Gates reduces role at Microsoft

Wrong call on Web ads was 'screwup'

SEATTLE - Microsoft Corp.'s biggest "screwups" happen when the software maker fails to predict changes in the technology industry, such as the growth of Internet advertising, Bill Gates said yesterday.

"In software, you've got to anticipate the turns in the road," Gates said. "We missed the search and advertising thing - the way that's grown up to be so important."

Gates stepped down yesterday from his day-to-day role at Microsoft, the company he cofounded in 1975 and turned into the world's biggest software maker. Chief executive Steve Ballmer now faces the challenge of catching up with Google Inc. in online advertising, a market that research firm IDC says will reach $65.2 billion worldwide this year.

At a meeting with about 800 employees yesterday, Gates and Ballmer reflected on the day they met and their careers at Redmond, Wash.-based Microsoft.

The pair were introduced through a mutual friend at Harvard College and went to see a double feature of "Singing in the Rain" and "A Clockwork Orange," Ballmer said. Ballmer presented Gates with a scrapbook yesterday and both men teared up.

After starting Microsoft, Gates persuaded Ballmer to drop out of business school at Stanford University. The two haggled over whether Ballmer would be paid $40,000 or $50,000.

"We split the difference," Ballmer said. As of September last year, he owned stock valued at $11.6 billion.

Marc McDonald, who joined Microsoft as its first employee, recalled going dumpster diving with Gates for computer manuals while they learned to write software at high school.

McDonald left the company in 1984 and returned 17 years later when Microsoft bought his own company.