When will MSN bite the bullet and come up to par with its Hotmail competitors, particularly in the area of free e-mail storage?

For now, MSN is still offering the same 2 MB of free e-mail storage — compared to the 1 GB offered by Google's newly minted Gmail and the 100 MB now offered by Yahoo Mail. (Microsoft currently charges $60 a year for 100 MB of free Hotmail storage.)

BetaNews is reporting that MSN has pinpointed July as the target date for launching its e-mail storage counterattack.

July makes sense, as Microsoft's new fiscal year kicks off on July 1. And various MSN officials have been hinting that Microsoft is readying new Hotmail-related products for launch any time now.

Last week, Bruce Jaffe, the chief financial officer for the MSN division, told institutional investors at the Deutsche Bank Securities Media Conference in New York, to watch for Microsoft to launch a new small-business tool that makes use of Hotmail and Outlook technologies. It sounds as if this new tool will take the existing Office Outlook Connector for MSN technology a step further.

"Our first product here is going to be using Outlook that uses the Hotmail e-mail infrastructure. So you don't need to have an Exchange Server if you're a small business; you can just use Hotmail and you can have that synchronized experience, as well as the calendaring and everything else with other people who are on Hotmail. So that's taking some desk applications and services and bringing them online and marrying them with our communications back-end effort," Jaffe explained to analysts.

On Friday, BetaNews quoted Blake Irving, vice president of MSN's Communication Services Group, as saying, ""We are going to respond in a big way and will eliminate email storage as an issue for our users."

When asked earlier this week about how it plans to respond to recent e-mail storage moves by its competitors, a Microsoft spokesman told Microsoft Watch:

"We have nothing specific to announce at this time, but we remain committed to listening to our customers and continuing to invest in and innovate Hotmail.

"Our customers have told us that online protection is their number one concern," the spokesperson continued. "MSN will continue to invest heavily in this space to combat spam and other online issues. We also recognize the marketplace is changing and we're exploring additional product changes. For instance, we are evaluating and will trial storage options with customers to understand what works best for them and the overall Hotmail community."

While customers are notoriously reluctant to abandon longstanding e-mail accounts, the current substantial discrepancy in storage might tempt many Hotmail users to switch.

"Yahoo is charging only $20 a year for 2 GB (of e-mail storage)," said one disgruntled Hotmail user, who requested anonymity. "I have to pay $60 for 100 MB at Hotmail. Microsoft is going to have to do something, or people will get pissed otherwise."

Read On to See What Other Hotmail Users Had to Say

("When Will MSN Up the Hotmail Ante?" Page 2)

"Microsoft is just going to have to bite the bullet and step up on this one, since it's apparent they'll otherwise soon be the only name provider that hasn't," said another Hotmail user, who also requested anonymmity. "Two MB is a competitive embarrassment, particularly when, according to recent figures from Nielsen Net/Ratings, Hotmail has about 5 million *fewer* 'active users' than Yahoo. How much could this cost a company with $60 billion in a vault in Medina?"

But not all Hotmail customers think MSN should — or can — simply slash prices to match those of its competitors. And some Hotmail customers criticized the idea of expanding free e-mail storage.

"Currently the situation in is not healthy. Giving out 100 MB or 1 GB mailboxes for free is asking for problems (like bankruptcy)," said Ywert Visser, a network administrator. "Storage costs are low at the moment, but this is mad."

Visser predicted that MSN will eventually respond by upgrading its free storage. But he cautioned that Microsoft shouldn't be hasty.

"Hotmail is generally used by novice users that take it because their friends use it also" and/or because they think they must use Hotmail in order to use MSN Messenger, he said.

"Only above-average computer users are aware that Gmail (and Yahoo expanded free storage) were launched. (But) users like that are also capable of moving to a better email provider (or run their own mail server)," Visser noted.

Another Hotmail user echoed many of the aforementioned arguments:

"I must say that I don't mind the 2MB limit. It's free email. What more could I expect?" said user Dean William Schaf. "There are so many options that don't include storing your important emails on the Hotmail servers. For those who won't learn about them, I no longer have sympathy."

But Schaf also raised an issue that several other Web-based email customers did this week, too: "Who in their right mind would store anything on the Internet? Who would entrust their important things to an unaccountable email service operator? It's just nuts!"