Ruling the market for new consumer electronics devices might have solved Gates’s biggest problem: the fact that Microsoft was no longer growing at the galloping 25-plus percent pace investors like to see in a tech company. Remember that when Bill and Steve got into the business, computing still belonged to the IBMs and DECs of the world, with their big, expensive machines sold into a market consisting of a few hundred corporations, governments, and universities. As Moore’s law drove prices down, PC manufacturers sold their wares to a galaxy of other businesses, both big and small, that could now afford powerful computing that would make them more efficient. But numerically speaking, the biggest potential audience of all was relatively untapped. Once you can sell computing to consumers directly, and once you get computing into products that become part of their everyday lives, the volumes become transformative. Consider this: According to researchers at the Gartner Group, 355 million personal computers—servers, desktop PCs, and laptops—were sold around the world in 2011. Some 1.8 billion cellphones were sold the same year. And that’s a number that doesn’t include all the other kinds of computing-based or networkable devices that might become part of a consumer’s life, including video game consoles, audio players, radios, thermostats, car navigation systems, and anything else that can become smarter through the power of connected computing.

Gates, who is perhaps the world’s shrewdest business strategist, saw this future coming. And he expected Microsoft to garner the same slice of this world that it had of the computing world. After all, who else could possibly define the standards for digital interaction between devices? This had been Gates’s game: envisioning and delivering the future. The scale of his concerns and ambitions dwarfed Steve’s. He wanted Microsoft software on billions of devices; Steve just wanted anything that would help him sell a few thousand more Macs each month. Gates was the only one who could reasonably think about dominating his awkwardly named but clearly inevitable “consumer-electronics-plus” era. He was powerful, and very, very smart: despite his penchant for dense verbiage, he had done a wonderful job describing the future of computing as we now have it, some fifteen years later. All he and Steve Ballmer had to do was execute the strategy. If they could, they would steer the company through its transition to this future, and in so doing return Microsoft to the kind of growth that investors wanted to see.

No one knew it at the time, but Gates’s speech that January morning in Las Vegas marked the apex of Microsoft’s hegemony. On December 31, 1999, the company had been worth $619.3 billion, with a share price of $58.38. It would never be worth more.

Instead, a company still struggling to survive on the fringes of computing would execute Gates’s vision. It would do so by moving incrementally, by following its nose where the technology led, and by being opportunistic. Over the next few years, Steve Jobs would steer Apple toward a whole new rhythm of doing business. No one would have guessed it then, but the future belonged to Apple, not Microsoft.

WHEN WORD GOT back to Cupertino of Bill’s ambitious CES presentation, Avie Tevanian and Jon Rubinstein persuaded Steve to convene an emergency off-site executive staff meeting at the Garden Court Hotel in downtown Palo Alto to rethink where Apple was headed. “Bill Gates was already talking about what we would end up calling our ‘digital hub’ strategy,” recalls Mike Slade. “So I just cribbed his talk and pitched it to Steve at the off-site meeting. I said, ‘Shouldn’t we be doing this? We can’t let Microsoft do it. They’ll just screw it up!’ ”

Apple employees had never had much respect for Microsoft’s ability to create anything but ungainly, confusing, and half-baked technologies for consumers. The animus went back decades. Even though Microsoft Word, Excel, and PowerPoint were instrumental in the early success of the Mac, Microsoft’s unforgivable sin, from the vantage point of Cupertino, was its derivative creation of Windows. Steve was being expedient when he offered to abandon Apple’s long-standing lawsuit against Microsoft to seal the deal with Gates upon his return in 1997. But folks at Apple still considered Windows a rip-off of Apple’s ideas, pure and simple. Worse yet, they saw it as an inelegant theft, and one that got imposed on the world by a kind of bullying that Apple both despised and envied.

Steve’s team sincerely believed that a world defined by Microsoft’s “consumer-electronics-plus” vision would be as ugly as that godforsaken name. In 2000, if anyone needed evidence of how ham-handed Microsoft could be when it tried to befriend actual humans, as opposed to the corporate buyers it had always really cared about, all they had to do was open up Word or Excel or PowerPoint on a PC, where they would be greeted by an animated digital “concierge” called “Clippit.” An anthropomorphized talking paper clip that was intended to be an informal help center for users of the Office suite of productivity applications, Clippit was, in the minds of many users, a patronizing, useless abomination that was frustratingly difficult to banish from your PC screen. Time magazine would eventually call it one of the fifty worst inventions ever, right up there with Agent Orange, subprime mortgages, and the Ford Pinto.

The team at Apple could not abide the idea of letting the creators of Clippit establish the look and feel of whatever new world of consumer computing, communications, and digital media was emerging. They wanted the new consumer digital technologies to be held to the highest standards of elegance, beauty, and simplicity. Apple had always displayed a sense of style and design that was unmatched by anyone in the computing business. All you had to do was compare an iMac to the average PC.

Gates always knew that he could never hope to approximate Steve’s aesthetic sensibility. “He had an expectation of superlative things in his own work and in the products they would create,” he says. “Steve had a design mind-set. When I get to a hotel room, I don’t go, ‘Oh, this bedside table is so poorly designed, look at this, this could have been so much better.’ When I look at a car, I don’t say, ‘Oh, if I had designed this car I would have done this and this.’ People like Jony Ive and Steve Jobs are always looking at stuff that way. You know, I look at code and say, ‘Okay, this is architected well,’ but it’s just a different way of understanding the world. His most natural, innate sense was a world-class instinct about whether this or that object met certain standards. He had extremely high standards of what was shit, and what was not shit.” By those standards, Steve’s executive team was right: Microsoft and Apple had dramatically different notions of what constituted acceptable design, much less great design. If these applications and devices were to become as ubiquitous as Gates proclaimed, this was a rare opportunity to establish a benchmark for the functional and stylistic aesthetics of how the average person would deal with digital technology.

Apple had already dipped its toe into this emerging market with a well-designed but ill-chosen application called iMovie. It was introduced at precisely the moment when affordable digital video cameras from Japanese manufacturers like Sony, JVC, and Panasonic were beginning to hit the market. Steve had thought that an elegant and simple movie-editing application was just what the buyers of those cameras would need. iMovie was sophisticated software that radically simplified the tedious process of editing jerky amateur video into slick home movies with almost professional-quality production values. But if iMovie was proof that Apple could create cool consumer software, it was also proof that the consumer market could be diabolically hard to predict. iMovie was an elegant solution to a problem consumers weren’t yet dying to have solved.