Hotmail: Delivering E-mail to the World

Oliver Hugo Elizabeth Garnsey

A W

This case study was prepared by Oliver A Hugo and Elizabeth W Garnsey at the University of Cambridge. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the prior written consent of the authors.

HOTMAIL CORPORATION 1996-2000

Oliver Hugo and Elizabeth Garnsey prepared this case as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Please send comments to: oah20@cam.ac.uk or ewg@eng.cam.ac.uk

We would like to thank Jack Smith, co-founder of Hotmail, and Eric Arnum, former editor of Messaging Online, for their support in developing this case study.

Summary

The case presents the challenges faced by the founders of Hotmail Corporation in managing their fast growing venture. Hotmail was created as an application of a generic database product, JavaSoft, for which the founders were unable to raise venture capital financing. Frustrated by their inability to exchange private e-mails at work, they developed the concept of Hotmail a web-based electronic messaging system. The venture reaped record growth rates of its subscriber base leading to the co llapse of the server under increasing processing loads. This required the development of a more scalable technology. As a result of Hotmail's success, incumbent firms like Yahoo and Microsoft began to assess the free e-mail model. This process culminated in the acquisition of Hotmail by Microsoft for $395 million.

INTRODUCTIO N Don't tell anyone! This isn't what we're supposed to be working on, Ray Tomlinson warned a colleague when he despatched one of the first e-mail messages ever sent in 1971. financed ARPANET infrastructure that later evolved into the Internet. The immediate popularity of Tomlinsons SNDMSG programme soon laid his fears to rest. Larry Roberts, director of DARPA (Defense Advanced Research Projects Agency) and in charge of running the ARPANET (Advanced Research Projects Agency Network) project, soon became an enthusiastic user. Roberts jumped onto the system and began doing all his communication by electronic mail. That, in turn, forced researchers dependent on Roberts for their funding to get online, and the system quickly went from being a convenience to becoming an essential tool. 2 At the height of the cold war ARPANET had been conceived as a distributed network that would be able to withstand nuclear attacks by eliminating vulnerable centralised or decentralised servers. The distributed network architecture (schematically outlined in figure 1 below), conceived by Paul Baran at RAND Corporation, implied that a single piece of data could take multiple routes to reach its destination. Even if large parts of the network were destroyed, non-affected areas would still be able to transport infor mation.
1

He was

employed at the time by Bolt, Beranek & Newman, a firm developing parts of the Pentagon-

Figure 1: Three distinctive network architectures

(Source: Paul Baran (1964). On Distributed Communications: I. Introduction to Distributed Communications Network, RAND Corporation , Research Memorandum (RM-3420-PR): Santa Monica, CA.) Copyright RAND 1964. Reprinted with permission.

1 2

Cavender 1998 Ibid.

Although the early Internet infrastructure was not designed with the primary objective of providing interpersonal e-mail communication, the SNDMSG command was an immediate and unanticipated success among ARPANET researchers and a harbinger of the commercial potential of this technology. Len Kleinrock a key figure in ARPANETs history, reflected during the Internet boom that even early on some of us began to see, this is bigger than what we created. That was the first glimpse. 3 The early 1980s witnessed the establishment of the Simple Message Transfer Protocol (SMTP) which, together with the Transmission Control Protocol and the Internet Protocol (the now familiar TCP and IP standards) laid the grounds for a steady growth of e-mail adoption. By 1990, about 15 million e-mailboxes existed world-wide, 13 million of which were located in the United States (see figure 2). Throughout these years, e-mail usage remained the province of university academics and government officials. Even the emerging private online networks, like Delphi, Quantum Computer Services (the predecessor of AOL) and 'The Well' did not provide gateways that allowed full-scale user interaction with the Internet. It was not until 1992, when the U.S. Senate relaxed limitations on the commercial usage of the National Science Foundation (NSF) infrastructure, which carried much of the Internet traffic, that business activity began to accelerate. The complete privatisation of the NSF network in 1994 further opened the new medium to commercial activity. The electronic messaging industry that arose from these governmental-military-academic origins can be characterised as the group of firms that jointly enabled a new form of interpersonal and text-based communication. Closely related user needs included directory services, manageability, security and privacy of communications (figure 3 below).

Segaller 1999, p. 106

Million s o f E-mailb oxes W orldwide 1984-1990

16 14 12 10 8 6 4 2 0 1984 1985 1986 1987 1988 1989 1990 Year Source: Messaging Online, 2001 Int'l USA

Fig. 2: Millions of e-mailboxes worldwide

Ziplip, HushMail, MIME/S Ziplip, HushMail, MIME/S Intelligent Agents, Filtering Intelligent Agents, Filtering Manageabilty Security

Privacy PGP encryption PGP encryption

Communication

Directory serv ices Four11, WhoWhere, etc. Four11, WhoWhere, etc.

Attributes: Spee d Reach (local, global) Richness (text vs. multimedia) Cost
Hotmail, Juno, FreeMark, Mail.com Hotmail, Juno, FreeMark, Mail.com

Fig. 3: Consumer needs in the electronic messaging industry

THE FORMATION OF HOTMAIL The Hotmail electronic messaging service was the brainchild of two young engineers: Sabeer Bhatia and Jack Smith. In the early 1990s, they worked at Apple Computer, later joining a Silicon Valley start-up called Firepower Systems. Originally from Bangalore, India, Sabeer Bhatia was greatly impressed by IT entrepreneurs who had become legendary, including Steve Jobs of Apple and Scott McNealy of SUN. Although he had originally intended to return to Bangalore after completing his studies at Stanford University, Bhatia was inspired by the Silicon Valley Dream and became determined to start his own firm. Because of the U.S. recession in the early 1990s this plan had to be suspended when he graduated. In 1995, the recession had subsided and the media spotlight on successful Silicon Valley startups like Netscape and Yahoo rekindled Bhatias desire to create his own firm. He reminded his friend Jack Smith daily that they were surrounded by people who were making millions from their start-up companies: Jack! What are we doing here, wasting our lives? still regular employees when they began to prepare their new venture. Their first business idea revolved around a product they termed JavaSoft, a database that built on Suns new Java technology and that could be used for storing personal information over the Internet. Bhatia and Smith presented their idea to many venture capitalists but without success. To most investors, the business proposal seemed doubly deficient: the JavaSoft idea appeared to lack distinctiveness while the founders lacked business experience. Overall, Bhatia and Smiths JavaSoft plan was rejected in 20 attempts to obtain finance. Determined to succeed, the entrepreneurs revised their business plans after each discussion with an investor. Afraid that their corporate e-mail might be monitored since they were still in regular employment, they exchanged new versions of the plan through their private AOL email accounts which they could log into from work. However, their employer suddenly set up a new firewall which prevented accessing AOL from the office. Still reluctant to transmit the business plan via the corporate network, the budding entrepreneurs were forced to swap the plan on diskettes, a practice which they found cumbersome and frustrating.
4

Bhatias

persuasive efforts succeeded and Jack Smith agreed to set a new firm with him. They were

Bronson 2000, p. 83

Jack Smiths creative solution to their problem of sending and receiving private e-mail at work became the basis for their revolutionary Hotmail service. He pointed out that they could both view web sites from work: Why dont we simply have our e-mails displayed on a web page?5 By displaying e-mail messages as HTML documents via regular Internet browsers, corporate firewalls would be circumvented and content tracking by employers would not be easy since the messages would reside on a server external to the company. Moreover, the adaptation of JavaSoft a database for storing personal information over the Internet would be relatively straightforward. At first, they considered developing Hotmail in parallel to JavaSoft, using it to showcase their main products possibilities. But they soon came to focus exclusively on Hotmail, proposing to provide the service at no cost to the user and funding it through revenue from advertisers. Successful Internet start-ups before them, notably Netscape and Yahoo, had been able to offer a free service. Yahoos growth suggested it was possible to generate revenue through banner ads. The founders had to continue their search for funding but Bhatia and Smith were concerned about disclosing the Hotmail concept to an unethical investor. Like many of the best ideas, this one seemed obvious once articulated and would be easy to appropriate. They had to implement their business concept before anyone else could and this required taking care to whom they showed the idea. To find a trustworthy investor, the entrepreneurs continued to approach investors with the JavaSoft plan, using it to test VCs based on their reactions. Only if the VC had gained their respect during this mock discussion would the founders actually disclose the sensitive Hotmail messaging idea. The idea for free e-mail via the web Hotmail soon caught the interest of the venture capital firm Draper Fisher Jurvetson from whom they received $300K in funding. After organising an additional $100K loan, Sabeer Bhatia and Jack Smith founded Hotmail in the first months of 1996. Bhatia demonstrated remarkable negotiation skills. The experience of earlier rejections did not prevent him from adopting a tough stance during these talks: Hes the most interesting negotiator Ive ever met, Jurvetson says. Tim Draper made the perfectly reasonable offer of retaining 30 percent
Bronson 2000, p. 79

ownership on a $1 million valuation. Sabeer held out for double that valuation their cut, 15 percent. The negotiations got nowhere, so Sabeer shrugged and stood up and walked out the door. His only other available option was a $100,000 family-and-friends round that Jack Smith had arranged as a backup not nearly enough money. If wed gone that route, Hotmail wouldnt exist today, says Jack. Draper and Jurvetson relented; they called back two days later to accept their 15 percent.
6

Draper Fisher Jurvetson were already acquainted with the concept of Internet companies as they had previously invested in the start-up Four11, a directory services firm that registered email addresses for Internet users. At a party organised by the VC for its portfolio companies, Hotmails founders were introduced to Mike Santullo, the CEO of Four11. Santullo told them that Four11 had been founded in 1994 by himself and Larry Drebes as a database tailored to help people find people. By the end of 1996, the firm had formed partnerships with Yahoo, Intel, Netscape, Microsoft, NYNEX, Infoseek, USWEST and WebTV, among others. Its services included an extensive e-mail register, a complete US telephone directory as well as government and celebrity listings. Industry sources lauded the service. PC Meter ranked it as the number one directory for customer reach in 1997 and PC Magazine had described it as the most comprehensive people finder on the Internet. Discussing their business ventures, the founders of Hotmail and Four11 soon realised that they could forge a strategic alliance: Hotmail could register its users in Four11s directory. DECISION A POINT

Encouraged by their common investor, Hotmail and Four11 decided to set up the strategic relationship, hoped to benefit all parties. The proposition seemed simple: (1) Four11 would increase the numbers of addresses in its database, (2) Hotmail would offer an additional service to its users, and (3) the VC would benefit indirectly through increasing activity of its investee firms. In June 1996, a serious problem suddenly raised its head. Less than six months after start-up and only one month prior planned service launch set for an Independence Day launch on 4
Bronson 1998
th

July, Hotmail had unexpectedly burned through the available venture funding and was out of cash. Up to that point, competitors in the web-based free e-mail category had not yet emerged, so Bhatia and Smith were still hoping to reap an advantage by launching Hotmail in July before anyone else provided a similar service. DECISION B POINT

The founders were reluctant to raise additional funds before launch, fearing undue dilution of their equity stakes. Recognising that their bargaining position would be improved with a functioning service, they persuaded their fifteen (in part freelance) employees to forego their salary checks and to continue to work for stock options only. Their persuasive efforts succeeded despite the alternatives open to employees in Silicon Valley, where both salary and stock options came with almost every job. As a result, Hotmail operated without additional cash for several weeks, on the basis of employees willingness to support the venture The acute lack of cash also prevented the extensive investment into marketing that many believed necessary to launch a new Internet-based service. However, a suggestion by their VC, Draper Fisher Jurvetson, helped Hotmail to overcome this problem. The idea was to simply add PS Get your own free Hotmail at www.hotmail.com to the bottom of every outgoing message, effectively turning every despatched e-mail into a piece of free advertising. This approach subsequently came to be known as viral marketing. Bhatia and Smith were at first sceptical. They knew that the Internet community historically steeped in a culture of publicly funded resources and freeware remained highly averse to advertising. Spammers (firms that abused the medium by circulating advertising material) were subject to Internet attacks. The following example and comment were symptomatic. In April 1994 a Phoenix law firm posted an advertisement to 6,000 Usenet (Internet) news groups. The presence of an ad on the Internet provoked a firestorm of protest from over 30,000 Internet users who flooded the lawyers' mailboxes with hate-mail, conducted terrorist-type acts against the lawyers, and eventually led the Internet service provider to cut off the law firm's access. () Why is advertising on the Internet 10

controversial? A key reason is that it does not fit with the existing Internet culture. In some ways it is subversive to that existing culture, and bringing commercialization to the Internet can be seen as a colonization of one culture by another. 7 The venture capitalist recalls: It was very contentious at the time. Would users balk at having this automatic addition to the content of their private messages? DECISION C POINT
8

In the end, Hotmails venture capitalists were able to convince the entrepreneurs that the viral marketing technique should be given a try. According to Draper: When we first suggested it, they were taking the purist point of view, saying, We cant do that its spamming! () But by the end of the conversation, it dawned on them that it wasnt much different from running a banner ad.9 Also, they tempered the ad by clearly separating it from the main message via a line and removing the prefix PS from the text. Far from causing outrage among users, viral marketing produced spectacular subscriber base growth for Hotmail from the day of its launch. The implied personal endorsement by the sender appeared to be valued and the website address made it very easy for new users to take up the offer. Hotmails founders and employees excitedly tracked user base growth in real time using modified pagers. In the first hour 100 users signed on, 200 in the second, 250 in the third. By September, Hotmail boasted a total of 100,000 subscribers, by January 1997 1,000,000, and this number rose to 8,000,000 by October of that year. No means of communication had ever spread so fast. The firms record growth had begun. Having demonstrated its viability and rapid subscriber base growth, Hotmail was able to raise additional rounds of venture capital funding on the basis of an increased valuation. By August 1996, the firm was valued at $7 million, by October at around $20 million, up from $2 million in January of the same year. By June 1997, Hotmail had raised a total of $5.6 million in venture capital finance and operated with 35 employees.

Besser 1994 Jurvetson and Draper 1999 9 Hatlestad 1999

7 8

11

Another impact of rapid growth related to the directory firm Four11, the partner firm that was an early witness of Hotmails expansion. According to Sabeer Bhatia, Hotmail had sent more subscribers to Four11s directory in three or four months than they had amassed in two years.10 Now aware of the tremendous opportunity free e-mail seemed to represent, Four11 began to develop its own free e-mail capability internally termed RocketMail thus entering into head-to-head competition with Hotmail (see figure 4). There were different views on this controversial decision. The common investor, Draper Fisher Jurvetson, argued that Hotmails rapid growth had begun to affect Four11s relative position in their portfolio. The VC believed that the firms growth was so strong that the power in the relationship shifted toward Hotmail, and Four11 realized they had to develop their own email service.
11

For Four11s CEO, on the other hand, the decision reflected a

logical step given the nature of consumer needs in online communication: We focused on Internet directories at the beginning, but we decided that we needed to expand our model to include different online communications services one of which was Web-based email. DECISION D POINT
12

In response to the new competitive relation between two of their portfolio firms, Draper Fisher Jurvetson reorganised internally. Hotmail was looked after by Steve Jurvetson and Four11 by Tim Draper. The VC partners agreed to erect a Chinese Wall between them by not discussing issues pertaining to these rival firms, thus avoiding legal problems that could arise from a conflict of interests. This internal reorganisation was not easy to uphold in practice, however. Steve Jurvetson recalls: It was frustrating because were used to working as a team, and suddenly 100 percent of my focus had to be on Hotmail () I can remember standing outside a Four11 meeting, looking through the glass doors and wondering what they were talking about.13

Ibid. Ibid. 12 Ibid. 13 Ibid.

10 11

12

Late 1995 Mid 1996 Early 1997 DFJ DFJ DFJ

Four11 Four11 Hotmail Four11 Hotmail

RocketMail = Collaborative relationship = Competitive relationship

Fig. 4: The evolution of the triad relationship between Draper Fisher Jurvetson (VC), Four11 (directory services firm), and Hotmail (free e-mail firm) A negative consequence of the firms extremely fast user base growth was server overload. By December 1996, Hotmails service levels became increasingly spotty as the subscriber base spurted towards the 1 million mark. The firms unexpected popularity by now taxed the servers far beyond their capacity and the founders needed to react to keep the service operational. Hotmail could try to solve this problem in a number of ways. For a start, it could simply ration the service and thus limit the amount of usage their servers had to support. However, the founders were reluctant to accept the reduction of their growth rate which this would entail. As Jack Smith recalls: We never considered rationing (although we joked about it), because we were here to provide free email to everyone, and become the largest email provider in the world. 14 A second option would be to increase capacity by adding new servers. However, this turned out to be more difficult than originally envisaged because a simple purchase and installation of new servers would not solve the problem. Jack Smith explained:

14

Smith 2001

13

why didnt we simply add more servers to address the capacity issue? We did that to some extent, but ultimately architecture defines scalability. Especially in an email system where theres messaging involved, and there is no data storage overlap between users, scalability is complex.
15

Thus the question became: how could Hotmail acquire a more scalable e-mail technology? Due to the immaturity of messaging software at the time, such a technology could not be purchased on the open market: These were the early days of Internet architecture In those days the right solution couldnt be had at any price. We were the fastest growing email provider, and about the largest Any vendor solution (of any type) we tried melted down under our loads Today solutions are available that would have made things easier. 16 Jack Smith was now left with only one solution: to develop a new, more scalable technology internally and implement it while minimising interruption to the firms one million current users. The co-founder pointed out: This is tantamount to replacing the engine of the car while driving it down the highway at 75 miles per hour.
17

He explained to us:

I architected the scaleable solution myself, and drew no input from outside (who else had the battle scars?). my solution was a bit unorthodox at the time, and I received no real buy-in from the Hotmail engineers either. I forced the redesign to occur by doing the implementation of it with a couple engineers in parallel to the rest of the Hotmail engineering initiatives. 18 By early March 1997, the new technology had been successfully installed and it offered a degree of scalability vastly higher than conventional e-mail products. The rapid growth of Hotmails user base could continue and signup rates grew to higher levels than ever before.

Ibid. Ibid. 17 PR Newswire 1997 18 Smith 2001

15 16

14

Hotmails revenues did not expand as easily as its user base. It achieved about $4 million in its first full year of operation, rising to an expected $20 million by the end of 1998. At the end of 1997 Bhatia stated that the service could be profitable, but is choosing to reinvest proceeds into expansion. Much uncertainty still surrounded the notion of advertising on the Internet while advertisers remained unsure as to how consumer would react to the new medium. To further grow its revenue base, Hotmail replaced its five person sales team in March 1997 with Softbank Interactive Marketing (a professional new media advertising reseller) and allowed third party content providers to distribute news and other content to members who agreed to receive it. Bhatia insisted that instead of Hotmail paying content providers, the content providers should pay Hotmail for access to the growing membership base. MICROSOFT AND YAHOO ENTER THE SCENE When it launched Microsoft Network in 1995, Microsoft had decided not to offer free e-mail, viewing the concept as unproven and risky. According to a spokesperson at the time, we dont think its a clear-cut win yet, so at the launch of the Microsoft Network there wont be sponsored e-mail.
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However, the rapid growth of Hotmail and competing services

(RocketMail, Juno) convinced Microsoft to reassess this opportunity and consider integrating free e-mail into its Internet presence. So strong did this perception become that Bill Gates reportedly told a meeting of MSN employees that there were three things wrong with them, and screwing up plans to build an e-mail system was number one.
20

But Microsoft was not

alone in making such plans: Yahoo was also giving thought to enhancing its directory with free e-mail functionality. It did not take long before these two firms contacted Four11 and Hotmail. DECISION E POINT

When Microsoft and Yahoo approached Hotmail and Four11/RocketMail for what initially were reseller discussions, their common venture capitalist, Draper Fisher Jurvetson, interpreted this as an opportunity to exit from the engagement and pushed the discussion on a different trajectory. Yahoo wanted a freemail service for its Web directory, and Microsoft wanted a freemail capability for its online service. The venture backers of Four11 and Hotmail , however, wanted to sell the whole works.
Bronson 1995 Gimein 1998 21 EMMS 1998
19 20

21

15

The process of negotiation that culminated in the sale of Hotmail to Microsoft and RocketMail to Yahoo was complex. In September 1997, Draper Fisher Jurvetsons bargaining position was enviable: it held significant stakes in two rapidly growing free e-mail providers that together accounted for 64% of all web-mail boxes known to exist. To counter this bargaining position, Microsoft emphasized its determination to enter the free e-mail business on its own, should a deal fail to transpire. An observer portrayed the situation: At one point, apparently, Microsoft was thinking of buying Four11, and DFJ was weighing its own options. One of our thoughts was to merge the two companies, Mr. Draper says. It was a bit of a chess game. () Mr. Jurvetson says the role of the VC in instances like these is extremely delicate. The last thing we wanted was for the two companies to compete with each other, to get acquired, and to weaken each other in the process, he explains, The worst case would have been for Microsoft to play the two off against each other. 22 In October 1997, not Microsoft but Yahoo acquired Four11 for approximately $93 million. After this sale, the VC concentrated on divesting Hotmail. The Four11 deal both freed up Mr. Draper to work with Hotmail and gave him experience that undoubtedly helped the negotiations with Microsoft. 23 According to Shirish Nadkarni, director of product planning for Microsoft Network and Microsofts main negotiator, Hotmail had demonstrated that it was capable of easily handling vast amounts of e-mail without significant problems, and should be capable of handling even more.24 A record valuation was achieved in a multi-stage negotiation process in which Microsoft initially offered about $100 million for Hotmail. The sale probably also benefited from Sabeer Bhatias excellent negotiation skills which had been proven on several prior occasions. About
Hatlestadt 1999 Ibid. 24 Wilson 1998
22 23

16

two months later, in December 1997, Hotmail was then sold to Microsoft in a record transaction amounting to approximately $395 million. After this acquisition was announced in the media it exerted a powerful effect on the emerging Internet industry. First, it provided the VC and Internet start-up community with a new precedent for comparable transactions. According to Hotmails founder: Once Microsoft bought us, valuations [of Internet firms] went through the roof in 1998 and 1999. Everyone started using that as a benchmark.
25

As a result, more financial resources were

released to Internet firms generally and messaging ventures in particular. Moreover, Hotmails rapid growth and sale to Microsoft raised awareness of viral marketing. Other Internet firms tried to imitate the widely publicised technique and consultancies emerged that offered viral marketing services. A senior analyst from Jupiter Communications observed that the reason why these companies are coming to market () is that everybody is trying to find a way to systematically harness the power of viral marketing.26 Ultimately even traditional marketers, for instance Procter & Gamble, employed it in the launch of conventional products such as shampoo. Lastly, after the endorsement of free e-mail implied by Microsofts and Yahoos acquisition of Hotmail and Four11 respectively, free e-mail came to be perceived as indispensable for online firms. But soon even traditional companies like American Express began to offer webmail to their customers, while others like United Airlines, began to adopt a web-based solution to messaging for their internal communication needs. After Microsofts much-publicised acquisition of Hotmail, the firm continued to innovate and add new services. Hotmail integrated more tightly with the extensive Microsoft Network and continued to grow at a rapid pace. By the end of 2000, the firm had accumulated around 86 million active mailboxes and reached an estimated $100 million in annual revenue. By May 2001, over 100 million users had signed up from all over the world. According to Microsoft, on a typical day more new accounts are opened on Hotmail than babies born in the world. Hotmail will take its place among the pioneers in business history, an entrepreneurial venture that opened Internet e-mail to the multitudes.
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Harbrecht 2000

17

Appendix

1000 900 800 700 600 500 400 300 200 100 0 1984 1988 1992 1996 2000
(Source : Messaging Online 2001; Reproduced by permission) Fig. A1: Total number of e-mailboxes installed worldwide (in millions). Total 2000: 891M.

Int'l

51%

USA 49%

300,000 250,000 200,000 150,000 100,000 50,000 0 4Q96 4Q97 4Q98 4Q99 4Q00
(Source: Messaging Online 2001; Reproduced by permission) Fig. A2: E-mailboxes (in thousand) managed by Hotmail, Yahoo and other web-mail providers
26

Hotmail RocketMail/Yahoo Other

Parker 2000

18

100% 80% 60% 40% 20% 0% 4Q96 4Q97 4Q98 4Q99 4Q00
(Source: Messaging Online 2001; Reproduced by permission) Fig. A3:Hotmail and RocketMail/Yahoos shar e of the web-mail market (in %)
Othe r Roc ketMail/Yahoo

18% 30%

Hotmail

1% 1% 1% 2% 2% 2% 2% 2% 3% 3% 4%

15% 31%

5%

19% 7%

Hotmail RocketMail/Yahoo Excite Inbox Lycos Mail &MailCity Sina.com SinaMail NBCi USA.Net Net@ddress UOLmail NetEase Netscape WebMail Lycos Mail iVillage Rediff.com RediffMail Kimo Mail Juno Online Other
Total: 280 Million Boxes

(Source: Messaging Online 2001; Reproduced by permission) Fig. A4:Market shares of firms in the web-mail service market (year 2000).

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Estimated Financials*

1996 1997 1998 1999 2000 Sales <$1M $4M $20M na $100M Mailboxes 1M 8M na na 86M Employees 30 60 144 na na (* All figures are end-of-year estimates)

Competitors

Juno:Founded in 1995 and launched its service in April 1996. A dial-up based free email service backed by New York investment bank DE Shaw & Company and led by Charles Ardai, a former employee of this bank. Juno invested up to $20 million in its launch phase and was guaranteed support of up to $100 million from DE Shaw for further investment following its launch. FreeMark: A dial-up service founded in 1994, but that only went live in April 1996 after a major change in its business idea. The firm was shut down at the end of 1996 having acquired approximately 50,000 subscribers.

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Bibliography

[EMMS 1998] Electronic Mail & Messaging Systems (1998). Microsoft Buys Hotmail, Improving Its Industry Position Against cc:Mail, 12.1.1998. Baran, P (1964). On Distributed Communications: I. Introduction to Distributed Communications Network, RAND Research Memorandum (RM-3420-PR), Corporation August 1964. Besser, H (1994). A clash of cultures on the Internet, San Francisco Chronicle (http://www.gseis.ucla.edu/~howard/Papers/sf-chron.html (accessed 18.3.2001)) Bronson, G (1995). Message as medium Free e-mail service will carry ads, Ag , 8.5.1995. e Bronson, P (1998). HotMale, Wired, 6.12, December 1998. Bronson, P (2000). The Nudist on the Late Shift . Vintage: London. Cavender, S (1998). Legends, Forbes , 5.10.1998, pp. 126-127. ASAP Gimein, M (1998). Ten VCs Who Matter, The Industry Standard , 5.10.1998. Harbrecht, D (2000). Hotmails Creator Is Starting Up Again, and Again, and, Week Online, 14.9.2000. Business Interactive

Hatlestad, L (1999). Free Mail Explosion, Red Herring , 1.6.1999. Magazine Hugo, O A and E W Garnsey (2001). The Emergence of Electronic Messaging and the Growth of Four Entrepreneurial Entrants, Proceedings of the 9 th High-Technology Small Firms , Manchester (31.5.2001). Conference Jurvetson, S and T Draper (1999). Viral Marketing, online at: www.drapervc.com . (Note: An edited version of this paper was later published in Business ) 2.0 Messaging Online (2001). Mailbox Report Presentation, by Eric Arnum, Editor of Messaging Online ( provided in personal communication with Oliver Hugo ). Parker, P (2000). A Start-Up Story: How and Why FaveMail Shifted Its Strategy, ChannelSeve , 26.7.2000. n PR Newswire (1997). Hotmail is Now the Cyber Home to More Than Two Million Users, PR , 27.2.1997. Newswire Segaller, S (1999). Nerds TV Books: New 2.0.1. York. Smith, J (2001). Personal Communication with Oliver 29.10.2001. Hugo. Wilson, D L (1998). Microsoft Buys HotMail Corp, San Jose Mercury , 2.1.1998. News

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