Gates observed that the original Xbox was "20 per cent better" than its rivals.
However, he continued, "It didn't matter. We were a year late, didn't have the best games. We had this bigger box. We did have online. We didn't switch positions on that."
But as for the strategy for Xbox 360, "It's working perfectly. We wanted to be the guy with the small box that costs less. We wanted to have the most games. We wanted to play to our software strength, and tools and online.
"We wanted to swap positions with Sony. We wanted to not be a year late, not be a big box, not be a more expensive box. How are we doing on that?"
According to Gates, Nintendo "clearly did some things right" in the past - such as building a close relationship with UK studio Rare. ("In my household, everybody plays Viva Piñata," Gates revealed.)
But he questioned Nintendo's strategy for the Wii, saying, "Look at the resolution you get with a controlled experience like that. Say to yourself, how in terms of using a game for a long period of time, what kind of accuracy and capability do you want?
"Look at the classic Nintendo positioning. Look at the graphics. Look at Nintendo's execution in terms of online capability... If you want to play online, get an Xbox. We're not standing still.
"Look at what you saw today connecting up the world to the Windows PC. Do you expect Nintendo to rev up a team to create cross-device gaming and tool kits to develop those things? Not very likely."
Gates also criticised Sony and the way the PlayStation 3's processors have been developed. "They were going to have the Cell be the video processor. But they didn't know what they were doing... They turned to Nvidia at the last minute, but Nvidia can't do embedded DRAM.
"Go look at the bandwidth problems... They took their year and burned it by not having a decent CPU strategy and then turning to Nvidia at the last minute. It's a very unusual thing. Those processors are isolated from each other."
Gates went on to say that he doesn't believe any of the first batch of PS3 games will look better than Halo 3, and questioned whether the option to create games at 1080p gives Sony's console a great advantage, stating, "Go ask the game developers."