he was only talking about the next 5 years or so. the internet wasnt terribly useful (at least to the masses) in 1986, nor for the next 9 or so years until mosaic/netscape came out. until the early-mid 90s you could only really access the internet by logging into a BBS or some mainframe (the first TCP stack for windows emerged around 93 or 94.)

i'd say history showed that focusing on productivity apps and the OS from ~1986-96 was a winning strategic move :)

But the technology that was able to connect computers existed already even though it was still in research phase. Gates was surely aware of the ARPA net at that time, but he didn't consider it a technology with impact on Microsoft (by the way, that was even still the case in the middle of the 90s).

Microsoft is often late to the market on new technologies and when they are they shamelessly will try and buy their success or use their position in the market to attain what they want

But to even question that their strategic idea of bundling software for decades on CD-rom is flawed or would have been better spent trying to have been a leader on internet technology sooner (then may have been its deserved time) does not show complete understanding that for two decades Microsoft was one the most profitable business of any company of their scale, with profit margins that exceeded 90%.

As well given connection speeds for a long time during the 90's, trying to get any form of large files (media,information,software apps) on anything other then CD-roms would have been any awful experience and since not all people had modems but everyone did have CD-roms, I would say Gates attention paid to CD-roms did work out for Microsoft and was the wise choice.

Now of course thats a different story. My CD-rom drive was broken on my laptop when I bought it off of ebay and I don't think I've ever even noticed. Simply because I don't get my information or software by floppy or cds but purely online.

Things have changed and Microsoft has been wrong lately and therefore we have seen them slow to adapt with users, but thats not to say given CD-roms time that what they did was a bad thing or that internet during the 90's without the faster connections could have done it better.

Exactly. I was at school with Gates (used to see him hunched over the PDP-10 TTYs late at night writing his Basic), and we all used the ARPAnet for mail, ftp, etc (though it was pretty new in '73), but we didn't think it was anything that would affect our entire lives much later.

I also remember working with Len Bosack later (1980-ish) on a consulting project at HP and hearing about Cisco, and wondering who in the world would buy IP routers?

It just wasn't obvious back then. It was simply "part of the air", as Gates has said in interviews.

I wouldn't blame him for that, But it seems to be part of the explication why Microsoft was so passive towards the Internet and still is quite clueless. Apparently, it was a technology Gates had no passion for (in contrast to PCs) and he always considered rather a threat to his company than a chance to extend its position.