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Thursday, June 24, 2004 - Page updated at 12:00 A.M.
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Microsoft counters the Gmail buzz with more Hotmail space

By Kim Peterson
Seattle Times technology reporter

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Microsoft is a little tired of hearing about Gmail.

Since Google announced in April it would debut an e-mail service with an unprecedented 1 gigabyte of free storage, Microsoft's customers have been wondering whether there would be a matching offer from Hotmail, which offered only 2 megabytes of free storage space.

Microsoft finally responded yesterday, saying that, yes, it will increase Hotmail storage, so will everyone just stop talking about it already?

"Storage wasn't an issue for customers," said Blake Irving, a corporate vice president at Microsoft's MSN division. "Frankly, it did become topical, and frankly we just wanted to take it off the table."

Starting in July, Hotmail will increase the amount of inbox storage space for its free accounts to 250 megabytes. That's only a quarter of what Google promises with its Gmail service, which has not been officially launched, but it will be enough for many users, Microsoft said.

Microsoft also said its 170 million Hotmail users will be able to send attachments of up to 10 megabytes in size, up from the previous limit of 1 megabyte.

The upgrade is the latest move in an increasingly competitive battle for customers among the biggest Web-content companies. Once known just for its search engine, Google has recently emerged as a significant competitor to MSN and Yahoo! as it evolves into a provider of Internet services. Earlier this month, Yahoo! increased the amount of free storage space for its e-mail users to 100 megabytes.

As part of its new offering, Microsoft will also do away with the extra storage packages it had offered Hotmail users, which ranged from $19.95 a year for 10 megabytes of storage to $59.95 a year for 100 megabytes.

Instead, users can pay $19.95 a year for MSN Hotmail Plus, a service that offers 2 gigabytes, or 2,000 megabytes, of online storage — virtually infinite storage space, Microsoft said. For those accounts, it will replace the e-mail banner advertisements with simple text-based advertisements. These users will also be able to send attachments of up to 20 megabytes.

Google sparked a controversy when it said it would include text-based advertisements in Gmail messages that are tailored to the content of the message. Privacy advocates complained that reading e-mail messages to match them with advertising was invasive, even if a computer did it and not a person.

Irving said Microsoft has not dismissed the idea of doing something similar with its Hotmail ads, although it is aware of the privacy concerns. "There has been some pretty harsh reaction to the notion of scanning something that's private," he said.
 
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Microsoft also said it would expand its anti-virus service for Hotmail, using technology from longtime partner McAfee Security. Previously, Hotmail would scan e-mail messages for viruses but it would clean them out only if the user paid for extra storage.

The anti-virus service is less comprehensive than the McAfee tools offered in the MSN Premium service, which costs $14.95 per month. With MSN Premium, users download a virus scanner that can scan an entire hard drive. The Hotmail anti-virus service does not require a separate download and will only scan e-mail messages.

The changes will likely keep people from defecting from Hotmail to another service solely because of storage issues, said Matt Rosoff, an analyst with the Kirkland-based Directions on Microsoft.

"I think the goal here is to make storage irrelevant so you don't think of it anymore," he said. The problem MSN faces is that the previous limits on free storage helped it sell extra storage packages to customers, he said. Now that all changes.

"They're going to have to market Hotmail Plus a little bit more heavily," he said.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company

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