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The Rediff Interview/ Bill Gates, Chairman, Microsoft Corp

'Reputation is the key asset of Indian software firms'

Gates also pledged to invest $400 million in India over three years for the spread of computer literacy. At the India Development Centre of Microsoft in Hyderabad, he said the company would invest $100 million over the next three years. And increase the staff strength to 500 from present day 200.

Gates also announced that Microsoft would launch Windows XP and Office with Hindi language interface within the next year.

In an interview with Surajeet Das Gupta Gates talks about the Chinese threat, his investment plans and India's IT environment.

From an investment of $75 million to a commitment of $400 million in three years. Does this represent a perceptible change in your assessment of India as an IT powerhouse?

We have seen growth in the use of technology in India every year and an increase in our domestic sales. Also, most companies in the IT sector have grown substantially. The decision to invest more is the outcome of various things. We are very happy with our development centre in Hydrabad, the quality of the labour force is high and, therefore, we will hire more people and expand the scope of work there.

We are also happy with the work of our partners and will deepen our relations with them. We are contributing in terms of special educational projects and training programmes. When you take into account all these, they combine to make our investment $400 million. It is a milestone, but it does not mark a discontinuity in the strategy we have followed in India. We have been on the upswing in terms of staff and performance since 1990. When we came in, we predicted we would be in business till now, and the market would develop. It has been proved true.

Will this money be used to buy equities in Indian companies? Is taking equities or acquiring companies in India a possibility for Microsoft?

No. The money is not for investment in equities. And right now, given the way we work with our partners, we do not see a need for that. Our role is unique: of building a software platform. And even though we have partners of different sizes - with some we do more work than with others - it would be inappropriate to pick one and make an investment. Our business is to build software products. But an acquisition may take place, for instance, when there is a small company doing something novel. I will not rule it out though there is no plan in that direction.

Do you see China as a major competitor for India in the world market? Will it challenge India's domination in software services?

India should think of China as a competitor. Always remember that competition is good. The Chinese have great strength in manufacturing and many are surprised as to why India is not competing in that area. After all, the number of jobs in manufacturing is much larger than in the IT services sector and it funds infrastructure greatly. And China is a world leader in this area in the same way India is in software services.

I think at some point, India has to decide on policies to be competitive in manufacturing.

China will offer software services, but it has to shape its education system accordingly and create companies centred on that. So it is only over a five-year period that the Chinese will catch up. It is not a zero sum game. It is not that jobs are created in just one country; the number of jobs will increase in many countries. Today, for instance, India gets a lions share of jobs.

How should Indian IT companies face the Chinese challenge? Should they set up bases in China?

Some of the Indian companies are doing that. They have to build a reputation there, which is a key asset they have. Work on complex projects will determine their growth.

How does Microsoft see the two markets as investment destinations and a focus of business?

Both are important markets and we are investing in them. We have a development centre in India but none in China. But we do things in China we do not do in India. We are subcontracting the manufacture of our X boxes, for instance.

The Indian government is making efforts to bring the PC to rural India. They are considering a PC at below Rs 10,000, rugged and affordable to the rural population. Many see Linux as a cost-effective operating system, which will help to fulfill this governments dream. How will Microsoft contribute in making this dream a reality and how will they combat the growing popularity of Linux? Is it possible for you to develop a software platform catering for the needs of rural India?

For rural areas, the communications cost is the expensive part of PC usage. The hardware costs are small, so is the software part of the total cost. Today, you can get a PC for under $300 and the screen price is the most expensive part of that.

A PC is very cheap if it is not connected, but people are not content with just a computer. They want a tool to help them to get things done and the last thing you want to do is to build a low-volume product and call it a special platform.

Also, if rural India wants to use PCs, it should get the best software. Why should they have a free operating system and not the one which is used by the commercial world and which would get them jobs? And that is by using Windows. So the penetration of PCs into rural India has nothing to do with using Linux.

The key is communications cost. And in no country is there a magical solution to that. Even Microsoft wants computers to be all-pervasive but the communications cost is expensive.

Linux seems to be having a dream run among Indian developers and many of them are developing products based on this platform. Do you see that as a major challenge?

Linux is a form of Unix and there is nothing new in this case. It is the same basic thing Unix was in the 1970s. It has gained some share because a lot of the hardware on which it is run, like the Sun hardware, had been sold and they were expensive. There is no need to do so because the standard Intel servers are so powerful that instead of buying a Sun machine with Solaris, you buy an Intel server and run Windows and Unix on it. When it comes to new things like Tablet PCs, web services or anything which needs changing the multiple pieces of the system and putting in commercial R&D, you are going to see Windows.

How do you see the progress of the Indian software industry? Are there any major weaknesses? For instance, we have been a disaster in the software products area. Do we have any hope here?

The big thing is that companies are year-by-year gaining a reputation that they can work on complex projects. And they are taking bigger projects and, thereby, winning the trust of customers around the world. It is a progression year by year, and that is very important. I think the Indian education system will increase its outlets so that there are plenty of people to do these jobs. Of course, there are some states with resource constraints. But I think there will be states that will frame attractive policies to encourage such activities. I see a good future and surely quite a few jobs being created.

In the products area, after all, which country, besides the US, is doing well? The US market is the most demanding, and they are looking for new products. Even SAP, the only well-known non-US company, has a large R&D facility in the US so that it can see the cutting edge. I think there will be some products successes in India, but I do not think the magnitude will be the same as in the services area.

Will Microsoft help Indian software products companies to market internationally?

No. Companies market their own products, but if they use the dot net platform, they will create visibility. But the basic marketing has to be done inside a company, not outside.

You have announced the launch of operating systems in Hindi. Is this the way forward in India? Will you increasingly tap the regional languages market?

We start with Hindi Windows and Office. We will extend Windows XP local language support to two more new languages, making a total of eleven. On the operating systems side, we will continue to evaluate whether we should go beyond Hindi.

You have had meetings with President A P J Abdul Kalam, Prime Minister Atal Bihari Vajpayee, and IT Minister Pramod Mahajan. Did any concrete result come out of these meetings?

My meetings with the President and Mahajan focused on software activities. The meeting with the Prime Minister focused on the health initiative on AIDS. The meeting with Mahajan was encouraging. We discussed Microsofts possible contribution to India, the interesting projects, creation of more jobs, and expansion in the use of IT. Our team will follow up and we expect some concrete projects. he

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