The Landmark Deal: How Sabeer Bhatia Negotiated the Sale of Hotmail to Microsoft for $400 Million
In the late 1990s, the internet was rapidly evolving, and email was becoming a crucial tool for communication. Among the pioneers who capitalized on this burgeoning technology was Sabeer Bhatia, an Indian-American entrepreneur who co-founded Hotmail, one of the first web-based email services. Hotmail's popularity skyrocketed, attracting the attention of tech giants, including Microsoft.
The Birth of Hotmail
Hotmail was launched on July 4, 1996, by Sabeer Bhatia and Jack Smith. The idea was simple yet revolutionary: provide users with free, web-based email that could be accessed from anywhere in the world. Within a year, Hotmail had millions of users, making it an attractive acquisition target for larger tech companies.
The Call from Redmond
As Hotmail’s user base grew, it caught the attention of Microsoft, which was keen to expand its presence in the burgeoning internet services market. In 1997, Bill Gates personally invited Sabeer Bhatia to Redmond, Washington, the headquarters of Microsoft, to discuss the potential acquisition of Hotmail.
During his visit, Bhatia presented Hotmail’s growth trajectory and its potential to dominate the web-based email market. Microsoft was impressed and made an initial offer of $140 million to buy the company. However, Bhatia, recognizing the true value of Hotmail, wasn’t ready to accept the offer.
The Art of Negotiation
Sabeer Bhatia and his team at Hotmail sent a counteroffer to Microsoft, demanding a staggering $750 million. The bold move reflected Bhatia’s confidence in the company’s future prospects and his belief that Hotmail was worth much more than Microsoft’s initial offer.
Negotiations continued, with both sides working to reach a deal that reflected the true value of the innovative email service. After intense discussions, a final price of $400 million was agreed upon—a figure that was significantly higher than Microsoft’s original offer but lower than Hotmail’s counteroffer. The deal was finalized, and in December 1997, Hotmail became a part of Microsoft.
The Legacy of the Deal
The acquisition of Hotmail was a landmark moment in the history of the internet. It not only marked one of the largest tech acquisitions of the time but also demonstrated the potential of internet-based services. For Microsoft, acquiring Hotmail was a strategic move that allowed the company to strengthen its position in the online services market. For Sabeer Bhatia, the deal was a validation of his vision and entrepreneurial spirit.
Years later, in a podcast with Raj Shamani, Sabeer Bhatia revealed the details of the negotiations, shedding light on how he managed to secure such a lucrative deal for Hotmail. His story is an inspiring example of how strategic thinking, confidence, and the ability to recognize the true value of an innovation can lead to extraordinary success.