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.

Aspect	Description
Founding and Early Success	Hotmail, founded by Sabeer Bhatia and Jack Smith in 1996, was one of the earliest web-based email services. It allowed users to access their email through a web browser, freeing them from the constraints of traditional email clients. Hotmail quickly gained popularity for its convenience and accessibility.
Acquisition by Microsoft	In a significant move, Microsoft acquired Hotmail in 1997 for an estimated $400 million. This acquisition marked Microsoft’s entry into the web-based email space and was a strategic move to compete with other internet giants like Yahoo! and AOL.
Integration with Windows Live	Microsoft integrated Hotmail into its suite of online services, known as Windows Live, in the mid-2000s. Hotmail became a central component of Windows Live, offering email, calendar, and contact management in one place.
Rebranding as Outlook.com	In 2012, Microsoft decided to rebrand Hotmail as Outlook.com to align it with the Outlook brand used for its popular desktop email client. This rebranding aimed to modernize the email service and provide a more consistent user experience across different platforms.
Introduction of New Features	With the transition to Outlook.com, Microsoft introduced several new features and improvements, including a cleaner and more intuitive user interface, integration with other Microsoft services like Skype and OneDrive, and enhanced security measures to protect user accounts.
Competition with Gmail	Outlook.com faced tough competition from Gmail, Google’s web-based email service, which was known for its large storage capacity and innovative features. The competition between Outlook.com and Gmail led to continuous improvements in both services, benefiting users.
Growth and User Base	Despite strong competition, Outlook.com continued to grow its user base. Its integration with Microsoft’s ecosystem of products and services made it an attractive choice for users who preferred a seamless experience across devices.
Shift to Office 365 and Microsoft 365	Microsoft further integrated Outlook.com into its subscription-based services, including Office 365 and later, Microsoft 365. This move allowed users to access premium features and productivity tools alongside their email, further enhancing the service’s appeal.

Table of Contents

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 talked 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 to validate 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 global markets.

In early 1999, the service added 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.

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 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 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, proving 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 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 starting to become influential at the end of the 2000s.

The beta version of Outlook was launched in July 2012 with a cleaner and more modern interface.

Hotmail users were given a 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 six weeks, over 150 petabytes of data were added to Outlook’s servers. 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.

Key takeaways:

Hotmail was an email service 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 a year before Microsoft acquired it. 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 inflicted by hackers and spammers. Today, Hotmail users can still use the @hotmail.com extension in Outlook.

Quick Timeline

Hotmail was launched in 1996 by Sabeer Bhatia and Jack Smith as one of the first email services on the internet.
It was revolutionary at the time as users were no longer restricted to using email addresses provided by their ISPs.
Hotmail offered a freely accessible inbox from anywhere in the world with an internet connection and had a sizeable 2MB storage limit.
The service quickly gained popularity, attracting over 100,000 users in the first month and reaching 8.5 million by the end of 1997.
Microsoft recognized Hotmail’s success and acquired it for $400 million when it reached 10 million subscribers.
Post-acquisition, Hotmail was incorporated under the MSN banner and continued to grow rapidly, surpassing 30 million users before the year 2000.
However, Hotmail faced security issues, including vulnerabilities that allowed unauthorized access to private emails, which affected its reputation.
The launch of Gmail by Google in 2004 with 1 GB of free storage posed significant competition to Hotmail.
Despite improvements, Hotmail faced challenges in keeping up with Gmail’s momentum and became less attractive to users.
In 2011, Microsoft decided to retire the Hotmail brand due to its association with security concerns and spam.
Hotmail was rebranded as Outlook.com, and over 300 million active Hotmail users were successfully migrated to the new platform.
Today, Hotmail users can still use the @hotmail.com extension to send and receive emails through the Outlook platform.