updated 1/20/2005 12:12:09 AM ET 2005-01-20T05:12:09

Microsoft Corp. will begin selling its Outlook e-mail program as a subscription to Hotmail customers, in a bid to persuade people to pay for add-on services and better compete with rivals such as Google Inc. and Yahoo Inc.

The new service, which costs $59.95 per year, will let people organize e-mail, contact lists and calendars in their online Hotmail accounts using the Microsoft Outlook program most often found on businesses' desktop computers.

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Ted Schadler, principal analyst with Forrester Research, said Redmond-based Microsoft is smart to take advantage of a popular core product -- Outlook -- to help make Hotmail more attractive to sophisticated users. But he noted that there are many free programs that do similar things, and questioned whether the price will be too high to garner much interest.

"That feels pretty steep to me," he said.

The move comes as Microsoft's competitors also appear to be looking for ways to help people better organize and manage their growing e-mail inboxes.

Google's Gmail system, which offer 1 gigabyte of mail storage, takes advantage of the company's powerful search engine technologies.

Meanwhile, Yahoo has in the past year acquired Oddpost Inc., praised as a Web-based e-mail service that works more like a desktop application, and Bloomba, which some say is more nimble than Outlook. But Yahoo hasn't said what it will do with those technologies.

Microsoft Office Outlook Live also will include 2 gigabytes of online storage, plus the ability to send attachments of up to 20 megabytes. Microsoft currently charges $19.95 per year to customers who just want the added storage and attachment capability.

Hotmail already gives users free storage of up to 250 megabytes and lets users send 10-megabyte attachments. Rival Yahoo offers the same.

Microsoft's Web site sells Outlook as a stand-alone product for $109. This is the first time Microsoft has offered any of its Office products on a subscription basis.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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