Las Vegas -- For years, Bill Gates has been trumpeting software's ascent from the lowly PC to everything from cell phones to home entertainment.

No doubt, that move is already taking place. But it's unclear whether Microsoft's dominance in the computer industry will carry over to new consumer-oriented markets, or whether rivals such as Google and Apple will ultimately gain the upper hand.

In an interview just ahead of his farewell speech Sunday at this year's Consumer Electronics Show, Gates spoke to ZDNet Australia's sister site CNET News.com about competitors, the future of DVD, and why all of those seamless connections between digital devices exist only in keynote speeches.

Q: One of the themes, this year and every year, is about how consumers want access to their media wherever they are and on whatever device, seamlessly. It always seems that the seamless piece is what's really hard and where the experience tends to fall short of what we see in demos and keynotes.
Bill Gates: I'd say the most important step is that you use the cloud so that if you have licensed apiece of music, if you buy a new phone, it's there. If you buy a new PC, it's there.

Making the user move things between devices has been one of the downfalls. If we just allow them to be in the cloud, then any time you said who you are, you are connecting up to all of the content, no matter where it came from.

In five years, where will Microsoft need to be in order to have met the challenges from companies like Apple and Google?
Apple is a competitor and partner we've had for a long time. It was only three years after I started Microsoft that I went over to Apple and did Applesoft Basic for the Apple II and Office for the Mac as a product.

But there were a couple of years in there where they were less of a competitor than they are today.
Well, they were almost dead for a couple of years in there. Yeah, it's a very competitive space. We've got to advance our platform. Windows really succeeded because we had a greater breadth of software available on Windows.

Now, when we think Windows, we think Windows Live, Windows on the phone. We have to keep it as the leading platform. We obviously have a lot of strengths with our development tools and our strengths in the business area. We're doing some breakthrough work in the cloud and with natural user interface.

I love the fact that it is so competitive. Google is ahead in advertising. Apple is ahead in music devices. There's room for us to be successful.

Are there specific things that need to change about the company's products or culture?
Remember, it's all about software. So why are we talking about those companies? There are very few companies that understand software. The phone is becoming about software, the TV experience is becoming about software. Our bet goes back to the founding of the company -- that software is going to be at the centre (of things). It really is coming true.

I think the core of who we are and what we do [is] believing in a platform. We're better positioned than anyone. Do we have to continue to work on our advertising scale and our search and some usability things in our music products? You bet. But that all comes off the core of being a company with the best research group, by far, of any software company, and a breadth of talent that everyone is envious of.

Does Warner's move to support Blu-ray exclusively mean that HD DVD is dead? If so, what does it mean for Microsoft? Obviously, you've been a big supporter of HD DVD.
The last studio announcement was Paramount going exclusively to HD DVD, so there's been some back-and-forth. It's kind of a classic format war. You have to think of what we are doing with our Mediaroom TV works. That's the way Xbox Live works.

We've got more content with Disney and MGM coming onto that. It's been very, very successful. The convenience of not using media -- we've seen that in music. iPod, Zune, your phone -- that's how you are going to carry your music.

Your collection, it's up in the cloud. Any new device you get, it's there. That will happen for video too. The actual physical-format battle here isn't really, in some sense, that important. But getting the movies so you can access it through any broadband device -- that's the future.

Would you do a Blu-ray add-on for Xbox?
Third parties can do peripherals for Xbox. Obviously, all of the different optical-drive technologies are supported in Windows. At the core, we are about software and making sure the HD activities get to critical mass.

I was reading a bunch of "Biggest Tech Disappointments of the Year" stories, and Vista was on most of those lists. Do you think Vista has some work to do, in terms of convincing people it's something that they need?
Vista passed 100 million (units shipped), which is a pretty phenomenal number. A lot of people put it on their favourite-products-of-the-year (lists) because they are using neat new features that are there. We certainly got a lot of feedback about getting device drivers (out). There were some compatibility things we didn't handle well. Definitely, we're a lot smarter there.

I'm proud of the product. There are a lot of things that, as the year went on, we got the polish and the extra drivers out there. Vista will be a lot stronger in the next year. We're taking the lessons learned from that and building the next great version of Windows, which will be even better.

Is there an opportunity, where it's not tinkering with the OS, but rather making the overall platform more compelling?
There's none of that we haven't been in, way before there was an iLife. Microsoft Works goes back 15 years. The photo stuff in Windows just keeps getting better. We did a Windows Live release that had photo gallery (component). Movie Maker is a very strong product, and we are continuing to invest in that.

Can we package it up so it's a clearer message around Live? I think definitely, there's things to do there, but having those neat scenarios be part of what you just get with a PC, having that be clear -- I think that's important for the consumer market.

It seems like Windows Live has become the primary vehicle for that. Is that true?
(For) most of those experiences, because you want those photos online, a lot of the innovation will be in Windows Live. Some things like Movie Maker will stay as Windows client things. But Live is the centre of attention. That's a product we will update in a pretty dramatic way on something like a yearly basis.

It seems the notion of Media Center specifically as a way of getting content doesn't seem to be a huge platform. Does merging the Media Center folks with the IPTV folks open the door for one platform?
Yes, we can bring those together. What you are going to see is that IPTV and Media Center have gotten to a size (such) that content people are doing unique things. Robbie (Bach, head of the Entertainment and Devices unit) is going to show some NASCAR things, some Fox things. Interactivity and personalisation really count.

Our deal with NBC on the Olympics is about taking video, and we'll offer that on general Internet PCs and other ways of getting that video. The idea of programming video and bringing in the interactive pieces -- that's a vision we've had for a long time now. It's becoming reality, with Mediaroom with over one million (set-top boxes) and Media Center a bigger percentage of Windows than ever.

Q: One area that I know is important to you is emerging markets. Do you take away any lessons from Intel's fallout with OLPC (One Laptop Per Child)? I know you said recently that you are going to try and make Windows work on OLPC if you can?
OLPC hasn't done that well. Emerging markets are growing for PCs, people are doing cheap PCs. We've always believed in cheap PCs. If the hardware were free, we'd be happy. We're about the software. We're in literally over 100 countries with special versions of Windows, including Starter Edition. OLPC is nowhere compared to where we are on this thing. If that form factor, some people want to use that, we'll make sure Windows is available on that.

You guys have looked at both low-cost PCs and shown off a phone that then connects up to a TV to act as a low-cost PC. I think you guys are going into trial with that this year?
That's called Phone Plus. Our lab in China is doing some very interesting work. That general idea is that as you could walk around with the phone that it could use any big screen that shows up, that's going to be just standard stuff. The phone will be the entry PCs for a lot of people.

The biggest thing in developing markets is the shared PC where you go into the library or the school and you share it. There you want a decent keyboard and a decent machine. We started learning with that, it was five years ago that we rolled out PCs to every library in the United States. We went to Chile, Mexico, Botswana.

Broadband is what's hard. What good is any PC now without broadband or without an Internet connection? It's not worth all that much. When somebody says I am going to XYZ country, ask them what the connectivity strategy is. That's the expensive part. Not the hardware, not the software. It's either the training, the special content, or the broadband.

One of the neat things about the phone-to-display thing is it's got some developing country applications, but I imagine that's something that is interesting from a rich-world perspective.
You'll have displays, not just TV-type displays. There's no reason the software shouldn't be agile in terms of display format. We're getting that even because the phones themselves, the displays in the phones are going up to a pretty good size. Some of that will be wireless. That's not quite sorted out but it will be over the next year or so.