NEW YORK (CNN/Money) -
Google has already changed the world of online search. And now it looks like it's about to revolutionize e-mail too.
The company announced Thursday that it had begun testing a new service called Gmail.
Google said Gmail would allow users to search through their e-mail in a fashion similar to the way that they would use the Google search engine. What's more, Gmail subscribers will have an e-mail box that can store up to 1,000 megabytes of information...that's 500,000 Web pages worth of e-mail.
And get this. It's free.
(For more about the Gmail announcement, including the fact that this is NOT another Google April Fool's Day hoax, click here.)
Lots of storage....but lots of ads too
I have a Yahoo! e-mail box, giving me 6 megabytes of storage free. Yahoo!'s most premium e-mail service costs about $50 a year...and offers only 100 megabytes of storage. Microsoft's Hotmail offers only 2 megabytes of free storage and it costs $60 a year for 100 megabytes.
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None of that, of course, is even close to what Google is promising, but you do have to wonder if 1,000 megabytes is really necessary.
But if Gmail is as powerful and easy to use as the Google search function then maybe people would hold onto more e-mails. Think about it. If you could easily find an e-mail about the New York Yankees that someone sent you three years ago by just typing in "Yankees" and hitting search, you might be more inclined to become an e-mail pack rat.
"Google is really trying to do something to differentiate itself and one-up everyone else," said Ethan McAfee, director of investment research for Capital Crossover Partners, a hedge fund that invests in Internet stocks.
Of course, there is one catch. Google is offering a lot of storage for free, which doesn't seem economical. But the company hopes to make money off of e-mail by serving up ads tied to the content of e-mail in your box. That does sound a bit Big Brotherish.
But Google vice president of product management Jonathan Rosenberg claims that the technology Google will use is not much different from that in an anti-spam filter, which blocks e-mail based on certain keyword searches.
Rosenberg adds that Gmail users will not receive ads in the text of an e-mail or as an attachment. Instead, ads would be served on the side, similar to the way sponsored searches are on Google's search engine. For example, type in "Aruba" on Google and in addition to the main search results, you'd get a bunch of links hawking Aruba vacations on the right-hand side of the page.
Assuming that people don't find Gmail to be a major intrusion of privacy, then why would anyone pay for premium e-mail services again... especially if Google's e-mail service includes a search function that would make it a much better product than Yahoo! Mail or Hotmail?
And that could be a blow to Yahoo! and Microsoft's MSN, which are both trying to bolster their fee-based businesses to rely less on advertising. "For Google to offer significantly more storage than anyone else for free, you would expect Yahoo! and MSN to counter with revved up products at a lower price," said Steve Weinstein, an analyst with Pacific Crest Securities.
Yahoo! did not return calls seeking comment. Lisa Gurry, director of Microsoft's MSN, simply said that "it will be interesting to see how Google's trial develops and what they ultimately will deliver broadly to consumers."
Could force Yahoo! and MSN to make changes
Investors didn't seem to care too much about the news though. Shares of Yahoo! (YHOO: Research, Estimates) rose slightly at the opening bell Thursday and as of mid-afternoon, they were up nearly 2 percent. Microsoft (MSFT: Research, Estimates) also inched modestly higher Thursday.
"Will it have a big impact on Yahoo! and MSN right away? No," said Kevin Calabrese, an analyst with Argus Research.
But Calabrese added that Google's entry into e-mail, if nothing else, gives the company yet another thing to tout once it eventually files to go public. "This is another piece of window dressing that certainly doesn't hurt just ahead of their IPO," he said.
Still, I think investors of Yahoo! and Microsoft have some reason to be concerned. At a bare minimum, Yahoo! and Microsoft will probably need to integrate some sort of search function in their e-mail products to compete with Google.
"Google's entry into e-mail is a validation of the market for e-mail searches. All e-mail will be searchable within two years," said Aaron Burcell, director of marketing for Stata Labs, which makes an e-mail software program called Bloomba that also allows users to conduct keyword searches of e-mails and attachments.
Burcell said Stata Labs has been focusing more on the corporate market and that Google's Gmail would probably appeal more to average consumers since that service will be Web-based. So he did not express too much concern about Google becoming a major competitor.
Ironically, Bloomba has been referred to by some tech trade publications as the Google of e-mail. But it looks like Google will soon become the Google of e-mail.
Analysts quoted in this piece do not own shares of the stocks mentioned and their firms have no investment banking ties to the companies.
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