History of Famous Startups. HotMail

And the other

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And the other lessons are you’ve got to own the customer and make sure
there is a full loop between your product and that it has the least amount of
resistance before you get to your end customer. Do partnerships; what Google
did with partnerships was phenomenal—giving the search away to other companies
to help them make their so-called portals. But in the end, Google got the
customer because they got the branding.
Livingston: You were a programmer. How did you learn how to write a business
plan? Tell me about the one you wrote for Hotmail.
Bhatia: There are…

Those are the

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Those are the fundamentals of what goes into a business plan, and many people
have it in their heads but don’t write it down.
Second is, don’t try to change user behavior dramatically. If you are expecting
people to dramatically change the way they do things, it’s not going to happen.
Try to make it such that it’s a small change, yet an important one. For
example, the reason that Hotmail succeeded was because people were accustomed
to going to different websites. All they had to do was put in their name
and password and a little bit of information…

finish. Those kinds

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finish. Those kinds of things don’t happen very often; from the time you start to
the time you see an exit in less than 2 years. That’s what shocked me. And I have
not been able to replicate that kind of meteoric growth and success yet.
I was lucky also; I was at the right place at the right time. I have been thinking
about new ideas and new companies in the last 5 years and have been working
on some really exciting things. But I don’t think that any one of these will
become successful in that short a…

Bhatia: Once you’ve

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Bhatia: Once you’ve got a lead in terms of a subscriber base, that is unassailable.
It can’t be replicated easily. So I knew even if they started developing the
product—I have no doubt in my mind that they could have developed it, so
many engineers and smart people in Microsoft. At that time they had something
like 16,000 engineers, and I had a total of 60 people in the company, only
14 engineers, so it would have been easy to pick 15 guys from 16,000 and build
this product. But I knew we had that momentum behind us and that…

business development people,

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business development people, lawyers, accountants, all of them.
They gave a presentation about how much they liked the company and this
and that, and they said they wanted to buy us and placed an offer of $160 million.
I knew that that was the opening shot and I said, “Thank you very much
for making an offer. We really, really like your company and like the fact that
you like us so much. We’ll go back to our board and discuss this and get back to
you.”
And the CFO said, “C’mon, is that in the right ballpark?” He wanted…

saw our growth

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saw our growth from hundreds to thousands to tens of thousands, and that’s
when they said, “Even we ourselves cannot get these kinds of registrations on
our website. We should do email.” So they decided to do email and that’s how
they came up with Rocketmail.
Livingston: Were you pissed?
Bhatia: They are also funded by Draper Fisher Jurvetson. So Draper was seeing
two of its own companies create two different email systems.
We felt bad that they had done it, but we couldn’t go to Draper and say anything.
It was a decision that the company took, that’s what…

have a very

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have a very large user base.
Livingston: Web-based email was so new to the world. What did consumers
misunderstand?
Bhatia: We had a sales guy who signed up his mom, and his mom said, “Yes, I
can see that there’s an email from you, but how do I read it?” And he said,
“Mom, go and click on it.” She didn’t know you had to click on it!
I heard another story from a man who said his sister would get into the
Hotmail account not directly by going to http://hotmail.com, but by going to
Yahoo, typing in the word…

about the major

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about the major turning points.
Bhatia: Before we launched, I think the first major turning point was getting
the $300,000 in funding. That was huge for us—two young kids to get that
much money. The second turning point really was when I started using it and I
told my friends and family about it and everybody who used the product (50 or
100 or so people) loved it.
Sabeer Bhatia 23
And then of course, the interesting thing was that when we finally did
launch, each of us had pagers that would send us a page every hour, so we…

believed we would

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believed we would overtake Yahoo in the number of page impressions that we
would deliver, which was what Yahoo was touting.
What has happened in the last 10 years is that advertising has grown even
more. It’s not just page impressions, but the number of click-throughs. The
most monetizable part of advertising (at least online advertising today) is the
click-through to another advertiser, which is search. When people search,
they’re most likely to click through because that’s when they’re looking for
something.
Google has proven remarkably well that click-through is a monetizable
quantity more than page impressions. You can have…

or you had

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or you had a good PR campaign?
Bhatia: That’s one thing about the Internet: if you have something that’s good,
it spreads by word of mouth and like wildfire. You just have to hire a small PR
firm and do it.
Livingston: Had you always planned for Hotmail to be free for users?
Bhatia: Yes.
Livingston: How did you convince people you could make money from targeted
advertising? That was so novel at the time.
Bhatia: It was novel, but at the same time it wasn’t novel, because Yahoo had
gotten funding (and later went public) on that basis. Their…