Savvy Internet users that wanted to go the extra mile would forego the standard email address that was issued by your ISP in favor of a custom address from a third-party provider. At the time, there was no provider hotter than the aptly-named Hotmail. The true elite would even have a GeoCities website, but that’s another story for another day.
$4,000 and an Idea
The free email service was created by Stanford classmates Jack Smith and Sabeer Bhatia. They scraped together $4,000 to build a prototype in 1995, which led to a $300,000 investment from venture capitalist Draper Fisher. Hotmail launched shortly after on July 4, 1996, to symbolize freedom from ISP-based services. To put that timeline into perspective, Hotmail landed just one day after the movie Independence Day hit theaters.
The name was originally stylized as HoTMaiL in honor of HTML, the markup language used to make web pages. As one of the first webmail providers, Hotmail allowed users to access their inbox from anywhere in the world as long as they had an Internet connection. Those who signed up for an account were also free to come up with their own prefix, or the string of text before the @ symbol. In retrospect, I can only imagine how many juvenile Hotmail addresses were created during this period.
Hotmail was an instant hit even with its 2MB storage limit, which is laughable by today’s standards but it seemed pretty decent if not sufficient at the time. Within the first 30 days, Hotmail had attracted over 100,000 subscribers and logged its first million in less than six months.
The Microsoft Era
By the time Microsoft struck up acquisition talks around late 1997, Hotmail reportedly had 10 million subscribers globally and controlled a quarter of the webmail market. America Online (AOL), the world’s largest email provider at the time, had 12 million subscribers on file. Bhatia told the Indian Express at the time that he was initially cautious of Microsoft due to its reputation as a monopolist, but said CEO Bill Gates had “not lost the ability to spot what’s going on.” The acquisition of Hotmail was validation of that vision, he added.
Hotmail ultimately agreed to sell to Microsoft in a stock-swap transaction reportedly valued as high as $400 million, minting a couple of early Internet millionaires in the process. Microsoft wasted little time in leveraging its new asset, rolling Hotmail into its MSN group of services and localizing it for markets around the world. The initiative was wildly successful, as the service’s user base grew faster than any media company in history. By early 1999, MSN Hotmail had more than 30 million users and was adding 150,000 new users each day.
Email was the most popular online activity at the time, with more than 80 percent of Internet users having adopted it. With MSN Hotmail, Microsoft offered a service that was fast, free, reliable, and most importantly, accessible from any computer that had access to the Internet. With few competitors, it’s easy to see how the service grew as rapidly as it did.
Security Issues and Google
Trouble came knocking in 1999 when hackers published a vulnerability allowing anybody to log into a Hotmail account using the password “eh.” Microsoft denied one theory suggesting it was a backdoor accidentally left in place by developers, instead referring to it as an “unknown security issue.” Whatever the cause, the matter was described by Wired as likely being the most widespread security incident in the history of the web. A similar situation arose in 2001 when it was discovered that anyone could log into their Hotmail account and craft a custom URL to read private messages from other accounts, no password required. All one needed to hone in on a specific target was their username and a valid message number, the latter of which could be brute-force guessed using specially crafted software. For fuller context, 2001 was the year Microsoft released Windows XP alongside Internet Explorer 6. The Redmond company was the tech force to be reckoned with, but in those days they were facing the browser wars (against Netscape) and the impending antitrust lawsuit against the U.S. government where it was accused of illegally maintaining a monopoly position in the PC market. Clearly, there were more than a few distractions in the air, and Microsoft didn’t handle themselves all that well in the security front for a few years.
But ultimately these issues paled in comparison to what would prove to be a far greater threat to Hotmail’s dominance. In April 2004, Google launched Gmail as a beta project, offering 1 GB of free storage. The offer was brilliant from a marketing perspective and a full gigabyte seemed like free unlimited storage compared to what other webmail services offered. This forced other major players - namely Microsoft and Yahoo - to step their games up and led to a number of innovations across webmail, but let’s not venture too far off track. Hotmail still capped users at 2 MB free webmail storage when Gmail launched. A few months later, it had upgraded capacity to 250 MB for free accounts and the ability to send attachments up to 10 MB.
While Google was busy doing its own thing with Gmail, Microsoft was supposedly hard at work on a new email system that would only roll out of beta as Windows Live Hotmail in mid-2007. In internet years, this took far too long, letting Gmail gain momentum, while Hotmail was seen as antiquated and just a tool for Microsoft to exploit - not much different to the downward spiral experienced by MSN Messenger. Redmond spent the next several years making the service faster (but not really fast enough), easier to use and more reliable, adding in support for Firefox and Chrome, and integrating Bing search along the way. In 2010, Microsoft’s “Wave 4” update enabled more features including 1-click filters and inbox sweeping. Support for Exchange ActiveSync would soon follow, and in 2011 we saw the addition of aliases, instant actions, scheduled sweep and SSL enabled by default.
From Hotmail to Outlook.com
Microsoft wasn’t able to cleanse Hotmail of the tarnished reputation it had earned among tech enthusiasts and youth up to this point. The service was also particularly popular among spammers. Efforts to address spam, including updating its anti-spam policy and reserving the right to terminate any account that violated its terms of service, ultimately did little to remedy the issue. “Many of them wouldn’t take a second look at Hotmail and they would say, ‘I don’t feel comfortable having this next to my name.’ … People understand Outlook is mail from Microsoft, so we thought this branding made sense,” Windows Live GM Brian Hall said in a 2012 interview with VentureBeat.
Microsoft’s new consumer-focused email service, Outlook.com, launched in beta on July 2012, with a clean and modern design. Existing Hotmail users were given the choice to keep their @hotmail.com extension or convert it to an @outlook.com address. It was an instant hit as more than 10 million users voluntarily signed up for Outlook.com within the first two weeks. The service exited beta in early 2013 and by May, Microsoft had completed the migration from Hotmail to Outlook.com. The company said at the time it had 400 million active Outlook.com accounts, up from Hotmail’s peak of “over 300 million” thanks in part to organic growth originating from the excitement of the new product.
Skype, Dark Mode, and More
Microsoft continued to bolster Outlook.com with new features over the years including Skype integration, IMAP support and third-party add-ins. Redmond even experimented with a paid version of the service called Outlook Premium, but ultimately rolled those features into Office 365.
Another security breach occurred in early 2019 when a hacker used a customer support agent’s credentials to access a small number of consumer email accounts. The impact of the breach wasn’t all that harmful, but Microsoft’s handling of the situation was questionable. Dark Mode arrived a few months later, boosting battery life and helping to reduce eye strain for those who elected to use it. And really, that’s where this story ends for now as there haven’t been any further major announcements regarding Microsoft’s webmail service. Since Microsoft transitioned Hotmail to Outlook, going to www.hotmail.com redirects you to Outlook’s webmail service, which currently lives on the domain outlook.live.com. Millions of @hotmail email addresses still exist and remain in use alongside its many other forms (@live, @msn, @passport, and of course @outlook), and even today you can still create a new @hotmail email address. However, email is no longer a hot asset among web properties. To Microsoft’s credit, there is a neutral to positive perception of Outlook.com and the service they offer today.
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