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Microsoft Corporation (MSFT - Analyst Report) announced that it has launched a new e-mail service called Outlook.com. The new service will replace the existing Hotmail service.

Microsoft has been struggling with its Hotmail brand and e-mail related software service with its Microsoft Outlook brand. This was because Microsoft faced intense challenges from Google's Gmail and Yahoo's (YHOO - Analyst Report) Yahoo Mail.

Hotmail, founded by Sabeer Bhatia and Jack Smith, was launched in July 1996. Microsoft purchased it in 1997 for $400 million and renamed it MSN Hotmail.

While Gmail users totaled 425 million worldwide and Yahoo 310 million.  Hotmail has picked up 369 million users since its inception. Over time, Hotmail has lost share to both Gmail and Yahoo mail.

To regain its lost market share, Microsoft is trying to increase the relevance of its email service. Outlook.com is therefore cloud-based, with user information stored on Microsoft servers and enabling users to check their mails, contact lists and other data across multiple devices. While this is not original, it does bring Outlook on par with the others.

It is believed that Microsoft will not be scanning user emails to target relevant advertisements. However, it is early yet and we should not forget that Microsoft is trying its utmost to promote Bing. Google, on the other hand, is facing heat regarding privacy matters related to Gmail.

The new e-mail service managed to generate lots of excitement among techies, with the first million users signing up within hours of launch. Microsoft is trying to build on this momentum and hoping to reach the one billion mark.

Microsoft intends to infuse an element of fun into the service by collaborating with Facebook (FB - Analyst Report) -- and soon with Skype and Twitter -- and narrowing the gap between social data and emails. This strategy could help bring back a few customers that they lost earlier to Google and Yahoo.

Microsoft is one of the largest software companies in the world. The company’s operating systems are installed on the majority of computers anywhere in the world. The company has been innovating on many fronts and has many new and exciting products lined up.  

For the fourth quarter of fiscal 2012 ended in June, Microsoft reported revenue excluding deferrals of $18.05 billion, which was up 3.7% sequentially and 4.0% from last year, exceeding estimates by 0.4%. All except the Windows segment contributed to the increase in the last quarter, although Server & Tools and Entertainment & Devices were particularly strong.

Currently, Microsoft Corporation has a Zacks Rank of #3, which implies a Hold recommendation in the short-term (1-3 months).

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