Before Gmail, there was Hotmail. It was one of the first free web-based email services, and its co-founder Sabeer Bhatia is one of the best-known Indian names in Silicon Valley. This is a simple look at how it happened.
The short version
- Sabeer Bhatia, an Indian-born engineer, and his friend Jack Smith started Hotmail in the United States in the mid-1990s.
- The idea: let anyone read their email from any web browser, for free.
- Microsoft bought Hotmail for a reported $400 million. Most accounts date the deal to late 1997, though it is sometimes described as 1998.
Background
Bhatia is widely reported to have been born in Chandigarh, studied at BITS Pilani and then moved to the United States on a scholarship to study at Caltech and later Stanford. Different sources give slightly different details of his early career, so we are only noting what is widely reported. After working at an engineering company, he teamed up with Jack Smith to build a web-based email product.
How Hotmail grew
Hotmail’s growth came from a simple trick: every email sent from a Hotmail account carried a short line inviting the receiver to get their own free email. That turned every user into an advertiser. Millions of people signed up within a short time, which made the company attractive to big technology firms.
The deal with Microsoft
Accounts of the negotiation differ. Some say Microsoft’s first offer was much lower, in the range of $50–200 million, and that Bhatia walked away from the table before the final price of $400 million was agreed. CNN’s coverage and later articles describe a tough negotiation. Because the early offers are reported differently, we are not quoting a single figure for them.
What happened next
Microsoft later folded Hotmail into its own email service, now known as Outlook. Bhatia went on to start other companies.
Questions to think about
- What makes a simple product idea spread quickly?
- Is it wiser for founders to accept a good offer early, or to push for a higher price?
- Why do so many web services start free and add paid plans later?
What made Hotmail different in 1996
Before web-based email, most people could read their email only on the computer where their email software was set up, often through an internet provider or office. Hotmail let anyone open a free account and read their mail from any computer with a web browser, such as one in a cyber café. That freedom, plus the fact that it cost nothing, made it spread quickly across the world, including in India, where many people’s first email address was a Hotmail one.
The “viral loop” in plain words
Hotmail’s line at the bottom of every email, inviting the reader to get a free account, is now taught in business schools as an early example of a viral loop. Each user brought in new users simply by using the product. Many later services used versions of the same idea, from “sent from my phone” signatures to referral bonuses in payment apps.
Lessons founders still talk about
- Solve a clear pain: people wanted to check email anywhere, and Hotmail did exactly that.
- Make sharing part of the product: growth came from normal use, not big advertising budgets.
- Know your value in a negotiation: the reported back-and-forth with Microsoft shows how a fast-growing user base can strengthen a founder’s position.
For explanations of terms like acquisition, valuation and user growth, see our startup glossary.
Related reading
- Startup basics: a plain-English glossary for entrepreneurs
- India now has 45,000 GPUs for AI and three chip plants running
- Startup funding this week: Indian startups raised $123 million
Sources: CNN (1999 and 2004 profiles), Benzinga India and other press reports. Details of the negotiation vary by source.
Founder stories are often retold online with slightly different details. Where sources disagree, we say so, and company figures change over time, so please check the latest numbers before relying on them.
