by Madan Mohan Rao

New York, March 6, 1998

This interview first appeared on the Planetasia.com Webzine
(http://www.planetasia.com/), and has been reprinted with permission.

His education began in Bangalore and Poona, and continued in California (CalTech and Stanford); he then worked at Apple Computers and a Silicon Valley start-up. "I did not want to do just another job; I wanted to create something which would change the world," recalls Sabeer Bhatia, who started the Web-based free e-mail service called Hotmail in 1996.

Hotmail's acquisition by Microsoft was acknowledged at Jupiter Communications' recent Online Services Summit in New York as one of the hottest Internet media property deals in the last 12 months. In an exclusive interview with Madanmohan Rao (madanr[!]planetasia.com), Principal Consultant at Planetasia.com, Bhatia shares his initial vision of Hotmail's contribution to the Internet community, some future growth areas, and some strong recommendations for the Internet environment in India.


Q: In just a couple of years, you have managed to create one of the most successful and well-recognised brands on the Internet. What are some key requisites for creating powerful brands on the Net?

A: Speaking from our experience with Hotmail, I would say that what helped us succeed in creating such a powerful brand was the reliability and convenience of the service. The key was a universally accessible e-mail service based on the World Wide Web. When we came up with the concept, there was no other service which served such a basic need. We also decided to keep the service free, which allowed us to grow rapidly.  One of the best ways for a brand to succeed is by word or mouth among the user community. Since we provided online e-mail services for a communications-based community, word spread very rapidly.  We also had a great first-mover advantage. We managed to slip under the radar screens of big companies, and had no competition for over six months - that gave us a fantastic lead. Finally, we showed a sense of responsibility to the Internet community by taking strong stances on issues like spamming. We sued 8 spammers who were abusing the privileges of our e-mail service.

Q: How many subscribers do you have today, and how many do you expect by the end of the year? What is the breakdown by country?

A: We have 13 million subscribers today, and expect to have 25-30 million by the end of the year. That is a big and significant subscriber base, bigger than the audience of the Seinfeld show, which is the biggest U.S. show for TV advertisers.

Among our users, about 55 per cent are based in the U.S. and Canada. Sweden, Australia, Britain, Malaysia and India are the next big sources of subscribers. We have about 300,000 users in India.

Q: Some critics have suggested that your current user base is demographically very diverse, and thus does not constitute an easy base to target via advertisements. How would you respond to such concerns?

A: I would counter this position by saying that we actually can offer very precise targeting for advertisers since we gather 15 pieces of demographic data from each user - such as age, profession, location, income group, and number of children. We have developed our own ad targeting software, so that we can target, for instance, males in Bangalore between the ages of 18 and 35 who use our service. We can also control the time of exposure to each ad, and the frequency of delivering ads. 

Our approach has been quite successful, though I cannot reveal any figures. Our advertisers include Pacific Bell, Bank of America, Netscape, Microsoft, as well as companies wishing to target specific demographic groups like women.

Q: What are the top three assets that Microsoft brings to the table as a result of your recent acquisition?

A: Their resources and expertise, their Web-savvy content sites like Expedia and CarPoint, and distribution of our service through partner sites. To these I would add their big budgets - after all, Microsoft is Microsoft!

Q: How do you plan to internationalise your service to new markets? What strategic considerations apply in selecting partners for new markets?

A: We are looking at localising our service for international markets, for instance, by offering it in multiple languages. We will begin with countries for which the Internet advertising market is quite mature in terms of ad revenues. European countries like Sweden, Germany and Britain are top on our list. In Asia, we are looking at Japan, since some of the world's largest ad agencies are in Japan.

We may not necessarily host our site in these countries, since
bandwidth is not as affordable as in the U.S. We don't want to drive up the cost of our datacentres. We are looking to partner with companies that have a strong set of technology skills, and who can also leverage online and offline media for promoting our service in their countries.

Q: How has your organisation grown since you started it in 1996? Where do you see it headed?

A: Hotmail consisted of two people when it started early in 1996.
Today, we are 75 people strong; by the end of the year we will have 125 people.

In addition to internationalisation, we also plan to add a messaging platform next quarter which will allow real-time communication between users. We plan to add personalisation features as well.

I must say that we have also been the first of the companies funded by our venture capital firms to deliver a finished product on the exact day we promised to finish it - on July 4, 1996. We intended to keep up this professionalism.

Q: How did you initially conceive of the Hotmail concept? How do you stack up against the new competitors?

A: Well, we clearly saw the need for a universally accessible e-mail service. We called it Hotmail since it was intended to be based on HTML (from where we got the consonants for the name). But as our marketers pointed out, the name has a nice meaning of its own, even for users who don't know anything about HTML!

We have seen no dip in our usage even after competitors entered the game. The Juno freemail service does not compete directly since it is a separate dial-up service not based on the Web.

Q: What potential do you think the Internet market offers a country like India? How does India's Internet environment compare to that of the U.S. or other emerging economies like Brazil and China?

A: The Internet offers a level playing field for India. I think it is the
single most important technological advance I have seen in the past 20-30 years, more than the PC itself. It is changing the distribution model for commerce. For instance, goods like computers in the U.S. and Japan are being sold via the Net.

For software companies, it is a dream come true, and the Net offers Indian companies the last hope to become truly global players in the product market. I think Indian companies should stop thinking of themselves as just software shops for the U.S. or re-sellers of U.S. products.

Take a look at a country like Israel - companies such as CheckPoint, Vocaltec and ICQ are now developing world-class software brands for the Internet. Indian companies should also come up with such ideas and develop and market them. This needs not just good infrastructure but good motivation and good role models. My friends in the Draper India fund tell me that there is definitely talent in India, but no great ideas for new products - which is where the value and money lie.

Silicon Valley in the U.S. has not just great infrastructure but a
great business culture of risk-taking, rewards, and role models - just look at Steve Jobs, HP, Fairchild Semiconductors, and Andy Grove.

More fundamentally, our education system itself should be restructured to not just have students repeat what they have been told, but to be more creative. In fact, I had to unlearn a lot of things when I came here ten years ago in 1988!

But the first step has to be the Internet environment. Countries like China and Brazil have much better penetration and utilisation of the Internet even though India has better software skills - because they have a better Internet environment. I have always insisted that the Indian government should privatise the Internet infrastructure market to bring better quality and prices to Indian consumers and businesses.

Just think - Hotmail could just as easily have been based in India, but the conditions turned out to be more favourable in Sunnyvale, California!

Q: Any other parting comments or message to our readers?

A: Yes, I would encourage people to take risks. The biggest risk in life is to take no risk at all! The entrepreneurial spirit has to live. And smart Indian entrepreneurs have a tremendous amount to gain if they have a favourable Internet environment; for this, Indian government agencies and software companies need to gear up for the Internet age.

I would like to think of myself as a motivator and role model for Indian entrepreneurs in this regard.