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SAN FRANCISCO, MAY15: Guys...men, girls, women, 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 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 infrastructure, 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.

Excerpts from the interview.

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.

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 there’s 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.com, they will all go belly up (laughs
uproariously)

Q: Is there a chance that some may survive, like Priceline.com is
hanging 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

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