Hotmail's founder refused Microsoft's $350 million. His own team wanted to sell.
Sabeer Bhatia and Jack Smith launched Hotmail on July 4, 1996: free email anyone could open from any computer with an internet connection. Twenty venture capitalists had turned Bhatia down before one firm put in $300,000.
In the fall of 1997, negotiators from Microsoft came bidding, six at a time. Bhatia asked for $700 million. The offers climbed from $200 million to $300 million, and he kept saying no. When Bill Gates offered $350 million, Hotmail's management team favored accepting in a straw poll. Bhatia still refused.
He told Wired in 1998: "Saying no to so much money was the scariest thing I ever did."
Microsoft announced the deal on New Year's Eve 1997. Wired reported that a later filing put the price at Microsoft shares worth about $400 million. By May 2013, Microsoft had moved Hotmail users to Outlook.com, which then had over 400 million active accounts.
For anyone negotiating with a big software vendor: a walk-away number only holds if your own team has agreed on the alternative before the first offer lands.
AI-generated illustration with narration by an AI voice.
What the captions say
- This is the story of how Hotmail's founder, Sabeer Bhatia, turned down Microsoft's $350 million.
- Hotmail offered free email you could open from any computer with an internet connection. Microsoft wanted it.
- Before it was over, even his own managers would want him to take it.
- Bhatia came from Bangalore to study at Caltech and later worked at Apple. He and Jack Smith were, in his words, hardware engineers who had never started a company.
- 20 venture capitalists said no. One firm offered $300,000 for 30%. Bhatia walked out. Two days later, it accepted 15%.
- Hotmail launched on July 4, 1996. Every email sent was, in effect, an ad for the service.
- Bhatia told Wired, "By the time Microsoft figured it out, we had 8 million users."
- In the fall of 1997, Microsoft's negotiators flew in, six at a time. Bhatia asked for $700 million. They called him crazy.
- The offers climbed. $200 million. $250 million. Then $300 million. He said no.
- Then Bill Gates offered $350 million. In a straw poll, Bhatia's own management team favored taking it. He still said no.
- He told Wired, "Saying no to so much money was the scariest thing I ever did."
- On New Year's Eve 1997, Microsoft announced the deal. Wired later reported, from a filing, shares worth about $400 million, $50 million above the refused offer.
- In May 2013, Microsoft finished moving Hotmail users to Outlook.com, which then had over 400 million active accounts.
