By Christine Y. Chen

(FORTUNE Magazine) – It's 9:30 a.m. on an overcast July day, and the Five Spot Cafe in Seattle's hip Queen Anne neighborhood is buzzing. Using the age-old lure of free food, Microsoft has invited ten of its 500-plus summer interns to talk about their lives and dreams. Recruiter Caroline Rockey, barely out of college herself, poses a question to the group: "What's most important to you in your ideal job?" At first, the replies are predictable: good people, a balance between work and life, a good environment. "Flexible hours," says one. "Telecommuting is really important to me," adds another. "Enough technological infrastructure to get my job done," pipes a third. That's the closest anyone gets to talking about money. As the coffee starts its work, the interns get passionate and begin interrupting one another. The things they want most, it turns out, are mostly intangible: They want integrity. They want teamwork and moral support. They want responsibility and freedom to pursue their visions. Neel "Bubba" Murarka, an animated 22-year-old senior at California Polytechnic, pounds the table and yells, "I don't ever, ever want to lose the kidlike view that I can change the world!" The interns cheer.

Tammy Savage takes notes. Savage, sitting rapt on a bench against the wall, is head of Microsoft's Next Generation Consumer Strategy division. For ten months now she and a staff of 21 have devoted themselves to studying the Net Generation, the group of budding workers and already active consumers born after 1977. From attending intern breakfasts to hosting pizza parties for teens to spending hours instant messaging with kids across the Internet, Savage has been methodically charting what makes this crowd tick. And soon she hopes to put together a Rosetta stone for Microsoft: a way to translate those table poundings and dreams into dollars.

This is not just some idle pursuit for a company with $24 billion in cash to throw around. While Bill Gates may have been only 19 years old when he founded Microsoft, the days when people associated his company with youthful exuberance are long gone. Today's teenagers especially know only a world in which Microsoft has been ubiquitous and all powerful, a single-minded behemoth focused on developing platforms and software. Why would they want to work at a place like that, much less buy Microsoft's products? Which gets to the heart of why Savage has her job: By 2003, teens will be spending more than $1 billion a year on all types of consumer goods, according to research firm Jupiter Communications in New York City. Microsoft wants them to spend as much as possible on its products.

Reaching into that market is a unique problem. Today's teens have grown up with the Internet, where new sites, software, and updates seem to come out every few weeks, days, minutes. Technology in and of itself doesn't impress them, no matter how many millions of dollars a software company devotes to promoting a new release. "Teenagers today, unlike any other age group, are not intimidated at all by technology," says Michael Wood, vice president at market research firm Teen Research Unlimited in Northbrook, Ill. "In terms of developing products, this is by far the savviest group of consumers that we've ever seen."

How to reach and recruit the Net Generation falls on the denim-jacketed shoulders of Tammy Savage. At 30, Savage is a decade older than her subjects, yet like them she is relentlessly optimistic and cheerful, peppering her talk with upbeat words like "empowering," "magical," and, most frequently, "amaaazing!"

"This is going to sound goofy, but the one thing that's consistent with this generation is that they want to change the world. They want to do amazing things," says Savage. "It's one of those opportunities where you can make amaaazing change. They're just amaaazing! There's no doubt that they're the ones who are going to invent the new economy."

Goofy-sounding or not, Savage's beliefs have been years in the forming. When she joined the company in 1993, it was purely as a marketer, hawking Word and Excel to parents and educators and showing off Microsoft products at Family Technology Nights across the world. By 1996 she had branched out into working with schools to get laptops to kids. Savage's work opened her eyes to a big business problem: Teens and children, she saw, were communicating and using technology differently than adults. The realization may seem obvious, but the depth of the difference struck home in 1996, when Savage observed a group of Australian and Singaporean kids working on a science project. Despite minimal training, they had figured out how to do measurements on their computers, hold discussions online, and maintain a joint Website. "The kids made it look so easy," she recalls. "This was not a common experience in 1996, and certainly not a typical way that adults worked." Over the next three years the pace accelerated further. Savage realized that Microsoft was still a long way from knowing how to connect with this group. And she didn't see any evidence that people within the company were aware of the problem.

So last November she approached her boss, Microsoft vice president Bob Muglia, with the idea of creating a division devoted to studying the Net Generation. She explained her findings and her fears. Muglia quickly saw the implications. "Here was this new group that worked differently, thought differently, and used technology in ways we were previously unfamiliar with," says Muglia. He took her off her other projects, gave her carte blanche, and told her to write her own charter.

For her group to succeed, Savage felt that it needed to be as different from Microsoft as the teens were from their parents. That meant no formal surveys, no hiding behind one-way-mirrors for sterile focus groups. Instead, in January, Savage took a page out of MTV's playbook. In a house outside Seattle, she sequestered 12 college students and asked them to produce a mock Website. The experiment lasted three weeks, during which she invited Microsoft researchers and executives to drop by and observe.

She also called in Don Tapscott, the author of Growing Up Digital: The Rise of the Net Generation. The two met at a Santa Monica cafe, and Tapscott felt he had found someone who understood how to connect with what he dubbed "N-Gen." "Tammy was a breath of fresh air," says Tapscott. "I felt she got it immediately. I could see the wheels turning in her head." He put her in touch with two people he saw as already leading N-Gen voices: Michael Furdyk, then 17, who was heading up his second startup company, and Jennifer Corriero, then 19, who was on several youth councils in Canada, advising various companies and nonprofit organizations on how to best capitalize on her peers. Savage met the two for dinner and found an instant chemistry. In March the teens started a six-month consulting gig for Microsoft, charged with the broad goal of finding out what the Net Generation thinks and wants.

With Furdyk and Corriero tackling the software and product side, Savage set up meetings with Microsoft recruiter Caroline Rockey to look into what teenagers want as they enter the work force. Though Rockey is just 23, she says she doesn't have the mentality of an N-Gener, since she can remember life before the Internet. "My peer group intellectually understands the impact of technology," says Rockey. "The Net Generation sees it as a soulful thing. They want to work for a company that's focused on their generation, and they believe they can change the world and make a big impact." Breakfasts like the one at the Five Spot help them flush out their feelings.

While it all sounds a little touchy-feely, Savage insists that everything her group is doing will one day translate into a big payoff. She points out that Microsoft divisions in Europe are devoted to scoring big in mobile instant-messaging services, which have hooked kids in Scandinavia and Japan. "They're being driven forward on how youth is pushing innovation," she says. "Many [Microsoft] products will now be measured based on how they meet the needs of the Net Generation."

Now Savage needs to persuade her own peers too. To do that, she has been scheduling meetings around the 290-acre campus, bringing in her case studies, her findings, and, of course, her N-Geners. So far Savage, Furdyk, and Corriero have made presentations to more than 15 teams, including Mobile Media, which makes technology for wireless devices; Business Productivity, which handles software like Microsoft Office; and the Platform Products groups.

A recent stop brought the three to Derek Brown, the product manager for Microsoft's mobile devices--the pocket-sized devices that right now are losing a war against Palm. At the meeting, a small group of researchers and designers handpicked by Brown gather around as Furdyk and Corriero explain how the Net Gen differs from its predecessors. Among this generation, trends originate with a small segment of youth and then permeate society at large, one group at a time. "Take capri pants, for example," prompts Savage. "They were popular with teens first. Now everybody's wearing them." "Or The Blair Witch Project," says Corriero. "Or certain styles of Nike shoes," adds Furdyk. The talk gets Brown's group brainstorming on other teen-sponsored trends. Savage jumps up, grabs a marker, and scribbles on a whiteboard, charting how each social subset in high school influences the others; how nerds, overachievers, popular jocks, and freaks all interact; and how trends circulate among them. Brown's group starts nodding. They've all been to high school; they know the drill. Sure, explain the three, but with the Internet it's all moving much, much faster: Technology trends, like instant messaging and Napster, have grown from obscurity to omnipresence at, well, Internet speed. A seed has been planted.

"I'm looking for a Net Gen influential," explains Brown afterward, using a term thrown around frequently during the meeting to describe a trendsetter. "I'm interested in knowing how to find someone who will influence their peers in the future."

While Savage's enthusiasm spreads easily, it's too early to tell how deep her impact will be. As a result of the Next Generation group, Microsoft says, it will build "emoticons" (symbols, like smiley faces made from a colon and an end parenthesis, that are used to graphically express feelings) in Microsoft's instant-messaging program. Thanks to the Savage meeting, the Pocket PC group is committed to bringing out devices in five different colors. Hardly awe-inspiring stuff. AOL's instant messenger has offered emoticons for years, and every tech product today seems to have taken Apple's iMac multiflavored formula. These are the changes that are supposed to glue Microsoft to the Net Generation?

But Savage hints that more dramatic changes are to come. "We're finding that our thinking has a huge impact on the company as a whole," she says. "Everyone likes the Microsoft culture today, but we want to create a culture for the next generation."

For one, that means spreading the instant-messaging gospel throughout the company. On the product side, she wants Microsoft's instant-message program, MSN Messenger, to be able to communicate with cell phones so that teens can page their friends and direct them to, say, a favorite MP3 site. On the work side, she wants everyone using Messenger every day. "We're helping people understand that instant messaging is very important to this generation, even if it isn't for adults."

Over the next few months, Savage wants to build a "virtual team" of both Microsoft and non-Microsoft employees to hammer out more specific things that Microsoft can do to appeal to the Net Generation. She cites MTV as a good example of a business that keeps on reinventing itself for new generations. But Microsoft isn't exactly known for its MTV-like ways. No problem, says Savage. "There are a lot of new ways we can test and find out what's going on," she insists. "It'll be amazing. We're going to push those envelopes. It's really about moving, crossing a bridge from being a project into being an initiative throughout Microsoft." If Savage can pull that off, it would truly be amaaazing.