Will .NET Spell the End of Internet Freebies?

With Microsoft's recent decision to educate its 110 million Hotmail customers about the service's little-used subscription fee offerings, concern is growing that the success of .NET hinges on Microsoft’s ability to convince its customers to pay for features they used to get for free. Hotmail is a typical example: Microsoft purchased the free Web-based email service in 1998, when most Web sites supported themselves with advertising. But with the declining feasibility of the Web advertising model and Microsoft's move to subscription-based services, free Hotmail accounts might soon be a thing of the past or, at the very least, offer less functionality than they do currently.

Changes to Hotmail began earlier this year, when some subscribers received a warning about exceeding Hotmail's 2MB storage limit. The warning was accompanied by an advertisement for Extra Storage, a relatively new Hotmail feature that subscribers can lease for $19.95 per year. Extra Storage includes 10MB of email and attachment storage space, 30MB of file storage space on MSN Communities, and no worries about another new Hotmail policy, by which users who don't sign in for 30 days lose their free account. Currently, if existing Hotmail users exceed their storage limit, their account is temporarily shut down, and email to that address is bounced. I'd be happy to pay the new fee if it shut off Hotmail's Web ads, but it doesn't.

The problem with the Hotmail warning was that some users who received it hadn't actually exceeded their Inbox storage limit. But Microsoft says the marketing push that the warning camouflaged was successful, although the company declined to reveal how many customers it has signed up for Extra Storage. Competing free Web email services, such as Yahoo! Mail, offer similar for-fee add-ons. Yahoo provides 6MB of storage space for free and leases a wide range of other storage options for $10 to $50 per year, a bargain compared with Hotmail's pricing.

The fate of free Web email might not seem important, but remember that Hotmail will soon be rolled into Microsoft .NET My Services (formerly code-named HailStorm), where it will form the basis for .NET Inbox. Whereas Hotmail works only through a Web browser or Microsoft email software such as Outlook, Outlook Express, and Entourage, .NET Inbox will expose email and voicemail through XML-based Web services that virtually any .NET-capable application running on any device can consume. As a consequence, third-party developers for the first time will be able to write email applications that interoperate with the former Hotmail; those third-party applications possibly will be able to skip out on the Web ads that currently accompany the Hotmail service via the Web and Microsoft's email clients. .NET Inbox will let you access your free email from a cell phone, your Internet-enabled TV, and in a variety of other ways.

But will your Web email still be free? Consider the following blurb from a Microsoft white paper describing .NET My Services: "Microsoft will operate .NET My Services as a business. .NET My Services will have real operational costs, and rather than risk compromising the user-centric model by having someone such as advertisers pay for these services, the people receiving the value—the end users—will be the primary source of revenue to Microsoft. .NET My Services will help move the Internet to end-user subscriptions, where users pay for value received ... Specific pricing for users, developers, and service operators will be announced in future."

Here's how I see this situation winding down. The Web-based Hotmail service will probably continue for the foreseeable future, and users will be able to access a limited amount of free email, as they can now. But if you want to access your email through a .NET service, I suspect the privilege is going to cost you up-front or if you exceed certain parameters, a la Hotmail. This situation could severely hamper the growth of .NET, of course, given the unlikelihood that many users will pay for something they can get for free elsewhere, unless some perceived value exists. Whether .NET Inbox will offer such value remains to be seen. But the heavy-handed marketing of Hotmail Extra Storage makes me nervous, and I think this strategy hints at the type of approach Microsoft will take with .NET in the near future.

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