The upgrade will increase Hotmail's free e-mail storage limits from 2 megabytes to 250MB and its paid e-mail service, which costs $19.95 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 e-mail 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' e-mail 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 e-mail storage a "nonissue."
"We'll remain focused on what e-mailers 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 e-mail subscribers more storage room. Earlier this year, the search company acquired Interactive Search Holdings, including My Way, The Excite Network and iWon.com, which all serve Web surfers with free e-mail. Ask Jeeves plans to give each of the sites' e-mail 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 e-mails before they appear in a user's in-box.
CNET News.com's Stefanie Olsen contributed to this report.
