Shortly before Microsoft Corp. Chairman and Chief Software Architect Bill Gates gave the opening keynote address at the CES show Wednesday, IDG News Service Executive News Editor Marc Ferranti sat down with company Chief Executive Officer Steve Ballmer to explore how the software giant's new emphasis on Internet services, particularly via Windows Live, plays in the consumer market. Gates sat in and reviewed aspects of the company's Vista pitch to corporate IT.

The following is an edited version of the conversation.

IDGNS: I thought we'd take this opportunity to give a global update to our readers about what Microsoft is doing in the "digital lifestyle" realm. The Gates-Ozzie (Microsoft CTO Ray Ozzie) memo that leaked out in November, on "Web 2.0" services and Live, was widely examined in regard to the business realm but not so much on the entertainment and consumer side.

Ballmer: On the consumer front, the end user front, the digital lifestyle front, I actually think we are in the early phase of the most significant inflection point in many years. It's an inflection point where I'd say really early adopters have lived the full digital lifestyle but we really haven't gotten to mass market.

I think we're at a point where in the next 12 to 24 months we go from being early adopter to literally an explosion. In some senses, I told a group of retailers today that it's a little bit like 1995, when the PC went from being early adopter to mainstream, with Windows 95 as a catalyst. I happen to think that Vista is an important part of the catalyst, to go from early adopter to mainstream digital lifestyle. An important part of that of course is the PC but also important parts of that are the gaming system , the TV system, the phone -- and the unifying factor almost across all of these experiences frankly is the service infrastructure.

I think a lot of what we're trying to do with Live is support this transition of the world to what we call a mainstream digital life style.

IDGNS: Is it almost wishful thinking on your part to think that the digital lifestyle explosion has not happened already -- look at iTunes and Google....

Ballmer: No, no, many things have certainly taken off, don't get me wrong, the Internet isn't just taking off today, but digital music is still in its infancy. People like to talk about iTunes, but it's still in its infancy -- more people don't have digital music as a fundamental mode of operation than do today. That's why I say we've had a surge in early adoption [but] in some cases we haven't even had a surge -- take HD, we're still under 10 percent penetration in the Unites States of high definition video.

It's not wishful thinking really because it's an industry phenomenon: It applies to us, it applies to Apple, it applies to Google, it applies to Yahoo, it applies to Samsung, Toshiba, you name it.

IDGNS: I'd like to get a sense of

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