Our next segment of the interview is an incredible story where a small company of 10 takes on Microsoft, and wins. Philippe discusses his business strategy and how he was able to guide cc:Mail to success.
SM: Yes, let’s go into those details if you would please. PC: So, the story of cc:Mail is obviously Microsoft and IBM started first. You realize IBM was very strong in Mainframe, and of course they realized that to move out to the network they had to come up with some big things. Microsoft followed with Microsoft mail, and that was the time when they were really pushing Windows. Their entire strategy was to dominate the desktop, and everything would use Windows. They pushed mail with Windows only, not DOS.
They looked at us like a DOS application, and they tried to buy us, the typical way they worked at the time. They tried to show us the new services and servers they had, and they offered us $10M for the company which was peanuts. They applied some pressure, telling us they would compete with everything they have and I did not cave in. And for one reason, first of all, their offer, I didn’t like it, and the second reason was strategically thinking, I knew it would take a long time for Microsoft to become dominant with Windows.
SM: DOS had a lot more runway. PC: Exactly. DOS and Mac still had a lot of users out there, so I felt I could still compete with Microsoft because they were so Windows centric, and there was no doubt they would become the dominant player in the operating system, but by the time it happened the email application would already be deployed. So, Microsoft went into a huge campaign to essentially discredit cc:Mail. They build a several page white paper document to show the Microsoft mail futures against the cc:Mail present, and that was a critical time when we were trying to do much larger enterprise business.
There were orders expected from Bank of Boston and other larger accounts, people began telling us that there was something new coming into the marketplace and that they wanted to postpone their order, but they could not tell us why because of a non-disclosure. So, those were difficult days for us.
SM: I can imagine. How did you get out of that hole? PC: Well, a few months later a nice person from Bank of Boston says, “I want to send you a document but I am not supposed to tell you, can you send me your home address because I think what we are doing is absurd”. So, that is who sent me the famous document where Microsoft compares cc:Mail to their future. And so, my first instinct was to go sue Microsoft, not for the purpose of getting money but for getting attention.
Then, as I was preparing the law suit, Bank of Boston called me again, and said, “Look Philippe, Bill Gates came by, made a presentation, and we realized that we are waiting on something that is coming in the future, but it is all smoke and mirrors right now. We have made the decision to go with cc:Mail”. That was fantastic news for us, and here I was about to go and sue Microsoft.
Instead, what I did then was go to tell every account, “this is what happened with Bank of Boston, and I think you should call Bill Gates and ask him for a presentation of his product.”
Gates traveled through the Fortune 500 accounts, and I literally traveled for three months behind him to go and visit all of these customers. I literally went in after him and closed one account after another. In less than two years with 5 or 6 sales people we closed 250 Fortune 1000 companies, which were ALL standardized on cc:Mail.
So all this marketing dollars and the marketing machine of Microsoft which was designed to kill us – we turned it back on them and it helped us grow cc:Mail.
SM: Wow, Philippe, that sounds like a clever strategy that even Bill Gates cannot help admire! What happened next? PC: And then I made the biggest mistake of my life, of my career to date I think. We sold the company to Lotus. We sold to Lotus because Lotus Notes had an interesting way of doing email, and doing email over the Internet and nobody was doing it as well as it could be done, and they were saying if we could combine the two technologies (at that time we already had 5 million users) we could have an interesting market position.
They offered a significant premium for the company, we got 3 times sales plus extra, which at that time was a huge premium, but today it’s not a big valuation. So, you know the VC’s were anxious to sell, and we made the decision to sell. With the agreement I stayed with the company, and I have to say it was easier, in many ways, to defeat Microsoft than screwing up cc:Mail. From the very first day it was their objective to shove Lotus Notes into cc:Mail, and I pushed back. They tried 5 times to force Lotus, and the users rebelled. So there were a lot of games, and the sad game was that ultimately I shut cc:Mail down with 23 million users.
SM: So, Philippe, I want to probe that a little bit. You said that in 5 years you built up to 23 million users. Was there any contribution from IBM or Lotus to help build that user base? It sounds like they were trying to kill the product. PC: We had help, yes. The IBM sales channel was working for us, and even though the management wanted the field to sell Lotus, the customers wanted cc:Mail, and the Field sells whatever gets them the commission!
SM: So you were able to get help from the Lotus sales force? PC: Absolutely. IBM worked out nice because they were looking at $50 per user, and that was nothing. Customers valued the product immensely.
SM: What price did you sell cc:Mail to Lotus, and if you had not sold it what do you think you could have done with it? PC: We sold for $65 million. Two years later after I left, I met Bill Gates for breakfast in Paris, and I explained to him the idea I gave to Manzi. It was a simple idea to collapse cc:Mail with their Word application, together.
Bill turned white. He immediately saw that if we had done that we could, we would have defeated Microsoft, because it would have collapsed their two biggest applications: Word and Outlook.
This was what our users were asking us, but Lotus did not want to do that is because they did not want to surrender Lotus Notes to cc:Mail. They thought that might take another two years. I showed the integration with cc:Mail at a conference, and I got a standing ovation, and then two months later I got asked to leave Lotus for being a troublemaker. We could have moved much, much quicker to the Internet delivery model, it would have been a natural thing.
SM: Hotmail, GMail … the whole works! PC: All of that. Obviously we were a company focused on what we were doing, which was mail. That is where I made the big mistake by selling. I didn’t realize all of these post-merger issues.
SM: Hindsight is great! PC: This is life!
(to be continued)