What happened to Hotmail?

Hotmail was an email service that was launched in 1996 by Sabeer Bhatia and Jack Smith and was one of the first such services on the internet. It was a revolutionary product at a time when users were forced to use email addresses provided by their ISP. What’s more, Hotmail’s inbox was marketed as freely accessible from anywhere in the world provided there was an internet connection. With a sizeable 2MB storage limit, Hotmail was an instant hit with users. The service attracted over 100,000 users in the first month with around 8.5 million by the end of 1997. Despite the overwhelming success of the platform, however, the Hotmail brand was officially retired in October 2011.

Microsoft acquisition

The near-instant success of Hotmail in 1997 had not gone unnoticed. When Hotmail reached 10 million subscribers and controlled around 25% of the webmail market, the company entered into talks with Microsoft over a possible acquisition. 

Bhatia was initially wary of Microsoft’s intentions because of a prevailing industry belief that the company was monopolistic. But in the end, Bhatia was not afraid of being perceived as just another Microsoft victim and considered the deal as validation of his and Smith’s vision.

Money may also have been a motivating factor. When Microsoft acquired Hotmail for $400 million, the co-founders became millionaires. 

MSN Hotmail

Post-acquisition, Hotmail was incorporated under the MSN banner and customized for various markets around the world. In early 1999, the service was adding as many as 150,000 users per day as email became the predominant form of online communication.

With few serious competitors and a fast, free, and intuitive interface, Hotmail had no difficulty surpassing 30 million users before the turn of the millennium.

Security issues

However, in 1999, hackers exploited a vulnerability in Hotmail and noted that a user’s private emails could be accessed by entering the password “eh”. Microsoft played down the issue, but Wired called it the most widespread security issue on the web to date.

Two years later, it was discovered that users could access someone else’s account by creating a URL with that account’s username and a valid message number. The number itself could be discovered using software that brute-force guessed the correct sequence.

In addition to the browser wars with Netscape and an impending anticompetitive lawsuit, these security issues distracted Microsoft from a new entrant that was about to emerge.

Gmail

Google’s Gmail launched in 2004 with 1 GB of free storage which made Hotmail’s 2 MB instantly uncompetitive. Microsoft eventually upped the limit to 250 MB, but Google had gained critical early momentum which would prove impossible to arrest.

MSN Hotmail became Windows Live Hotmail in 2007 with subsequent improvements in speed and security implemented over the next few years. However, it took three years for the service to roll out of beta and several more for it to be fully functional. This no doubt helped Gmail start to be considered the preferred email provider. 

Migration to Outlook

As we noted in the introduction, the Hotmail name was retired in October 2011. Microsoft believed Hotmail had earned a poor reputation because of its association with hackers and spammers – particularly among the younger and more tech-savvy generation that was starting to become influential at the end of the 2000s decade. 

The beta version of Outlook was launched in July 2012 with a cleaner and more modern interface. Hotmail users were given the chance to keep the @hotmail.com extension or use @outlook.com instead.

In May of 2013, Microsoft successfully migrated 300 million active Hotmail users to Outlook.com. Over 150 petabytes of data were added to Outlook’s servers over a period of six weeks. Two years later, Outlook was incorporated into the Office 365 infrastructure. 

Today, Hotmail users can still use the @hotmail.com extension to send and receive emails using the Outlook platform if they so prefer. 

Key takeaways:

  • Hotmail was an email service that was launched in 1996 by Sabeer Bhatia and Jack Smith and was one of the first such services on the internet. It was a revolutionary product at a time when users were forced to use an email address provided by their ISP. 
  • Hotmail secured 10 million users in little more than a year before it was acquired by Microsoft. The platform continued to be popular until security issues and slow beta development caused Hotmail to become less attractive. When Gmail was launched in 2004, it gained critical early momentum that was never arrested.
  • The Hotmail brand was officially retired in 2011 because Microsoft believed a name change would restore some of the reputational damage that had been inflicted by hackers and spammers. Today, Hotmail users can still use the @hotmail.com extension in Outlook.

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