Gates: Microsoft has room to grow

Talking to financial analysts Bill Gates said search software, games, consumer goodies and lab research would all help Microsoft grow.

During his speech Mr Gates showed off early versions of programs designed to compete with arch-rival Google.

He said novel technologies had to fuel expansion because markets for other Microsoft products were saturated.

Strong competition

At its annual analyst meeting Microsoft unveiled a prototype of an MSN toolbar that works with the Internet Explorer browser.

As well as letting people search the net, it also lets them query the documents, images, e-mails or spreadsheets stored on their PC.

The add-on is squarely pitched at the efforts of Google and Lycos, standalone search software from firms such as Enfish and newcomers such as Blinkx.

The toolbar is due to be released within 12 months.

Microsoft has also unveiled a new version of its MSN search engine that it hopes will start to wean people off their reliance on Google.

Google and Microsoft are now arch-rivals

At the meeting Mr Gates showed off software to add more to its mobile phone software, talked about new ways to generate cash from digital entertainment and said consumers were key to this approach.

Microsoft is also expected to unveil its own anti-virus software following its acquisition of a security firm last year.

As evidence that Microsoft was looking for novel technologies to profit from, Mr Gates said that the company was expecting to apply for about 3,000 patents this year.

Despite this Microsoft has long been seen as a follower rather than a starter of trends in technology.

Many of the technologies and innovations it has popularised and profited most from originated outside the company.

And its current efforts to move beyond Windows and Office have yet to meet with much financial success.

Of its numerous business units, encompassing such technologies as the Tablet PC, MSN and the Xbox games console, only the ones responsible for Office and Windows make any significant profit.

Product pressure

But, said Mr Gates, Microsoft would not be relying on its back catalogue to keep it growing.

"If all you think of yourself as doing is basic word processing or basic database, then at some point you saturate the customers out there and simply aren't charging forward achieving new growth," Mr Gates said.

Digital cameras mean people have lots of images to store

"In fact, your sales don't even maintain their current level because all you're getting is the maintenance from that base," he said.

The speech by Mr Gates was intended to re-assure analysts that Microsoft was not entering a quiet middle-age and still had plenty of markets to expand into.

For some time Microsoft's stock price has stayed broadly static and its decision to increase dividends to shareholders has put it under pressure to expand.

To increase the pressure the next version of Windows, known as Longhorn, is not due to appear in finished form for two years.

Even new versions of the Office software suite may not boost revenues because many customers delay installing updates because of the potential for clashes with existing applications.