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August 28, 1998


'Everybody has good ideas. It is the
implementation, which is not trivial'

Email this story to a friend. Back to IIW coverage index. Sabeer Bhatia, founder, president and CEO, Hotmail, was definitely the star presence at the four-day India Internet World event that will culminate this evening.

A battery of executives, software professionals, media persons and delegates chased him outside the auditorium yesterday.

This morning at The Oberoi lobby he was alone with a schedule of interviews ahead of him.

He smiled "I had no idea I, or Hotmail, would generate this amount of a response. It has been tremendous."

Tall, well built and dressed in a smart executive suit, Bhatia sat down for a hearty breakfast of egg and toast, mushrooms, aloo tikka, fresh juice and a bowl of assorted fruits.

He had just returned from a business meeting with VSNL chief Amitabh Kumar. "No. The outcome wasn't disappointing because he was just telling me about the problems involved in giving access to so many consumers... The most basic is we do not have a good telephone infrastructure that can handle the demand. But issues like these can be resolved. They have been resolved elsewhere, it's just knowing how to apply the will to do it."

He chatted with Madhuri Velegar K while he ate. Excerpts from the interview:

How would you tell Hotmail's fireside story? Especially if we begin with the hope and excitement of an engineering student in Bangalore, all set to fly out to Stanford, and then reach up to the point when fame and fortune was won.
I think it was a story of passion. We started a company out of nothing. We had enormous amount of fun putting it together and in the end, it was an adventure for us. We had no idea it would turn out so big.

In the beginning, we knew we had a big idea. What we had really identified as a market would be used a hell of a lot; that the Internet would be used.

I still remember the days when three of us, in one office of two rooms, worked tirelessly all day and all night and the only time we would take a break would be to go home to sleep.

It was like a path we were taking, everyone, my partners, our employees, it was something like a roller-coaster ride, in only one direction, there were ups and downs but it was fun.

What is it about India that does not nurture talent and support initiatives like yours?
I think (the reason is) the absence of any legacy of such initiatives here. Real cutting-edge businesses that transform society and the world spring from nothing at all. We don't have examples of that at all in India.

Take a look at the businesses in India. Most of them are ancestor-based. People started Birla and Tata a 100 years ago and today the grandsons are managing that and growing it. Technology has changed that and India has not really understood the key impact of change. Where, if you invent something good one time, you can replicate it a million times, even a billion times?

Take the case of Microsoft, they now have more than 200 million users around the world. You effect a change where thousands of people are affected by it. That's the kind of change you need to work on. That's what technology is all about. You develop something once, and it gets used by millions of people the world over.

India has to really understand the meaning of that kind of change and that's probably the reason why we do not have any innovative ideas that are real commerce; that have affected people the world over.

We are receivers of technology. Anything that is sent to us; we use. Nothing that we do is used by the world over. Doing a lot of contract work in the West is not looked upon highly. It's boring work. There is no product that has come out of this. This points to the fact that India hasn't understood what technology can do. There is no infrastructure available to allow that to happen.

People here just invest in return businesses. They do not invest in ideas that could go bang-busters or just go bust. They want to see returns whereas people there invest in ideas and 9 out of 10 go bust. But the one Apple or one Microsoft or one Hotmail that makes it, more than adequately compensates for the returns for all the other investments that were not so profitable.

How often have you visited India after you left for the US? And with each successive trip how has your perception changed about the progress the country is making, especially in information technology?
I've been coming back every year, fortunately. But with each successive visit, there has been something that has been very positive.

In areas of software, the interest in software and the acceptance of it; that is the way out. Young people say computers will help them get a job and move further in life. That is very positive.

Our society encourages people who go on to study science and mathematics and go into fields like computers whereas in the West there is some extent of stigma if in the high school stages you go into these fields.

You're looked upon as a nerd. It's positive that we've adopted the more Indian culture that accepts the study of science and mathematics.

I've also seen deterioration in issues concerning the environment. We have absolutely no regard for our environment. There are buildings and buildings that are not filled by people. So as a people and as a country we haven't planned for organised growth. We're just growing and ultimately we will stifle growth. You know, we still don't have a single freeway in this country.

It is important for us to become a truly important IT economy to develop not just the IT infrastructure but also the physical infrastructure that is needed to support growth in the IT sector.

Even in the IT sector, there is interest. But on the negative side, we have not yet become a product oriented country. It still contracts services and that is the boring part and very few engineers in the US do that. Somebody specifies what you have to do. You have no creativity.

Honestly, how big is Bangalore in the collective consciousness of Silicon Valley? What is your assessment?
In Silicon Valley, more than India, it's Bangalore that is known by the local businesses. A good lot about Bangalore is also frequently published in influential magazines like Wired, Update and The Red Herring. There is a strong level of awareness of Bangalore.

The Big Idea led to your success. That is obvious. Yet, it could not be just that. What strategies, decisions, and visions led to the fantastic growth you have seen? Tell us about the subtleties of this business?
This is a very good question. People don't realise that. They think we had one big idea and wish they had it too. Gosh, man, I wish I had this idea. I think we are overplaying the boom. I mean that was only the beginning.

Everybody has good ideas. It is the implementation, which is not trivial. People do not realise that. It's a very hard business. At the end, there is no other company in the world today that has figured out how to scale to this extent the reliability of the service. And in this short period.

It took America Online 15 years to get where they are and it's only now that they have 15 million subscribers today. We had to figure this out in just two years. There was uncontrollable growth. But handling that growth was not trivial. People missed that point. We have 800 computers at the backend, networked with all kinds applications. We had to solve a lot of issues. Network issues, bandwidth issues, computing issues, bottlenecks of different kinds.

What were your strategies during the start of the business and what is the USP of Hotmail. How do you differentiate from other free email services?
We made a lot of strategic decisions at the start of the business. Initially, we had identified three market places. One was the consumer market, which was huge. The second was the corporate market. And the third was to productise our software and actually sell it to corporations.

We decided early on, actually I decided more than anyone else, to stay away from the latter two market areas because we did not have the resources to build that.

At that time it was a difficult decision to make because our venture capitalists were upset. Some of our senior staff questioned it. But the time cycles associated with sales in the other two markets were much longer than in the first market. In retrospective, it was the right decision we made.

Also, I think the timing was critical. We identified the market and we really moved in record time and were fortunate enough that for the first six months we had no competition at all.

People did not realise that email could be a browser centric product. I think this has been our unique selling proposition and so we just lay under the radar screen of all the big guys. And by the time they realised how big this market was we were pretty big ourselves.

The email phenomenon is the killer ap of the Net. Sixty eight per cent of novice users use the Net for email It is the utility driving the Net. There are 190 million email accounts today which are expected to grow to more than 200 million worldwide by end of 1998.

Hotmail made email available on the browser, something that no one thought of before we did. It was a critical revolution. People are not confined to just one computer where they have installed the software but it allows for universal access, on any browser, anywhere around the world.

Our growth strategy was to build a subscriber base, make it ubiquitous at a low cost and become a valuable service. We now want to develop brand through PR, partnerships and popularity. We want to enhance the product by cementing loyalty and creating communities. And we want to deliver content that is personalised and with increased value and, of course, create a distribution channel.

Today Hotmail subscribers number 22 million (at the time of the Microsoft acquisition it was 10 million), AOL has 15 million and Yahoo Mail has 7 million.

Has there been any change in the way you run your business since the acquisition?
Yes. The core business models are still the same. What has happened is that the sales part of Hotmail has moved to Microsoft. We did not have our own sales force, which is good for us.

We're only focussing on business development and engineering.

Your real estate on the Web sees a lot of traffic. You are already cashing in on that. But what kinds of contents and services you will not do? Where will you draw the line to define what you are or are there no restrictions?
That part has changed now. We're now on the Microsoft Network. All our content will now come through Microsoft. The definition of what that content will be has moved course. We will be a communications platform. That's a role where we will be in a position to generate a lot of traffic because we will be supporting entire networks.

We haven't made any clear decisions about going back to those two market areas (corporate and products). But I imagine, in the future, we would get into those areas.

What are some of the new business models you are looking at?
Our business models are pretty much the same. Advertising and e-commerce dominates. Instant Messaging will also be a free service that allows you to communicate with anyone on the Internet in real time, very similar to the ICQ platform.

Except that, it has to be tightly integrated into the email experience, the client you use for instant messaging, for instance, will also be your notification client.

You don't want to go all out to the 23 million users, it will be offered free, say in end of September or early October and it will be gradually rolled out into the market.

What is your reading about the Internet in India? What kind of a business scenario will be the most appropriate here?
There are some fundamental problems. It's not just that there are not enough private ISPs but there is insufficient telephone infrastructure to provide access. So at the Department of Telecommunications, there aren't enough lines. You cannot open up certain markets and slow down others.

If you want the whole thing to move forward, you have to open every point, every obstacle to provide Internet access. Not just the telecom lines or cable lines but everything because there is a lot of interdependency with all of it and to eliminate all the problems we have to privatise. This has been my limited understanding of the Indian situation.

I haven't really studied it in detail. But all these problems can be solved. There is no problem that is unsolvable and these problems have already been solved before so it could not be that hard.

So, it takes the will from a number of people to push this to provide the ultimate benefit to the consumer. People have to think this is good for the country.

DoT says I lose or VSNL says I lose but they must remember it's in the interest of the entire country.

What is your reading of how the Internet will emerge in India? Will it grow the same way it has grown in the West?
No. I think it will be different. The US has an established base for 230 million PCs. We don't. Our penetration of PCs is just 1-2 per cent. So, Internet access will come through cheap access. A $1,000 PC is still expensive for a middle-class family to afford. When you have cheap access it's cause for celebration.

Then, will the growth rate rise exponentially?
I think the demand is pretty high. I don't know how big it can get.

I think it could be at least 2-3 million people today and about 10 million in the next five years.

Several entrepreneurs are waiting to jump to the Internet opportunity in India. ISP people, online news and entertainment services like us and the computer industry people themselves.

Drawing from your experience of the Internet's sudden rise in the US, what is your advice to entrepreneurs in India?
My advice is to 'be cautious' because the markets are not the same.

You don't have benefits of size and scale that you have in the US. Over there, there was a ready market of millions and millions of customers you could tap into. We knew that advertising is a viable means of generating revenue. But in your case, I would be a little more sceptical because the total size of the Internet population is 400,000 to 500,000 in India.

Will advertisers spend money to reach that small segment? Yeah, maybe. Because that segment which has access to the Internet in India is very affluent and they have disposable incomes so a few advertisers may still go after that market.

However, there will be advertisers like any of the consumer companies like Toyota or Hindustan Lever. They have alternatives that are better and more cost effective. They may go to television or radio, which reach larger masses.

Back to IIW coverage index. It's a little different and you have to really understand the market before banking your business on a certain business model.

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