Sabeer Bhatia and Jack Smith were both hardware engineers at Apple before setting out to build a free, web-based email account reachable from any computer. The idea took them through 20 investor meetings before Draper Fisher Jurvetson finally wrote a $300,000 seed check, handing them a $50,000 bridge check on the spot so they could quit their day jobs. They launched on July 4, 1996, under a name that hid "HTML" inside "Hotmail." Growth started as plain word of mouth: Jack Smith counted 100 registrations in the first hour, another 200 by the time a movie he and Bhatia went to see that afternoon started, and 50 more by the time they walked out of the theater.
The bigger idea came from their own investor. Tim Draper proposed adding a single line to the bottom of every outgoing Hotmail message, a plug for the service riding along on emails users were already sending anyway. Bhatia pushed back at first, worried it would read as spam tacked onto a personal note. Draper's counter was that a line coming from a friend's own email would read as a tip, not an advertisement, and that every message sent was already proof the product worked, for free.
They shipped it as: "PS: I love you. Get your free email at Hotmail," with a link attached. There was no targeting and no media buy, only a line that reached every recipient of every message a user sent. One email from Bhatia to a friend in India was enough to produce 100,000 registered Hotmail users there within three weeks. The service became the largest webmail provider in Sweden without a cent spent on local advertising, and grew three times as fast as rival Juno, which had put $20 million into marketing and advertising.
Within about a year and a half of launch, Hotmail had grown to roughly 12 million users, at a time when the entire internet had only a fraction of today's population online. Microsoft bought the company in December 1997 for a reported $400 million. The investor who wrote that first check, Tim Draper of Draper Fisher Jurvetson, is widely credited with coining the term "viral marketing" after watching Hotmail's growth curve play out.
- The pitch rode inside a channel the company didn't have to buy: every email its own users were already sending.
- It came from a known sender's address, so recipients read it as a personal tip, not an ad.
- One email to one contact in India turned into 100,000 signups there within three weeks.