR: What’s your take on the Pre?

ROBBIE BACH: You know, I think it’s interesting. I think you have to ask yourself, okay, so where does it truly differentiate itself in a way in which it stands out from the other guys? And because of their market position, they’re going to truly have to stand out. And so we’ll see how that plays out. You know, they’ve made an interesting play around having touch and a keyboard. So we’ll see whether that plays out and whether that’s big enough of a differentiator.

I think the challenge they’re going to have is it’s what I would call a vertical experience that doesn’t have consistent depth in all of the verticals. We’ll see how their music and video story plays out as a consumer device because they’ve sort of decided they would be dependent on iTunes. We’ll see how long Apple allows them to do that. We’ll see how that plays out.

STEVE GILLMOR: A couple weeks maybe.

ROBBIE BACH: Yeah. That would have been my reaction. I’m not close enough to the situation to really understand it, but without that, they don’t really have a music and video play, which I think is tough in today’s phone market. I think it gets harder and harder to be credible in that space.

So I think it’s one of those interesting things where if the product had come out two years ago when Palm’s market position was a little bit different, you might have a different reaction than you do today. We’re just going to have to see how it plays out. Might play out well for them. It’s probably a good bet for them to place given where they are in the market. But I think it’s far from a sure thing just given how much competition there is.

STEVE GILLMOR: Android.

ROBBIE BACH: Android, in some ways, sort of in a similar place. I think they’ve got some interesting things going on. People are certainly going to experiment with it. That’s not a big surprise. And so you’ll see some phones this fall, you’ve already seen a couple, you’ll see a few more.

The question with Android is going to become is this a vertical play from Google or is it a horizontal play.

STEVE GILLMOR: How do you mean?

ROBBIE BACH: Well, as a vertical play, I mean, it’s a Google phone. I don’t mean they own the phone literally, but I mean it has a prescribed set of Google services on it, it’s a Google experience from end to end and they’re going to incubate that and care for it.

STEVE GILLMOR: Isn’t that what Windows Mobile is?

ROBBIE BACH: No, actually, today Windows Mobile is much more of a horizontal play. We don’t actually — when you look at a Windows Mobile phone through Verizon, as an example today, or AT&T, they have a lot of their own services on there. It’s not pre-subscribed. It’s not a lot of requirements, and actually we service a broad breadth of hardware.

Google has been sort of saying there’s going to be a Google experience and a broad breadth of hardware, so that’ll be interesting to see how that plays out. They’re also going to have to decide how deep they want to get on each of the experiences and how well they want to fine tune them. I would describe the early Android phones as having some nice characteristics, but not as deep as it’s going to need to be across all these different experiences, and they’re going to have to decide how to do that. And they’re going to have to decide how they make money at it.

Today, it’s a little unclear what the actual business model is. They don’t actually require you to use their search. And search, by the way, is pretty tough to monetize at least today. I think that’ll change over time, but it’s still tough to monetize today. So I think we’re going to have to see how that plays out. They’re certainly a worthy competitor.

STEVE GILLMOR: So you can touch on the iPhone if you like, but we’re back to Windows Mobile. So what are we going to see?

ROBBIE BACH: What we need to do in Windows Mobile and what we are doing with Windows Mobile is sort of a two-pronged thing. First, you have to see what I’ll call user experience innovation from us. And we’ll start a little bit of that with what we’re doing in 6.5. There are some very nice advancements in 6.5 along those lines. And then you’ll see more in the future on that front because certainly the user experience is critical on these devices. And because they’ve gotten so rich technically, you can do rich user experiences now.

And today, our user experience isn’t quite as rich as we’d like, and I think 6.5 will take that one step up and then you’ll see more from us in the future. And then the second aspect of it is really understanding what services we want to deliver on the phone and how those integrate into the user experience that I just talked about. And marketplace and My Phone are the first two examples of that, and you’ll see more work from us in that space.

STEVE GILLMOR: Okay.

ROBBIE BACH: And the important thing I’ll just point out about that to tie to the topic we started on is at some level, people will choose phones based on just the hardware design, that’s certainly true. Some level, they’ll choose it based on the core experience of the device and the phone itself. And ultimately, people are going to start choosing phones based on the services they get access to and what that service experience is like.

STEVE GILLMOR: Right. Which is the social kind of –

ROBBIE BACH: It’s the social experience I talked about. It’s the, oh, I can get this on my TV screen, on my PC screen, and on my phone screen. It’s a, if you will, next level of functionality and capability that people are going to come to expect. And they don’t expect that today and I think as you go out 12 months to 18 months, 24 months, you know, three or four years, that’s going to start to become part of the expectation. And now the requirements and capabilities you need as a supplier of technology in that space change.

And, you know, I would say that Microsoft’s capabilities there, that development, helps us and puts us in a much better position to compete.

STEVE GILLMOR: So you’ve got large scale right now in terms of Windows Mobile?

ROBBIE BACH: Yes.

STEVE GILLMOR: And significant deficiencies in terms of experience.

ROBBIE BACH: Yeah. We need — this past year was almost 20 million phones. So we feel good about that scale.

STEVE GILLMOR: Sure.

ROBBIE BACH: And there are some parts of the experience that we think are awesome. We think as a business user, our mail experience with Outlook and Exchange, we think that’s world-class and that continues to be world-class.

If you looked at us as a consumer device, that’s probably the place where we need to make the most progress and the place we’re investing the most energy.

STEVE GILLMOR: You know, the browser experience is –

ROBBIE BACH: Agreed. And that — 6.5 has a huge improvement in the browser experience. I’ll stand by the 6.5 experience on browser in a very nice way. I think that’ll actually be a big step up.

STEVE GILLMOR: How do you see the interaction with Azure?

ROBBIE BACH: On the mobile side, or just overall?

STEVE GILLMOR: Overall, but –

ROBBIE BACH: Well, I think if you look across what we want to do with Azure, Azure creates whole new scenarios of things people can do. And it enables things to be processed in the cloud or in a cooperative way between the cloud and the client that we wouldn’t have been able to assume before. That does create some really interesting new scenarios.

Now, you’ve got to decide — in all these things, you have to decide which things you want to be processed in the cloud and which things you want to be processed locally and divide that up in a logical way. And that will actually be the art of creating a great end-to-end experience.

STEVE GILLMOR: Well, I mean, to you point, one of the things that I thought was most interesting about the Google Wave demo, I don’t know if you saw that or not, was this — I always forget the word for it, but it wasn’t a spell check as much as it was actually using a bot to go in and scrape the text and send it to the server and perform, you know, a look-up in terms of context as opposed to — so that –

ROBBIE BACH: Almost like grammar checking.

STEVE GILLMOR: Yeah, that’s the word.

ROBBIE BACH: Right.

STEVE GILLMOR: Okay. It wasn’t almost, it was grammar checking. And what’s interesting is that I can remember for maybe ten years the statement that that was not going to happen off the server, it wasn’t going to be a function of the cloud. And I’m not saying that this put the lie to that, but I think in general –

ROBBIE BACH: Why was it better because of the cloud?

STEVE GILLMOR: I guess — I don’t think it was better. I think that it was identical.

ROBBIE BACH: So this is — I think this is the interesting debate on this balance between client and cloud. And like when we talk about what we do, we’ll always tell you we think there’s going to be rich client work, because we believe that. And at the same time, we believe the cloud is incredibly important. So what I would say in response to that is neat technically, so it proves some things that you can do it technically, but ask yourself the question: I should want to use that vehicle and take up the bandwidth for that vehicle and the battery life off the phone for that vehicles for things where I can only do it with the cloud or I can do it uniquely better with the cloud or there’s some customer benefit to doing it with the cloud.

And for the things that I can do locally just as well that I can do faster locally without taking up the bandwidth and without sucking battery life, I should do those locally. And to me, the secret of all these experiences is the balance between those things. And people come to real time or cloud computing or however you want to think about this with a, oh, everything is going to go to the cloud. I just think that’s wrong. I really do. I think there will be many things that go to the cloud, there will be many things that stay locally, and the secret will be the balance between those things and thinking through each scenario and each technological advancement will be key to making that successful.

STEVE GILLMOR: You know, put another way, latency is in the eye of the beholder. You know, if you don’t feel latency, then it’s an acceptable experience.

ROBBIE BACH: Well, I’m dialing the bar slightly higher. I want the experience to be better than acceptable because if it’s acceptable and more expensive, I want to do it locally, right? And there is cost to using the cloud. Right? There’s cost to the operator, there’s cost to the cloud operator as well.

STEVE GILLMOR: Sure.

ROBBIE BACH: Right. So you only want to do that in a case in which you’re demonstrating value and the customer — somehow there’s going to be compensation for the use of the resource.

I think there’s some perception that people just say, well, there’s going to be these big server farms, so it’s all free.

STEVE GILLMOR: Well, maybe to them.

ROBBIE BACH: Well, that’s sort of my point. That’s sort of my point. And so when I think about this, I think about cloud computing and real-time computing as being this awesome additional tool in the tool case that I didn’t have before. And now what I want to do in experience, I don’t have to say, okay, what can I squeeze onto the phone? I can say, okay, what’s the best optimal use of resources between the phone and the service in the cloud and come up with the right answer. Grammar checking may not be the right answer, right? Maybe it is, I don’t know. Maybe there’s some reason why that’s particularly efficient or better.

But I can certainly think of other scenarios where you might say, hey, there are some things we actually do want to process in the cloud. Maybe there are things we want to do in the background, there are things where we want to store and forward, there’s logic we want in the cloud so that it knows what to do with things when I’m doing a certain thing on my phone.

I always pick the silliest, easiest one, which is not technologically complicated, but still not done right as far as I know anyplace, which is what happens with photos I take on my phone, right? Today, most of those photos never see the light of day off of the device. Part of that is a function of the quality of the photos. But even if you have a phone that takes good photos, most people don’t know how to get it off the phone and if they do, they don’t know how to get it anyplace else. Right?

Now, why wouldn’t a cloud-based service know that you took a picture, take it, know where you want to put it on the PC, know who you want to distribute that picture to? It’s not complicated, it’s not rocket science, it’s not particularly creative.

STEVE GILLMOR: It’s Mesh basically.

ROBBIE BACH: Correct. And the ability to do that — that, to me, is one where I say, okay, now I know why — the cloud I know is uniquely capable of helping me in that case. And today you can say, well, the poor man’s version of the cloud should be automatic wi-fi detection when you’re near your PC, and it should transfer photos that are on your phone to the PC. Nobody’s even done that very effective as far as I know. That’s the poor man’s version of the disintermediated cloud.

So I just look at it and say, wow, there’s lots of scenarios that we haven’t explored yet. And some of them will be valuable and value-added and we should drive hard on those, and some of those will be nice and neat and, yeah, it’s cool that you can do that. But that may not be the best thing for the experience. We just have to decide which one is which. That’s the magic of this and the technology is cool and that’s magical in its own way. But the guys who are going to succeed, as we’ve demonstrated with Xbox Live, as you’d say Apple demonstrated with iPod, is the guy who gets the experience right. I mean, that’s where the magic comes.

So interesting topic, it’s a cool area.

STEVE GILLMOR: Yeah. It appears to be sort of Popular Mechanics, but I think it’s a lot deeper than that.

ROBBIE BACH: Oh, it’s way deeper than that. It’s way deeper than that. The problem is — what I would say to you is I think there’s an element of it that is still sort of pop fiction or tech science and that’s all fine. We always have that, and it’s good because it sort of pushes the art form forward.

STEVE GILLMOR: Sure.

ROBBIE BACH: And then there’s a part of it that says, okay, that’s really cool, I’m glad you can do that, now tell me why that’s important. Let’s go and discuss the things that people are going to want to pay more for. Most of what Xbox Live does isn’t new technologically. We did it better, one could argue, but multi-player gaming wasn’t new. It’s been on the PC for actually a fair amount of time.

But the Xbox Live team figured out the right things to do and the right things to focus on and put it in a way in which the consumer said, oh, now I get why this is relevant to me because it’s not a nerdy, hey, I found somebody else on that network, I was able to figure out some way to connect to them and we can play a game if everything’s lined up properly, which is sort of the science part of it.

Instead, it was, I go online and Xbox immediately tells me that my seven friends are online, it tells me what game they’re playing, and tells me when I have appointments with them. Oh, well, that’s not science fiction. That’s actually useful.

STEVE GILLMOR: Play dates.

ROBBIE BACH: Yeah. And that’s the part that when I –

STEVE GILLMOR: And if you have kids, you understand how important those are.

ROBBIE BACH: Yeah, exactly. And when I look at our talent, I think we have a lot of deep technical talent, so that’s actually great. But at some level for what I do, because most of it’s consumer-facing, a lot of the talent expertise is about experienced talent and bringing that to the technology.

Something like Xbox Live started as raw technology and then some people did some experience work around it, and now you see what we literally, inelegantly I would argue, call the new Xbox experience is actually a really nice social experience with Avatars and places you go meet friends. And who would have thunk?

I will tell you, when I played my first Xbox Live game, I would not have imagined we’d be where we are today, that’s for sure. That’s for sure.

STEVE GILLMOR: Well, there have been some other things like Second Life that made it easy to improve.

ROBBIE BACH: Well, and Second Life to me is the perfect example. You have to — very cool, very interesting in its own way, interesting technologically, but is it big?

STEVE GILLMOR: No.

ROBBIE BACH: No. No. It’s not. And it’s not big because ultimately the experience doesn’t get you to a place where, A, a lot of people want to do it, and it doesn’t take you to someplace that you just go say the third time you’ve done it, oh, it’s still wicked cool and there’s still more things I want to do. I mean, it’s not much different — with no disrespect — it’s not much different than Dungeons and Dragons done in a little bit of a different way. And there are people who love that, so there’s a committed audience to it, but it’s not a broad phenomenon. And that’s the difference between something like that and MySpace or Facebook or Twitter where they manage to get beyond the science part and into the broad experience.

STEVE GILLMOR: Yeah, absolutely.

ROBBIE BACH: That’s exciting.

Microsoft announced the availability of Silverlight 4 in beta at its Professional Developers Conference (PDC) today. Some of the new features include more fluid animations, Webcam, microphone and printing support, 200 percent faster start times than Silverlight 3, deep zoom and multi-touch support and more. It now also supports Google Chrome, even though it’s just a rounding error of a browser.

One of the big capabilities of Silverlight 4 is its ability to take rich-media experiences outside the browser in client apps which will compete with Adobe AIR. The non-browser apps fully support HTML, allowing tight integration with content from the Web. It also supports notifications.

During one demo, Microsoft showed what a Silverlight version of Facebook might look like. Using Facebook’s APIs, Microsoft created a demo app which was completely reskinned, complete with news feed, contacts, and photos. Cycling through photos in the Silverlight Facebook app, for instance, was much faster than doing it in the browser. Although I’m not sure we’re oing to start to see a whole bunch of Facebook desktop apps like we do with Twitter, but the it was a good demo.

Some screenshots below of what Facebook would look like as a Silverlight app. They show a reskinned stream view, a people view, Facebook photos, and a grid view.

[Video of the second half of the conversation embedded below]

We began our chat with Bob asking me about a video I shot with then-Sun CEO Jonathan Schwartz:

BOB MUGLIA: I want to tell you that your Open Source ponytail is one of the funniest things I have ever seen. It really — it was hysterical.

STEVE GILLMOR: Yes, well, I’m afraid it may have driven Jonathan out of the business, but –

BOB MUGLIA: I actually think that he did that himself.

STEVE GILLMOR: I think so, but, you know –

BOB MUGLIA: You don’t think it was –

STEVE GILLMOR: He’s a friend, so it was a little difficult, but — a lot of people inside Sun would come up to me privately and say, you know, that was really wonderful.

BOB MUGLIA: But never publicly, I’m sure. I’m sure. Yeah, no, it was very funny. It was very funny. It’s been fascinating watching, so we’ll see where things go.

STEVE GILLMOR: What’s been fascinating about it?

BOB MUGLIA: Oh, just — it’ll be interesting to watch what happens with — you know, assuming the acquisition of Sun by Oracle goes through, what really winds up happening there. The hardware business is an interesting business for Oracle to be taking on, and if they really ultimately do take it on, it’s hard to know — and Larry’s said a couple of times that they will, but it’ll be interesting to see where it goes.

STEVE GILLMOR: Yeah, he also said the cloud computing is a joke. Last time I looked, Sun is — they’re doing a lot of stuff in that area.

BOB MUGLIA: Yeah, they have a lot of investments, certainly. I mean, the challenge is, when you look at these hardware architectures, SPARC is below critical mass, in terms of an investment stream, to be able to maintain viable, on a long-term basis, and I think almost all the customers know that, and so there will need to be a transition off of that, in one sense or another, and it will be interesting to see how they do that.

But I mean, it’s sort of just I think generally part of the dynamic. I mean, this is actually one of the more interesting times right now. Cisco entering the server market’s been very interesting.

STEVE GILLMOR: How does that impact on what you’re –

BOB MUGLIA: Well, mostly in the context that it really has galvanized HP as changing their view about Cisco much more as a competitor than as a partner, and in that context it helps. I was just down at HP yesterday and — I meet with Cisco, I meet with HP, I meet with all these guys, right, they’re all partners of ours, and there’s just — I mean, I think there’s a great opportunity for us to do more and more together, with companies — with the other vendors in the marketplace because they see — whenever you see new people coming into the server market, I mean, you could sit back and see Oracle coming into their server market. We’ll see if that’s actually the case in the end. Sun does have an X86 business.

And so whenever you see new players coming in, it changes the relationships between the existing folks that are there. And the server market has been pretty dynamic in terms of new folks coming into it, with Cisco, you know, we’ve seen Sun come in. You see new entries — Verari and I guess it’s Rackable/SGI. So, seeing some new entrants in there, and some of those guys are doing some really, really, really interesting stuff. Rackable in particular has done some fantastic work on containers. A lot of these guys, they’re all doing container work, so there’s been a lot of good things that have happened across the board.

But it’s fun to see — and when you talk about clouds, there will be a connection between those sets of things. I mean, I guess our sort of high order view is that we see that there’s a continuing shift and the world’s a — the economies are sort of on everybody’s mind right now, and no one’s really sure when we’ll see the pullout and how steep the pullout will be. Another reason to not be on video at the beginning, so I can have my cup of coffee in the morning. Thanks.

And yet one of the fundamentals that I’ve heard again and again from IT managers is that they definitely view technology as part of the solution, not part of the problem, and so there will be continued investment in this. It’s not clear how fast things will come back. It’s been a pretty dismal first quarter. We’ll see how second quarter comes out. I mean, I see having the server market down 26 points year over year, after growing about seven points in the previous first quarter. So, it’s a pretty — over 30 percent drop, year over year, is pretty –

STEVE GILLMOR: You expected that, do you think?

BOB MUGLIA: We were planning for a drop. It’s probably steeper than we had anticipated. What we found is, is that we have not dropped that much. I mean, we did better than that in the first quarter, so we’re actually — we’re gaining — that just — when the market’s doing that, that means we’re gaining share.

But it’s — it hit everybody very hard. Everything off course began in the fourth quarter of last year, and then it got very steep. And the question on everybody’s mind is when do things start to pull out. But I think the one thing I do hear again and again from IT is that they do plan to continue to invest, and continue to look at ways that they can come out of where we’re at with differentiation. So, people are looking forward as much — they’re looking to save money, which works well for us, because we have a very strong message associated with how our platform can save companies money, compared to Oracle and IBM, and even in a lot of senses compared to Open Source, because we provide a more complete solution with us and our partners, for a good cost.

But then there’s probably more interesting the side of what set of innovations can people take, and what set of investments can people make, so that their systems are well positioned to enable companies to differentiate when they come out. You know, and at the same token, we see all the — with the generation of people coming in to companies that are much more technology-savvy, we see great opportunity for IT to change its role from where today IT has always and historically always focused on building solution for less technically-savvy end users, now you have people who can do an awful lot, and there’s a multiplier effect.

So if IT can provide — think about moving from providing solutions to providing frameworks that the businesses are able to build into complete solutions, and putting it in the hands of end users, I mean, that’s a fairly big deal.

You know, and the third thing that I’d sort of say that’s kind of interesting right now is it’s probably one of the most interesting times ever, in terms of how technologies are going to change the way people work with information. Because we now see vast amounts of information being able to be stored in memory, and Moore’s Law has moved to the point where you can take what used to only fit on disk, and now fit the whole thing in memory. I mean, you see it with these things, but you see it also inside IT systems as well, with solid state disks appearing. And the characteristics of solid state disks are just fundamentally totally different than rotating media, and so the way databases are going to work are totally changed.

But perhaps even more dramatic is that you can now put entire databases in memory, and all of a sudden, everything about it changes, I mean, about the way you’re able to work with information, and you get 100 — you get somewhere between 100X and 1,000X performance improvement, and that’s — we see performance improvement coming through Moore’s Law, but that’s 15, 16, 17 years of Moore’s Law, performance improvement, happening in a single product cycle.

I’ve never seen anything like that, I mean, not in the 20-some-odd years I’ve been here, I’ve never seen anything where — we always see Moore’s Law give us 35 — on average, 35 or 40 percent a year of roughly performance improvement that we get in the underlying systems, which lets us do more and more. All of a sudden, at least for data-intensive things, you get this 100X improvement in one generation. It’s kind of interesting what you can do with it.

STEVE GILLMOR: So how does that — you said two areas here, efficiently the servers, and then also this new Azure thing. How does that particular data point impact on –

BOB MUGLIA: Well, it’s going to change — I mean, I think what that will have a massive impact on is the way people work with information. Because it only actually matters when you’re working with lots and lots of information. I mean, if you were trying to do a numerical calculation on a table that was only 100K in size, it doesn’t really matter, because that fit in memory yesterday. But if you’re trying to work with business information that was multiple gigabytes in size, or even terabytes in size, all of a sudden now you can start doing things a bit differently.

And a very specific thing that you’ll see is in the BI space, people being able to build in-memory BI systems. And what we’ll be doing next year is coincident with Office 14, shipping next year. We’ll ship a version of SQL Server with an add-in into Excel that empowers end users to basically take massive amounts of business data and put it inside Excel and work with it.

And I mean, I’ve got a demo I’ve done a number of times where you take 100 million rows of data — I mean, in comparison to Excel, used to only be limited to 64,000 rows. Today it’s limited to 1 or 2 million rows. But if you try and do a sort on 2 million rows it’s going to take an hour. With this new technology, we can take 100 million rows or even more, on a laptop, on a $1,000 laptop, and do microsecond-level sorts. I mean, the sorts are almost instantaneous, and views, and queries and everything else against it.

So all of a sudden, end users will be able to do things with business information that they just never could do before. It’s pretty interesting that — I mean, no one’s really sure how broad of an impact that will have, but I think it’s kind of phenomenal to think about a query that used to take minutes or hours on a backend IT system, that took months for IT to set up, now being able to be put together in a few minutes by an end user as they build their spreadsheet and their pivot table, and then have results come back in just a couple seconds. You know, the questions that can be answered that couldn’t be answered before, whether that’s scientific investigation, whether that’s drug research, whether that’s analysis of marketing data, whatever it might be.

So those are the sorts of things — because there’s so much information in these systems today, one of the things that our systems are doing is they’re generating vast, vast, vast amount of information — logging transactions, logging things. And most of that’s getting stored. I mean, it’s largely stored, because storage doesn’t cost that much, but what does cost a lot is being able to actually — and is awkward — is being able to get that data, and putting it in a form that’s useful for people. And this will change that.

And I think that will accelerate, by the way, I think that will very much help to accelerate — whenever we come out of this, whether it’s later this year or early next year, whatever it might be, whenever we come out of this, I think it will accelerate.

STEVE GILLMOR: So how does this change your understanding of the business that you’re in, I mean, specifically?

BOB MUGLIA: Well, all of this, I think, it just speaks to the substantive opportunity that we have. I mean, our fundamental thing has always been to put — to take things that are hard and make them easy for people, to take things that are expensive and available to a few and make them less expensive and available to many. And the business models that we fundamentally have, and the way we structure what we do, have always been built around that. And I’ve said a number of times, I mean, our playbook, our core playbook at Microsoft and the one I live by every day is, you know, understand your customers, build a great product, price it cost effectively, sell it in volume and work with partners to build the complete solution.

And that model, I think, plays well both in terms of the economic times we’re in, as well as some of these transformative changes that are happening. And so we’re in a world where the business that I’m in, you know, 12, 13 billion was what we have — customers today spend about 80 to 90 billion on this software that — the space that we’re in. So, we’re 15 percent, 15, 18 percent of the market.

There’s a substantive — as these shifts happen, as industry standard technology becomes more and more viable for solving these sets of problems that it couldn’t solve before — we’re going to see scale-up, amazing scale-up, X86 systems, and of course with four cores, six cores, eight cores, 12 cores, whatever you might have on a single system, these machines are so powerful now and they’re mature, and our software is maturing to the point where business problems that people wouldn’t have us solve in the past, they will now have us solve. We have a substantive opportunity to continue to gain inside the space that we’ve traditionally played.

And then that’s one whole set of things. The other whole set of things that I think is really interesting is if you look at total IT spend, and you break up — you can just be sort of simplistic. I’ll just make life simple and say IT spends about $3 trillion a year globally, and of that $3 trillion, $1.5 trillion is communications. So, we’re not in that space. That’s the Telcos and everything else. The other is in business systems in one form or another, and that includes everything. If you start breaking it up, software spend is a few hundred billion a year — not a small number, but a few hundred billion. Application development is about $400 billion a year, something like that, people writing apps. We’re really not in that business. I mean, you’ve got your Accentures and your (inaudible). Those guys are in that business. We work with our partners to do those things, and of course a lot of that spend is internal. People spend (inaudible), a bunch of it is outsourced.

But the actual single biggest number of that $1.5 trillion is about $600 billion, which is spent in operations, and running systems and maintaining existing systems. Everybody knows that IT spends about 70 percent of their dollars on running existing systems, and only about 30 percent on new development. And so whether it’s new development and operations against those, or old legacy systems that they need to maintain, there’s this vast amount of spend that’s associated with people cost for running these systems.

And to transition to services and the cloud, to me, if you really ask what is the cloud about, it’s taking that $600 billion number, and helping IT cut $100 billion off of it, $200 billion off of it, $300 billion off of it, something like that, allowing them to open up that spending, and enable it to do new things. In a perfect world, if they could cut it — I mean, I’ll just say, suppose they could cut that $600 billion in half, spend $300 billion on maintaining existing systems, and throw $300 billion into new investments, it’s a good tradeoff from a business perspective, because the return on investment could be so much higher, associated with that.

You know, that really is what the cloud, to me, is all about, is how you take and save IT money, and enable them to reinvest it in other things. Whether that’s private clouds that they’re building internally within their own organizations, making them more efficient, associated with the way they run their systems, whether it’s using a public cloud like Azure to help drive those sorts of things, it’s driving those — or the other thing that I think is interesting is cloud services, finished services that people can buy that will lower their cost, whether it’s systems like messaging or collaboration, SharePoint Exchange, where we can supply — we can run those services for our customers, and save them money by doing that, because we run it at scale, we run it at best practice. We have ways that we can cut our own operations cost and pass a substantive amount of that on to our customers.

Whether it’s doing those sorts of things, or whether it’s helping them to save money in the new applications they built, which is really more what Azure is about, is about custom apps and ISP-based apps, and those sorts of things are really — that’s where I see massive opportunities, taking — let’s put it this way. It’s like taking the marketplace and changing the view that we have of our marketplace from being, say, an $80 billion worldwide spend and what is our share of that, relative to now $600 billion. Now to be fair, my business doesn’t cover all that $600 billion. Some of it is Stephen’s business, some of it’s other parts of Stephen Elop’s business, some of it is other parts of Microsoft. Some of it we’re not in at all, I mean, because custom apps, et cetera, there’s a substantive amount of that, and we’re not in vertical apps by and large, with the exception maybe of health care.

But if you look at it, there’s a much bigger pie. The net of it is there’s a much bigger pie to look at, and again, it’s all about how to save customers money and let them return that investment into, and spend it on other things.

STEVE GILLMOR: So how is that going, getting people aware of and — what’s the timing of Azure? Obviously it’s supposed to ship in November.

BOB MUGLIA: Yeah, we’ll be releasing it this year. I mean, we’re on track for public availability this year. Things are going well. The one thing I will say about all the cloud stuff, and it’s just — I can’t emphasize this enough — is how early all of it is. I mean, the amount of global IT spend on all cloud services worldwide, I doubt — I mean, it’s definitely under $1 billion. I mean, it’s a small, small number on a global basis, when you consider — I got $1.5 trillion, let’s put it in that perspective, or even any perspective you want to take. Even if you compare it to my businesses, it’s a small percentage, it’s still very nascent and early. And I think like anything else, what we’ll see is we’re in a period right now of great enthusiasm, and as people begin to implement these systems, some of the nascence of the systems will become apparent, and it will take people some time to be able to adopt them.

And then over time, as the systems do mature, the savings will begin to appear. I mean, I don’t view this as a one or a two sort of year journey. I mean, I view this as more of a five to 10 year journey. But that’s really the way I have to think, because the truth of the matter is, from a product development and R&D perspective, let’s sort of put it this way: my R&D is — for the revenue from my business, the R&D is already done, over the next two to three years. The R&D is basically done right now. I mean, when there’s (2008 R2 ?), I mean, there’s a few things that are still coming that will have some impact in what we’re doing, but fundamentally, that work was done last year, and the work I’m working on right now, my teams are working on right now, are two to five years out that we’re doing, and in the case of the cloud sorts of things, that stuff is in the early stages of its maturity, so the impact in terms of the business, and that translates to customers, right? Customer usage and everything else is probably five to 10 years out. So, I think people have a slightly invalid horizon on the cloud, in terms of how fast it’s going to hit, but I don’t think it changes the long-term impact that it will have.

It’s one of those classic things where people often over-anticipate the short-term impact and under-anticipate the long-term impact, and I think that could be the case here.

STEVE GILLMOR: So I mean, your units and your businesses mushroomed substantially over the last, what, 15 years?

BOB MUGLIA: Well, yeah. I mean, if you go back — when you start — I often say that I joined Microsoft 21 years ago. I was the first program manager on SQL Server, and at the time, we could handle precisely zero percent of customer business applications, so now we’re at a much higher percentage than that, and so we’ve been able to go. As — we followed — I always go with the flow, right? You never want to be swimming upstream. It’s really tiring to do that. So, what is the technology flow? The core technology flow is following what Moore’s Law has done and the move to industry standard computing. So, we followed that.

If you look back — my first — I remember it very well. My first server that I had was an OS2 in my office, because I was a program manager/developer back then, and I was writing some code, and it was in 1988 on SQL Server, and I mean, I had this IBM PS2, if you recall the PS2, and it was a 386 system. So, it had 32-bit. OS2 didn’t take advantage of 32-bit back then. It was a 16-bit system, but I mean, if you look at that, and you look at that computer as a state of the art industry standard server — someone might have said a compact server was state of the art back then — but nonetheless, the idea that a 386 was — with, I don’t know, I think it had two megabytes of memory in it at the time, something like that, maybe four — that that machine was state of the art, you compare that to where we are today, that’s the trend that’s enabled all these other things. So, –

STEVE GILLMOR: Right, but inside Microsoft, I mean, the servers was considered to be a reach.

BOB MUGLIA: Fifteen years ago.

STEVE GILLMOR: Yeah, so what happened?

BOB MUGLIA: We kept working at it. I mean, it’s really — I mean, what happened is basically — I mean, it’s really following the playbook and following the industry. What happened is the industry matured, and the availability of high-end — of low-cost and yet very powerful and very reliable computers enabled a generation of software to take advantage of that. And it’s just a constant application of the playbook. It’s just a constant saying, okay, it’s 1998 right now. What can you do with a server in 1998? What are our customers trying to do? Well, in 1998, our operating system that we had out was NT4. I look back at NT4, it had a lot of problems, but at the time it was actually a fairly major leap forward, and it was really our first generation of Windows Server, Windows NT Server it was called back then, that really allowed customer to solve a whole set of business problems.

So — and all of a sudden you start having people do things. Roll forward, 2000. Okay, Windows 2000, (inaudible) directory, et cetera. That was where customers were, distributed systems, et cetera. 2003, well, people will look back on 2003 as being the release of Windows Server that really broke through into the mainstream. I mean, that was the release where the operating system became very viable, highly reliable, it worked really well. People could solve a broad set of business problems. I mean, I’d say prior to that, there were enough issues that it wasn’t what it would call truly and completely mainstream in terms of the usage. With 2003, it — 2003 is still the most popular server operating system ever shipped. 2008 will replace that over a period of time, but 2003 has a few more years of existence.

So that was that breakthrough, and then since then, it’s really been a constant application of focusing on what customers care about. I mean, when we think about the server business, the way I fundamentally run the business is I think about what we call workloads, which is really how customers view business problems they have. That’s what a workload is. It’s I have a business problem, I need to build a — I need to run my network, I need to have — I need to be able to have an application server. I need to run a database system. I need to run a messaging system. I need to run terminal services for users and task workers. Those are all examples of business areas, problems customers face.

So we say, hey, what can we do to build the best system? If you go back to, say, 2003 — I took over Windows Server in I believe 2004, 2005. If you go back to 2003, generally speaking, the world viewed that this operating system called Linux was going to take over the server world, and make Windows sort of irrelevant. What’s happened there is we said, look, there were a set of views of Linux that customers had that there was education needed on, but fundamentally I came from a perspective that customers make rational business decisions, and they will choose Linux and Linux-based solutions if that better suits their business needs, and they will choose Windows if we can provide a better value and better suit their business needs.

There was a belief that Linux was free. That was the one thing that people had to be educated on, because for what most customers do, it’s not free, because people built by service agreements, and I mean, there’s an ecosystem that has to exist around it. Nothing is really free. So, it turns out cost is not that substantively different. We always — you know, we’re willing to drive our prices down. It’s part of our playbook to drive our prices down to get share. So, the cost difference wasn’t that big a deal, and really it came down to a value proposition and what customers could do.

And so we did this workload analysis in, say, 2004, so — and we went through and we said, okay, of all the workloads, and we tracked about 35 of them for servers — we said of all the workloads, where is Windows strong, and where is Linux strong? It turns out, you know, Linux is strong predominantly in three workloads, where it has real strength. That’s not to say — it has existence in all workloads, but it’s really strong in three — HPC, Web, and security.

There are different issues associated with each one of those. Security largely was a perception issue with Windows, particularly because we were coming off some nasty viruses way back then. Frankly, we don’t have a solution based on security at the moment, although we’re building it up, that makes — that truly competes there. But if you look at HPC and Web, what you discover is that we didn’t have a product in HPC. So, if you wanted to build a scientific computing — technical computing system — you pretty much needed to go to Linux because there weren’t any solutions in Windows. Hard to beat something –

STEVE GILLMOR: Or Solaris or –

BOB MUGLIA: Or Solaris, or — but it turns out though that if you look at the market, it’s about 90 percent Linux, right. It’s so dominant — you’re right, Solaris and the various versions of UNIX also had — and back in 2003, they had a larger share. Linux has continued to suck more and more of that up, over the period of time, but it was all UNIX and/or Linux, with Linux predominating. So, we didn’t even have product there, and in the case of Web we did the analysis, and honestly, Apache and Linux were a better product than we had. So, customers were making good business decisions, because they had a better solution on the Linux platform than we had.

So, the way we focused on being successful is to say, okay, let’s look at every single workload, and look at what customers need, and let’s just make sure we build a better product, and price it effectively, and give customers a better solution. And what we find time and time again is, guess what? When we do that, customers choose Windows, and when we don’t, customers choose a competitive solution. And I mean, I think this is pretty sort of 101 Business. I don’t think there’s anything new to it in any place. The only difference, I would say, is that the IT audience is probably a more — they are probably have the time to do more research on their purchasing than, say — consumers are perhaps more influenced by marketing and a set of other things, whereas IT is probably more influenced by — they actually run tests, they bring things in, I mean, they do a whole set of things, particularly larger IT.

And so in that context, it just reinsures that in fact they’re once again making solutions that are appropriate for their business. And so if you look at those things, we’re gaining share now in HPC, slowly, from a tiny base, a tiny little base, but we’re gaining share because we have a very competitive product there. We continue to just sort of struggle along on Web, but what I learned there is we built a competitive product — great learning in this one — we built a competitive product in IS7 and Server 2008. We went, hey, we had a bad — we had not such a good product, now we got a very competitive product, we should be in great shape.

Turned out our channel was a mess, our pricing was a catastrophe. I mean, we had so many other problems in the marketplace, because you actually have to provide a full end-to-end solution for your customers. So, this last year or so, we’ve been working through those and have been chopping them down, and getting our pricing right for hosters and everything else. In fact, we have more of that stuff — we have a lot of things coming in July and beyond on that. Just to fix — it’s just mistakes that we’d made for years and years that we just have to fix, and so we’re fixing those things, and I think we’ll start that engine –

STEVE GILLMOR: I know you don’t want to talk too much about the mistakes, but like what?

BOB MUGLIA: Oh, I’m glad to talk about the mistakes. You know, when we did the — when we did the original version of — we have a kind of licensing we provide SPLA, solution-provider licensing, and — or service provider licensing agreement. And it’s a licensing agreement we have for hosters, predominantly, and when we did the original versions of those, we set our pricing very conservative, because we did not really understand the market very well. And frankly, we just never went back and looked at it. So, when you looked at the pricing, it was a lot less expensive for customers to buy Windows Server on premises, and deploy them within their own IT shop than it is for hosters to acquire the equivalent technology. So, our pricing just wasn’t competitive.

And then we had some crazy things in our licensing that were just super confusing, about — it has to do with the fact that our on-premises licensing consists of buying servers, and then client access licenses for usage. So, we tried to put those two things together in one price, and we wrote a license that nobody on the planet could possibly understand when you needed to buy this way high price version, and when you need to buy this low price version. I mean, I couldn’t understand it.

So it just creates all sorts of impedance and friction in being able to make the right things happen. So, we’re changing all of those sets of things.

STEVE GILLMOR: How do you do that?

BOB MUGLIA: Just change our licensing, and then we go back to –

STEVE GILLMOR: So it’s clearer?

BOB MUGLIA: Yeah, basically what we’re doing is making it very clear that in this hosting space, that you can buy the lower cost license if you’re just — if you’re hosting an external Web server that’s facing the Internet. If you’re trying to run a business internally on these servers, then you need to buy the higher price license, because it sort of bundles Cowles in. But that clarity was just not there. It was called “authenticated” previously.

Well, Web sites are authenticated too, right, I mean — and so when did a customer need to buy an authenticated version versus not? So now it’s — the licensing is focused on outsourced — whether you’re using this for outsourcing purposes, okay, or whether you’re using this to host a general purpose Internet Web site.

STEVE GILLMOR: So what’s the value proposition vis-à-vis the LAMP stack?

BOB MUGLIA: The primary value proposition is the ability to take the full set of Microsoft tools and everything, and get a solution together much, much quicker, and to be able to do so in a way that’s more maintainable over a long period of time. I mean, ultimately if people can use LAMP to put together a solution faster and more effectively than .NET and Windows, we’re not going to win. The one thing we have really going for us is a very, very strong set of developer tools, and a very strong developer proposition.

The interesting thing about LAMP is, is that LAMP has — is very simple, so it’s quite often easy to do something quickly to start with. As time goes on and people want to do more and more with LAMP, it becomes more complicated, and our tools — we seek to make it easy for people to do something quickly, but also focus on making it easy for them to continue to enhance it and make things better over time.

STEVE GILLMOR: You just talked about essentially what Scott Guthrie has been doing in the development space, to kind of have rapid Web development sitting on top of the services which could be today on premises and tomorrow in the cloud, or some sort of hybrid combination.

BOB MUGLIA: Yeah, that’s right. I mean, our real goal is to build a development — an application platform that makes developers more productive than anything else on the planet, make it simpler and easier to build applications, and whether that’s being used for customers internally to run their own business applications, or with their own internal systems to run external facing Web sites, or whether that’s in the cloud, running on a public cloud such as Windows Azure, we want those to be very compatible for people, and make it easy for people to build these applications, and make it easy for people to start with an application in-house, and be able to transition it in the cloud, or vice-versa.

STEVE GILLMOR: So do you think that developers are going to take to Azure — or put it this way — what reasons are they going to first approach Azure?

BOB MUGLIA: The biggest reason that people will approach Azure is because it’s Windows, it’s Windows Server. And if you’re a developer that’s familiar with .NET, if you’re a developer that’s familiar with building on the Windows platform, and you have application investments in there, we’re working to enable developers to build that in a public cloud, with Windows Azure. The one thing that Windows Azure brings that’s very important beyond that is it is a place where we are invoking and helping to simplify the next generation scale-out programming model.

I mean, today most business applications, most Web sites, have not been built in a way that makes them easy to scale out as needs increase, and there’s a set of services that a platform, an application platform and development tools, can provide to make that much simpler. That’s what we’re doing with the combination of Azure and Visual Studio. In a lot of senses, it’s what Microsoft does. I mean, if you go back 15 — 15, 20 years ago, it was really hard to write a Windows GUI application. We created Visual Basic to make it easy.

Today, it is possible to write a scale-out application, and companies like Microsoft and Google and Yahoo! and a few others are doing that effectively, but the skill set that’s required to do so is limited, and it’s hard. We’re going to focus on making that easy, easy to write scale-out applications with Windows Azure and Visual Studio.

STEVE GILLMOR: Silverlight I think is an interesting development, for a number of reasons — not only externally, in terms of its bringing rich Internet applications across platform solution, but also internally in terms of the impact that it’s having on — or potential impact that it might be having on product groups inside. You want to talk a little bit about what you see is going on there, or not –

BOB MUGLIA: Yeah, sure, I’m glad to. I mean, Silverlight to me is one of the most exciting things that’s happening certainly in my organization, and I think at Microsoft as a whole. I mean, what we’ve done is we’ve taken all of the learning that we’ve amassed over the years, in terms of building high-productive development solutions, and the learning that we did in terms of how to build a very rich graphical user interface, and compacted it into this little tiny runtime of this four megabyte runtime, that enables this incredibly powerful set of solutions from within the browser, and with Silverlight 3 outside the browser as well, in a cross-platform sort of way.

So enabling people to build solutions that run on the Macintosh, and run on Windows, and then through our relationship with the Moonlight team and Open Source, to be able to run on Linux as well. It’s been kind of fun to help Miguel and his team as they’ve been driving an Open Source implementation of Silverlight, in the form of Moonlight.

STEVE GILLMOR: You think it’s acceptable to have something that trails by anywhere from six months to a year?

BOB MUGLIA: I think it is, especially because what you’re seeing is you’re seeing an Open Source piece of development that’s created, that will allow for Silverlight to move into all sorts of places where we can’t — we can’t see. And I mean, I just met with Miguel out in Boston, oh I guess two and a half weeks ago, and I actually think the period of time is decreasing, and he’s doing a great job of lowering the delta between those two things. And frankly, we’re working hard to help him, too. I mean, there’s a lot of things that Microsoft is doing to help the Open Source community keep up and do things.

I mean, one of the key things we did is for all of the controls that we’re releasing in the Silverlight environment, we’re releasing those with a license that allows them to run in an — we’re providing the source code under an Open Source license and allowing them to run in Moonlight. So, massive, massive amounts of the investment that’s going into the core framework for Silverlight is already written in an Open Source way that Miguel and his team can just make wrong on Moonlight.

But I mean, the thing that’s interesting Silverlight — Silverlight has had acceptance and has generated a very strong amount of leadership in a couple of spaces. You know, sort of the first space where we’ve seen leadership has been in the video space and high definition video, where really it’s a combination of the Silverlight runtime player, the runtime environment, together with the work that’s been done in the server space with smooth streaming, to really redefine the way video is done over the Web. And I’d say I think the impact of this is going to be very dramatic for end users over the next few years, where we’ll begin to see incredibly high quality, over-the-top experiences being delivered directly from a wide variety of Web sites, to end users, on their devices — on their PCs, on whatever device they’re using to surf the Internet — with effectively HD pixel-perfect quality, and the kind of user experience that you’d expect.

I mean, one of the things that I find incredible is this new smooth streaming technology. You know, we now have live smooth streaming working, so that you can have a server — one server feeding the entire Internet from a live video stream, and have that experience being broadcast out in HD, with full record capabilities. Everything is all there. So, if you want to go replay a scene, you can go back — instantly go back to that scene, and then go forward, and it’s all — it works exactly like you’d want it to work, and the only thing is, is you’re sort of looking at this and go, well, what’s the big deal? It works the way you’d want it to work, and then you realize that it just doesn’t work that way anywhere else.

If you’ve ever been — you’ve ever watched Internet on the video, you know, you want to go forward to a frame forward, you see buffering, buffering, buffering. You know, it takes forever. This is instantaneous, and the other aspect of it is, that the design, and this is really work the server team did, that’s part of Scott Guthrie’s group, the IIS team, what they did is they leveraged the entire — the entire HTTP/CDN networks that people already have. So, the CDN vendors, the content delivery vendors, they don’t have to build a separate architecture to support this smooth streaming.

So the servers that exist to do Web caching, standard Web caching on the Internet, that are being used for Web pages, can be used for video. So, to me, that’s one of the exciting things that Silverlight opens up. You know, there are others, as we being to see very rich 3D, high graphics quality applications being built as well.

STEVE GILLMOR: Well, and the big question, of course, is, you know, from the political perspective, pardon the expression, how do you get — will there be a Silverlight Office, something like that?

BOB MUGLIA: What I think you’ll see over time is major parts of Microsoft applications beginning to incorporate Silverlight into their experience. I mean, as — if you look at, for example, the Web companions that Office is doing, they do use Silverlight in a variety of instances. So, we’re seeing that being used there. We’ll begin to see Bing and MSN and our online properties begin to adopt Silverlight inside the set of things that they do. We already see some of that in a limited form in Windows Live.

If you look at my business, which is less consumer-focused, and we focus really on business customers, we are building interfaces that are Web-based interfaces for our business servers, using Silverlight. I mean, it’s become pretty universal that the kind of experience we can provide, in this case, a system administrator, is much, much better, we can write it much faster, by using Silverlight. And as we begin to launch new services — we have a management service we’ll be launching next year that’s System Center Online, that enables people to manage desktops through a cloud-based service — the entire user interface for that, from a management perspective, is all done in Silverlight.

And by the way, it’s incredible — it’s impressive because it’s very fast, and extremely responsive, from an end user perspective. The kinds of apps that can be built using Silverlight have really — they feel like native Windows applications. They have that level of responsiveness to them, and then they’re very rich, and yet they’re browser-delivered.

STEVE GILLMOR: You know, the Netflix implementation brings a whole business to the Mac. I mean, that’s a big deal.

BOB MUGLIA: Right. No, that’s exactly — Netflix has been a key customer of ours that has taken and utilized the high definition capabilities that Silverlight delivers, and enabled them to build a very rich experience, not just on Windows, but also in a cross-platform way.

STEVE GILLMOR: I’m sort of backing into a discussion about what we’re trying to do in this so-called real-time space. Do you have any sense that real-time is something that’s emerging, or is it just –

BOB MUGLIA: You mean real-time communications and collaborations? Is that what you’re saying? Well, I mean, I think it’s very obvious that it’s emerging in a lot of different forms, and I think it’s still — it’s such an emerging space that the exact ways in which it’s going to be changing over time are fairly unclear. I mean, we see tons of interest in tweeting and Twitter and what’s gone on there. We’ve built a pretty strong business around real-time communications within our Office business, for business customers, and that is one of our strong growth opportunities.

The interest people have in taking the combination of textual-based real-time, together with voice and video real-time, whether it be conferencing or one-on-one communications, and bringing all of those things together into new experiences — you know, an interesting one for me in this, in a business space, is there’s been these emergence of very high-end video systems, whether it’s telepresence or Halo, and the idea that businesses will have these high-end video rooms that can then connect to end users and work with people that don’t have that level of equipment available, but can have a phenomenally great experience from their PC, from the phone and from the camera and the microphone that they have on their PC, and interact together with those things.

I mean, we recently did a demonstration of that, showing a high-end HP Halo room connecting with a UC system, where people using standard equipment that’s just available as a part of their standard PC, can participate in these telepresence systems. I mean, that’s the kind of thing that is an example of the sort of thing that we’ll see, and I think that will emerge much more in the consumer space, too.

STEVE GILLMOR: You know, the real question for me is whether Microsoft can move aggressively into this space as a sort of center of the desktop type of application. I mean, you’ve got e-mail, you’ve got Messenger, you have a bunch of separate not-particularly-integrated tools, and along comes this sort of mainstream message bus that people are starting to use for a combination of marketing and promotion and internal communications. There are things like Yammer, there are a bunch of ways to take this apparently trivial application and turn it into something that will provide a real business value.

BOB MUGLIA: Well, there’s no question. Like I say, it’s something that’s emerging and is having a massive impact in the way people communicate and work together. I’ll say, though, I mean, I think if you look at communication systems, and usage within business, I mean, Microsoft has had a massive impact with new systems like SharePoint. I mean, the usage of — SharePoint has absolutely exploded within businesses, and has rapidly become the standard.

STEVE GILLMOR: Why do you think that is? I mean, SharePoint, when it started, seemed like a WebDav extension, basically. It didn’t seem like much of anything.

BOB MUGLIA: Because of the versatility of what you can do with SharePoint. I mean, the reality is, it’s a classic Microsoft thing where we put tools in the hands of end users, where they could build a collaborative solution for their team or their environment, and have that together in literally just a few minutes, and very instantly allow people to work together more effectively. And at the same time, SharePoint allows for broad business solutions to be built. I mean, you see two sorts of usages of SharePoint very broadly inside business — one is for broad team collaboration where you have — in Microsoft, there are literally hundreds of thousands of team sites that have sprung up on SharePoint, and that process, where companies begin implementing SharePoint, and these sites mushroom up within the organization, that’s what people find again and again.

And at the same token, people use SharePoint — businesses use SharePoint — as a standardized portal for how business information is shared out. So, whether it’s business data, or whether it’s information about HR or financial things for companies, SharePoint has become the standard way that businesses expose that data to their end users. And you know, it’s this combination of a viral spreading within the organization and the end users, together with the ability for companies to implement it more broadly, that have, I think, made SharePoint so popular.

STEVE GILLMOR: So you think that — I hate to use the term “tweeting” or “Twitter” to sort of summarize something that I think is a lot bigger than that, but do you see that as being integrated through SharePoint?

BOB MUGLIA: I think you’ll see features of that nature going into SharePoint, I mean, over time. I mean, you’ll see much more the ability for people to have these real-time communications, and in these cases these little tweets where they’re creating threads that have short — have a whole set of short comments.

STEVE GILLMOR: And if you take Silverlight and add that to that?

BOB MUGLIA: Well, what Silverlight is, is an enabler. I mean, the way to think of Silverlight is, is it takes what you can do with the Web today and makes it richer, and it does so in a way that’s very broadly available, and is — and can be built very quickly and very effectively. So, I mean, the kind of experience — you can get a certain kind of experience today with the Web browser. With Silverlight, you can get a totally different class of experience, and there’s a lot of value to that class of experience, relative to the way it enhances the way people work with information. And I mean, I think that’s true in the consumer space; I think it’s also true in business.

STEVE GILLMOR: But why are you Silverlight?

BOB MUGLIA: Because I own the developer team, and my team builds platforms, and whether that’s server-based platforms, in the form of Windows Server or SQL Server, or whether that’s the set of developer tools in Visual Studio. In this case, Silverlight is built by the same team that builds .NET, and also builds our Web server. That’s Scott Guthrie’s team, and frankly Scott just does an awesome job of moving his team forward, and really deeply understanding what developers need, and then building solutions that meet those needs.

STEVE GILLMOR: Well I think we’re seeing this — in the last Mix I think it was, and the PDC announcements about APIs and so on, that were being released first for Silverlight, and then followed up with WPF.

BOB MUGLIA: There are a few cases of that. I mean, part of it is WPF is on a release cycle that works with the broader .NET framework, so it’s not quite as fast a release cycle as Silverlight has. We’re trying to keep Silverlight on roughly a yearly cadence, so we’re driving it very, very fast. We’re very close to releasing Silverlight 3, and you’ll begin to see Silverlight 4 before the end of the year. I mean, we’ve been actively working on the next release.

So we literally have two different teams. We have a team working on releasing 3, we’ve got a team that’s already begun on 4, and then they’ll sort of swap and move forward. So, we’re focusing on doing things fast.

STEVE GILLMOR: What are we going to see in Silverlight 4?

BOB MUGLIA: Well, what you’ll see is more improvements along the lines of what we have today, so continuing to make the video experiences better. You’ll see us broaden what you can do with Silverlight in terms of international support and things. I mean, one of — if you talk to people who are trying to build business applications and reach broad sets of consumers, and they want to reach consumers in China and India and Thailand and everywhere else, so being able to easily support a broad set of languages, I mean, the way I sort of view it is Silverlight 3 is the mature, broad platform people can use to implement things with, and we think that that’s where we’ll see very strong application adoption. Silverlight 4 rounds it out. It takes the next step forward and continues that process.

STEVE GILLMOR: What do you think about HTML 5 and the strategies that Google has employed?

BOB MUGLIA: Well I think HTML is — I mean, I’ve always been a very strong believer in standard space browsers and continuing to advance that. HTML 5, it has to get stabilized, I’ll start by saying that, because first of all, there’s no clear definition for HTML 5 right now, but what the world needs a very strong HTML 5 that does get standardized, and we’re going to be investing through our IE team in building a world-class implementation against that. The real key here is because it’s a standard space process, because it’s a process where you’ve got a whole set of browsers that’s building it, the speed at which that innovation happens is somewhat slower than what you can do with something like Silverlight.

STEVE GILLMOR: All right. I don’t mean to end on this note, but I think that Silverlight has this interesting kind of positioning inside Microsoft that is starting to have the appearance of essentially the input to a Web operating system, and that seems to be within Microsoft’s agenda on some level.

BOB MUGLIA: Well, what’s very much in our agenda is to enable people to solve problems that they can’t solve before. To me, the perfect example of that is this Web streaming, where the idea of being able to do over-the-top, HD quality Web streaming, live, delayed, everything, all instantaneous, instantaneous user response — to be able to solve problems like that faster, and get those to market quickly, I mean, that’s to me the kind of thing that Silverlight’s all about.

You know, you’re right in the context that it is a broad platform, and the platform is going to continue to increase in its scope, but you know, the goal here really is to make it easy for people to build solutions that they can’t build today, and to deliver value to their customers, whether that’s business customers or consumers. And I think we’re doing a pretty good job of it with Silverlight. There’s things you can do in Silverlight you can’t do anywhere else. We’re going to continue to advance that lead that we have, and Scott is driving that team very fast to continue to do that innovation.

The key thing that we’ve done with this environment is you’ve got 6, 8 million professional developers that know .NET, and we’re being able to take those developers forward and give them access to customers that they’ve never had before, and that’s why I think it’s pretty exciting.

STEVE GILLMOR: I think that what Azure’s going to do is to sort of make it acceptable for Silverlight to become something that’s reasonably open, and yet aggressive in this real-time space.

BOB MUGLIA: I think the two will work together. You’re right, you’re right. Of course, you can use — I mean, the thing I’d say is you can use a server — first of all, Silverlight doesn’t actually require a Windows server on the other end. I mean, you can actually use a Linux Web server on the other end, it turns out, but of course you can go to any hoster and host — get a Windows server hosted there, or a Web site hosted there, and incorporate Silverlight into your account. So, it’s not just Azure. I mean, that’s one thing people sometimes get confused about is, is that you’ve got — there are literally thousands of hosting providers in the world, and we don’t see those guys going away. We want to help them be more and more successful.

My goal with Azure is to not take their business away, my goal with Azure is to help expand the business overall. You know, I look — in some ways, the reason we do Azure more than anything else, as it turns out, in order for us to make our platform a great hosted platform, we got to host it ourselves. You just don’t get the learning unless you host it yourself. So, when all said and done, we may have 10 or 20 percent of the marketplace for hosted Web things, but the majority of our customers will run still on thousands of different — from thousands of different hosters around the world.

So I agree with you, the idea that as the hosting environment becomes more common, that it does open up opportunities for apps built on Silverlight, but it’s more than just Azure.

STEVE GILLMOR: Yeah, no, I think that’s exactly what will happen. We’ve been working on this project that we’re building on Silverlight, and at a certain point, it becomes sort of second nature to sort of in planning, think about how we can take advantage of the Silverlight platform, as opposed to thinking about it in terms of either a Web application or a native Windows application. It really –

BOB MUGLIA: It becomes very natural.

STEVE GILLMOR: You stop really thinking about that in that way.

BOB MUGLIA: One of the things you’ll see as we advance Silverlight is continuing to advance the frameworks to simplify the common interactions between a server and a rich client. I mean, with Silverlight, you have a rich client, right, and you’ve got a lot of computational power, everything available there. So, whether it’s getting data down to the client or invoking rules, whatever it might be, making that simpler, and this is the sort of stuff — it turns out that if you look at the amount of time people spend building business apps, or apps of any kind, consumer-based apps, et cetera, there’s a set of problems everybody has to do again and again and again and again. And you know, the kind of stuff Scott and his team are doing is saying, okay, these are the ones we’ll just build into the framework and make real easy for people, and so that’s what you’ll continue to see as we continue to evolve Silverlight.

Here’s a bizarre use for Microsoft’s “Flash-killer” Silverlight—a ballistics calculator. Yes, Silverlight is being used to build an application that lets shooting and hunting enthusiasts “customize shooting conditions” while comparing Winchester-made bullets.

Winchester’s Ballistics Calculator lets gun users choose their type of ammunition and then compare up to five different bullet types with charts and graphs. You can enter specific conditions like wind speed and outside temperature, maximum range, direction, speed and height. The application will then display charts and graphs that visually lay out the point of impact, drop and trajectory of each type of bullet.

According to Microsoft, Winchester chose Silverlight because it is a “cross-browser, cross-platform plug-in” that allowed the ballistics maker to create an app that doesn’t have to be downloaded (but you have to download Silverlight).

Silverlight 3 launched this past summer, with the hopes of making inroads against its main competitor Adobe Flash. It looks like Microsoft is going after gun enthusiasts first.

On the Office front, the O2010 tech preview is in a classic Microsoft holding pattern, waiting to touch down next year in the wake of the new Windows release. Microsoft marketing managers still won’t answer the simple question (What are the features NOT available in the Web Apps?) They’re glad to rationalize the answer as: we’re providing the features Web users want. The real answer continues to lie in the politics of the transition from disk to Web.

What is new is that Powerpoint and Excel the Web versions can now function with somewhat greater fidelity than Google App’s competitor. Compare them to the desktop versions, you’re in the old political weeds. Compare it to Google, not bad. SkyDrive starts to look like an interesting service, if only (and importantly) as a reason to get a Windows Live ID and 25 gigs of free storage.

I find the desktop/Web Apps comparison a cul de sac Microsoft will do well to get away from as fast as possible. The central message for nextgen realtime apps is that Office Web Apps are soon to be highly competitive with the alternatives. The collaboration features alone are so basic that my fundamental question is whether the desktop apps support them in realtime, not the other way around. Word is still not baked and seems to continue to suffer from oldthink strangleholds, but if the first wave gets some traction with realtimers it may tip things our way before ship date.

The other mixed messaging is of course Silverlight. It’s easy to wonder whether Microsoft really gets what they have going here, but the underlying answer is yes, with the political caveat. Reports of a recent internal meeting were devoid of mentions of Silverlight, with the usual Bill-era science projects around Walls and other esoteric research fantasies taking up most of the troop rallying.

Nonetheless, Silverlight is the most strategic part of the new Microsoft message, that Redmond services will catch, match, and exceed existing competitor platforms. If you count the Windows 7 launch as the left side of the timeline and the PDC launch of Windows Azure a month later as the right, Silverlight is the connective tissue that drives the new hybrid platform.

With Windows battened down and Office Web Apps in the evangelism stage, Microsoft is competing primarily with Google’s notion of radical disruption financed by advertising. Coming as it does from the enterprise IT stronghold of corporate hegemony, Windows and Office adoption collides with the new monetization challenge because of the lack of a legitimate user contract for behavioral data. We’ve known all along that Microsoft could see what we do on the desktop, but they haven’t got our permission to do anything with it.

By contrast, Google and other Web services require that attention farming to do anything, and offerings like Gmail remind us of how our text is being tracked even as they reassure us that that data is only being used anonymously as part of the larger algorithms behind the Google engine. Microsoft’s investment in the Web Apps is in fact the establishment of a user contractual rationale that will pay off with its forthcoming competitive offerings.

Those offerings will not be in the desktop space, however. They will be in the Silverlight engine, mixing the richness Google struggles to reach with HTML 5 with the monetization of attention and, increasingly, gestures mined from socially-aware microcommunities. Don’t let that jargon scare you; it just means Facebook/Twitter 2-or-3 degrees of separation harvesting of the recommendations of people whose recommendations in aggregate are much more efficient than the current search haystack models.

SIlverlight neatly manages the intersection of the desktop circa October with the cloud circa November, and is missing only the orchestration of realtime layer that, pardon the expression, meshes incoming alerts with the behaviorally-filtered authoritative stream. Today, I watch alerts bubble up in an Adobe Air FriendFeed app, sitting atop Gmail, Yammer, and stream aggregation tools. Tomorrow? Silverlight is the only answer this year, and Steve Ballmer must know it.

The good news for those who think this may work strategically but not politically is that Office Web Apps is close enough to provide cover for an aggressive framework built on Silverlight to go after the social crowd. Facebook is within 90 days of an API that can subsume the FriendFeed core, and there are very few things you can’t do today with a combination of Javascript and Silverlight to provide a useful console for managing social flow.

There are at least several projects under way but unannounced that could signal Microsoft cluefullness, but even if an internal project hooked up SIlverlight with, say, Facebook, it would still be messaged as “we’re a platform company providing opportunities for developers”. But Office Web Apps and SkyDrive will need to drive home a Now proposition to have some impact on Google’s aura of inevitability.

Here’s where Bing becomes significant. These guys are kicking ass. They are innovating and pushing out babies faster than the Scobles, and show no signs of slowing down. Does Silverlight have a play in future Bing expansion. Yes. Does the iterative success of a reasonably independent unit inside Redmond provide political cover for similar ground gained by a social unit. Yes.

The key is to compete not with the desktop guys but with Google directly. Office Web Apps stand a good chance of smoking Google Apps in the short term, by competing directly on price and adding features (Silverlight) Google can’t touch. Like Bing, invest in the intelligence of the back end and the editorial layer of services that pry mindshare loose or at least into consideration. My 8 year old daughter talked to me last night about Binging something; I made her repeat it to be sure.

Bing. Social media. Silverlight. SkyDrive. Benioff’s Salesforce is pushing the enterprise envelope with the Google stack, but what does that do for Microsoft but open the eyes of its dominant channel. While we all look at the deltas between Office Desktop and Web, the real disruption may be the extent to which the enterprise is being swallowed by social media.

If virtualization effectively abstracts out the back end hardware and software boundaries, the end result is a new value chain where access to institutional and user data is parsed across business lines, where software “suites” are organically grown and spliced together across social boundaries. Social media IS the enterprise. Bing. Bing. Ballmer’s Silver Hammer.