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December 29, 2006

CHARLIE ROSE, HOST: Welcome to the broadcast. Tonight, two discussions about technology and innovation. First, a conversation about the pursuit of alternative energy and breakthroughs in green technology. We'll talk to John Doerr of Kleiner, Perkins, Caufield and Byers, Scott McNealy of Sun Microsystems and K.R. Sridhar of Bloom Energy.

In the interests of full disclosure, I have a business relationship with John Doerr. We now turn to a conversation about developments in the Internet and the promise of Web 3.0. Joining us, Brian Halla of National Semiconductor, Reed Hastings of Netflix, Jerry Yang of Yahoo!, and Charlie Giancarlo of Cisco. The future of energy and the Internet, when we continue.

(COMMERCIAL BREAK)

CHARLIE ROSE: Tonight, we join you from Memorial Hall at Stanford University. Energy is becoming a defining issue of our time as we struggle with questions of how much we use it and where we get it. High gas prices, environmental concerns and geopolitical unrest are now spurring advances in energy technology. Many believe that green technology may rival the Internet revolution in its ability to change the way we live and work.

Joining me now are three pioneers of green technology. Scott McNealy, co- founder and chairman of Sun Microsystems Company. K.R. Sridhar, CEO and co-founder of Bloom Energy and John Doerr, a partner at the venture capital firm Kleiner, Perkins, Caufield and Byers. I'm pleased to have them here with us at Stanford to talk about green and what it means.

I begin with my friend John Doerr. Tell me where we are in what is now called the green revolution. I picked up a "New York Times" this morning. Again, Tom Friedman has been on the cutting edge of trying to raise our consciousness about energy, about the dependence on foreign oil about how we must change about global warming. This whole thing, where are we now?

JOHN DOERR, PARTNER, KLEINER, PERKINS, CAUFIELD, BYERS: Well, it`s all come together in a perfect storm. Green, it matters to everyone from the environmentalists to the evangelicals. The president declared in the State of the Union address last January that we're addicted to oil. And so we`re shipping hundreds of billions of dollars every year to nations that have a target painted on our back. We see China rising as an economic rival. And almost all scientists agree that there is a climate crisis that could well be upon us if we don`t change course within 10 years.

CHARLIE ROSE: Changing course means what?

JOHN DOERR: Changing course means reducing greenhouse gas emissions, and that's a big problem. There's no single solution to it. And it requires policy as well as innovation. And it is a very, very scary challenge.

CHARLIE ROSE: OK. We're going to talk a bit during this hour, during this program, about the kinds of things that you can do. So we'll get to that. But I want to stake out where we are in this. What would you add to what John said in terms of where we are in this coming together of a dynamic about energy, even the president or especially the president said in his State of the Union that we were addicted to oil and we had to lessen our oil dependence.

K.R. SRIDHAR, CEO & CO-FOUNDER, BLOOM ENERGY: So there are two things about energy that we don`t understand very well in the public consciousness. One is transportation. The other is stationary power. Two-thirds of all the greenhouse gases that John talked about come from stationery power generation, with both those things, the significant issue is we have -- could have energy because it was all driven by capital, if we continue doing business the way we have done so far, resource trumps capital. There is a finite amount of resource there are more people that have capital. So it becomes a resource constrained issue as opposed to a capital constrained issue. If that is where we go in the future, we cannot promise our children and our grandchildren what all our previous generations` promised that they can have a better future. Because energy is directly correlated to standard of living.

CHARLIE ROSE: You, Chairman of Sun Microsystems, former CEO of Sun Microsystems, how did you get interested in this?

SCOTT MCNEALY, CHAIRMAN & CO-FOUNDER, SUN MICROSYSTEMS: Well, it's been an issue and our belief that -- that the way to solve some of these energy problems are to use technology to go -- to go solve our dependency. Our CTO Greg Papadopoulos likes to talk about the hardest thing to move is atoms, and so shipping things and people and building things is very expensive.

It's less energy to move electrons, although you lose about half of the electricity in transmission through the transmission lines and the junction boxes, and all -- and the simplest and lowest power thing to move around is photons -- in other words, sending things out over the optical network. And so, if you put that -- that kind of overview and backdrop on it, it says let's try and network it. The network is the computer. Let's try and use that -- that phrase and get people to do home shopping and distance learning and telebanking and get people to simulate things instead of building.

CHARLIE ROSE: Because by definition, it saves energy?

SCOTT MCNEALY: It saves energy, and it's much more -- it's just entirely more planetary efficient.

CHARLIE ROSE: Is it for a company, good business?

SCOTT MCNEALY: Absolutely. Gardner says by 2011, 40 percent of the IT budget will be consumed in energy, in driving, the data centers. The large corporate data centers are going to use 90 barrels of oil a day. And the power consumed by all the data centers worldwide today is about half a billion tons of CO2 emissions per year. So we are talking about some very significant -- but that's savings on doing computing. That's the savings from using computing, actually that are far more stunning and -- and we think ...

CHARLIE ROSE: Using computing rather than some other systems ...

SCOTT MCNEALY: Rather than -- yeah, getting in your car and driving down to do a deposit or, you know, to go buy a pair of shoes or whatever. It turns out UPS is way more efficient on the miles per delivery by using the statistics and operations research analysis to figure out where to go when with the deliveries than you are by getting in your car and doing a point to point kind of a solution.

CHARLIE ROSE: OK. Help me go back, John, to this idea of where we are and how we have reached. Did we reach this critical mass of concern because of global warming principally, people began to understand that there was a threat from global warming? Whatever differences there might be about the fact that the climate was getting warmer in terms of what caused it; there was a clear, overwhelming consensus of the danger it offered.

JOHN DOERR: Yes. The scientific evidence is clear. There is disagreements about what we can best do to deal with that problem, but the problem of climate crisis ...

CHARLIE ROSE: Yeah.

JOHN DOERR: ... but, you know, the concern is, frankly, one of our favorite countries. Greenland. Greenland ice is melting at an accelerating rate. The latest fear from scientists at Caltech is not that Greenland will melt, but it's going to slip off the rocks.

Why does Greenland matter? Greenland reflects enormous amounts of solar energy back out into space. If we lose Greenland, all the scientists agree that oceans will rise by 20, 30 feet. That puts downtown Manhattan underwater. That means where we are in Silicon Valley will be underwater. We will lose most of Mumbai in India. So this has enormous economic and social consequences.

CHARLIE ROSE: How long is that possibility? What is that window that we have in order to do something about that? If we don't do something about that over the next 15 years, Manhattan is threatened with being underwater?

JOHN DOERR: Probably ...

CHARLIE ROSE: Is it 15 years, is it a half-century, is it ...

JOHN DOERR: No, I think it's a half-century that Manhattan could be underwater. But some scientists say that the tipping point could be in 10 years. Certainly I have heard 15 years.

Part of the problem is that the greenhouse gases stay in the atmosphere for a very long time. The greenhouse gases from Henry Ford's original Model T are still circulating in the atmosphere. So if we keep adding more and more and more until they are absorbed in a plant cycle, for example, and then reemitted into the atmosphere.

CHARLIE ROSE: Is the use of fossil fuels in cars the principal villain, and if, in fact, we could change the emission standards and demand that people use more hybrid cars, make a huge amount of difference?

SCOTT MCNEALY: You know, you can get into that debate and everybody is conjecturing and projecting and all the rest of it. We at Sun just feel every company ought to take a huge eco-responsible focus without getting into the scientific. It's just good business. You can make more money, because energy does cost money. And there's not a CEO in the world who doesn't understand that. And there's no -- there`s no scientific debate on that one.

And it can't hurt to reduce your energy consumption. And I think nobody disagrees with that. So if you just start with those two assumptions that you can make money by saving energy and two, it can't hurt the environment. You don't have -- I think the whole world gets all balled up around, you know, is it going to be 50 feet under two feet under or is this just natural? And either way or anyway it just isn't worth getting into that debate. Rather let's -- let's talk and figure out how we can actually save energy.

CHARLIE ROSE: But I mean, everybody has been talking about issues like this for a long time. Can you change behavior without having a, a gas tax? Can you change behavior without having an incentive to do it beyond -- John?

JOHN DOERR: Well, our country needs a new energy policy.

CHARLIE ROSE: If the price of oil drops to $40 a barrel ...

K.R. SRIDHAR: Yeah.

CHARLIE ROSE: ... does any of this make economic sense?

K.R. SRIDHAR: I don't -- you know, the price of oil ...

CHARLIE ROSE: Not that it's likely to.

K.R. SRIDHAR:: The price of oil was the single factor during the '70s crisis that we had. So we are all gun-shy from that. But the reality here is green technology as we see it is not a one trick pony. You have the magic wand, Charlie, and you wave it, and the CO2 emission problem goes away. Let's just say.

CHARLIE ROSE: OK.

K.R. SRIDHAR: OK, global warming goes away. It's -- you know, it's not the main concern. You still got about a billion people coming out of poverty. And two billion people today that don't have access to electricity. This world does not have the resources to meet their needs no matter what.

CHARLIE ROSE: Their -- their basic needs for ...

K.R. SRIDHAR: It is a basic resource need as opposed to a capital need, OK. And the world is divided in terms of infrastructure.

CHARLIE ROSE: But is it going to come from alternative sources like, I mean, I -- I haven't opened the door to ethanol yet, but is it going to come from alternative energy sources or what? I mean, I don't -- I mean by new alternative energy sources let`s assume coal as a different energy source and nuclear as a different energy source, is a whole category we're setting aside.

K.R. SRIDHAR: It will be -- it will be bio-fuels. It will be -- it will be the way we distribute, it will be the way we consume. Scott just talked about data centers. There are huge consumer of electricity. Just to put things in perspective, a typical home may be a one watt per square foot. Typical office building may be 10 watts a square foot. A typical data center, nearing 200 watts a square foot.

CHARLIE ROSE: My God.

K.R. SRIDHAR: OK. Compare it. So now what happens? We produce alternating current power. It comes through transmission lines. And then it goes into a data center, where a device inefficiently converts that alternating current into DC current and that gets used in the process it produces heat you supply more electricity to cool that building. This kind of distributor generation systems we are talking about directly produces DC power, the solar panel produces DC power. So, a DC data center, that`s going to run it, make it more efficient.

SCOTT MCNEALY: We're actually working on a project that -- using the same theme. We have -- it's called Project Blackbox, and if you go to sun.com and -- and search on it, we've put a data center in very densely packed, very energy -- 20 percent more energy efficient data center in a shipping container.

Now, that is fully self-contained all ready to go. Eight racks, you can put a one and a half bytes of disk storage in it or you can handle 10,000 desktop users, that sort of thing. You can ship this to where the energy source is. So why not put it in -- in Las Vegas, hook it up to the Hoover dam and put the cooling tower coils into Lake Mead, or go up to Calgary, where there is cheap energy, and you know, cooling is just how much you open the window.

And so -- so, there are -- there are more effective ways of moving the data center out of downtown Manhattan. There's no more room for chillers on the roofs in Manhattan. It's not a cost-effective way. And it's -- like I said it upfront, it's so much easier to move photons from the data center than it is to move -- so we solved the problem of moving the atoms. We put it all in a little shipping container, and ship it anywhere. You can stack them eight high, and you get about 3x of compute power at a fifth the cost, and 20 percent more efficient. And you can deploy it immediately. I mean, it's just away you go.

So there are ways to go solve these problems. You've just got of break the habit of data center hugging, which is, you know, what happens in corporate America.

CHARLIE ROSE: Split it off.

John, do you think most of the momentum from this will come from the private sector rather than from government?

JOHN DOERR: Yes. And it will come. The innovation will come from the private sector.

We need policy as well as innovation. And it's not just going to come from the private sector; it's going to come from the entrepreneurs, it's going to come from the small companies, from the risk-takers, from the people who are close to new technologies. Look at the big companies, big oil companies. They spend less than one percent of their sales on R&D.

So we've seen this before. You saw it; your audience saw it. With the microchip, with the semiconductor, with the biotechnology industry, with the networking industry, with the Internet, with Google. These transformations of very large marketplaces because of innovation are going to happen with green technologies. I think it's -- could well be the largest economic opportunity of this century.

CHARLIE ROSE: But at the same time you and Tom Friedman and others who have a soapbox are arguing for at least Tom is, arguing for gas taxes, in order to provide an incentive not to use fossil fuel.

JOHN DOERR: Right.

CHARLIE ROSE: Yes?

JOHN DOERR: So ...

CHARLIE ROSE: Because one time you are saying, on the one hand, we want all to turn -- all these entrepreneurs loose; then on the other hand you're saying we want to create customers for them by making the price of existing fuel so expensive they will demand something else.

JOHN DOERR: No, no, let's tease those apart.

CHARLIE ROSE: What's wrong about that?

JOHN DOERR: Well, here is what's wrong about that. Assume with me for the moment there are breakthroughs in innovation coming. Let's stay with the policy and the tax.

I think Tom's carbon tax is politically infeasible. It's just not going to happen -- no, the president is not going to stand up in January and call for a carbon tax.

What is feasible is to say that when we dump carbon in the air, it's free. And it shouldn't be free. So we're going to make a market. Because you, Charlie, in your program, "Save Carbon," you are going to get tens of thousands of dollars. And since I use it, I can buy those credits from you. I can't reduce as much as you can. That's this market, the cap and trade system.

That's feasible. That's going to work.

CHARLIE ROSE: You can put carbon and cell it.

JOHN DOERR: You can call it the carbon tax. Reduce your carbon and sell it. That market, free market system is going to cause us to get the most inexpensive carbon out of the system the quickest with the lowest cost.

CHARLIE ROSE: Bill Gates, who is coming up here soon, has, in his Cascade Investments, has made some investments in energy. Warren Buffett has made some investment in utilities. You have a fund to encourage and fund entrepreneurs who are looking for alternative sources of energy. Is there today, I mean what's -- what is the business model, what is the dynamic of the marketplace that is going to make it attractive for one of the leading venture capitalists in the history of venture capital?

JOHN DOERR: So we think of the following. The investments that we're making, the entrepreneurs that we are backing need ideas and plans that are going to work, whether oil is at $60 a barrel or $40 a barrel. That's the threshold. But the second is that their change merely needs to be disruptive. It needs to be like K.R. Sridhar's fuel cells, which will instead of burning ...

CHARLIE ROSE: What fuel cells ...

(CROSSTALK)

JOHN DOERR: ... instead of burning natural gas, instead, what this does with natural gas is it transforms it, producing 40 percent lower emissions. Sorry, emissions at 40 percent of the other rate.

CHARLIE ROSE: Yeah.

JOHN DOERR: ... and it does that at grid prices. Or look at this -- this is the first-ever flexible solar cell. This solar cell can be made by the Mont Soleil (ph) Company at one fourth the cost, Charlie, of traditional rigid solar cells with one tenth the capital equipment. So you can put this on the roof of your home for $2.50 a watt, dramatically lower because it can be flexible and cheaper. Those kinds of innovations are the sorts of technologies that we're backing.

CHARLIE ROSE: What do we know about how important reducing energy dependence on fossil fuels is to the American public? I mean, you know, you basically say do it because it makes sense. I mean, it's all -- always your argument, it`s common sense, here is the reason it works, here is the reason I do it. But do we know whether the public is prepared to make this an important issue?

K.R. SRIDHAR: That's a good question that I think ties to the previous question that you asked about various alternative energies, and Lee Raymond's comments. The issue has been either we have an environmental solution or an economic solution. And the two don't go hand-in-hand. So we're asked to choose between the conscience and the wallet, and the majority of the consumers are going to be agnostic. And they're going to consume the cheapest possible way that they can get energy.

Now, do we believe collectively that that is the way it is going to be in the future? That is the principal question about whether green tax is a fad or is it the next big thing, OK? It is not a choice between an environmental solution and an economic solution. It's not or, it's and. It is -- I think to frame the question that you asked in the sense of everything else remaining equal, including cost, would every consumer want to do good? I would submit to you the answer is overwhelmingly yes.

CHARLIE ROSE: Well, I know Wal-Mart specifically in its effort to -- to engage sustainable energy is -- has made the analysis of how much they`re spending in terms of the way they do their transportation system which is where -- Scott came from, the transportation system, all these big 18 wheelers they`ve got running all over the country. And they are figuring out how much energy saving they can do there. I mean GE has, BP has it ...

JOHN DOERR: Wal-Mart story is spectacular. It's an example of -- it blows me away. They are now spending $500 million more per year in R&D, in investment in green technologies, to make more money. So they have gone out to their 30,000 supplier -- supply chain and said you know what, you want to sell to Wal-Mart, it better be green, it better be lower cost, and if you can't put up the capital to do it we will loan you the money. But we want the contract to make it lower cost. They have a gold ...

CHARLIE ROSE: Wait, wait, wait. Stop. What do they say to a supplier? They say to a supplier, we know you can make this at a lower cost if you change your energy efficiency, and if you don't change you energy efficiency, we're not going to buy from you?

JOHN DOERR: And the way your factories work. We`re going to buy from someone else who does, and we'll help you invest to do that, but we want a contract.

CHARLIE ROSE: But are they doing that because it is in the public interest to do that, in terms of how they see it ...

JOHN DOERR: No, they are -- they're doing it ....

CHARLIE ROSE: For the planet they live on, or because they --- it'll be a lower cost to them in the end?

JOHN DOERR: The latter.

CHARLIE ROSE: Yeah.

JOHN DOERR: Because it is lower cost. Wal-Mart's the largest consumer, private consumer of electricity in the world. They -- they have a commitment to reduce the energy of their existing stores by ten percent over five years. They are ahead of schedule, their new stores by 20 percent. They're putting solar cells in their trucking fleet. They're changing the tires.

And the amazing thing also about Wal-Mart is what they can do with consumers. They are going to double the number of fluorescent light bulbs that they sell to 100 million.

CHARLIE ROSE: Because they save energy.

JOHN DOERR: Because they save energy.

K.R. SRIDHAR: And saving energy not just when the light is on. The number of 18-wheelers that have to be on the road to ship it ...

CHARLIE ROSE: Right.

K.R. SRIDHAR: ... drops dramatically. And if you look at the millions of barrels of oil that they saved just not trucking that much, it's staggering. And that shows the power of Wal-Mart's buying as well as the power of somebody who buys power in that quantity making a statement. And that is very important.

You asked about the federal government and what it can do. The federal government is the single largest consumer of energy in this country. Does it have a obligation to lead by, you know, lead by example?

CHARLIE ROSE: Is it doing anything to lead by example today?

K.R. SRIDHAR: I think we are beginning to see that happen.

CHARLIE ROSE: Yeah.

K.R. SRIDHAR: But it's not happening at the rate it needs to happen.

CHARLIE ROSE: Did anybody win a political election in recent midterm based on their ideas on energy efficiency and ...

K.R. SRIDHAR: Green?

CHARLIE ROSE: And green?

JOHN DOERR: Well, the polls and surveys would tell you that was an important factor in Arnold Schwarzenegger's tremendous victory in California. You may remember that he surprised some people by signing what I think is the most important legislation of the year, maybe of the decade, which is one of these mandatory reduction of greenhouse gases starting in 2010, ending in 2020. By 25 percent.

CHARLIE ROSE: What are they doing in California, where you live, where all of you live, that they are not doing in -- in others, New York state or Texas?

JOHN DOERR: Here's one little known fact.

CHARLIE ROSE: Especially Texas.

JOHN DOERR: The amount of ...

CHARLIE ROSE: I want to see if you're awake.

JOHN DOERR: The energy that it takes to produce a unit of GDP or a unit of wealth in California has been flat for the last 20 years. It hasn't been going up. It's going up across the rest of the country. But that's because of housing standards that are more energy efficient. Because of the favorable climate, and because of the -- more of a political passion, a consensus for green living, provided it doesn't cost more.

CHARLIE ROSE: Yeah, but California also has this energy -- this referendum that the voters turned down ...

JOHN DOERR: We did.

CHARLIE ROSE: And you supported.

JOHN DOERR: 87. And I supported it.

CHARLIE ROSE: And helped finance.

JOHN DOERR: All the support I have in the world is not going to beat, you know, $100 million from oil interests.

CHARLIE ROSE: So that was just it, the amount of money that the oil industry poured into, is the reason ...

K.R. SRIDHAR: Loss.

JOHN DOERR: Correct.

CHARLIE ROSE: Is that your analysis too?

SCOTT MCNEALY: I didn't analyze it.

CHARLIE ROSE: Why not?

SCOTT MCNEALY: I'm busy now. I'm busy. I am trying to save energy, man.

CHARLIE ROSE: You didn't come prepared for the panel here? Didn't you do your homework? What happened? I mean, how big is this company, Sun Microsystems, after all?

SCOTT MCNEALY: It's very big, and growing very nicely, thank you.

(CROSSTALK)

K.R. SRIDHAR: Charlie, the average California voter who watched the 30- second commercials was led to believe, using $100 million, that if they supported this proposition, their gasoline prices at the tank will go up. It goes back to Scott's point of at the end of the day, you`re going to vote with your pocketbook.

CHARLIE ROSE: Right.

K.R. SRIDHAR: So most economists will agree overwhelmingly that as big as we think we are in California, we cannot affect global oil prices. So that was just a falsity on which the Proposition 87 lost.

CHARLIE ROSE: I want to just go back to -- let's -- we talked about India and China. What about Europe? We mentioned France, which has a heavy commitment to nuclear. What are they doing in Europe? I mean, what is happening in Finland?

JOHN DOERR: (inaudible) in Finland.

CHARLIE ROSE: Yes. Well, I mean, in other words, my point is, are there role models for other nations to watch and say this is the way to do it?

JOHN DOERR: Well, Sweden has declared they're going to move their entire auto fleet to bio-fuels, and do so in less than a decade. Europe is ahead of the rest of the world in policies to encourage green and alternative energies. And by the way, they're doing really great research. Now, we have backed several projects in Europe having to do with innovative storage, batteries. So it`s -- it's a model to watch. And it is a very good market in which, for example, Germany is the largest buyer of solar cells among nations in the world. So Europe matters enormously.

CHARLIE ROSE: OK, let me -- with respect to the rest of the world, how this all works. I mean -- didn't Goldman Sachs recently release a study that said because of droughts, the cost of bio-fuels are going to go up, and therefore that lessens their economic competitiveness. Yes?

K.R. SRIDHAR: True. But droughts ...

CHARLIE ROSE: Back to the old argument.

K.R. SRIDHAR: Yes, droughts and other things. You know, they are seasonal, they are regional, they're local. Bio-fuel is not one fuel. It is not one model. You know, it could be bio -- you know, it could be bio- diesel in one place. And bio-diesels from, you know, different plants. For example, there are added plants -- you know, there are plants that grow very well in arid areas that have seeds from which you get bio-diesel. In Brazil, you wouldn`t do bio-diesel because sugar cane grows very easily and it's a great source of ethanol. So it -- the bio-fuel is going to be very local. It's not going to be one single thing as oil.

JOHN DOERR: Charlie, when you talk about the world, it's really important to keep the big, big picture in mind -- and that's the following. All the academies of engineering and science agree that over the next 50 years until 2050 the largest single trend on the planet is urbanization. So we're going to go from two billion people living in cities to six billion. That's four billion people. Or the equivalent of building eight new Manhattans every year. And most of those cities, most of that growth is going to be in Asia, in China, and Southeast Asia.

Now, how we urbanize those people -- they want clean water, clean power, clean transportation -- is going to determine whether we are going to pollute, poison or choke this planet to death. That's the global imperative.

CHARLIE ROSE: Thank you, John Doerr. Thank you, K.R. Thank you.

(BEGIN VIDEOTAPE)

CHARLIE ROSE: Have we actually mapped the human genome?

UNIDENTIFIED MALE: We have now a sequence of a human genome, and then we have two sort of blended version, one from Soller (ph) and one from the public, that don't really represent anybody's genome. They are sort of a reference that you can get some key information from.

UNIDENTIFIED MALE: The future is we're going to have complete genomes of everybody. But even in my case, we don't have all the highly repetitive areas of the genome. The center mirrors and the tila (ph) mirrors, that there's genes in, we know from the shotgun method we found genes that were embedded in these.

(END VIDEO CLIP)

CHARLIE ROSE: With me are four leaders in technology and innovation. Jerry Yang is the co-founder and chief Yahoo! of Yahoo!, Inc. Brian Halla is the chairman & CEO of National Semiconductor. Reed Hastings is the founder and CEO of Netflix. And Charlie Giancarlo is the senior vice president and chief development officer of Cisco Systems and the president of Cisco Links. I am pleased to have them here to participate in this dialogue about where we are in technology and innovation.

I start with my right and Jerry Yang. Tell me where we are at this moment in the Internet revolution that Yahoo! has been a part of.

JERRY YANG, CO-FOUNDER, YAHOO, YAHOO!: Well, Charlie, you know, we're fortunate enough as a company to get on sort of on the ground floor in the mid-'90S. And over the last 10 years, we've seen just I would say a lot of ups and downs, but in general, if you look at the number of people who are now on the Internet, we are poised at about a billion people around the world using some form of interactivity on the Internet, and that number is going to grow.

We're finally talking about conversions across television, telecommunications, media and mobility. We see broadband truly becoming a reality.

So a lot of the things that we talked about 10 years ago is now in the position of becoming mass and true mainstream. And the opportunity going ahead is really taking an industry from sort of a lot of start-ups and a lot of small companies to now large scale companies that are really creating a lot of value for the consumers. And becoming a true economic force in terms of taking this from just being a way of people accessing information and getting entertainment and finding each other to now a system with true economic backing and true scale.

CHARLIE ROSE: Brian, what would you add to that?

BRIAN HALLA, CHAIRMAN & CEO, NATIONAL SEMICONDUCTOR: From semiconductors standpoint, this is probably the most exciting time since the beginning.

The first semiconductor revolution was driven by the mainframe. And driving D-Rams to replace (inaudible) in the back of mainframes. Then we had the PC, which blew the socks off demand for semiconductors. And then the connected PC, or the dot-com boom.

Well, now we are going into an era where instead of it's man to machine limitations, so there are only so many programmers on the mainframe, there are only so many people who are going to buy a PC, there are only so many people to connect those PCs -- now we're heading into an era where it is man surrounded by thousands of machines that are all going to be networked together on his behalf. So instead of man to machine limitations, we'll now have machine to machine for the benefit of man. So instead of man having to try to adapt to the environment, it will be the environment adapting to the man. It's a very exciting time.

REED HASTINGS, CEO, NETFLIX: The PC took about 20 years from 1981 to 2001 to saturate. And then the PC market grows at a replacement rate. So it is probably a 20 year consumer adoption for the Internet, also, starting in '95. So we're probably about halfway through to where everybody is using it, and then from then on, it is innovation on that platform.

CHARLIE ROSE: We are halfway to building the platform.

REED HASTINGS: That's right.

CHARLIE ROSE: Charlie?

CHARLIE GIANCARLO, PRESIDENT, CISCO LINKS: I agree. And I think one of the changes that is taking place is that, you know, whereas the computer and PC has been the platform, at this point the network is becoming the platform, and networking people together, not just in terms of their access to information, but in terms of their ability to communicate with one another in a rich way -- not just mobile communications, but increasingly even moving on to a very rich video communications environment is really going to drive a lot of what Brian talked about.

Just a huge amount of innovation, a huge amount of bandwidth on the network overall, all for the benefit of people -- for their entertainment benefit, for their work benefit, for economic benefit.

I do agree -- I think we're about to see a growth in technology and innovation over the next five to 10 years that rivals what we saw in the '90s. And people already believe that we are doing so much now, can hardly imagine that technology is going to make a big difference -- any bigger difference in their life. But I think it's going to start to replace travel. It's going to start to replace what we consider to be entertainment, and it's certainly going to give us a lot more capabilities when we are away from home and on the move.

CHARLIE ROSE: If I said, what's happening to the digital revolution, would it be any different, would your answer be any different?

CHARLIE GIANCARLO: No, I think it would be very similar. They are two sides of the same coin. The digital revolution on the one hand, which means simply that anything that you might want to interact with can be digitized and now shared. And on the other hand, the network revolution, which says that you can get it at any time and at any place.

CHARLIE ROSE: Do we know about the consumer in terms of do they want everything that you can give them? I mean, let's assume moderate cost and advertiser-supported in the case of Yahoo! Do we know anything about what they want, and will they accept as much as you can give them in terms of options, access, ease of use, flexibility?

BRIAN HALLA: I saw a fascinating panel the other day on Google Video. Guy Kawasaki was interviewing a bunch of teenagers and high school kids and college kids on how they use the technology that we make available. It was like a different world. First of all, none of them do e-mail, unless it is out of respect for an elder. They do up to 4,000 text messages a month. None of them had ever used a landline to make a phone call. And all of them on average watch TV less than an hour a week, same as when we were growing up. But what it says is then you look at YouTube...

CHARLIE ROSE: This is not all good news, is it?

BRIAN HALLA: Well, it's not bad news. They create their own content. So it is all user-driven content now, but it is a whole new way of using technology that is coming out. But then, all of them will carry their personal information center around with them, wherever they are, and they will be in a hot spot, wherever town they are in. And that is just a way of life that they`re going to demand of the technology.

CHARLIE ROSE: Just for the record, would you define Web 1, Web 2 and Web 3 for me?

JERRY YANG: Well, yeah, I mean...

CHARLIE ROSE: Web 1.0, 2.0, 3.0.

JERRY YANG: No, I think obviously those terms have taken on dimensions of -- have taken on subject to interpretation. But for me at least, I think what 2.0 has been something that I think is well-documented or at least talked about quite a bit, where the -- in its basic form, I think we alluded to here, which is the power of the network has really reached a critical mass ability for tremendous amount of services and capabilities to be done on the network level. As part of that, as part of the bandwidth, part of the mobility, we're also seeing just richer and richer devices.

And I agree with Reed that while we still have a long ways to go, the change over the last four or five years is that there has been now a richer way of interacting with the network. And I think that`s what you are seeing sort of the benefit extension of 2.0.

And I think going to 3.0, you are just going to see a greater extension of that. This is becoming truly a communal medium, where the distinction between truly professional creators of content or creators of applications to semi-professionals or consumers, that line is going to get blurred. The bell curve is going to get broadened, and I think that just creates a whole new level of potential network effecters and sort of businesses and or applications.

REED HASTINGS: Let's go back to Web 1, 2, 3. I think it's pretty straightforward. You have dial-up and 50k average bandwidth at homes, that set of things. Now, we have about one megabit average bandwidth. You got a lot more interactivity. Ajax, these other things coming to.

Web 3.0 will be 10 megabit average connectivity to the home. You'll have video all the time. You will have the video web.

So if you think about it, dial-up was just present, Web 2 was there is some interaction, Ajax and these other things on one megabit, and when we get to average home bandwidth of 10 megabits, we'll have the full video web, all these different streams of content, and that will feel like Web 3.0. So I would differ with you on that.

CHARLIE ROSE: OK. As you look at the landscape, you know, and being principals -- being sort of the chief development officer of a huge company, a technology company, the people who first put the pipes in there, what's the biggest challenge for you? How do you think about the future? And how do you take a company beyond what brought it there?

CHARLIE GIANCARLO: Well, you know, a lot of the capabilities that we've just been talking about has brought about because of the layering of capabilities, right? And so the fact that we're even thinking about or talking about putting human intelligence on top of this doesn't mean, for example, that there aren't people that have to know the individual bits and bites and difficult activities that take place underneath all that to make it work.

And so, a lot of, you know, just to give you an indication of how much is actually being spent here, we'll spend $4 billion a year on R&D to improve the way that network operates in order to support all this capability.

CHARLIE ROSE: The immigration issue is an important issue that is being discussed, I assume, in every area of technology. And because it goes also to the issue that we all talk about a lot, which is whether the United States is seeing -- and you would understand this, and all of you would, is seeing less education, less young, bright young men and women going into engineering, computer science. It's not a new idea, but I'm told the differences are expanding.

JERRY YANG: Well, yeah, I think you have one of the challenges is being in the U.S. and obviously in the universities here now, you are seeing less people want to study either computer science or electrical engineering, the fundamentals of building an electronic-based sort of technology business. And what is exacerbating that is in other parts of the world, you are seeing increased enrollment in those types -- types of studies, as people in China or India or even in Eastern Europe seeing that's the way to improve their economies and that's the way to really improve their countries. And so that delta is really, I think, what is really something that we should all face as a pretty significant change.

And tie that to the idea of saying, well, you know, the United States and certainly Silicon Valley has traditionally been the place where the best and brightest in the world come, whether it's coming for education, whether for job opportunities. And when you are able to walk down the hall of a Yahoo! or Cisco or Netflix and you see people from every country around the world working together, that's what really has gotten the companies like in the Silicon Valley in the United States to be in the lead on a global basis.

If we aren't able to fix education on the one hand and if we are not able to maintain sort of a talent magnet in terms of immigration and/or educational -- higher educational system like Stanford, then the difference in just overall numbers between people who are studying science and math and engineering in other countries versus what is happening here -- that's just a trend that, you know, we won't be able to make up over a long period of time.

CHARLIE ROSE: But talk about people you know from Asia. Do they want to go back because there are now opportunities that were not there before?

JERRY YANG: Right.

CHARLIE ROSE: So therefore, they are less inclined to stay after they have an education. That's one issue.

JERRY YANG: Yes, that's right.

CHARLIE ROSE: You know, the world is flat, in an interesting way.

JERRY YANG: Yeah, but you know, that to me is just the market system at work. And I think that's relatively going to even out. Because I think people who have great opportunities here versus going back to their home, whether it is India, China or other places, that to me is not in itself a problem. Because I think companies move.

CHARLIE ROSE: There is also...

(CROSSTALK)

BRIAN HALLA: The IQ magnet here. I mean, the IQ of the people in this room must be on average well above the nation`s average. The problem is that -- I just got back from China. And China has put to bed its 11th five-year plan for economic development. In that plan, it mentions the word "innovation" 119 times, and "independent innovation" 58 times. This is a plan put together by government leaders in China, almost all of whom have a double e degree from Xianghua (ph) University, and truly understand the importance of technology for economic security.

REED HASTINGS: So you think (inaudible) five-year plans? That's what you think we should do?

BRIAN HALLA: Do we have a five-year plan?

REED HASTINGS: Do you think the problem in America is we should have five- year plans? They have five-year plans, so we should have them?

BRIAN HALLA: Every doctor takes a Hippocratic oath which says, do no harm. Today, our government has taken the immigration issue, or legal immigration, and reduced it to illegal immigration issues, because that gives you the (inaudible)...

REED HASTINGS: You are absolutely right on H1-B, for sure. But you know, we're looking at this thing like, you know, China and India are our threat. They are not our threat. We should help them develop incredibly strong middle classes. Why aren't we able to celebrate...

CHARLIE ROSE: I don't think people are talking about a zero-sum game. I think they are saying, as Jerry was saying, that there is clearly a question of numbers. I mean, if China has more people going to graduate schools like Stanford, but in China, in the numbers -- by definition will mean there is more IQ at work on the areas that feed all of your companies.

REED HASTINGS: That's going to be great for the whole world. I mean...

CHARLIE ROSE: I'm not arguing it's not going to be, but it is a call for the United States, its people, to be concerned about whether the science and engineering has that kind of attraction that it ought to have, because science and technology have fueled our growth, right?

REED HASTINGS: Absolutely right about science and technology and the government's investment in the university sector, you know, the 30, the 50 years of DARPA work, the increases we've seen in NIH funding...

(CROSSTALK)

CHARLIE ROSE: But isn't the problem whether the government's investment has been there, or whether -- some other reason that people are turning away? Is it because of the government or something else that people are no longer -- are not in sufficient percentages of population going into the cutting edge?

BRIAN HALLA: The last time the United States found itself behind -- and we're certainly not behind today, it's just a caution flag that's up -- the last time was when Sputnik went over. And none of the other panelists were born then, but I was 11 years old. And Eisenhower threw $1 billion at the space race to catch up with Russia and get ahead. $1 billion was a lot of money in those days.

But he also created a National Defense Education Act, because in those days, there was a lack of interest in math and science in the education system. And so the National Defense Education Act was there to say if somebody shows an aptitude, they will become a scientist. Maybe that is what we need today, is some kind of encouragement, tuitions, tuition reimbursement or tutoring, or something that starts the kids off in fourth grade, and says you are going to be one of our future scientists.

REED HASTINGS: You define dimension here, is we have this crazy policy in the U.S. of smart people can't come here, you know, on H-1B. There is only 65,000 per year can. And you know, Bill Gates testified two years ago that it was the stupidest thing in all of American policy, what we've had around tech. And I think we would all agree, it absolutely makes no sense. And it's, you know, perhaps in this lame duck session, Congress will move on it.

But it is small, it would be easy to fix, to raise the cap, and it would have a tremendously positive impact.

CHARLIE ROSE: Where is the responsibility, and how is it best to use the market to make technology available?

JERRY YANG: I think all of us would say that the market will try to drive -- as Reed has said, try to drive economically the availability of digital. And therefore, economic success in a market-driven way will hopefully help solve the digital divide.

But that in itself I think may or may not solve the broader issue around the world. I think, you know, we`ve been talking about trying to get cheaper devices. And I think there is this notion can we get $100, sub- $100 PCs into markets where there is -- they can`t pay $500 for a PC.

CHARLIE ROSE: This is the idea coming out of MIT. This is like...

JERRY YANG: Right, but also, you know, handset devices. And I think you are seeing, as we said, there are places in the world where market economy is driving those prices down and creating a market for them. There may be places in the world, and I don't know if it`s U.S. or other places, where a more proactive set of rules -- and again some Asian countries sort of take a much more sort of planned approach of saying, let's just build broadband as an infrastructure play. And let's just build, you know, fundamental, like highways, and I'm not saying that is a right or wrong policy, but I think you will see different countries trying to solve that through sort of set of private and public sector...

CHARLIE ROSE: But can you...

JERRY YANG: ... types of collaboration...

CHARLIE ROSE: Can you make a judgment as to whether those countries that emphasize development of broadband have done better and are better off because they did?

JERRY YANG: You know, I think we will find out.

CHARLIE ROSE: Singapore, South Korea...

JERRY YANG: We will see in the next five to 10 years.

CHARLIE ROSE: Japan.

JERRY YANG: But I think...

CHARLIE ROSE: We don't know yet as to whether that emphasis on broadband development had made a difference?

CHARLIE GIANCARLO: Well, there is one thing we know. And we do know that they are developing companies that are leading and fast-growing, large companies that would not be there except for the broadband that they are putting into place. Right? So they are developing industries, technologies, the gamers -- Shanda comes to mind -- you know, that wouldn't exist in a low-bandwidth world. And you know, one digital divide is the fact that the U.S. is below 20 now worldwide in terms of the availability of broadband to the home. I mean, the U.S. is -- the inventor of the Internet is badly lacking in terms of broadband availability. One megabit ...

CHARLIE ROSE: Why is that?

CHARLIE GIANCARLO: It is the fact that we rely on policy that was designed 20, 30, 50 years ago for the telephone system that is still creating rules about how telephone companies and nonincumbents have to operate. It's a very confused environment right now.

CHARLIE ROSE: I have no idea where you come from, but when I see Reed shaking his head, I ask this. When you hear the word "government policy," do you sort of rebel at that idea?

REED HASTINGS: No, I would say...

(CROSSTALK)

CHARLIE ROSE: Except immigration?

REED HASTINGS: No, I was shaking my head in agreement, that it's exactly these regulatory barriers that have been the problem to investment.

CHARLIE ROSE: So government policy for you is eliminating regulatory barriers.

REED HASTINGS: That's right. To allow the investment to happen. Yes.

(CROSSTALK)

CHARLIE ROSE: So your definition of government activity is a government that cuts down regulatory barriers.

REED HASTINGS: That's right. And allows the investment to proceed. To develop...

CHARLIE ROSE: In the market.

REED HASTINGS: In the market. And that's what has driven cell phone prices down. That's what's driven all these other prices and access.

CHARLIE GIANCARLO: I think we'd settle for either no policy or enlightened policy, but just not the confused policy that we have today.

(CROSSTALK)

CHARLIE GIANCARLO: Just choose one or the other.

CHARLIE ROSE: Why is it that the handheld device has become so central to the march forward of technology. And will that simply continue, inevitably?

JERRY YANG: Well, I think -- I think as we transform sort of, you know, people used to go on a computer and do an activity, or go on a mainframe -- that's probably Brian's -- but now I think we are entering a world where irrefutably, where we are -- we as consumers -- you know, I as a consumer is in control and the device follows us.

And the most apparent manifestation of that is the mobile device. And I think everybody talks about how mobile device will have the computing power of a...

CHARLIE ROSE: Mainframe.

JERRY YANG: ... a mainframe, you know, whatever the right debate is around med cap plus (ph), Moore's law combined, it is going to show up on mobile devices.

I think there is three layers of innovation, I think. The device and the computing technology will continue to innovate around that. I think that the form factors, and the way people use it, will continue to innovate and the networks will continue to innovate.

In the third area, which I think is where we're in a very nascent stage is what are the applications, what do you do with these devices. And you talked about messaging, instant messaging, or text messaging on these devices as being an application. The cameras now are prevalent as an application.

But over the next five to 10 years, I think you are going to see the kinds of applications that only mobility and highly networked mobility, in terms of bandwidth and connectivity, can bring you. And that is a total fertile ground for guys in our business of creating applications for the users and consumers.

So I don't see a whole lot of limitations, because I think the technology barriers are going to come down.

CHARLIE ROSE: What are the technology barriers that are going to come down? Is it mainly the power of the computer? What is it?

JERRY YANG: A couple of things, at least from my perspective. One is, I think the device is going to be more power-efficient. I think the devices are going to be higher processing power. I think the network issue of really having -- today we're still dealing with dropped calls. And I think that issue has to go away over time, where you really gain a reliable quality broadband, either through wi-max, wi-fi, or dual tri-mode (ph) kind of phones.

BRIAN HALLA: If you think about what caused the pervasiveness of the handset, extrapolating out from where we are today, man will want an infinite amount of information anywhere, anytime, and he doesn't want to have to run back to his office to get it or even to his car. That brings in the handset. The handset eventually evolves to the personal information center.

But what happens is now this personal information center, look what it does today. It does your TV, it does your audio, your mp3, it does text messaging, and even makes a phone call. But each time a new application gets added, nobody wants to give up battery power. So one of the things that is going to slow us down is power management.

CHARLIE ROSE: Brian, has technology and all of its implications, and the understanding that the rise of China and Japan -- I mean, China, Japan and India, with the explosive growth they have, and with outsourcing, has technology, in terms of America, meant the loss of jobs, or the creation of jobs?

BRIAN HALLA: Clearly the creation of jobs. You know, I mentioned three people before, Bechtolsheim, Grove and Brin, that by themselves have probably created tens of thousands of jobs, hundreds of thousands of jobs because of their contributions. And I think, you know, it's inevitable that parts of technology will go offshore. That's inevitable, and it's OK. New parts of technology will continue to grow and evolve here in the United States and create jobs. And whether those jobs are created at Cisco or Yahoo! or Google versus National, Intel or AMD is not necessarily that important. Jobs will be created, incremental jobs.

CHARLIE ROSE: Does technology have a role for those people who are losing their jobs because it is simply cheaper to manufacture products in another place?

BRIAN HALLA: That brings in, you know, it is not the cost of labor so much as the tax holiday. It's -- to put a billion-dollar fab up today, the difference between -- I mean, the $3 billion fab in the United States versus a more favorable tax environment like China, it's $1 billion difference in cost over a 10-year period. And so, that type of thing just forces us to go offshore.

But things like extending the R&D tax credit here in the United States, that's vital in continuing the innovation that's going on in the United States. And all these things, I agree, 109th Congress needs to finish its job here before it goes home, and let the 110th start with a clean slate. But we've got R&D tax credit, we've got H1-B visa elimination for Ph.D.'s and masters in technology. And they just need to get it done.