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When Microsoft bought Hotmail from Sabeer Bhatia for $400 million in 1997, the then-30-year-old thought he would retire from being an entrepreneur. But after two years of attending corporate meetings, Bhatia was thoroughly bored. So, giving up $40 million in Microsoft stock options, Bhatia quit and went in search of new technologies to master. In a year, he has taken stakes in 22 investments -- one is on the verge of failing, two are sure shots, and the rest are somewhere in between.
His newest venture is Arzoo, a network of technology experts that offers real-time solutions to India's burgeoning tech industry. The project is Bhatia's first solo venture since Hotmail, and the entrepreneur is boyishly enthusiastic about its prospects. A hero in India, Bhatia was heading for a glamorous movie premiere -- "my first ever in my life, I'm excited" -- when Business Week Bombay Bureau Chief Manjeet Kripalani caught up with him to discuss his future plans. Here are excerpts from their conversation:
Q: There has been an awful lot of talk about Indian expatriate investments from Silicon Valley to India, but that has been just a trickle, nothing big. When is the talk going to translate into real investors?
A: Investments are really determined on individual merit, and if the opportunities are good, there's nothing today to hold back investment. You can put a lot of capital to very bad use. Why hasn't money trickled down? Perhaps there haven't been enough opportunities for investments. It's not just a matter of investing. You also have to have the entrepreneurs who set up viable, long-term businessess, and a lot of entrepreneurs in India in the last 6 to 12 months have set up dot-coms.
The question is: Does India need dot-coms? If you were to ask me that question, it's no, India does not need dot-coms, India needs infrastructure. If there are really viable, good projects in the infrastructure field, will we invest? Absolutely. I myself put a large sum of money in one company, and I will make the announcement in a couple of weeks.
Q: Tell me about your new investment.
A: It's a pure telecom-infrastructure play [that] will really affect telecom in this country. It'll do for voice mail what Hotmail did for e-mail. It'll provide a two-way global-roaming voice mailbox. Yes, there have been variations of it but not any that have been targeted toward developing nations, where it's needed the most. There are 30 million phone lines in India today for 1 billion people. In Nigeria, there are 300,000 phone lines and 30 million people. The phone cannot be effective because it cannot be used by several people simultaneously.
Now what did Hotmail really do? It provided access, and it provided a [personal] mailbox, enabling people to access their e-mail from any browser anywhere in the world.... We're doing the same thing with the phone, providing people with a voice mailbox and enabling them not only to receive but also to send messages through that one box, so it effectively amplifies the effectiveness of one phone line. Take the situation in a village, for example: With one phone line, every member of the village can have a phone number and a voice mailbox. That's incredibly powerful for a developing country like India.
When this idea first came to me -- it was an investment idea of a bunch of Indians in Silicon Valley that was presented to me -- I thought this has an incredible opportunity in India. I want to impact social change in the country. I want to make a difference in the telecom sector. I've invested $10 million of my personal money in it, and we've got another big investor, Softbank. My other partners include Kanwal Rekhi, Suhas Patil, P.C. Chatterjee [all well-known Silicon Valley Indian entrepreneurs]. It's the largest of my 22 investments.
Q Let's talk about Arzoo. You're looking for big-name clients?
A: I'm not looking at any Indian companies. We're looking at providing technology solutions as real-time consultants to U.S. companies like Morgan Stanley or Coke, which all have huge technology needs.... But at the other end of this technology spectrum, when you talk of intellectual capital, it has to be provided by individuals.
Q. Is that why you've chosen to launch in India?
A: I've come into India for a number of reasons. First, India has a huge talent pool of [great] intellectual caliber, highly concentrated in information technology. Second, India also has the experience of developing software and having the second-largest pool of software developers anywhere in the world after the U.S. In addition, Indians also comprise a pretty large percentage of the work force in the U.S. in the IT-related labor market. Given all of these, it only makes sense to target Indians to help mobilize this new venture.
Q: How will Arzoo work?
A: Arzoo is a marketplace for intellectual capital, like a market for goods. We'll pay experts anything between $50 to $500 per question if it's answered to the satisfaction of the client. There'll be strict quality control: Some experts will be software guys employed full-time by Arzoo. We are recruiting in the U.S. They have to be terribly clever, very smart, and will be highly paid. We'll give them stock in Arzoo, we'll give them fat salaries. We'll charge clients anywhere between $50 to $100,000 for a contract, but it will depend on the volume of tech-related questions that come to us. So if Morgan Stanley employs 1,500 professionals, you can bet that the number of questions will be far larger than another company that employs 50 engineers.
The question you might ask is: Why is that important? I'll give you a practical example: How many times have you come across a problem in technology that you know somebody else in the world has already solved? You can either spend three days trying to reinvent the wheel, or you could ask somebody who has already done it. With Arzoo, you can get instantaneous feedback -- or within an hour or so. Arzoo's experts are working 24 hours a day.
Q: What's your relationship with Bill Gates, and at what cost did you leave Microsoft?
A: Bill Gates is a great guy, I have a great relationship with him. But Microsoft is a big company. The problem is when one big company acquires another small company. It's not that Bill Gates is bad -- in fact, he insisted that Hotmail be left alone. But it's all the managers under him and the midlevel Microsoft managers. Each of them thinks that they are acting on behalf of Bill Gates and that Microsoft has acquired Hotmail so, therefore, "you have to listen to us."
I was there for a year, but I was so bored. I was going to all these meetings, nobody reporting to me, no powers, no effectiveness. I was 30, and at 30, just twiddling your thumbs even though you're making a lot of money, you kind of loose respect for yourself. You want to be out there, you want to be the general, you don't want to be the politician sitting there and saying: "You're fine, and I'll make my money." So the personal cost was: I walked away from about $20 million a year in stock options for the next two years. I think it was fine from both sides.
Q: You're a more acceptable face for Indians in Silicon Valley. The stereotype is of a serious individual who goes home every night to wife and family. You go to the pub for a drink, work out for two hours a day. Are you the new poster boy?
A: I think I have assimilated into the American culture at a younger age, and I enjoy being part of [the] American lifestyle. I love football. I love to go partying and to the bar, and in that sense, I see myself as being unique and different from others. My attachment to India is also sentimental, but I think I would like to say that I take the best of both cultures. I enjoy the freedom and the free-spirited nature and the great sense of humor in a great place like America. At the same time, I think the emphasis on education in families is a great Indian tradition. I do not believe in some of the Indian traditions like arranged marriage, so that's why I am different.
Many people like to stay behind computers, and they don't like to deal with people, they hate talking in front of crowds. I'm exactly the opposite. I'm like a marketing guy born in an engineer's skin. Even though I went to the finest schools for engineering like Caltech and Stanford, I really enjoy communicating and leading a group of people and expressing my views.
Q: How far back do you trace your interest in technology? Is there a family background?
A: Mathematics! While growing up, I loved mathematics and science. I hated every other subject becuase you have to study. I was just a pro at mathematics from the beginning, and I even represented my state, Karnataka, in the Indian National Mathematics contest. That's why engineering was a natural choice
Q: The tech market has cooled down, after being overheated...
A: Yes, it certainly has made venture capitalists far more careful and far smarter. When I started Hotmail, nobody knew about the Internet. It was really hard to get venture capital. People were distrustful of the Internet. Once Microsoft bought us, valuations went through the roof in 1998 and 1999. Everyone started using that as a benchmark. Now, they're back to where they were in '96, '95, and '94, when I was starting up.
But I think it's good. It enforces discipline. It helps companies become smarter becuase not all ideas get funded. Look at what happened in the Indian portal space. Someone says, I want to be a portal, [and] the VC says, here's 60 million bucks. Nobody even questions: Is there a revenue model? Will advertising work on the Net? Will advertising work in India on the Internet? Are there enough e-commerce opportunities? None of that! Suddenly everybody and his brother wanted to be a portal. They saw an easy way to get rich quick.
If you think of why Hotmail became successful, it solved the problem for two individuals, my partner, Jack, and myself. We found it very difficult to access our personal information from just two locations, from home and from work. It solved our problem, and we said if it could solve our problems, it'll solve problems for countless other people. Arzoo today has a similar kind of issue. We're trying to solve our own company's problem. We are IT-constrained, so we said: I wish we could tap into some network and get our questions resolved. The instinct tells me that if we can solve our own problems, I'm sure we can help countless others.
Q: What's the premium on an Indian techie in Silicon Valley today? Is an Indian more likely to get funding over others?
A: He's more likely to be believed, and I'll tell you why. Indians in general have tended to undermarket themselves. That comes because it's part of our culture -- you are supposed to be very humble. You are not supposed to market yourself or your resume. You don't go and say: "I have created the world's greatest sensation."
I think venture capitalists are used to dealing with a lot of people who have been brought up in America, who overexaggerate their qualifications. When Indians come and say yes, we can do that, people believe them.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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