Life after Hotmail: Sabeer Bhatia

Sabeer Bhatia, co-founder of Hotmail. Hotmail one of the first free e-mail services in the world. Made in Chennai is special.

Sabeer Bhatia Born in Chandigarh & grew up in Bangalore and Pune. His father is a retired captain in the Indian Army and his mother worked with Central Bank. After finishing school in Bangalore, Bhatia, who liked mathematics, moved to study engineering at Birla Institute of Technology & Science, Pilani.

“Life at BITS was great. I made a great set of friends.” Mid-way through the course, Bhatia took a transfer exam conducted by California Institute of Technology. He was tested in maths, physics and chemistry. “It was difficult and at Caltech I realised I was the only one to clear maths,” says Bhatia.

Bhatia was only 19 when he reached the US in September 1988, a callow youth with $250 in his pocket who didn’t even know what taking a “shuttle” to campus meant. Caltech is known for its engineering science department which, despite its relatively small size, has 31 Nobel laureates among its alumni and faculty. “One of the best things I learnt in Caltech was the ability to think on your own,” says Bhatia, adding that it has been the foundation of his success.

Bhatia remembers getting a “D” in a paper he wrote for the philosophy course he’d opted for. When asked why he’d got such poor grades, his professor explained that what he’d done was to merely summarise the books he’d read.

“What is your point of view,” he asked. “In India we are just taught to study, not to think on our own,” says Bhatia. “This is totally useless in the modern context. Because it is not knowledge which gets you further, it’s the use of knowledge and your understanding of it. In Caltech I had the freedom to think, new ways of doing things,” he adds.

From Caltech, Bhatia moved to Stanford to do a PhD in electrical engineering. But his plans changed after he heard talks by Apple Founder Steve Jobs and Scott McNealy, the co-founder of Sun Microsystems. “It was not the individuals but their human stories that inspired me to become an entrepreneur,” says Bhatia.

“Jobs was fabulous; his ideas were simple and great,” he says. But he needed to get some experience if he was to turn entrepreneur. And so after finishing his masters, Bhatia joined Apple. He worked there for a year, leaving to join a start-up called Firepower Systems which made PC processors.

Two years on, the company was going down and Bhatia realised he had two choices – he could go back to school and get an MBA, or he could start his own company.

At around this time, David Filo and Jerry Yang, two of Bhatia’s mates from Stanford, started Yahoo. “I was inspired by them and knew the Internet was going to be big one day, so I started playing around in the space to see what I could do,” says Bhatia.

He came up with the idea of a web-based database and decided to start a company called JavaSoft, enlisting Jack Smith, a friend, to be a partner in the company.

But as they were putting together a business plan for JavaSoft, Firepower installed a firewall around its IT systems. This was when the idea of creating a free email service struck.

When everything could be accessed on a browser, why not email accounts? It was Jack’s idea, says Bhatia. Smith was driving home one day when he got a brainwave and called Bhatia on his car phone to talk about it. After hearing one sentence, Bhatia asked him to hang up and call back on a secure line when he got home.

They spoke and so excited was Bhatia that he stayed up all night to write a business plan and began knocking on the doors of venture capital firms the very next day. “Nineteen VCs turned us down – for all the wrong reasons. Instead of looking at the business plan, they looked at our age [both Bhatia and Smith were 27 then.”

They turned lucky with the twentieth VC, Draper Fisher Jurvetson, which gave them $300,000. It was not easy, remembers Bhatia, whose first presentation to Steve Jurvetson did not start-off well.

The latter did not much like the database idea and Bhatia was left with no choice but to play the free email card. Jurvetson said he would invest for a 15 per cent stake.

Life After Hotmail

Hotmail launched on July 4, 1996 — American Independence day. How did the name Hotmail, which lifestyle journalists have punned on innumerable times when describing Bhatia, come about?

Bhatia says the name was one of many possibilities ending in “-mail” as it included the letters HTML – the markup language used to create web pages (to emphasise this, the name was originally written HoTMaiL).

The next two years were exciting and tiring, says Bhatia, who used to work for 15-16 hours a day.

Thanks to extensive publicity in the first three months, Hotmail got 100,000 subscribers – a number that swiftly climbed to five million in the first year.

In less than a year, Four11’s RocketMail was launched, giving Hotmail a serious run for its money for some time. By the time Bill Gates took note of Hotmail in December 1997 and offered to buy out its founders, it had crossed eight million users.

“We decided to sell because we were not making money and thought, why not make a good exit,” explains Bhatia. Negotiations began with Gates’ six-member team in Bhatia’s conference room.

The first round failed as the two sides could not agree on a price that was acceptable to both. The talks went on for two months until Microsoft decided to fly Bhatia – who’d acquired a reputation as a tough negotiator by then – to Redmond to meet Gates.

Meanwhile, the market buzzed with news that Microsoft was negotiating to buy RocketMail. Even his own staff and investors pressured Bhatia to accept at $300 million, the last offer before the meeting with Gates, but he did not yield.

Reportedly Gates offered $350 million and Bhatia’s management team took a straw poll which revealed that they favoured accepting. Bhatia later said that “saying no to so much money was the scariest thing I ever did”.

Everyone’s eyebrows went up when it was announced on New Year’s Eve of 1997 that the deal had been concluded for $400 million. Bhatia went on to work for Microsoft for a time, but decided to quit to start his own company,, an e-commerce firm. However, Arzoo had to be shut down in 2001, when the IT bubble burst.

Creating a new company, a new product, a new business with limited resources is a challenge – but the payout in the long run is fabulous.

“Some people live for that challenge. I am one of of them,” says Bhatia. After shutting down Arzoo, he decided to retire. He played golf and travelled across Europe, South Africa and Brazil. But he was bored and in 2003, relaunched Arzoo as a travel portal.

Then came Sabsebolo, which Bhatia claims is India’s largest free conferencing service with half-a-million users. Then, he started AMP Technologies, an analytics tool for commercial real estate.

Bhatia has also forayed into telecom with Jaxtr, a mobile application which allows people to send free SMS. He is betting big on it now and has launched a prepaid SIM for American travellers. It now works in four countries — the US, UK, Canada and Mexico – but this year, will expand to 30 more, with Bhatia setting a target to sell 10 million cards in the next few years.

Jaxtr will be 60 per cent cheaper than most calling cards, says Bhatia; at 15 cents a minute, it has the lowest charges in the US. While Matrix and others were resellers of SIMs, Jaxtr is actually a carrier, Bhatia explains.

Distribution will be a challenge, Bhatia says, and his company plans to tie up with travel companies, hotels, gas stations, airlines and companies like Infosys, Wipro and others who send employees to work in the US and other countries.

“It’s pre-paid, a concept I have taken from India,” says Bhatia, who feels that India is a tricky market, where people are cost conscious and government rules and regulations change frequently. “If somebody buys a Rolls-Royce, the first question they ask is how much mileage it will give,” he says.

That’s not all – Bhatia also forayed into real estate by tying up with Parsvnath Developers to set up a knowledge city in Haryana. But the project did not take off. “The government said I had to buy land from farmers directly, which is impossible,” says Bhatia, who has shifted the project to Gujarat.

“The Gujarat government was interested, since they want to create a Silicon Valley in India and we are buying land from the state government. The project will be spread over in 4,000 acres and the first parcel ready next year,” he says. Bhatia is also planning to rope in a few local investors.

Clearly, the serial entrepreneur, has many aces up his sleeve.

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