There are many great moments in the Wall Street Journal’s retrospective about the changing of the guard at Microsoft, which describes how former CEO Bill Gates fought with — and, in classic Gates fashion, sarcastically undermined — new CEO and friend Steve Ballmer in front of the troops. But one of the things that jumped out at me (as it did at Zoli Erdos) was the part where the article describes the fate of NetDocs, an attempt by Microsoft to grapple with the freight train that was rushing headlong towards the company (and continues to do so): namely, the advent of Web-enabled Office-style applications.

In one case, two vice presidents clashed over the future of NetDocs, a promising effort to offer software programs such as word processing over the Internet. The issue: Because NetDocs risked cannibalizing sales of Microsoft’s cash-cow Office programs, some executives wanted NetDocs killed.

Messrs. Gates and Ballmer were unable to settle on a plan. First, NetDocs ballooned to a 400-person staff, then it got folded into the Office group in early 2001, where it died.

In other words, Microsoft geared up to deal with the potential threat posed by Web apps, and then at some point decided not to. Obviously, the potential for Office-style Web services was mostly that — potential — rather than reality in the late 1990s. So you could argue that Microsoft didn’t really need to deal with it at the time. But just think about how much further along that understanding curve the company would be now, instead of letting the fear of cannibalization push it away. At some point, the company will have to grab that nettle firmly, and it’s not going to get any easier — if anything, it’s only going to get harder.

Let’s file this one under the heading “Unintentional hilarity”: According to Microsoft supremo Bill Gates — speaking at the All Things D conference in Carlsbad, Calif. — he and Steve Ballmer hate monopolies and really try to avoid them. As I said to John Paczkowski of All Things D when he sent me an email about the quote, this reminds me of when my youngest daughter was learning to ride a bicycle: there’s a photo I have of her avoiding her way right into the side of a car. She was focusing so intently on avoiding the car, of course, that she steered straight at it. Is that what happened to Bill and Steve? Who knows. What we do know is that Bill and Steve really like to compete:

Ballmer: To accelerate scale it made sense for us to consider a Yahoo acquisition. The truth of the matter is, if nobody else gets scale except the current leader what happens? … Some day all the ads for the Wall Street Journal Online might be sold by one guy and he’ll tell you exactly how much your editorial is worth.

Kara: Yeah, like a monopoly. Interesting.

Walt: That’s a great point. That’s exactly the sort of argument that was made against Microsoft.

Ballmer: Am I saying there’s something wrong? I’m just saying we are guys who will compete. That’s all I’m saying.

Gates: Guys like us avoid monopolies. We like to compete.