The enabling tool they built internally during development BECAME the actual product

Just like Paypal, the Hotmail founders (Sabeer Bhatia and Jack Smith) originally set out to build an entirely different product. They sought to make a simple plug-n-play database that anyone could use to store structured information and then expose it via the web. That product was called JavaSoft and sounds as if it would have been Google Base ten years before its time. Both founders held their corporate jobs while developing Javasoft. When their IT department implemented a firewall, it killed their ability to access their personal email (which they had been using to collaborate during development). They were forced to use paper and floppy’s to trade data and it crippled their development efforts. They were driven by necessity to find another way to access their personal emails remotely and it occurred to them that web sites could be accessed from anywhere. They immediately began developing a web-based email client.

The parallel here for us was that the original concept for the hardware version of JumpBox was born when Kimbro was working a consulting gig for a major hotel chain. He stepped into a situation of utter chaos with twenty consultants on the job using excel spreadsheets to track bugs and “free climbing” with no source control. He entered the situation and implemented a bug tracker, source control and a wiki for documentation to put some structure to the development effort and after the three days it took to setup this open source infrastructure, he thought “wouldn’t it be neat if a pristine instance of all this stuff could be cloned on small form factor machines and used every time you parachute into a gig and need development infrastructure?” This was of course before the concept of virtual appliances existed and he was thinking of a hardware-based appliance at the time. But he essentially arrived at the JumpBox concept in an effort to “scratch his own itch” - a common theme throughout the Founder’s At Work series.

Using the JavaSoft idea to test the waters with VC’s

Once they had the web-based email working they thought “other people probably have the same problem… we should share.” So they opened it up and began offering web email access for others and (just like Max posting his Palm Pilot security application) they had immediate visibility and rapid adoption. They gradually realized that the web-based email idea was bigger than the Javasoft product idea, but given the low barrier to entry they feared that telegraphing their intentions by distributing the business plan of the web email to VC circles could leak the concept to someone like Netscape and blow them out. They needed to tread carefully in how they approached potential investors so they used the JavaSoft story to gauge their reaction and broached the web email idea only after they had confidence in the VC.

Just-in-time scaling

The Hotmail story was very similar to the “Hot or Not” story in that they experienced such explosive growth early on that their growth nearly killed them. They managed to stay just one step ahead of being overwhelmed with traffic by relentlessly adding servers. This is a problem everyone wants to have - growing so fast that you can’t keep up with the new traffic - but at the same time server outages not only prevent new growth but destroy your credibility with existing users so it’s an all-or-nothing game. Services will typically throttle new signups in that situation to preserve the quality of the experience for existing users rather than risk blowing it but Hotmail managed to keep performance satisfactory while keeping open signups throughout.

We have the luxury now given the nature of our offering that scaling is much easier relatively than it was for other companies. First, our products currently run locally on user hardware so ours is not an SaaS offering in that we don’t do the hosting. Secondly, because we’re now beginning to move all production apps to a virtualized environment, it should be much easier to deploy to faster hardware as necessary. We do face issues of bandwidth in making these large files available for download from our servers but we’re mitigating that with spill-over hosting on Amazon’s S3 (and we’ve also moved our dedicated servers to a higher-bandwidth data center).

The viral component

Hotmail is probably the classic example of viral marketing. Every email that was sent via their system had a tagline appended to the end of the message that said “This message sent via Hotmail. Get free email on Hotmail.com.” The users of Hotmail were inadvertently advertising the product to each of their friends with each message they sent and given that the signup process was frictionless and free, it immediately went viral. Viral advertising is trait of most of the companies that experienced logarithmic growth in FAW. Our offering fortunately takes advantage of this aspect now as well and we’re seeing some immediate results.

An unassailable lead

With the same premise of the Mythical Man Month, even with Microsoft having 16,000 engineers and Hotmail only 60, they had an six-month head start on the product, it’s scalability and a loyal user base that was promoting it virally each day. Their lead proved to be insurmountable for MS and on New Year’s Eve 1997, Microsoft acquired Hotmail for $400MM. The story of how the negotiations went down reminded me of a negotiating gambit called “deference to higher authority” and how silence can be the strongest bargaining tactic you have.

The lead we have with the JumpBox technology is by far insurmountable at this point but with the viral component and our commitment to provide our customers massive value, we strive to build a loyal following before other competitors enter the virtual appliance space.

This entry was posted by Sean Tierney on Wednesday, May 2nd, 2007 at 1:40 pm and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.