Is there anything Bill Gates can't buy? Last August he surprised the computer industry by spending $150 million on Apple. Last week he bought Hotmail. More cool-headed analysts put Hotmail's price at US$15-30 million, while the Wall Street Journal gave a guesstimate of $300 to $400 million. Hot who? OK, when Hotmail started off two years ago, it was a relatively tiny and unusual business venture: it gave away Webbased email accounts.
At the time Microsoft was still waking up to the Internet's full importance, and the idea of giving anything away online (apart from your Web browser software to gain market share) was still fairly uncommon. Then Hotmail took off. It appealed to students who couldn't afford to sign up with an ISP or who didn't need the hassle of a bureaucratic computer services department. It caught the imagination of small businesses which needed a handful of extra email accounts. And it was handy for office workers who fancied a personal account alongside their corporate one. Or it was great simply if you were on the move a lot. If you could get access to any PC which "had the Web", you could get free email. It almost sounded too good to be true, and there were a few small catches: the slight inconvenience of having adverts on your messages, and Web-based email was initially messy. Compared with orthodox email software packages Hotmail was clunky and shaky, and downloading your messages as Web pages could be frustrating with old modems and slow connections. Then extra features appeared, the service improved and in the past six months Webbased email became hot. While giving away email accounts might have seemed a folly two years ago, today it makes brilliant business sense - and even social sense too. Hotmail and its rivals brought free email to the masses; in return it delivers massive audiences to its advertisers: over nine million subscribers (well, a tad less than that if you allow for people like me with multiple accounts). By last autumn the Web index Yahoo was expanding into the arena (it bought Four11 for $92 million), followed by its rival Excite.com. The line between online email services and search directories was becoming increasingly blurred. On January 1st even Qualcomm, which makes the popular email software package Eudora, started offering free email (see www.eudoramail.com).
Then on New Year's Eve Microsoft struck, buying Hotmail for an undisclosed sum. Hotmail will become a wholly-owned, independently operated subsidiary, absorbed into Microsoft's MSN (Microsoft Network) division. Its acquisition follows MSN's deal with Inktomi to license its search engine. "We were missing a search engine and free email on MSN until last summer," says MSN's vice president, Laura Jennings. "So we did a deal with Inktomi." As for Hotmail, it was "head-andshoulders above the others in terms of scalability of service and members" .
In a sense, Microsoft has also bought a very large mailing list of nine million names, but Jennings emphasises that Microsoft is interested not only in Hotmail's huge customer base, but also its technology. Ever since Bill Gates bought DOS, Microsoft has been renowned for spotting and buying up other firms' technologies. In Hotmail's case, the technology at issues is special "highly scalable" software to handle huge amounts of email at once. Meanwhile what will happen with Hotmail and MSN? Microsoft says current MSN paid subscribers will no longer have access to MSN email while travelling. In the future, MSN users will use their Hotmail accounts instead. Microsoft officials aren't sure when the switch will take place. Sounds logical, but the changes will go deeper than that. Microsoft's Internet strategy is increasingly based on "synergy" - the cross-fertilisation of its Web-based resources, particularly its free ones which might attract consumers to its revenue generating sites (such as its carbuying site CarPoint and its travel site Expedia).
So Hotmail will probably become deeply integrated into these sites. Its nine million subscribers will be able to check and send mail while within the ring of sites, and (Microsoft hopes) maybe even do some shopping while they're there. The move will also boost Microsoft's numbers dramatically when it describes its overall catchment population to advertisers.
The Hotmail buy-out will also boost Microsoft's email user base compared to its main rival, America Online. AOL is about to acquire CompuServe (which last week also launched a Web-only service, dubbed "C"). Meanwhile the latest rumour is that at this week's Consumer Electronics Show in Las Vegas Microsoft will announce a US$1billion alliance with cable TV operator TCI in the fledgling Web TV market.
Microsoft aims to speed up the development of set-top boxes for linking TV sets with the Internet - with its software, including its Windows CE operating system, in each box.