There were a number of reasons. A lot of the venture capital community really did not believe that the internet would become a mainstream mechanism for doing business. Many of them had questions about how we could make money if we gave this away for free - they didn't think the advertising model would work. Others said, "I don't need another e-mail account, I have one with AOL." They didn't get the ubiquity of it. Luckily, even big companies such as Microsoft and AOL didn't think e-mail was a browser-based service. They didn't get the shared aspect of it - that people didn't even have to have a computer to use it.

For a lot of people, their first experience of the internet was setting up a Hotmail account. How influential do you think Hotmail was in getting people online?

Why did you sell Hotmail when you did?

The offer was too good to refuse. When you're struggling to raise money for a company and someone comes along and offers you all that money it's hard to refuse. It made us fabulously wealthy and it was just too good to refuse.

The company you set up after selling Hotmail was Arzoo, which was intended to provide corporate subscribers with access to a network of IT experts. Why do you think this company went bankrupt? Was it just that it coincided with the bursting of the dot-com bubble?

That was just part of it. It was a very difficult time to start a company, but I'll tell you what the real truth was. If you want to have an A-class business you have to hire A-class people. A lot of the people who joined didn't join because they believed in the company - they did it because they wanted to get rich quick. Literally thousands of people descended on Silicon Valley from around the world. It was a gold rush, and it was so difficult to hire people. There were people who were coming out of school asking for Porsches as signing-on bonuses. We've lived through that now, and had we weathered the market, it might have survived. In any business, it takes a long time for a market to develop. A case in point is Google. There were seven search engines at that time and they were burning money, and Google was very frugal and very quiet and five, six years later, all the other search engines barring Microsoft and Yahoo are gone. First to market is the wrong philosophy. It really is the last man standing.

A few search engines are attempting to challenging Google. What do you make of their chances?

Google is not unassailable, nobody is. That's the beauty of technology - it's constantly evolving. It's a moving target and that's what I love about it. But Google has such a position of advantage and strength that any rival would have to be ten times better. If someone was 10 per cent, 20 per cent better, with the programming resources that Google have, they would catch up straight away, but if they were ten times better and have a year's advantage they could do it.

Is there anyone on the horizon to rival Google?

No, not on the horizon. I think it's going to be a little unknown company that neither you nor I have heard of it. I don't think it's going to be a Yahoo or a Microsoft – it'll be ten guys working in a garage

I've got three companies. One of them is a company called TeliXO, and what it does is it converts every single cellular phone into a PDA. If you have a cell phone that can send text messages you can access all your contacts, appointments and data. Think of it as having all your personal information somewhere in the clouds and you can access it just by sending a text message. In the future, you will be able to store your music in the clouds as well.

The second is InstaColl, which turns every existing Office document you have into a live communication document that two people in different places can work on at the same time, over the internet, which is very good for people in the media, business people. I think it's the next logical step for the internet. We've stopped going to the store anymore – I bought a printer and I bought a laptop and I never set foot in the store. What we get together for is collaboration, but going back and forward you lose time. The internet is ideal for it but there is no mechanism to do it. With InstaColl, all your meetings can be virtual. You can have presentations where one person is presenting the document and the others can all see it on their screens. Let's say that I wanted to communicate to you an idea that needed more than words, needed more than what I could put in an e-mail or phone call. With this I wouldn't have to come to London, which means that I can be so much more productive with my time.

Then there's a third called HotSeasons. Say you want to travel to the US. You could go to Expedia but Expedia just gives you the information that the hotels give them. You want to know what other people have said about it. Let's say The Times has done a review of a hotel. We have technology that scours the entire web for articles and sources of information and places it on a page for that city or state or hotel. Think of it as a vertical search engine – if you type 'New York hotels' into Google you get 22 million responses, but if you type it into HotSeasons you just get content-rich, published information, plus what other people have said about the hotel.

The music industry is finally beginning to embrace the internet after years of living in fear of it. Have they left it too late?

The music industry can pull things back and the fear they had is unjustified. It's in their interests to come up with an interesting way of presenting music so that people will pay for it. Apple is a great example of how this can be done legally - one company has changed people's behaviour, but file sharing and peer-to-peer sharing is inevitable. They also have to price appropriately for different markets. One dollar per song is about right for people in the US but too much for sub-Saharan Africa.

How much of an effect will the internet have on the developing world?

Ten years from now, the largest number of internet users will come from two countries: more than 50 per cent will come from India and China. There is tremendous penetration and in some cases they have leapfrogged straight to newer technologies. Cellular technology is better in India than in the US. My cell phone works everywhere there, in every nook and cranny of the country, and the rates are lower. Broadband is $7 a month there, over here people pay $30 a month. The advantage they have is that they are late to the market so they are able to embrace these technologies at really low prices. Over here we are saddled with the development costs. We had earlier technologies and now we have to replace them, which is expensive, but they can go straight to the newest technologies at low prices.

What effect will the growth of the internet have on these and other developing countries?

It's a means for them to plug into the world economy. We're living in an information age and if you look at Boeing 747s or drugs or ships or cars, they're all being designed on computers. It's all information, and transforming it into reality is the last step. It's an important one, but that's moving to China anyway. But office workers can be in remote locations, and there is less of a need for people to live in cities, so they can live in smaller towns, with the people and places they're familiar with. It will help to prevent more transmigration of people. The internet has really enabled that: without the internet it wouldn't have happened in nearly such a fluid way.

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