Bill Gates has heralded 2006 as a breakthrough year for the digital lifestyle, arguing that developments in hardware and software will help consumers connect with each other more easily, access more entertainment and enjoy higher-definition video.

The Microsoft chairman also said that arch-rival Google is enjoying a "honeymoon period" and questioned the company’s ability to diversify from search. Responding to rumours that Google was about to launch a cheap, non-Windows-based computer, Mr Gates said: "They will obviously branch out beyond internet search, but I think the expectations won’t live up to reality."

Speaking at the Consumer Electronics Show in Las Vegas, he aimed to position Microsoft as the driving force behind the convergence of entertainment technologies. He said the forthcoming upgrade to the Windows operating system, known as Vista, and additions to the recently launched Xbox 360 games console will accelerate the move toward PC-based entertainment systems.

"Consumers are getting more and more connected, and software is at the centre of that," he said. "2005 was a very big year for the PC, but 2006 will probably be even bigger. It’ll be a big year for the digital lifestyle."

Windows Vista, which is expected to be launched later this year, will feature faster interaction with other multimedia tools such as smartphones, digital music players and portable video players, Mr Gates said. It will also have an improved media search facility and an updated media player that will support high-definition video.

Microsoft's determination to make Windows Media Player the digital player of choice has led to allegations of anti-competitive practices. The European Union recently threatened the company with fines of €2 million (£1.36 million) a day in a dispute that resulted partly from its policy of packaging the media player with every edition of Windows, making it hard for other developers to break into the market.

Extending Microsoft's multimedia interests, Mr Gates also announced plans for an external high-definition DVD drive for the Xbox 360, which Microsoft is promoting as a home entertainment system as well as a games console. The full version of the Xbox already comes with a hard drive that enables users to store and display music, video and photos.

To bolster the range of digital content it can offer, Microsoft has signed partnership deals with BSkyB, MTV and Starz Entertainment Group, allowing users to view full-length films and TV shows on forthcoming Windows-based portable devices. BSkyB is partly owned by News Corporation, the parent company of Times Online.

Microsoft also announced that it was joining forces with the American telecommunications company Verizon to market internet-friendly cordless telephones for the home that will offer instant messaging through MSN Messenger.

The move comes amid increasingly fierce competition within the home telecoms market. On Wednesday, Skype, the pioneer of free internet phone calls, announced a partnership with Netgear to offer a wireless mobile phone that will connect to the internet without using a computer.

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