Founders at Work.pdf

Sabeer Bhatia 23
believed we would overtake Yahoo in the number of page impressions that we
would deliver, which was what Yahoo was touting.
What has happened in the last 10 years is that advertising has grown even
more. It’s not just page impressions, but the number of click-throughs. The
most monetizable part of advertising (at least online advertising today) is the
click-through to another advertiser, which is search. When people search,
they’re most likely to click through because that’s when they’re looking for
something.
Google has proven remarkably well that click-through is a monetizable
quantity more than page impressions. You can have 100 page impressions and
that has some value, but the click-through has far greater value because that’s
how advertisers measure, “Is this advertising working for us or not?”
Livingston: Did you have a hard time signing up advertisers at first?
Bhatia: It takes a long time before you can break through to an advertiser and
get them to start paying you. In fact, the first 3 or 4 months we were doing
advertising for our advertisers for free. We had them give us their banners, just
to show that this was a mechanism for people to get their product in front of
millions and millions of consumers.
People would ask, “So, how are you going to make money?” And the whole
thing about making money was all those pesky ads. Ads were perceived to be
kind of a negative. And that’s the reason why, when there used to be 25 search
engines, only 2 or 3 have survived. The others have died because they made
their front pages look like Las Vegas casinos as opposed to preserving that simple,
clean interface that Google has. I think the strategy that Google took was
far better. They earned the trust of the end consumer.
Livingston: Did Hotmail ever become profitable from advertising?
Bhatia: No, we didn’t become profitable. But we weren’t losing that much
money. We found that we were not the best at selling ads, so we outsourced the
whole thing to another company and said, “You guys go sell the ads for us. We’ll
just focus on delivering these ads to you no matter how much you sell them for.
Just give us a percentage of revenue with a minimum commitment and we
won’t go to anybody else.”
That minimum commitment they gave us, which was about $1 million per
month, was alone sufficient for us to break even. Our costs were so low; we
were spending about $1 million a month. So though we were not wildly profitable,
we were not losing that much money.
Livingston: Getting back to the first 6 months before you launched, tell me
about the major turning points.
Bhatia: Before we launched, I think the first major turning point was getting
the $300,000 in funding. That was huge for us—two young kids to get that
much money. The second turning point really was when I started using it and I
told my friends and family about it and everybody who used the product (50 or
100 or so people) loved it.