Sabeer Bhatia is a pioneer in the field of web-based email, having co-founded Hotmail Corp. — which today boasts more than 220 million registered users — in 1996. After Microsoft acquired the company in 1998, Bhatia moved on to new projects, including, an online travel services company for Indian consumers, InstaColl, which offers web-based office tools, and SabseBolo, an audio-conferencing platform for developing markets. Along the way, Bhatia has learned some critical lessons about starting businesses and keeping them going, even during difficult economic times. At the 2009 Wharton India Economic Forum, Achal Mehra, editor of Little India, interviewed Bhatia for India Knowledge at Wharton.

An edited transcript of the conversation follows.  

Achal Mehra: Thank you, Mr. Bhatia, for joining us. We all know you from Hotmail, which, according to the rumor on the street, sold for US$400 million. You have since been involved in various other ventures. Can you tell us about some of the other projects that you have taken on since Hotmail?

Sabeer Bhatia: Sure. One that I am very excited about and which will go live in the next month or two is a company called InstaColl, and the specific product that we have developed is called Live Documents. [The product] is based on new technology: It is a complete software [package] written in Flash, and it runs on Adobe’s Integrated Runtime environment. The advantage of this is that it is a replacement for all four components of Microsoft Office — Word, PowerPoint, Excel and Outlook.

But the unique advantage is that it runs on every platform — that is, on PCs, on Macs, on UNIX, on Linux and within the browser. And it lends itself to better security and better collaboration. [The] company has been working on this technology for the past three or four years, and I am quite excited about it.

Then there is another company called SabseBolo, which is an audio conferencing platform that we have created for developing markets such as India, Malaysia and some of the African countries. This allows cellular carriers in these countries to offer an inexpensive way of providing teleconferencing services to their subscribers. The next product that we will launch on this platform is a Mobile PBX (private branch exchange). So instead of people having to buy PBX equipment and install it on their premises, they will be able to do it virtually, and we hope to partner with some of the carriers in these developing countries.

Then there are a couple of other [projects], one of which you may have heard — Nanocity. I am hoping to develop an entire city outside of Chandigarh, and also now in Gujarat, which will emulate the vibrancy of Silicon Valley. We hope to do that by providing modern infrastructure, and also providing a platform for education — meaning you cannot have Silicon Valley without the knowledge. So, it would be a ‘Knowledge City,’ and hopefully it will grow to become a center for the creation of Intellectual Property in India.

Mehra: Now, some of these other projects are distinctive. But regarding the first project that you mentioned — Live Documents — there are other market players, right? There is ThinkOffice, for example. What makes your program distinctive?

Bhatia: We have looked at all of the competition, including Google Docs and Zoho, and a whole bunch of others. All of them have taken OpenOffice — the entire OpenOffice suite — and put it on the web. In other words, they have web-enabled OpenOffice.

OpenOffice itself has a number of limitations. It is not fully functional when you compare it with a product version of Office. For example, the Excel does not have macros. We have chosen not to take that path and instead develop our own suite of applications, which not only matches the functionality of Office but takes it one step further. For example, we have integration with Twitter. We have the complete ability to publish any charts, or any graphics that are created in Excel, onto any webpage.

We have also enabled PowerPoint to be widgetized so that it can be published as a widget that can be embedded in any HTML document, or any document on the web. We have integrated it with Google and Google Maps. So, if you look at, say, names of certain cities, instead of just putting up a bar chart with the names of those cities, it will actually bring up these cities on a map. So it allows us to be more web 2.0-like: Because we are based on the web and also on the desktop, we can very easily integrate with other web-based services.

Mehra: Hotmail was exceedingly successful as a venture. Your Arzoo venture, however, was in a sense buffeted by the dotcom crash. Can you tell us what lessons we can learn from the dotcom crash that may be relevant to us in terms of what is happening now economically?

Bhatia: That is a very pertinent question and very relevant as well. I have really learned from going through the dotcom crash personally, and I think one of the things that we have adhered to ever since then, with all of my companies, is to keep our costs low. And luckily, we are developing products that are substantially lower priced with the same level of functionality, or even greater. So, we think we are well poised for this downturn, because every company today is looking to cut costs.

And rather than creating new products that would require companies to change or alter their way of operating, all of these companies that I have mentioned to you do the same thing at much lower costs. For example, take a look at SabseBolo. It is built on Asterisk, which is an open software for telecoms. And it enables these telecom operators to provide the same service but at a substantially lower cost.

Same thing with Live Documents. If Microsoft charges, you know, US$400 per copy retail, we can sell the same service at US$5 per user per month. So we think we are uniquely poised, and one of the things that we have done quite effectively is keep our development costs and people costs very low.

Mehra: Confidence and bluster are important for entrepreneurs, but we are living in a time when clearly fear is stalking the land. What impact does that have on the entrepreneurial spirit, and what do you say to those entrepreneurs who feel that fear at this moment?

Bhatia: Necessity is the mother of invention. On the one hand you are correct: There is a general fear that has pervaded the entire marketplace, and that includes entrepreneurs. I will say that the funding for new ideas and new startups has and will come down substantially. But having said that, so will the competition.

If you have a unique enough idea and you have been really careful about identifying a market need, this is actually a great time to start companies — but you have got to be very careful, in that you really hit a true market need.

There are at least in three ways you can innovate in Silicon Valley. You can make something substantially cheaper at the same price, or you can make something substantially better at the same price, or, with this new mantra of clean technology, you can make something substantially cleaner at the same or a reduced price.

These days, if you can create something which is substantially cheaper, that will do, I think, the best. Because the marketplace is looking to lower its costs across the board — whether it is companies or it is individuals, they are looking to find the same quality. And that is the reason why netbooks, for example, have become so successful and so popular, and people talk of the netbooks being the next revolution. They are approaching the price points that the One Laptop per Child initiative was hoping to achieve — using a cheaper processor and doing the same thing at about US$299 per computer.

That is the advice I would give to entrepreneurs: Look to doing something which people are already familiar with, which people have already purchased in the past, but try to see if you can shave the cost and provide the same value at a lot cheaper price.

Mehra: You have been an entrepreneur both in the U.S. and now in India. Why did you choose to make that shift to India, and how would you evaluate the climate for entrepreneurs in India versus that in the U.S.?

Bhatia: Well, there are opportunities and challenges in both places. The advantage of a very well developed marketplace like the United States is that it is a lot easier to sell if you have something unique and something which is far superior to what exists. Again, in India, people are looking to get their needs fulfilled at a lot cheaper price, so it is a very price-sensitive market.

The advantage of developing something in India is that the costs of development are a lot lower but there are also inefficiencies in the marketplace because of the poor infrastructure in the country. You know, when you have to battle power cuts, and water shortages, and frequent infections spreading through your office space — I mean, the human productivity does take a beating.

And on the other hand, in the U.S., finding quality talent, at least in the high-tech space, is a lot easier at least in Silicon Valley. But the opportunity of servicing a market, which is at the bottom of the pyramid — 600-700 million people who have never used certain products — I think that is a true challenge, and at the same time a great opportunity. And so, entrepreneurs have to be creative in packaging their products and in squeezing costs out to service that market.

Mehra: I guess you came to this country as an immigrant and had the opportunities that you did, and you recognized that under these economic pressures, there are pressures to essentially close that free flow of human capital. What is your sense on that?

Bhatia: No, I think that is a really bad idea because increasingly, the world is becoming more global, and I think as a human species if we have to advance, we have to bring down barriers — and to a great extent, inexpensive communication has already done that. People do not need to physically be present or live in a particular place in order to do business. And it is beneficial for every country to open its markets, both ways. Take the example of this very recession: While the entire Western world is suffering from a slowdown, India is still growing, albeit at a much lower rate of growth than before.

But there is a tremendous opportunity — for example, the housing sector. In India, 40 million new homes need to be built. Of course, these have to be low-cost homes, too, because 200 million live in huts and do not have access to modern amenities like power, water and modern sewage treatment facilities.

Similarly with cellular phones, the Indian cell phone market is growing. Same thing with cars, while there are two cars per family in the Unites States, there is one car to, I think, 70 or 80 people in India. So, cars also offer great markets. So it would be a bad idea for any government or any country to restrict that free flow of trade, and information, and ideas, and experiences across borders. I have learned a lot from India, I have given a lot back to India; it is vice-versa. I have learned a lot [in India] that I have deployed [in the U.S.] and taken a lot of ideas from [the U.S. to India]. So I think there has to be a more seamless flow information, ideas and capital across the world.

Mehra: Thank you Mr. Bhatia.

Bhatia: You are most welcome.