Microsoft reboots Hotmail to build consumer destination, says analyst

Integration with SkyDrive, Office Web Apps crucial to strategy

Microsoft's rebranding of Hotmail as Outlook.com is a move by the company to hold its first-place position in free email while pushing the domain as more of a consumer destination, an analyst said today.

Earlier today, Microsoft unveiled Outlook.com, a massive overhaul of Hotmail that features a visual redesign, integration with the SkyDrive cloud-based storage service and free online Office apps, and ties with several social networking sites, from Facebook and Twitter to LinkedIn.

While Microsoft will run Hotmail and Outlook.com side-by-side for an indefinite period, eventually the company will ditch the former, the company said today.

Wes Miller, an analyst with Directions on Microsoft, a Kirkland, Wash.-based research firm that only tracks Microsoft's moves, said the shift to Outlook.com illustrates Microsoft's recent focus on consumers. "They're trying to harmonize the value of Hotmail and the Metro design language with the services they already provide," said Miller. "They want to make Hotmail become more of a destination, a place where users spend more time."

Outlook.com, like Hotmail and other free email services such as Google's Gmail, runs advertisements within its browser-based interface. The more time users spend on Outlook.com, the more ads Microsoft can show them.

But Microsoft isn't trying to make Outlook.com "stickier" -- a term that describes websites that not only attract users, but keep them there -- using its social media ties.

"I'm not so sure that [social networking] will be the thing that drives people to it, or to use it," said Miller of Outlook.com. "Instead, it will more about how [the service] helps you get things done."

Miller pointed to the integration with SkyDrive and the Office Web Apps -- the in-the-cloud versions of Excel, PowerPoint, OneNote and Word -- as key to Microsoft's strategy.

Outlook.com provides each user with a free SkyDrive allotment of 7GB, and will open Excel, PowerPoint and Word documents with the online apps. SkyDrive is particularly critical to Outlook.com, as file attachments, including those sent by others, are deposited in the cloud, allowing users to send and receive very large files that might choke an email server or be rejected because of size limitations.

Outlook.com's ties with Office Web Apps lets users open Excel, PowerPoint and Word documents even if they don't have a copy of Office handy. (Image: Microsoft.)

Microsoft's used the Hotmail brand since 1997, when it acquired the service for an estimated $400 million. But the brand is old, said Miller, while others have said the service lacks the panache of Gmail among the technology elite.

"Hotmail feels dated, it looks like a Honda from the 1990s," said Miller. But the service, while perceived as old-fashioned, continues to be a major Microsoft success: According to recent data from measurement company comScore, Hotmail led the market with 324 million unique visitors last month, compared to 290 million for Yahoo Mail and Gmail's 277 million.

Nevertheless, the reboot couldn't have come at a better time: comScore said Hotmail's numbers had dropped 4% in the past year, while Yahoo Mail and Gmail grew 2% and 17%, respectively.

"Most consumers are much more familiar with 'Outlook' as a Microsoft brand," argued Miller, who declined to speculate on Microsoft's motives for abandoning Hotmail. "They sometimes put time into branding, but other times they ignore it, so it's hard to gauge what's behind the name change."

Microsoft could have made the design and integration changes seen in Outlook.com to Hotmail, and kept the older nameplate and domain, Miller acknowledged. But it didn't.

"We're seeing a renewed interest from Microsoft in the consumer side, which has been stagnant for a long time," Miller said. "They have lots of cleaning up to do, but they're starting to realize that they have a diamond in the rough [in Hotmail] and that they should fix it."

Although Outlook.com uses some of the same tools -- notably SkyDrive -- as the new Office 2013 suite and the Office 365 subscription plans, Miller saw the new service, like its predecessor, as getting little traction in any but the very smallest businesses.

The Office 365 plans slated to debut later this year or early in 2013, for example, all come with the Outlook email client -- not to be confused with Outlook.com -- as the primary locale for working with messages and other shared content.

Microsoft did not establish a timetable to retire Hotmail, although it confirmed that at some point those with addresses ending in hotmail.com will be forced to use the new Outlook.com interface.

Miller predicted what he thought was a fast move. "Hotmail will continue for time X, whatever X is, but I give it two more years," he said. Within 18 to 24 months, Microsoft will again have a single free online email service.

Users with current Microsoft-provided email addresses and accounts, hotmail.com, live.com and msn.com will automatically be shown the new interface, but can switch back to the traditional look-and-feel if they're dissatisfied.

New email addresses ending in outlook.com are also available, and can be registered at Outlook.com.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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