The software giant's chief made the remarks during a discussion about consumer software revenue models, and Ballmer used the dialogue as an entry point to take his shot at Google. The video is available to watch via the web site Mydeo.com. Ballmer made his remarks after an audience member asked him if an advertising model could support software business in the future. The CEO said a combination of models - - commercial and ad-paid - - would go forward.

"What's a good example? Will online publications be largely ad-funded as things move from the physical world to the online world?" Ballmer said. "I think the answer is yes.

"Have we seen the migration of things even like email? . . . Our Windows Live Hotmail, in and of itself, doesn't generate much ad revenue. So we've had to put, essentially, a whole portal around it because the traffic around it is very valuable but it's not very easily monetized in the context of mail.

"Google's had the same experience, even though they read your mail and we don't," Ballmer said, to chuckles and and a couple of gasps in the audience. "That's just a factual statement, not even to be pejorative. The theory was if we read your mail, if somebody read your mail, they would know what to talk to you about. It's not working out as brilliantly as the concept was laid out."

Ballmer isn't the first to fire salvos at Google's Gmail privacy policy. Privacy advocates have been critical over the policy almost since the beginning, but the popularity of the service has skyrocketed nonetheless.

The event at which Ballmer spoke, the Microsoft Startup Accelerator Programme, took place on Oct. 1 and Lars Lindstedt, the head of Microsoft's U.K. Software Economy and Emerging Business programs, wrote about it on his blog.

Google, which operates the free Gmail service, publicly acknowledges that its "processes personal information" via cookies and on its servers, so it can provide "our products and services to users," as well as to keep its service running well.

It adds:

Google doesn't say it "reads" email, however.

Microsoft and Google have been gearing up for a major war over software as a service and web-based applications, with Google offering Gmail and Google docs, and Microsoft offering Hotmail, Office and preparing for Windows Live Office.

Update, 10/10: Via email, from Cary Marsh, CEO of MyDeo.com: