The upgrade will increase Hotmail's free email storage limits from 2 megabytes to 250MB and its paid email service, which costs $19.95 (£10.99) a year, from 10MB to 2 gigabytes. The changes will begin in early July.
"With these new offers, storage will not be an issue for MSN Hotmail customers," Blake Irving, corporate vice president of communication services for MSN, said in a statement.
The storage follows similar announcements from Google and Yahoo. The storage boost started when Google announced in April that it plans to launch a new email service called Gmail that will give people 1GB of storage for free. The service has attracted some controversy, because it will serve advertisements based on keywords found in the text of peoples' email messages.
Indeed, Google's initial steps into storage increases countered the industry's trend to charge extra for more memory. Over the past few years, Yahoo and Hotmail have both taken steps to decrease memory in hopes of convincing free users to become paying subscribers.
Earlier this month, Yahoo launched its own upgrade to 100MB for free users and 2GB for its paid users. The company said the changes would make email storage a "nonissue."
"We'll remain focused on what emailers want and need, and people can expect to see a number of new enhancements to Yahoo Mail in the coming months," Yahoo spokeswoman Mary Osako said in response to the Microsoft announcement.
Ask Jeeves also plans to grant its email subscribers more storage room. Earlier this year, the search company acquired Internet Search Holdings, including My Way, The Excite Network and iWon.com, which all serve Web surfers with free email. Ask Jeeves plans to give each of the sites' email subscribers 125MB of free storage, up from an allottment of 3MB to 6MB previously.
Separately, Microsoft said it will offer free antivirus software to scan emails before they appear in a user's in-box.
CNET News.com's Stefanie Olsen contributed to this report.
Talkback
I'm shocked to see a tech reporter making the newbie error of equating storage with volatile memory.
Poor old G-Mail. It had the hype but now they've gone and left it too long and lost their captive audience.
They should have just opened it. 1 Gb of storage was their unique selling point. They'll never get people defecting from Hotmail just for the cool features, because people will never try them out. Storage was the key, and while they may still have an advantage there, I don't think it's enough.
No mention of my home MSN Premium account which I pay £5 a month for, currently stuck at 25mb
I cannot believe it, 250mb from 2mb - for free!!! all that time they could have done that, say what you like about Gmail but thanks to them email is better.
No mention about the Hotmail Calendar feature, that should be included in the fee, its not fair that I dont get access to it. what will i do when longhorn comes around, how will i sink my desktop calendar with my online one, im not paying extra.
While I must admit that the extra storage space is very welcome, at yahoo it was done at a cost. Since it was rushed in to combat Gmail there have been a number of problems. Peoples profiles have been scrubbed or replaced with giberish. links do not work, service are unavilible and mail is sent from accounts that did not originate there. I have ssent in a number of e-mails pointing out things like my mail and My yahoo pages are in hong Kong Chinese, they respond with a automated reply saying they know about the problem. We are in the hird week of such problems now and to be honest I would rather have had the fully functional 5 M account then the messed up 100 M.
Still at least the spam guard works as well as should.