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Hotmail founder wants to revolutionize e-commerce

Sabeer Bhatia, whose Hotmail venture changed the way people send mail, has formed an e-commerce firm he says will change the way people buy and sell on the Internet.

Sabeer Bhatia, whose Hotmail venture changed the way people send email, has formed an e-commerce firm he says will change the way people buy and sell on the Internet.

Bhatia's new venture is called Arzoo, an Indian word for "passion," or "heart's desire." And Bhatia says his heart's desire is to create the next multibillion-dollar Web firm. To do that, he has invested an undisclosed portion of the $200 million he earned from the Hotmail sale and set up shop in Fremont, California--birthplace of his last brainchild.

Bhatia is the latest member in a class of second-generation Internet entrepreneurs who have taken their experience and in many cases riches they earned building the first generation of Web businesses to launch new ventures.

These include a firm code-named Round One, an e-commerce start-up with talent from Yahoo, Netscape, and @Home; Responsys, staffed by Netscape, Banyan Systems, and Mentor Graphics veterans; Amazon-acquired Accept.com, whose founding members include Netscape and PointCast veterans; TellMe.com, founded by former Netscape employees; a firm code-named iTixs, led by former Netscape and Tibco employees; and Evite, an online events organizer whose team includes former employees of When.com, Jump, Hotmail, Phillips, and WhoWhere.

Arzoo will offer a set of integrated e-commerce tools that customers will use from commerce site to commerce site. While Bhatia is keeping mum on most of the specifics, he volunteered one example: an integrated shopping cart that users will be able to bring with them over various sites. The tool also will keep the user's encrypted credit card number and securely process the transactions.

Bhatia plans a November launch.

"We're working on enhancing the customer experience by means of technology in the e-commerce space," Bhatia told CNET News.com. "We're providing tools and a level of service to make buying decisions easy and quick."

The integrated shopping cart will streamline the shopping experience, Bhatia said, eliminating the need to enter a user name, password, or order form for each distinct site a shopper visits.

Analysts say the current Web shopping interface and overall experience leaves much to be desired, providing opportunities for firms like Arzoo.

"It's pokey at best," said Jae Kim, analyst with Paul Kagan and Associates. Kim said 95 percent of shoppers abandon their Web purchases before completing them, and added that the likelihood of a user giving up rose with the number of steps he or she had to perform between entering the site and completing the purchase.

"A meta shopping cart is a potential silver bullet to the industry's woes," said Kim. "One of the chief reasons people abandon a purchase is all the information you've got to keep re-entering.

"Thinking macro isn't a new trend--lots of companies have been doing this with shoppping agents that query numerous databases to find the best price of an item," he added. "So why not apply this to the most critical part of the process for the retailer, which is the completion of a transaction?"

Bhatia acknowledged, however, that some users may be concerned about security and privacy with all purchases flowing through a single tool.

"Because of those concerns we are making use of some pretty key technologies, doing a lot of encryption to make it totally safe to use just one credit card, one name, and password across multiple sites," he said.

Bhatia sees the e-commerce process in three parts: getting eyeballs, providing the tools to facilitate purchases, and fulfilling orders. Of those three, Arzoo will focus on the first two, leaving fulfillment to its partners.

Bhatia is working to nail down those partnerships. So far Arzoo has signed up Adatom, a self-described "Internet superstore." Talks are underway with half a dozen other undisclosed companies, he said.

Bhatia has high hopes for Arzoo.

"I think over next three to four years, we will provide more distribution to commerce partners than any other site does today because we are so involved in providing a great customer experience," he said. "We will be the traffic driver for all e-commerce vendors."

That will put Arzoo in competition with the portal sites that are counting on e-commerce leads to fuel their revenues. But Bhatia doesn't see the portals providing a compelling alternative to the service he plans to provide.

"Portals seem to be drifting into that space," he acknowledged. "But their main focus in not e-commerce. Their focus is search and navigation. Ours is shopping. That's it. That's what is making us different."

Bhatia stressed that Arzoo will do more than just drive traffic to commerce sites. Instead, the company will form "deep relationships" with sellers through its tools. "We're not going to be at arm's length," Bhatia said.

Funding so far has been done entirely by Bhatia. In the next two to three months the company will seek out venture capital. It will probably go to Menlo Ventures and most likely will not go to Draper Fisher Jurvetson, which financed Hotmail, he said.

"I think the size of the company and the size of the venture is a little beyond what Draper usually funds," explained Bhatia.

Meanwhile, Arzoo is busy forming partnerships and patenting its technology. Bhatia said the company has applied for "at least a couple" of patents.

Bhatia grew up in Bangalore, India, and came to the United States in 1988 to earn his bachelor's degree at the California Institute of Technology and his master's in electrical engineering at Stanford.

He worked at Apple Computer for a year following his graduation and then for a now-defunct PowerPC-computer manufacturer called Firepower Systems. In 1996 Bhatia cofounded Hotmail with fellow Apple and Firepower staffer Jack Smith. The partners sold Hotmail to Microsoft last year in a deal valued at the time at $400 million.