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Livingston: Then you started to get into talks with Microsoft Bhatia: Talks with Microsoft started after our first anniversary, which was July

1997. In August or so, Microsoft contacted us and said, Wow, this is really big. Do you really have 7 million subscribers They knew that we were growing and they wanted to find out how we provided email to 7 million subscribers because they were having a hard time providing email to just 2.5 million MSN customers. So we began talking of a partnership deal and that s how we started talking to each other. We worked out a detailed business plan about how we would provide email to their subscribers, and then they said they wanted a tighter relationship between us and their company that they wanted to invest in our company. So they looked at our business plan and saw very quickly that we wanted to be more than just an email company. We wanted to incorporate all of the other functions as well, such as personalized news and those kinds of things. We wanted to be a portal at that point in time. So that s when they came to us they wanted to be a portal as well and they said, We cannot have one of our providers of email be a competitor of ours, so have you thought of an acquisition And I said, I really haven t thought of an acquisition, but at the right price I can think of anything.

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When I sold the BidFax product line to McGraw-Hill Publishing to add to their contractor estimating systems, that was the end of that product line, took me a year to get out of it but the copy protection was well almost have to go back BidFax had a different method of distributing We didn t distribute it via diskettes It was distributed online I think it was probably the first online software distribution that had an online update distribution in the industry that I m aware of I don t remember anybody doing this before that But because of the capabilities of the onboard fax cards that the customer already had to have installed, it was a very simple thing for me to send them a key for that computer, once they d paid for it, and then it would come to my computers and say Here s my key.

Livingston: Tell me about the negotiation process. Bhatia: They called us to meet with Bill on October 13, 1997, and we were

shown the Microsoft campus, headquarters, the whole works. We were taken to Bill s office, met with him, and then we were taken to a room with a gigantic table, and there were about 15 Microsoft negotiators sitting on the other side: business development people, lawyers, accountants, all of them. They gave a presentation about how much they liked the company and this and that, and they said they wanted to buy us and placed an offer of $160 million. I knew that that was the opening shot and I said, Thank you very much for making an offer. We really, really like your company and like the fact that you like us so much. We ll go back to our board and discuss this and get back to you. And the CFO said, C mon, is that in the right ballpark He wanted me to open my mouth, but I was told beforehand that if I opened my mouth, there was no way I could negotiate with so many people. It was just the three of us: Jack Smith, myself, and our VP of marketing.

Bhatia: Luckily it was very early on; had we been burning through a lot of cash, had we been around for a while, they probably would have put pressure on us. But we were under no pressure at that point in time. Livingston: What drove you to keep on negotiating until you got the $400

Bhatia: Once you ve got a lead in terms of a subscriber base, that is unassailable. It can t be replicated easily. So I knew even if they started developing the product I have no doubt in my mind that they could have developed it, so many engineers and smart people in Microsoft. At that time they had something like 16,000 engineers, and I had a total of 60 people in the company, only 14 engineers, so it would have been easy to pick 15 guys from 16,000 and build this product. But I knew we had that momentum behind us and that is very hard to replicate. Livingston: You arrived in this country with only $250 in your pocket. Wasn t it

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