One Asset, Many Prices

I first met Sabeer Bhatia when he started Hotmail. I passed on his request for investment because I could not figure out how he would make money. His Webmail was great and solved many problems with early email. Email for most was tied to their job and only available from the office. Webmail made it independent of job and accessible from any browser.

But it was free and I would say why not charge a dollar a month? He did not want any friction in the way of acquiring users. Sabir would talk about building a user base of 10 million. He invented virality and was getting 60,000 users a day at one time. He would talk about upselling to those users. I would say, Sabeer, you have nothing to upsell.

I finally warmed to investing one million dollars in his company. I was on my way to India in the fall of 1998 and said that I would invest when I was back in 2 weeks. While in India, news broke that Microsoft was acquiring Hotmail for $400 million. I was shocked to hear that.

It was a great learning experience for me. Sabeer did not have anything to upsell but Microsoft did. Microsoft had spent $2 billion to build its MSN and had only one million users. With the acquisition of Hotmail, it was acquiring 10 million users for only $400 million. I realized for the first time that an asset has a different value in the hands of a different user.

Microsoft had a great deal at $400 million and Sabeer was proven right that it would be worth a lot if he had 10 million users, even if he did not have any revenue.

The sale of Hotmail started the dotcom gold rush in earnest.