Hotmail founder shuts dot.com

Sofbank and Bhatia burned through at least $12 million with Arzoo

By staff and wire reports

BANGALORE, India -- Sabeer Bhatia, co-founder of the popular Hotmail service, has seen a second Internet venture collapse.

Bhatia has quietly closed his nine-month-old venture Arzoo.com. The site aimed to link corporate customers with freelance software developers and experts.

A message from Bhatia on Arzoo's Web site says he regrets the collapse, which he blames on the poor shape of the U.S. economy.

Hotmail fetched $400m

Bhatia, now 32, and fellow founder Jack Smith sold Hotmail to Microsoft for $400 million in 1997.

The wildly popular Web-based service lets people send and get e-mail for free. Being Web-based means customers don't need extra software.

Arzoo, based in Freemont, California, was named after an Urdu word meaning "heart's desire."

It started out as a company to answer tech questions from a broad swath of consumers, then morphed into an exchange for corporate software projects.

Arzoo pulled together 2,000 experts, 30 percent of them in India. Arzoo's backers include influential Japanese dot.com investor Softbank.

It charged clients a monthly fee and on how much they used the service. Arzoo's experts bid to answer questions.

Idea at wrong time

Bhatia and Softbank together put $12 million into Arzoo. In March, they said they were looking for another $10 million to $15 million in funding.

He admitted it was burning money at the time. "A good entrepreneur never gives up," he said, adding he was working doubly hard on Arzoo.

Since then the slowdown hit even harder. He now admits his timing was off.

"We strongly believe in this model," Bhatia writes on the site. But companies have put off technology purchasing to later this year or next, given the slowdown.

"For a small company like ours, we cannot survive on promises of future purchase," Bhatia wrote.

Reuters contributed to this report.