Silicon Valley Saga Series

News
    Front page stories
    National network
    International
    Analysis
    Editorials

Supplements
   Headstart
   Lifemate

Weather

Letters
to the Editor

Columnists

Express Interactive
   Chat rooms
   Ebate

SAN FRANCISCO, MAY15: Guys...mens, girls, womens, calm down. Sabeer Bhatia is not marrying Aishwarya Rai. At least not just yet. The Hotmail hero, who sold his sizzling cyber property in 1998 to Bill Gates's Microsoft for a handsome $ 400 million, acknowledges he knows the lovely lass and has even kept in touch with her after he met her as a co-judge at a beauty contest.

"But marriage?" he asks in mock amazement. "The subject of romance or marriage has never come up."

Yeah, right. Judging by the alacrity with which he flips open his laptop and does a search on Google.com for the latest on "Sabeer Bhatia AND Aishwarya Rai," there is more than a scintilla of interest in the beauteous belle (the search threw up quite a few hits from Bollywood rags linking them). But Silicon Valley's hottest single Indian male is not about to tell the world what's on his mind about matters of heart.

But in matters of business, the man who is acknowledged as the poster boy for Indian enterprise in the valley is candour itself. "It's only a matter of time, the writing is on the wall for e-commerce," Bhatia told The Indian Express in a wide-ranging interview in his tony rpt tony San Francisco apartment (cost: $ 2 million) that offers a spectacular view of the Golden Gate Bridge and Alcatraz.

The whizkid who made e-mail a household application by launching Hotmail free in 1996 said the dotcom mania sweeping India is pure hype and most companies would go "belly-up" before long. "PC penetration in India is still low and bandwidth is still a problem. And then there is no delivery infrastructureà Indians will never buy on the Net," Bhatia said.

In fact, the e-commerce scenario is so depressed even in the US right
now that Bhatia has held back the launch of his new business-to-consumer portal Arzoo (Hindi word for passion). He is recalibrating the model to enter the business-to-business arena. What more, he is looking at the Indian market to leverage the expertise he has garnered in the e-business.

Bhatia believes e-commerce application in India is best suited for the business-to-business operations where large and medium corporations can do their vending and procurement online and save millions of rupees but cutting down the middleman and lowering costs. "There is real opportunity in India, I am restrategising Arzoo to come into the Indian market in a big way and give something back to India," Bhatia said.

Bhatia laughed uproariously at the proliferation of hokey Indian sites and said if anyone should be making money in India it should be Hotmail because it was the most visited site with millions of accounts. But it was not -- because there was not enough advertising revenue.

The Hotmail hero's theory to explain the dotcom mania sweeping India: businesses want to get their money out on the hype. They establish a portal; get an insane valuation, go public, and get money out. The people who will be left holding the can will be investors. "It is a dead end. They are all living off investments," he said.

Bhatia sold his Hotmail to Microsoft for a then astonishing $ 400 million and then briefly joined Bill Gates empire before striking out on his own in 1999 with Arzoo. But the operation has not taken off as dotcoms have taken a beating in the US markets. Prominent sites like Drugstore.com and Ivillage which soared to around $ 100 a share are now languishing in single digits.

Looking back, Bhatia said he did not regret selling Hotmail although looking at the valuation some of the dotcom companies got in the following months, he may have underpriced his final offer. But considering the dotcom market has tanked since then, Bhatia is a happy man to have got that much out of the deal, wealth that has since multiplied.

In course of the interview, Bhatia offhandedly declared that he may have lost as much as $ 100 million in the stock market dive over the last ten weeks.

Sabeer Bhatia was recovering from a virus that had little to with the one that was sweeping the computer world last week. Nor was he stricken with the love bug of the former Miss World variety, as some rumours suggested. Clearly, he was battling the influenza that laid him low over a weekend. Despite this, he agreed to meet our US correspondent Chidanand Rajghatta at his swank $ 2 million apartment that affords a panoramic view of the Golden Gate Bridge, Alcatraz, and the Bay Bridge in San Francisco. In a freewheeling conversation, Bhatia, the posterboy for Indian success in the United States, discussed the bridges to be crossed and the eddies to be avoided while navigating the swirling and treacherous waters of the new e-conomy. Excerpts from the interview:

Q: After you sold Hotmail to Microsoft and left the company, you were supposed to start Arzoo. How is Arzoo coming along ?

A: Arzoo was originally meant to be an e-commerce portal that would provide a new experience in online shopping. We wanted to leverage our domain expertise in the consumer marketing area to get huge subscriber bases and get them to make better buying decisions online. But in the last eight weeks the scenario has changed completely. The business to consumer (b2c) scene has tanked and suddenly everyone is looking at profits, instead of eyeballs or revenue. So Arzoo is now looking to change the focus. There is no point in enabling greater sales because with such low margins, merchant retailers are not going to be making lot of money. If they don't make money, how can we?

Q: In other words, you are doing a rethink? And you have no problem in backing off after making the launch announcement?
A: I have no problem in stopping and rethinking. If you are hurtling down a cliff, you would be crazy to say I have chosen this path and therefore I will go the whole way -- and take the investor with you. I would rather stop and rethink. Every smart business does that.

Q: So where did you stop and what do you do now?
A: We have the product ready, but we don't want to go out with it. In this business it would take me $ 10 to $ 20 million to build a brand. If you found that business-to-commerce is not generating revenue, why go out and spend money and get subscribers and yet make no money? So we have decided to hold that back and apply the technology to business to business (b2b). I am also looking to see how I can leverage this b2b expertise and apply it in India. I plan to go there soon.

Q: So you have b2b plans for India? You think thereÆs scope there?
A: The Internet is a great medium to streamline retail business. Trading in India is all about middleman and we can eliminate the middleman. In India, the whole supply chain is extremely inefficient. But if we can enable buyers and sellers to meet online instead of being physically present, we open up new markets. The seller gets a higher price, the buyer gets a lower price.

Q: But at the same time you are saying b2c won't work.
A: Consumers in India will never buy on the Internet. First of all PC penetration in India is extremely low and bandwidth is still a problem. Secondly, there isn't a backend fulfillment mechanism that can handle orders. To this day I cannot send a magazine to India without it being ripped open. So when even in the US, with all its fulfillment mechanism, sites like Drugstore.com and Webvan.com are
failing, e-commerce sites don't stand a chance in India. I mean all this whyindia.com, oyeindia.comà they will all go belly up (laughs uproariously)

Q: Is there a chance that some may survive, like Priceline.com is
hanging in in the US?
A: Most Indian sites do not even have proper links. They spend 20 million on hoardings but can't maintain a simple site. Do you know which is the most sticky site in India? Hotmail. Everyone uses it. It is the most visited site. Yet it does not make money because there is not enough advertising in India. Besides, people don't look at ads on the web. Even if PC prices come down to ten to fifteen thousand rupees in India and connectivity improves, there cannot be any money
in b2c in India unless there is a fulfillment mechanism in place. And that (the infrastucture to deliver goods) is not there.

Q: So why are so many people in India going nuts over e-commerce portals?
A: Here is my theory: they want to get their money out on the hype. They will put up a portal, hype it up, get an insane valuation, go public, and get the money out. The people who will be left holding the can will be the investors. That's what happened in Hong Kong.

Q: So where do you get in to India on the b2b front?
A: I am seriously looking to see if whatever we have developed can be used for b2b in India, whether it can be leveraged it to bring about enormous economic benefit in India. In the US, b2b is well developed and there are systems. For transactional b2b, engineering companies have ERP systems for which they have spent millions to hook into central data bases, inventory management and control etc. That's not there in India. So there is enormous opportunity to tie both
these in to tie platform on the Internet to do b2b e-commerce and also provide the infrastructure parts at different ends to encourage businesses to automate their systems better. There is real opportunity in India and Arzoo might move in a big way into India.

Q: Even without great PC penetration and connectivity?
A: In b2b, if you are paying ten rupees for a product and your competitor is paying seven rupees to get tons of the same stuff, he is saving a lot. So there is a real opportunity to communicate information to the sellers and buyers. Even if PC and connectivity costs thousands, it is worth it because you are saving crorers. This is the opportunity to tap into. Not this phoo-phoo advertising driven
e-commerce.

Q: So what does the future of the Internet look like in India?
A: If anything, wireless seems to have a great future in India. So it could be Internet over the phone. So a browser on the phone makes so much more sense in India. Like in Europe and Japan, phone penetration may be greater than that of PC.

Q: What other opportunities do you see in India?
A: There are lot of opportunities in the infrastructure business, bandwidth, wireless, access through LMDS and MMDS frequencies, laying of fibre optic cable through the whole country etc. But people are going down the wrong path. The real money to be made is in infrastructure.

Coming Up: lifestyle@siliconvalley.com, religion@siliconvalley.com

Other stories of the series: