Gates: 'We'll keep Google honest'

While Google has grabbed an early lead in search and internet advertising, Microsoft chairman Bill Gates pledged on Wednesday that his company would "keep them honest".

Speaking to a crowd of MSN's largest advertisers, Gates said Microsoft would prefer not to be coming from behind.

He said: "For Microsoft, we always want to be in the lead, making the breakthroughs." But, in an onstage interview with ad executives and talk show host Donny Deutsch, Gates conceded the company has made mistakes, including in some cases picking the wrong people to lead certain efforts.

He also gave credit to his rival, saying Google has "done a great job on search and what they've done with advertising". But, he reiterated his position that search today is still too much of a treasure hunt and promised that better things are in store.

Gates said: "We will keep them honest, in the sense of being able to do better in a number of areas."

With its annual MSN Strategic Account Summit, which runs through Thursday, Microsoft is both trying to hone its pitch to advertisers as well as reassure its investors, who have pushed Microsoft shares significantly lower since Microsoft announced plans last week to invest roughly $2bn more than expected in its new businesses, largely MSN and Windows Live.

Earlier in the day, MSN executives showed off some of the work the company is doing in search as well as in Windows Live services. In a demo, MSN vice president Blake Irving highlighted Microsoft's effort to turn its Messenger product into more of a social networking tool, showing off a feature - currently being tested in Australia - that allows people to see their buddies' buddy list, assuming the buddy and their buddies opt-in.

The company also announced plans to bulk up the amount of exclusive content on MSN, with a new effort dubbed MSN Originals. In the first of the partnerships, Microsoft is backing new internet-based productions from Reveille, the production company behind TV's The Office and The Biggest Loser.

Gates said Microsoft is not really taking a new position when it comes to content, noting it has always created some content but largely partnered with those that do that for a living. "Every month we will have neat new deals with content companies," he said.

In general, Microsoft didn't exhibit a lot of new technology on the first day of the summit, showing mostly MSN and Windows Live services that had been previously demonstrated or are already in beta testing. The company also offered few specifics on just what it plans to buy with all of those new investment dollars, though CEO Steve Ballmer may address those issues when he speaks to the crowd on Thursday.

And, even on its home turf, Microsoft took some knocks from some of its ad industry guests who noted that other internet services have largely captured the mind of consumers.

One of the speakers, ad executive Rishad Tobaccowala, said Google's rapid iteration of its ideas is "one of the reasons Google is running circles around Microsoft".

MSN's Irving conceded that Microsoft is playing catch-up in some areas. "We're kind of new here," he said.

But Gates said not to count out the software maker.

He said: "I think this is a rare case where we are being underestimated. That doesn't happen very often."

Ina Fried writes for CNET News.com